Edgar Filing: Fibrocell Science, Inc.

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Fibrocell Science, Inc.

(Exact name of registrant as specified in its Charter.)


Delaware (State or other jurisdiction of incorporation)	001-31564 (Commission File Number)	87-0458888 (I.R.S. Employer Identification No.)

405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of principal executive offices, including zip code)

(484) 713-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for any 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

As of August 9, 2011, issuer had 53,386,792 shares issued and outstanding of common stock, par value $0.001.

TABLE OF CONTENTS


	Page
Part I. Financial Information

Item 1. Financial Statements

Condensed Consolidated Successor Balance Sheets (unaudited) June 30, 2011 and December 31, 2010		1

Condensed Consolidated Statements of Operations (unaudited) For the three months ended June 30, 2011 and 2010 (Successor Company)		2

Condensed Consolidated Statements of Operations (unaudited) For the six months ended June 30, 2011 and 2010 (Successor Company), cumulative period from inception (September 1, 2009) to June 30, 2011 (Successor Company) and cumulative period from inception (December 28, 1995) to August 31, 2009 (Predecessor Company)		3

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss) from inception (December 28, 1995) to August 31, 2009 (Predecessor Company) and from inception (September 1, 2009) to June 30, 2011 (Successor Company) (unaudited)		4

Condensed Consolidated Statements of Cash Flows (unaudited) For the six months ended June 30, 2011 and 2010 (Successor Company), cumulative period from inception (September 1, 2009) to June 30, 2011 (Successor Company) and cumulative period from inception (December 28, 1995) to August 31, 2009 (Predecessor Company)		17

Notes to Unaudited Condensed Consolidated Financial Statements		19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3. Quantitative and Qualitative Disclosures about Market Risk		35

Item 4. Controls and Procedures		35

Part II. Other Information

Item 1A. Risk Factors		36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36

Item 5. Other Information		36

Item 6. Exhibits		36

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION


ITEM 1.		Financial statements.

Fibrocell Science, Inc.
(A Development Stage Company)

Condensed Consolidated Balance Sheets

(unaudited)


	June 30,			December 31,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	2,606,381		$	867,738
Accounts receivable, net		238,546			229,891
Inventory, net		266,692			258,939
Prepaid expenses and other current assets		357,575			559,082

Total current assets		3,469,194			1,915,650
Property and equipment, net of accumulated depreciation of $20,675 and $8,085, respectively		709,512			21,589
Other assets		250			250
Intangible assets		6,340,656			6,340,656

Total assets	$	10,519,612		$	8,278,145


Liabilities, Redeemable Preferred Stock, Shareholders’ Deficit and Noncontrolling Interest
Current liabilities:
Current debt	$	7,856,206		$	56,911
Accounts payable		770,211			1,096,125
Accrued expenses		622,738			789,482
Derivative liability-current		1,134,042			—

Total current liabilities		10,383,197			1,942,518
Long-term debt		—			7,290,881
Deferred tax liability		2,500,000			2,500,000
Warrant liability		18,631,283			8,171,518
Derivative liability		5,468,898			2,120,360
Other long-term liabilities		198,804			255,606

Total liabilities		37,182,182			22,280,883


Commitments and contingencies

Preferred stock series A, $0.001 par value; 9,000 shares authorized; 3,250 shares issued and 950 and 2,886 shares outstanding, respectively		390,015			1,280,150
Preferred stock series B, $0.001 par value; 9,000 shares authorized; 4,640 shares issued and 487 and 4,640 shares outstanding, respectively		—			—
Preferred stock series B, $0.001 par value; subscription receivable		—			(210,000	)
Preferred stock series D, $0.001 par value; 8,000 shares authorized; 1,645 and 7,779 shares issued, respectively, and 6,144 and 1,645 shares outstanding, respectively		—			—

Fibrocell Science, Inc. shareholders’ deficit:
Common stock, $0.001 par value; 250,000,000 shares authorized; 45,498,230 and 20,375,500 shares issued and outstanding, respectively		45,498			20,376
Additional paid-in capital		17,596,984			2,437,893
Accumulated deficit during development stage		(45,191,992	)		(17,981,530	)

Total Fibrocell Science, Inc. shareholders’ deficit		(27,549,510	)		(15,523,261	)

Noncontrolling interest		496,925			450,373

Total deficit and noncontrolling interest		(27,052,585	)		(15,072,888	)

Total liabilities, preferred stock, shareholders’ deficit and noncontrolling interest	$	10,519,612		$	8,278,145

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

Fibrocell Science, Inc.
(A Development Stage Company)

Condensed Consolidated Statements of Operations

(unaudited)


	Successor			Successor
	For the three			For the three
	months ended			months ended
	June 30, 2011			June 30, 2010
Revenue
Product sales	$	253,274		$	264,062

Total revenue		253,274			264,062
Cost of sales		125,753			175,916

Gross profit		127,521			88,146
Selling, general and administrative expenses		3,265,344			1,821,330
Research and development expenses		1,601,665			1,473,741

Operating loss		(4,739,488	)		(3,206,925	)
Other income (expense)
Warrant (expense) income		(3,510,552	)		1,712,430
Derivative revaluation expense		(1,561,412	)		—
Interest expense		(283,661	)		(203,268	)

Loss from continuing operations		(10,095,113	)		(1,697,763	)
Loss from discontinued operations		(6,083	)		(12,502	)

Net loss		(10,101,196	)		(1,710,265	)

Net loss attributable to noncontrolling interest		(26,896	)		(1,250	)

Net loss attributable to Fibrocell Science, Inc. common shareholders	$	(10,128,092	)	$	(1,711,515	)


Per share information:

Loss from continuing operations-basic and diluted	$	(0.32	)	$	(0.09	)


Net loss attributable to common shareholders per common share—basic and diluted	$	(0.32	)	$	(0.09	)

Weighted average number of basic and diluted common shares outstanding		31,825,735			19,468,831

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

Fibrocell Science, Inc.
(A Development Stage Company)

Condensed Consolidated Statements of Operations

(unaudited)


	Successor			Successor			Successor			Predecessor
							Cumulative period			Cumulative period
							from September 1,			from December 28,
							2009 (date of			1995 (date of
	For the six months			For the six months			inception) to June			inception) to
	ended June 30, 2011			ended June 30, 2010			30, 2011			August 31, 2009
Revenue
Product sales	$	461,910		$	473,132		$	1,728,220		$	4,818,994
License fees		—			—			—			260,000

Total revenue		461,910			473,132			1,728,220			5,078,994
Cost of sales		223,611			276,435			908,307			2,279,335

Gross profit		238,299			196,697			819,913			2,799,659
Selling, general and administrative expenses		5,619,727			3,841,243			14,843,664			84,805,520
Research and development expenses		3,218,194			2,666,351			10,527,709			56,269,869

Operating loss		(8,599,622	)		(6,310,897	)		(24,551,460	)		(138,275,730	)
Other income (expense)
Interest income		—			—			1			6,989,539
Reorganization items, net		—			3,303			(69,174	)		73,538,984
Other income		—			—			244,479			316,338
Warrant (expense) income		(9,806,882	)		295,186			(10,591,198	)		—
Derivative revaluation expense		(8,182,138	)		—			(8,182,138	)		—
Interest expense		(557,069	)		(400,998	)		(1,849,442	)		(18,790,218	)

Loss from continuing operations before income taxes		(27,145,711	)		(6,413,406	)		(44,998,932	)		(76,221,087	)
Income tax benefit		—			—			—			190,754

Loss from continuing operations		(27,145,711	)		(6,413,406	)		(44,998,932	)		(76,030,333	)
Loss from discontinued operations		(18,199	)		(29,546	)		(79,117	)		(41,091,311	)

Net loss		(27,163,910	)		(6,442,952	)		(45,078,049	)		(117,121,644	)
Deemed dividend associated with beneficial conversion		—			—			—			(11,423,824	)
Preferred stock dividends		—			—			—			(1,589,861	)
Net (income)/loss attributable to noncontrolling interest		(46,552	)		(16,388	)		(113,943	)		1,799,523

Net loss attributable to Fibrocell Science, Inc. common shareholders	$	(27,210,462	)	$	(6,459,340	)	$	(45,191,992	)	$	(128,335,806	)


Per share information:
Loss from continuing operations-basic and diluted	$	(1.02	)	$	(0.37	)	$	(2.24	)	$	(4.30	)
Loss from discontinued operations-basic and diluted		—			—			—			(2.32	)
Income (loss) attributable to noncontrolling interest		—			—			(0.01	)		0.10

Deemed dividend associated with beneficial conversion of preferred stock		—			—			—			(0.65	)
Preferred stock dividends		—			—			—			(0.09	)

Net loss attributable to common shareholders per common share—basic and diluted	$	(1.02	)	$	(0.37	)	$	(2.25	)	$	(7.26	)

Weighted average number of basic and diluted common shares outstanding		26,557,261			17,648,025			20,097,309			17,678,219

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

Fibrocell Science, Inc.
(A Development Stage Company)

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss)

(unaudited)


																						Accumulated
	Series A				Series B															Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock				Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of				Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount		Income		Stage			(Deficit)
Issuance of common stock for cash on 12/28/95		—	$	—		—	$	—		2,285,291	$	2,285	$	(1,465	)		—	$	—	$	—	$	—		$	820
Issuance of common stock for cash on 11/7/96		—		—		—		—		11,149		11		49,989			—		—		—		—			50,000
Issuance of common stock for cash on 11/29/96		—		—		—		—		2,230		2		9,998			—		—		—		—			10,000
Issuance of common stock for cash on 12/19/96		—		—		—		—		6,690		7		29,993			—		—		—		—			30,000
Issuance of common stock for cash on 12/26/96		—		—		—		—		11,148		11		49,989			—		—		—		—			50,000
Net loss		—		—		—		—		—		—		—			—		—		—		(270,468	)		(270,468	)

Balance, 12/31/96 (Predecessor)		—	$	—		—	$	—		2,316,508	$	2,316	$	138,504			—	$	—	$	—	$	(270,468	)	$	(129,648	)
Issuance of common stock for cash on 12/27/97		—		—		—		—		21,182		21		94,979			—		—		—		—			95,000
Issuance of common stock for services on 9/1/97		—		—		—		—		11,148		11		36,249			—		—		—		—			36,260
Issuance of common stock for services on 12/28/97		—		—		—		—		287,193		287		9,968			—		—		—		—			10,255
Net loss		—		—		—		—		—		—		—			—		—		—		(52,550	)		(52,550	)

Balance, 12/31/97(Predecessor)		—	$	—		—	$	—		2,636,031	$	2,635	$	279,700			—	$	—	$	—	$	(323,018	)	$	(40,683	)

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


																							Accumulated
	Series A				Series B																Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income		Stage			(Deficit)
Issuance of common stock for cash on 8/23/98		—	$	—		—	$	—		4,459	$	4	$	20,063			—	$	—		$	—	$	—		$	20,067
Repurchase of common stock on 9/29/98		—		—		—		—		—		—		—			2,400		(50,280	)		—		—			(50,280	)
Net loss		—		—		—		—		—		—		—			—		—			—		(195,675	)		(195,675	)

Balance, 12/31/98 (Predecessor)		—	$	—		—	$	—		2,640,490	$	2,639	$	299,763			2,400	$	(50,280	)	$	—	$	(518,693	)	$	(266,571	)
Issuance of common stock for cash on 9/10/99		—		—		—		—		52,506		53		149,947			—		—			—		—			150,000
Net loss		—		—		—		—		—		—		—			—		—			—		(1,306,778	)		(1,306,778	)

Balance, 12/31/99 (Predecessor)		—	$	—		—	$	—		2,692,996	$	2,692	$	449,710			2,400	$	(50,280	)	$	—	$	(1,825,471	)	$	(1,423,349	)
Issuance of common stock for cash on 1/18/00		—		—		—		—		53,583		54		1,869			—		—			—		—			1,923
Issuance of common stock for services on 3/1/00		—		—		—		—		68,698		69		(44	)		—		—			—		—			25
Issuance of common stock for services on 4/4/00		—		—		—		—		27,768		28		(18	)		—		—			—		—			10
Net loss		—		—		—		—		—		—		—			—		—			—		(807,076	)		(807,076	)

Balance, 12/31/00 (Predecessor)		—	$	—		—	$	—		2,843,045	$	2,843	$	451,517			2,400	$	(50,280	)	$	—	$	(2,632,547	)	$	(2,228,467	)

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


																							Accumulated
	Series A				Series B																Accumulated		Deficit		Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During		Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development		Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares			Amount		Income		Stage		(Deficit)
Issuance of common stock for services on 7/1/01		—	$	—		—	$	—		156,960	$	157	$	(101	)		—		$	—	$	—	$	—	$	56
Issuance of common stock for services on 7/1/01		—		—		—		—		125,000		125		(80	)		—			—		—		—		45
Issuance of common stock for capitalization of accrued salaries on 8/10/01		—		—		—		—		70,000		70		328,055			—			—		—		—		328,125
Issuance of common stock for conversion of convertible debt on 8/10/01		—		—		—		—		1,750,000		1,750		1,609,596			—			—		—		—		1,611,346
Issuance of common stock for conversion of convertible shareholder notes payable on 8/10/01		—		—		—		—		208,972		209		135,458			—			—		—		—		135,667
Issuance of common stock for bridge financing on 8/10/01		—		—		—		—		300,000		300		(192	)		—			—		—		—		108
Retirement of treasury stock on 8/10/01		—		—		—		—		—		—		(50,280	)		(2,400	)		50,280		—		—		—
Issuance of common stock for net assets of Gemini on 8/10/01		—		—		—		—		3,942,400		3,942		(3,942	)		—			—		—		—		—
Issuance of common stock for net assets of AFH on 8/10/01		—		—		—		—		3,899,547		3,900		(3,900	)		—			—		—		—		—
Issuance of common stock for cash on 8/10/01		—		—		—		—		1,346,669		1,347		2,018,653			—			—		—		—		2,020,000
Transaction and fund raising expenses on 8/10/01		—		—		—		—		—		—		(48,547	)		—			—		—		—		(48,547	)
Issuance of common stock for services on 8/10/01		—		—		—		—		60,000		60		—			—			—		—		—		60
Issuance of common stock for cash on 8/28/01		—		—		—		—		26,667		27		39,973			—			—		—		—		40,000
Issuance of common stock for services on 9/30/01		—		—		—		—		314,370		314		471,241			—			—		—		—		471,555

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


																					Accumulated
	Series A				Series B														Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock				Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In		Number of				Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount		Income		Stage			(Deficit)
Uncompensated contribution of services—3rd quarter		—	$	—		—	$	—		—	$	—	$	55,556		—	$	—	$	—	$	—		$	55,556
Issuance of common stock for services on 11/1/01		—		—		—		—		145,933		146		218,754		—		—		—		—			218,900
Uncompensated contribution of services—4th quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Net loss		—		—		—		—		—		—		—		—		—		—		(1,652,004	)		(1,652,004	)

Balance, 12/31/01 (Predecessor)		—	$	—		—	$	—		15,189,563	$	15,190	$	5,321,761		—	$	—	$	—	$	(4,284,551	)	$	1,052,400
Uncompensated contribution of services—1st quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for cash on 4/26/02		905,000		905		—		—		—		—		2,817,331		—		—		—		—			2,818,236
Issuance of preferred stock for cash on 5/16/02		890,250		890		—		—		—		—		2,772,239		—		—		—		—			2,773,129
Issuance of preferred stock for cash on 5/31/02		795,000		795		—		—		—		—		2,473,380		—		—		—		—			2,474,175
Issuance of preferred stock for cash on 6/28/02		229,642		230		—		—		—		—		712,991		—		—		—		—			713,221
Uncompensated contribution of services—2nd quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for cash on 7/15/02		75,108		75		—		—		—		—		233,886		—		—		—		—			233,961
Issuance of common stock for cash on 8/1/02		—		—		—		—		38,400		38		57,562		—		—		—		—			57,600
Issuance of warrants for services on 9/06/02		—		—		—		—		—		—		103,388		—		—		—		—			103,388
Uncompensated contribution of services—3rd quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Uncompensated contribution of services—4th quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for dividends		143,507		144		—		—		—		—		502,517		—		—		—		(502,661	)		—
Deemed dividend associated with beneficial conversion of preferred stock		—		—		—		—		—		—		10,178,944		—		—		—		(10,178,944	)		—
Comprehensive income:
Net loss		—		—		—		—		—		—		—		—		—		—		(5,433,055	)		(5,433,055	)
Other comprehensive income, foreign currency translation adjustment		—		—		—		—		—		—		—		—		—		13,875		—			13,875

Comprehensive loss		—		—		—		—		—		—		—		—		—		—		—			(5,419,180	)

Balance, 12/31/02 (Predecessor)		3,038,507	$	3,039		—	$	—		15,227,963	$	15,228	$	25,573,999		—	$	—	$	13,875	$	(20,399,211	)	$	5,206,930

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


																												Accumulated
	Series A						Series B																			Accumulated		Deficit			Total
	Preferred Stock						Preferred Stock						Common Stock						Additional			Treasury Stock				Other		During			Shareholders’
	Number of						Number of						Number of						Paid-In			Number of				Comprehensive		Development			Equity
	Shares			Amount			Shares			Amount			Shares			Amount			Capital			Shares		Amount		Income		Stage			(Deficit)
Issuance of common stock for cash on 1/7/03		—		$	—			—		$	—			61,600		$	62		$	92,338			—	$	—	$	—	$	—		$	92,400
Issuance of common stock for patent pending acquisition on 3/31/03		—			—			—			—			100,000			100			539,900			—		—		—		—			540,000
Cancellation of common stock on 3/31/03		—			—			—			—			(79,382	)		(79	)		(119,380	)		—		—		—		—			(119,459	)
Uncompensated contribution of services—1st quarter		—			—			—			—			—			—			100,000			—		—		—		—			100,000
Issuance of preferred stock for cash on 5/9/03		—			—			110,250			110			—			—			2,773,218			—		—		—		—			2,773,328
Issuance of preferred stock for cash on 5/16/03		—			—			45,500			46			—			—			1,145,704			—		—		—		—			1,145,750
Conversion of preferred stock into common stock—2nd qtr		(70,954	)		(72	)		—			—			147,062			147			40,626			—		—		—		—			40,701
Conversion of warrants into common stock—2nd qtr		—			—			—			—			114,598			114			(114	)		—		—		—		—			—
Uncompensated contribution of services—2nd quarter		—			—			—			—			—			—			100,000			—		—		—		—			100,000
Issuance of preferred stock dividends		—			—			—			—			—			—			—			—		—		—		(1,087,200	)		(1,087,200	)
Deemed dividend associated with beneficial conversion of preferred stock		—			—			—			—			—			—			1,244,880			—		—		—		(1,244,880	)		—
Issuance of common stock for cash—3^rd qtr		—			—			—			—			202,500			202			309,798			—		—		—		—			310,000
Issuance of common stock for cash on 8/27/03		—			—			—			—			3,359,331			3,359			18,452,202			—		—		—		—			18,455,561
Conversion of preferred stock into common stock—3^rd qtr		(2,967,553	)		(2,967	)		(155,750	)		(156	)		7,188,793			7,189			(82,875	)		—		—		—		—			(78,809	)
Conversion of warrants into common stock—3^rd qtr		—			—			—			—			212,834			213			(213	)		—		—		—		—			—
Compensation expense on warrants issued to non-employees		—			—			—			—			—			—			412,812			—		—		—		—			412,812
Issuance of common stock for cash—4^th qtr		—			—			—			—			136,500			137			279,363			—		—		—		—			279,500
Conversion of warrants into common stock—4^th qtr		—			—			—			—			393			—			—			—		—		—		—			—
Comprehensive income:
Net loss		—			—			—			—			—			—			—			—		—		—		(11,268,294	)		(11,268,294	)
Other comprehensive income, foreign currency translation adjustment		—			—			—			—			—			—			—			—		—		360,505		—			360,505

Comprehensive loss		—			—			—			—			—			—			—			—		—		—		—			(10,907,789	)

Balance, 12/31/03 (Predecessor)		—		$	—			—		$	—			26,672,192		$	26,672		$	50,862,258			—	$	—	$	374,380	$	(33,999,585	)	$	17,263,725

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


																							Accumulated
	Series A				Series B																Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During			Shareholders’
	Number				Number of				Number of				Paid-In			Number of					Comprehensive		Development			Equity
	of Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income		Stage			(Deficit)
Conversion of warrants into common stock—1^st qtr		—	$	—		—	$	—		78,526	$	79	$	(79	)		—	$	—		$	—	$	—		$	—
Issuance of common stock for cash in connection with exercise of stock options—1^st qtr		—		—		—		—		15,000		15		94,985			—		—			—		—			95,000
Issuance of common stock for cash in connection with exercise of warrants—1^st qtr		—		—		—		—		4,000		4		7,716			—		—			—		—			7,720
Compensation expense on options and warrants issued to non-employees and directors—1^st qtr		—		—		—		—		—		—		1,410,498			—		—			—		—			1,410,498
Issuance of common stock in connection with exercise of warrants—2^nd qtr		—		—		—		—		51,828		52		(52	)		—		—			—		—			—
Issuance of common stock for cash—2^nd qtr		—		—		—		—		7,200,000		7,200		56,810,234			—		—			—		—			56,817,434
Compensation expense on options and warrants issued to non-employees and directors—2^nd qtr		—		—		—		—		—		—		143,462			—		—			—		—			143,462
Issuance of common stock in connection with exercise of warrants—3^rd qtr		—		—		—		—		7,431		7		(7	)		—		—			—		—			—
Issuance of common stock for cash in connection with exercise of stock options—3^rd qtr		—		—		—		—		110,000		110		189,890			—		—			—		—			190,000
Issuance of common stock for cash in connection with exercise of warrants—3^rd qtr		—		—		—		—		28,270		28		59,667			—		—			—		—			59,695
Compensation expense on options and warrants issued to non-employees and directors—3^rd qtr		—		—		—		—		—		—		229,133			—		—			—		—			229,133
Issuance of common stock in connection with exercise of warrants—4^th qtr		—		—		—		—		27,652		28		(28	)		—		—			—		—			—
Compensation expense on options and warrants issued to non-employees, employees, and directors—4^th qtr		—		—		—		—		—		—		127,497			—		—			—		—			127,497
Purchase of treasury stock—4^th qtr		—		—		—		—		—		—		—			4,000,000		(25,974,000	)		—		—			(25,974,000	)
Comprehensive income:
Net loss		—		—		—		—		—		—		—			—		—			—		(21,474,469	)		(21,474,469	)
Other comprehensive income, foreign currency translation adjustment		—		—		—		—		—		—		—			—		—			79,725		—			79,725
Other comprehensive income, net unrealized gain on available-for-sale investments		—		—		—		—		—		—		—			—		—			10,005		—			10,005

Comprehensive loss		—		—		—		—		—		—		—			—		—			—		—			(21,384,739	)

Balance, 12/31/04 (Predecessor)		—	$	—		—	$	—		34,194,899	$	34,195	$	109,935,174			4,000,000	$	(25,974,000	)	$	464,110	$	(55,474,054	)	$	28,985,425

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


																								Accumulated
	Series A				Series B																Accumulated			Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other			During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive			Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income (Loss)			Stage			(Deficit)
Issuance of common stock for cash in connection with exercise of stock options—1^st qtr		—	$	—		—	$	—		25,000	$	25	$	74,975			—	$	—		$	—		$	—		$	75,000
Compensation expense on options and warrants issued to non-employees—1^st qtr		—		—		—		—		—		—		33,565			—		—			—			—			33,565
Conversion of warrants into common stock—2^nd qtr		—		—		—		—		27,785		28		(28	)		—		—			—			—			—
Compensation expense on options and warrants issued to non-employees—2^nd qtr		—		—		—		—		—		—		(61,762	)		—		—			—			—			(61,762	)
Compensation expense on options and warrants issued to non-employees—3^rd qtr		—		—		—		—		—		—		(137,187	)		—		—			—			—			(137,187	)
Conversion of warrants into common stock—3^rd qtr		—		—		—		—		12,605		12		(12	)		—		—			—			—			—
Compensation expense on options and warrants issued to non-employees—4^th qtr		—		—		—		—		—		—		18,844			—		—			—			—			18,844
Compensation expense on acceleration of options—4^th qtr		—		—		—		—		—		—		14,950			—		—			—			—			14,950
Compensation expense on restricted stock award issued to employee—4^th qtr		—		—		—		—		—		—		606			—		—			—			—			606
Conversion of predecessor company shares		—		—		—		—		94		—		—			—		—			—			—			—
Comprehensive loss:
Net loss		—		—		—		—		—		—		—			—		—			—			(35,777,584	)		(35,777,584	)
Other comprehensive loss, foreign currency translation adjustment		—		—		—		—		—		—		—			—		—			(1,372,600	)		—			(1,372,600	)
Foreign exchange gain on substantial liquidation of foreign entity		—		—		—		—		—		—		—			—		—			133,851			—			133,851
Other comprehensive loss, net unrealized gain on available-for-sale investments		—		—		—		—		—		—		—			—		—			(10,005	)		—			(10,005	)

Comprehensive loss		—		—		—		—		—		—		—			—		—			—			—			(37,026,338	)

Balance, 12/31/05 (Predecessor)		—	$	—		—	$	—		34,260,383	$	34,260	$	109,879,125			4,000,000	$	(25,974,000	)	$	(784,644	)	$	(91,251,638	)	$	(8,096,897	)

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


																									Accumulated
	Series A				Series B																	Accumulated			Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock						Additional		Treasury Stock					Other			During						Shareholders’
	Number of				Number of				Number of						Paid-In		Number of					Comprehensive			Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Shares		Amount			Income			Stage			Interest			(Deficit)
Compensation expense on options and warrants issued to non-employees—1^st qtr		—	$	—		—	$	—		—		$	—		$	42,810		—	$	—		$	—		$	—		$	—		$	42,810
Compensation expense on option awards issued to employees and directors—1^st qtr		—		—		—		—		—			—			46,336		—		—			—			—			—			46,336
Compensation expense on restricted stock issued to employees—1^st qtr		—		—		—		—		128,750			129			23,368		—		—			—			—			—			23,497
Compensation expense on options and warrants issued to non-employees—2^nd qtr		—		—		—		—		—			—			96,177		—		—			—			—			—			96,177
Compensation expense on option awards issued to employees and directors—2^nd qtr		—		—		—		—		—			—			407,012		—		—			—			—			—			407,012
Compensation expense on restricted stock to employees—2^nd qtr		—		—		—		—		—			—			4,210		—		—			—			—			—			4,210
Cancellation of unvested restricted stock — 2^nd qtr		—		—		—		—		(97,400	)		(97	)		97		—		—			—			—			—			—
Issuance of common stock for cash in connection with exercise of stock options—2^nd qtr		—		—		—		—		10,000			10			16,490		—		—			—			—			—			16,500
Compensation expense on options and warrants issued to non-employees—3^rd qtr		—		—		—		—		—			—			25,627		—		—			—			—			—			25,627
Compensation expense on option awards issued to employees and directors—3^rd qtr		—		—		—		—		—			—			389,458		—		—			—			—			—			389,458
Compensation expense on restricted stock to employees—3^rd qtr		—		—		—		—		—			—			3,605		—		—			—			—			—			3,605
Issuance of common stock for cash in connection with exercise of stock options—3^rd qtr		—		—		—		—		76,000			76			156,824		—		—			—			—			—			156,900
Acquisition of Agera		—		—		—		—		—			—			—		—		—			—			—			2,182,505			2,182,505
Compensation expense on options and warrants issued to non-employees—4^th qtr		—		—		—		—		—			—			34,772		—		—			—			—			—			34,772
Compensation expense on option awards issued to employees and directors—4^th qtr		—		—		—		—		—			—			390,547		—		—			—			—			—			390,547
Compensation expense on restricted stock to employees—4^th qtr		—		—		—		—		—			—			88		—		—			—			—			—			88
Cancellation of unvested restricted stock award—4^th qtr		—		—		—		—		(15,002	)		(15	)		15		—		—			—			—			—			—
Comprehensive loss:
Net loss		—		—		—		—		—			—			—		—		—			—			(35,821,406	)		(78,132	)		(35,899,538	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—			—			—		—		—			657,182			—			—			657,182

Comprehensive loss		—		—		—		—		—			—			—		—		—			—			—			—			(35,242,356	)

Balance 12/31/06 (Predecessor)		—	$	—		—	$	—		34,362,731		$	34,363		$	111,516,561		4,000,000	$	(25,974,000	)	$	(127,462	)	$	(127,073,044	)	$	2,104,373		$	(39,519,209	)

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


																						Accumulated
	Series A				Series B															Accumulated		Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock					Other		During						Shareholders’
	Number of				Number of				Number of				Paid-In		Number of					Comprehensive		Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount			Income (Loss)		Stage			Interest			(Deficit)
Compensation expense on options and warrants issued to non-employees—1^st qtr		—	$	—		—	$	—		—	$	—	$	39,742		—	$	—		$	—	$	—		$	—		$	39,742
Compensation expense on option awards issued to employees and directors—1^st qtr		—		—		—		—		—		—		448,067		—		—			—		—			—			448,067
Compensation expense on restricted stock issued to employees—1^st qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Issuance of common stock for cash in connection with exercise of stock options—1^st qtr		—		—		—		—		15,000		15		23,085		—		—			—		—			—			23,100
Expense in connection with modification of employee stock options —1^st qtr		—		—		—		—		—		—		1,178,483		—		—			—		—			—			1,178,483
Compensation expense on options and warrants issued to non-employees—2^nd qtr		—		—		—		—		—		—		39,981		—		—			—		—			—			39,981
Compensation expense on option awards issued to employees and directors—2^nd qtr		—		—		—		—		—		—		462,363		—		—			—		—			—			462,363
Compensation expense on restricted stock issued to employees—2^nd qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Compensation expense on option awards issued to employees and directors—3^rd qtr		—		—		—		—		—		—		478,795		—		—			—		—			—			478,795
Compensation expense on restricted stock issued to employees—3^rd qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Issuance of common stock upon exercise of warrants—3^rd qtr		—		—		—		—		492,613		493		893,811		—		—			—		—			—			894,304
Issuance of common stock for cash, net of offering costs—3^rdqtr		—		—		—		—		6,767,647		6,767		13,745,400		—		—			—		—			—			13,752,167
Issuance of common stock for cash in connection with exercise of stock options—3^rd qtr		—		—		—		—		1,666		2		3,164		—		—			—		—			—			3,166
Compensation expense on option awards issued to employees and directors—4^thqtr		—		—		—		—		—		—		378,827		—		—			—		—			—			378,827
Compensation expense on restricted stock issued to employees—4^thqtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—		—			—		(35,573,114	)		(246,347	)		(35,819,461	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—		—		—		—		—			846,388		—			—			846,388

Comprehensive loss		—		—		—		—		—		—		—		—		—			—		—			—			(34,973,073	)

Balance 12/31/07 (Predecessor)		—	$	—		—	$	—		41,639,657	$	41,640	$	129,208,631		4,000,000	$	(25,974,000	)	$	718,926	$	(162,646,158	)	$	1,858,026		$	(56,792,935	)

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


																										Accumulated
	Series A				Series B																		Accumulated			Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock						Additional			Treasury Stock					Other			During						Shareholders’
	Number of				Number of				Number of						Paid-In			Number of					Comprehensive			Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Shares		Amount			Income (Loss)			Stage			Interest			(Deficit)
Compensation expense on vested options related to non-employees—1^st qtr		—	$	—		—	$	—		—		$	—		$	44,849			—	$	—		$	—		$	—		$	—		$	44,849
Compensation expense on option awards issued to employees and directors—1^st qtr		—		—		—		—		—			—			151,305			—		—			—			—			—			151,305
Expense in connection with modification of employee stock options —1^st qtr		—		—		—		—		—			—			1,262,815			—		—			—			—			—			1,262,815
Retirement of restricted stock		—		—		—		—		(165	)		(1	)		—			—		—			—			—			—			(1	)
Compensation expense on vested options related to non-employees—2^nd qtr		—		—		—		—		—			—			62,697			—		—			—			—			—			62,697
Compensation expense on option awards issued to employees and directors—2^nd qtr		—		—		—		—		—			—			193,754			—		—			—			—			—			193,754
Compensation expense on vested options related to non-employees—3^rd qtr		—		—		—		—		—			—			166,687			—		—			—			—			—			166,687
Compensation expense on option awards issued to employees and directors—3rd qtr		—		—		—		—		—			—			171,012			—		—			—			—			—			171,012
Compensation expense on vested options related to non-employees—4th qtr		—		—		—		—		—			—			(86,719	)		—		—			—			—			—			(86,719	)
Compensation expense on option awards issued to employees and directors—4th qtr		—		—		—		—		—			—			166,196			—		—			—			—			—			166,196
Comprehensive loss:
Net loss		—		—		—		—		—			—			—			—		—			—			(31,411,179	)		(1,680,676	)		(33,091,855	)
Reclassification of foreign exchange gain on substantial liquidation of foreign entities		—		—		—		—		—			—			—			—		—			(2,152,569	)		—			—			(2,152,569	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—			—			—			—		—			1,433,643			—			—			1,433,643

Comprehensive loss		—		—		—		—		—			—			—			—		—			—			—			—			(33,810,781	)

Balance 12/31/08 (Predecessor)		—	$	—		—	$	—		41,639,492		$	41,639		$	131,341,227			4,000,000	$	(25,974,000	)	$	—		$	(194,057,337	)	$	177,350		$	(88,471,121	)

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


																										Accumulated
	Series A				Series B																			Accumulated		Deficit
	Preferred Stock				Preferred Stock				Common Stock						Additional			Treasury Stock						Other		During					Total
	Number of				Number of				Number of						Paid-In			Number of						Comprehensive		Development			Noncontrolling		Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Shares			Amount			Income (Loss)		Stage			Interest		(Deficit)
Compensation expense on vested options related to non-employees—1^st qtr		—	$	—		—	$	—		—		$	—		$	1,746			—		$	—		$	—	$	—		$	—	$	1,746
Compensation expense on option awards issued to employees and directors—1^st qtr		—		—		—		—		—			—			138,798			—			—			—		—			—		138,798
Conversion of debt into common stock — 1st qtr 2009		—		—		—		—		37,564			38			343,962			—			—			—		—			—		344,000
Compensation expense on option awards issued to employees and directors—2nd qtr		—		—		—		—		—			—			112,616			—			—			—		—			—		112,616
Conversion of debt into common stock — 2nd qtr 2009		—		—		—		—		1,143,324			1,143			10,468,857			—			—			—		—			—		10,470,000
Compensation expense on option awards issued to employees and directors—2 months ended 8/31/09		—		—		—		—		—			—			35,382			—			—			—		—			—		35,382
Balance of expense due to cancellation of options issued to employees and directors in bankruptcy—2 months ended 8/31/09		—		—		—		—		—			—			294,912			—			—			—		—			—		294,912
Comprehensive income:
Net income		—		—		—		—		—			—			—			—			—			—		65,721,531			205,632		65,927,163

Comprehensive income		—		—		—		—		—			—			—			—			—			—		—			—		65,927,163

Balance 8/31/09 (Predecessor)		—		—		—		—		42,820,380		$	42,820		$	142,737,500			4,000,000		$	(25,974,000	)	$	—	$	(128,335,806	)	$	382,982	$	(11,146,504	)
Cancellation of Predecessor common stock and fresh start adjustments		—		—		—		—		(42,820,380	)		(42,820	)		(150,426,331	)		(4,000,000	)		25,974,000			—		—			—		(124,495,151	)
Elimination of Predecessor accumulated deficit and accumulated other comprehensive loss		—		—		—		—		—			—			—			—			—			—		128,335,806			—		128,335,806

Balance 9/1/09 (Predecessor)		—		—		—		—		—			—			(7,688,831	)		—			—			—		—			382,982		(7,305,849	)
Issuance of 11.4 million shares of common stock in connection with emergence from Chapter 11		—		—		—		—		11,400,000			11,400			5,460,600			—			—			—		—			—		5,472,000

Balance 9/1/09 (Successor)		—		—		—		—		11,400,000			11,400			(2,228,231	)		—			—			—		—			382,982		(1,833,849	)
Issuance of 2.7 million shares of common stock in connection with the exit financing		—		—		—		—		2,666,666			2,667			1,797,333			—			—			—		—			—		1,800,000
Issuance of common stock on Oct. 28, 2009		—		—		—		—		25,501			25			58,627			—			—			—		—			—		58,652
Compensation expense on shares issued to management		—		—		—		—		600,000			600			167,400			—			—			—		—			—		168,000
Compensation expense on option awards issued to directors		—		—		—		—		—			—			326,838			—			—			—		—			—		326,838
Compensation expense on option awards issued to non-employees		—		—		—		—		—			—			386,380			—			—			—		—			—		386,380
Comprehensive loss:
Net loss		—		—		—		—		—			—			—			—			—			—		(5,049,999	)		15,493		(5,034,506	)

Comprehensive loss		—		—		—		—		—			—			—			—			—			—		—			—		(5,034,506	)

Balance 12/31/09 (Successor)		—	$	—		—	$	—		14,692,167		$	14,692		$	508,347			—		$	—		$	—	$	(5,049,999	)	$	398,475	$	(4,128,485	)

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


																						Accumulated
	Series A				Series B															Accumulated		Deficit
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock				Other		During					Total
	Number of				Number of				Number of				Paid-In			Number of				Comprehensive		Development			Noncontrolling		Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount		Income (Loss)		Stage			Interest		(Deficit)
Issuance of 5.1 million shares of common stock in March 2010, net of issuance costs of $338,100		—	$	—		—	$	—		5,076,664	$	5,077	$	3,464,323			—	$	—	$	—	$	—		$	—	$	3,469,400
Warrant fair value associated with common shares issued in March 2010		—		—		—		—		—		—		(2,890,711	)		—		—		—		—			—		(2,890,711	)
Compensation expense on shares issued to management — 1Q10		—		—		—		—		—		—		18,000			—		—		—		—			—		18,000
Compensation expense on option awards issued to directors/employees-1Q10		—		—		—		—		—		—		324,377			—		—		—		—			—		324,377
Compensation expense on option awards issued to non-employees-1Q10		—		—		—		—		—		—		18,391			—		—		—		—			—		18,391
Compensation expense on shares issued to management — 2Q10		—		—		—		—		—		—		18,000			—		—		—		—			—		18,000
Compensation expense on option awards issued to directors/employees-2Q10		—		—		—		—		—		—		222,011			—		—		—		—			—		222,011
Compensation expense on option awards issued to non-employees-2Q10		—		—		—		—		—		—		33,206			—		—		—		—			—		33,206
Compensation expense on shares issued to management — 3Q10		—		—		—		—		—		—		18,000			—		—		—		—			—		18,000
Compensation expense on option awards issued to directors/employees-3Q10		—		—		—		—		—		—		183,231			—		—		—		—			—		183,231
Compensation expense on option awards issued to non-employees-3Q10		—		—		—		—		—		—		7,724			—		—		—		—			—		7,724
Compensation expense on shares issued to management — 4Q10		—		—		—		—		—		—		18,000			—		—		—		—			—		18,000
Compensation expense on option awards issued to directors/employees-4Q10		—		—		—		—		—		—		104,094			—		—		—		—			—		104,094
Compensation expense on option awards issued to non-employees-4Q10		—		—		—		—		—		—		27,507			—		—		—		—			—		27,507
Preferred Stock Series A conversion		—		—		—		—		606,667		607		363,393			—		—		—		—			—		364,000
Comprehensive loss:
Net loss		—		—		—		—		—		—		—			—		—		—		(12,931,531	)		51,898		(12,879,633	)

Comprehensive loss		—		—		—		—		—		—		—			—		—		—		—			—		(12,879,633	)

Balance 12/31/10 (Successor)		—	$	—		—	$	—		20,375,498	$	20,376	$	2,437,893			—	$	—	$	—	$	(17,981,530	)	$	450,373	$	(15,072,888	)

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


																						Accumulated
	Series A				Series B															Accumulated		Deficit
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock				Other		During					Total
	Number of				Number of				Number of				Paid-In			Number of				Comprehensive		Development			Noncontrolling		Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount		Income (Loss)		Stage			Interest		(Deficit)
Compensation expense on shares issued to management — 1Q11		—	$	—		—	$	—		—	$	—	$	18,000			—	$	—	$	—	$	—		$	—	$	18,000
Compensation expense on option awards issued to directors/employees-1Q11		—		—		—		—		—		—		995,551			—		—		—		—			—		995,551
Compensation expense on option awards issued to non-employees-1Q11		—		—		—		—		—		—		38,203			—		—		—		—			—		38,203
Preferred Stock warrants exercised — 1Q11		—		—		—		—		289,599		289		241,542			—		—		—		—			—		241,831
Preferred Stock Series A and B converted — 1Q11		—		—		—		—		3,894,000		3,894		323,919			—		—		—		—			—		327,813
Compensation expense on shares issued to management — 2Q11		—		—		—		—		—		—		18,000			—		—		—		—			—		18,000
Compensation expense on option awards issued to directors/employees-2Q11		—		—		—		—		—		—		1,082,503			—		—		—		—			—		1,082,503
Compensation expense on option awards issued to non-employees-1Q11		—		—		—		—		—		—		250,473			—		—		—		—			—		250,473
Preferred Stock warrants exercised — 2Q11		—		—		—		—		7,230,103		7,230		6,065,727			—		—		—		—			—		6,072,957
Preferred Stock Series A, B and D converted — 2Q11		—		—		—		—		11,554,000		11,554		4,546,768			—		—		—		—			—		4,558,322
Issuance of 1.9 million shares of common stock in June 2011, net of issuance costs of $137,440		—		—		—		—		1,908,889		1,909		1,578,651			—		—		—		—			—		1,580,560
Stock option exercise		—		—		—		—		246,141		246		(246	)		—		—		—		—			—		—
Comprehensive loss:
Net loss		—		—		—		—		—		—		—			—		—		—		(27,210,462	)		46,552		(27,163,910	)

Comprehensive loss		—		—		—		—		—		—		—			—		—		—		—			—		(27,163,910	)

Balance 6/30/11 (Successor)		—	$	—		—	$	—		45,498,230	$	45,498	$	17,596,984			—	$	—	$	—	$	(45,191,992	)	$	496,925	$	(27,052,585	)

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

Fibrocell Science, Inc.
(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Successor			Successor			Successor			Predecessor
							Cumulative			Cumulative
							period from			period from
							September 1,			December 31,
	For the six			For the six			2009 (date of			1995 (date of
	months ended			months ended			inception) to			inception) to
	June 30, 2011			June 30, 2010			June 30, 2011			August 31, 2009
Cash flows from operating activities:
Net loss	$	(27,210,462	)	$	(6,459,340	)	$	(45,191,992	)	$	(115,322,121	)
Adjustments to reconcile net loss to net cash used in operating activities:
Reorganization items, net		—			—			72,477			(74,648,976	)
Expense related to equity awards and issuance of stock		2,402,730			633,985			4,276,489			10,608,999
Warrant expense (income)		9,806,882			(295,186	)		10,591,198			—
Derivative revaluation expense		8,182,138			—			8,182,138			—
Uncompensated contribution of services		—			—			—			755,556
Depreciation and amortization		12,590			3,140			20,675			9,091,990
Provision for doubtful accounts		(12,280	)		(15,791	)		(66,717	)		337,810
Provision for excessive and/or obsolete inventory		5,178			(13,857	)		(43,524	)		259,427
Amortization of debt issue costs		—			—			—			4,107,067
Amortization of debt discounts on investments		—			—			—			(508,983	)
Loss on disposal or impairment of property and equipment		—			—			—			17,668,477
Foreign exchange loss (gain) on substantial liquidation of foreign entity		(4,988	)		4,333			(12,674	)		(2,256,408	)
Net (loss) income attributable to noncontrolling interest		46,552			16,388			113,943			(1,799,523	)
Change in operating assets and liabilities, excluding effects of acquisition:
Decrease (increase) in accounts receivable		3,626			6,512			74,856			(91,496	)
Decrease (increase) in other receivables		485			(96	)		1,192			218,978
Decrease (increase) in inventory		(12,931	)		6,111			45,451			(455,282	)
Decrease in prepaid expenses		201,058			198,762			(1,048	)		34,341
Decrease in other assets		—			—			4,120			71,000
Increase (decrease) in accounts payable		(325,914	)		535,134			632,810			57,648
Increase in accrued expenses, liabilities subject to compromise and other liabilities		301,757			1,004,250			1,132,103			3,311,552
Decrease in deferred revenue		—			—			—			(50,096	)

Net cash used in operating activities		(6,603,579	)		(4,375,655	)		(20,168,503	)		(148,610,040	)

Cash flows from investing activities:
Acquisition of Agera, net of cash acquired		—			—			—			(2,016,520	)
Purchase of property and equipment		(700,513	)		(29,675	)		(730,187	)		(25,515,170	)
Proceeds from the sale of property and equipment, net of selling costs		—			—			—			6,542,434
Purchase of investments		—			—			—			(152,998,313	)
Proceeds from sales and maturities of investments		—			—			—			153,507,000

Net cash used in investing activities		(700,513	)		(29,675	)		(730,187	)		(20,480,569	)

Cash flows from financing activities:
Proceeds from convertible debt		—			—			—			91,450,000
Offering costs associated with the issuance of convertible debt		—			—			—			(3,746,193	)
Proceeds from notes payable to shareholders, net		—			—			—			135,667
Proceeds from the issuance of redeemable preferred stock series A, net		—			—			2,870,000			12,931,800
Proceeds from the issuance of redeemable preferred stock series B, net		193,200			—			4,212,770			—
Proceeds from the issuance of redeemable preferred stock series D, net		5,642,780			—			7,152,180			—
Proceeds from the exercise of warrants		1,973,364			—			1,973,364			—
Proceeds from the issuance of common stock, net		1,580,560			3,469,400			6,849,960			93,753,857
Costs associated with secured loan and debtor-in-possession loan		—			—			—			(360,872	)
Proceeds from secured loan		—			—			—			500,471
Proceeds from debtor-in-possession loan		—			—			—			2,750,000
Payments on insurance loan		(48,655	)		(40,861	)		(134,229	)		(79,319	)
Cash dividends paid on preferred stock		(304,384	)		(91,000	)		(444,134	)		(1,087,200	)
Cash paid for fractional shares of preferred stock		—			—			—			(38,108	)
Merger and acquisition expenses		—			—			—			(48,547	)
Repurchase of common stock		—			—			—			(26,024,280	)

Net cash provided by financing activities		9,036,865			3,337,539			22,479,911			170,137,276

Effect of exchange rate changes on cash balances		5,870			(4,662	)		14,884			(36,391	)
Net increase (decrease) in cash and cash equivalents		1,738,643			(1,072,453	)		1,596,105			1,010,276
Cash and cash equivalents, beginning of period		867,738			1,362,488			1,010,276			—

Cash and cash equivalents, end of period	$	2,606,381		$	290,035		$	2,606,381		$	1,010,276


	Successor		Successor		Successor		Predecessor
					Cumulative		Cumulative
					period from		period from
					September 1,		December 31,
	For the six		For the six		2009 (date of		1995 (date of
	months ended		months ended		inception) to		inception) to
	June 30, 2011		June 30, 2010		June 30, 2011		August 31, 2009
Supplemental disclosures of cash flow information:
Predecessor cash paid for interest	$	—	$	—	$	—	$	12,715,283

Successor cash paid for dividends		304,384		91,000		444,134		—


Non-cash investing and financing activities:
Predecessor deemed dividend associated with beneficial conversion of preferred stock	$	—	$	—	$	—	$	11,423,824

Predecessor preferred stock dividend		—		—		—		1,589,861

Successor accrued preferred stock dividend		366,135		97,011		366,135		—

Predecessor uncompensated contribution of services		—		—		—		755,556

Predecessor common stock issued for intangible assets		—		—		—		540,000

Predecessor common stock issued in connection with conversion of debt		—		—		—		10,814,000

Predecessor equipment acquired through capital lease		—		—		—		167,154

Successor/Predecessor financing of insurance premiums		—		—		178,582		87,623

Successor issuance of notes payable		—		—		—		6,000,060

Successor common stock issued in connection with reorganization		—		—		—		5,472,000

Successor intangible assets		—		—		—		6,340,656

Successor deferred tax liability in connection with fresh-start		—		—		—		2,500,000

Elimination of Predecessor common stock and fresh-start adjustment		—		—		—		14,780,320

Successor accrued warrant liability		4,994,307		2,890,711		12,381,509		—

Successor conversion of preferred stock Series A balance into common stock		814,082		—		814,082		—

Successor conversion of preferred stock derivative balance into common stock		4,072,053		—		4,436,053		—

Successor exercise of warrants-cashless		4,341,424		—		4,341,424		—

Successor accrued derivative liability		372,495		—		2,492,855		—

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

Fibrocell Science, Inc.
(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1—Business and Organization

Fibrocell Science, Inc. (“Fibrocell” or the “Company” or the “Successor”) is the parent company of Fibrocell Technologies (“Fibrocell Tech”) and Agera Laboratories, Inc., a Delaware corporation (“Agera”). Fibrocell Technologies is the parent company of Isolagen Europe Limited, a company organized under the laws of the United Kingdom (“Isolagen Europe”), Isolagen Australia Pty Limited, a company organized under the laws of Australia (“Isolagen Australia”), and Isolagen International, S.A., a company organized under the laws of Switzerland (“Isolagen Switzerland”).

The Company is an aesthetic and therapeutic company focused on developing novel skin and tissue rejuvenation products. The Company’s clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burns with a patient’s own, or autologous, fibroblast cells produced in the Company’s proprietary Fibrocell Process. The Company also markets an advanced skin care line with broad application in core target markets through its consolidated subsidiary, Agera. The Company owns 57% of the outstanding shares of Agera.

Note 2—Development-Stage Risks and Liquidity

The Company has been primarily engaged in developing its initial product technology, has incurred losses since inception and has a deficit accumulated during the development stage of $45,191,992 as of June 30, 2011. The Company anticipates incurring additional losses until such time, that it can generate significant sales of recently approved FDA product, laViv^®. On August 2, 2011, the Company announced a private placement transaction, pursuant to which the Company will received net proceeds of approximately $22.7 million. The closing is expected to occur in the near future.

As a result of the conditions discussed above, and in accordance with U.S. generally accepted accounting principles (“GAAP”), there exists doubt about the Company’s ability to continue as a going concern, and its ability to continue as a going concern is contingent, among other things, upon its ability to secure additional adequate financing or capital in the future.

Note 3—Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”). The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and notes. In addition, management’s assessment of the Successor Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Actual results may differ materially from those estimates.

Earnings (loss) per share data

Basic earnings (loss) per share is calculated based on the weighted average common shares outstanding during the period. Diluted earnings per share (“Diluted EPS’) also gives effect to the dilutive effect of stock options, warrants, restricted stock and convertible preferred stock calculated based on the treasury stock method.

The Predecessor and Successor Company’s potentially dilutive securities consist of potential common shares related to stock options, warrants, restricted stock and convertible preferred stock. Diluted EPS includes the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would be anti-dilutive. The Company does not present diluted earnings per share for periods in which it incurred net losses as the effect is anti-dilutive.

Recent Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”), which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial statements as it only requires a change in the format of the current presentation.

Note 4—Inventory

Agera purchases the large majority of its inventory from one contract manufacturer. Agera accounts for its inventory on the first-in-first-out method. At June 30, 2011, Agera’s inventory of $0.3 million consisted of $0.1 million of raw materials and $0.2 million of finished goods. At December 31, 2010, Agera’s inventory of $0.3 million consisted of $0.2 million of raw materials and $0.1 million of finished goods.

Note 5—Fair Value Measurements

The Company adopted the accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

•

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

•

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liability measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:


	Fair value measurement using
			Significant		Significant
	Quoted prices in		other		unobservable
	active markets		observable		inputs
	(Level 1)		inputs (Level 2)		(Level 3)		Total
Balance at June 30, 2011
Cash and cash equivalents	$	2,606,381	$	—	$	—	$	2,606,381


Liabilities
Warrant liability	$	—	$	—	$	18,631,283	$	18,631,283
Derivative liability		—		—		6,602,940		6,602,940

Total	$	—	$	—	$	25,234,223	$	25,234,223


	Fair value measurement using
			Significant		Significant
	Quoted prices in		other		unobservable
	active markets		observable		inputs
	(Level 1)		inputs (Level 2)		(Level 3)		Total
Balance at December 31, 2010
Cash and cash equivalents	$	867,738	$	—	$	—	$	867,738


Liabilities
Warrant liability	$	—	$	—	$	8,171,518	$	8,171,518
Derivative liability		—		—		2,120,360		2,120,360

Total	$	—	$	—	$	10,291,878	$	10,291,878

The reconciliation of warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:


	Warrant
	Liability

Balance at December 31, 2010	$	8,171,518

Issuance of additional warrants		4,994,307

Exercise of warrants		(4,341,424	)

Change in fair value of warrant liability		9,806,882


Balance at June 30, 2011	$	18,631,283

The fair value of the warrant liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. See note 8 for further discussion of the warrant liability.

The reconciliation of derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:


	Derivative
	Liability

Balance at December 31, 2010	$	2,120,360

Issuance of additional preferred stock and other		372,495

Conversion of preferred stock		(4,072,053	)

Change in fair value of derivative liability		8,182,138


Balance at June 30, 2011	$	6,602,940

The fair value of the derivative liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. See note 7 for further discussion of the derivative liability.

Note 6—Accrued Expenses

Accrued expenses consist of the following:


	June 30,		December 31,
	2011		2010
Accrued professional fees	$	257,778	$	413,384
Accrued compensation		5,575		7,076
Dividend on preferred stock payable		253,169		191,417
Accrued other		106,216		177,605

Accrued expenses	$	622,738	$	789,482

Note 7—Equity

Common Stock Private Placement

On June 16, 2011, the Company completed a private placement, pursuant to which it sold an aggregate of 1,908,889 shares of Company common stock to 8 accredited investors for an aggregate purchase price of $1,718,000. The placement agent for the transaction received cash compensation of $137,440 and warrants to purchase 152,711 shares of Company common stock at an exercise price of $0.90 per share.

Redeemable Preferred stock

On May 24, 2011, the Company sent a mandatory conversion notice to the holders of its outstanding Series A Convertible Preferred Stock and Series B Convertible Preferred Stock (collectively, the “Preferred Stock”). Pursuant to the notice, each holder of Preferred Stock was notified that since the volume weighted average price of the Company’s common stock had exceeded 200% of the then effective conversion price of the Preferred Stock for twenty consecutive trading days, the Company was permitted to force the conversion of the Preferred Stock into Company common stock. The conversion was effective on July 7, 2011; provided that holders of Preferred Stock had the right to voluntarily convert their shares of Preferred Stock prior to such date.

As of June 30, 2011, the number of Preferred Stock outstanding, with a par value of $0.001 per share and a stated value of $1,000 per share is as follows:


Preferred Stock Series A			950
Preferred Stock Series B			487
Preferred Stock Series D			6,144

Total			7,581

The Company records accrued dividends at a rate of 6% per annum on the Series A, Series B and Series D Preferred. As of June 30, 2011, $253,169 was accrued for dividends payable. The Company paid cash of $106,157 and $304,384 during the three and six months ended June 30, 2011, respectively.

Preferred Stock Series D

On January 21 and 28, February 9 and March 1, 2011, the Company completed a private placement of securities of Series D Preferred and warrants. Each of the foregoing securities were subject to the “down-round” protection and if at any time while the Series D Preferred or warrants are outstanding, we sell or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents at an effective price per share that is lower than the then conversion price of the Series D Preferred (“Conversion Price”) or the exercise price of the warrants, then the conversion price and exercise price will be reduced to equal the lower price. The preferred stock has been classified within the mezzanine section between liabilities and equity in its consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) because any holder of Series D Preferred may require the Company to redeem all of its Series D Preferred in the event of a triggering event which is outside of the control of the Company.

The details of the Series D Preferred financing for the six months ended June 30, 2011 are as follows:


	Number of shares of		Number of warrants
Date of Financing	Series D Preferred⁽¹⁾		issued⁽²⁾

January 21, 2011		1,234		2,665,440
January 28, 2011		1,414		3,054,240
February 9, 2011		3,436		7,421,760
March 1, 2011		50		108,000

		6,134		13,249,440


⁽¹⁾		Series D Preferred at a stated par value of $1,000.

⁽²⁾		Warrants to purchase shares of Common Stock at an exercise price of $0.50 per share issued to certain accredited investors and placement agents.

Conversion option of Redeemable Preferred stock

The embedded conversion option for the Series A Preferred, Series B Preferred and Series D Preferred has been recorded as a derivative liability under ASC 815 in the consolidated balance sheet as of June 30, 2011 and December 31, 2010. As of June 30, 2011 the derivative liability was re-measured resulting in an expense of $1,561,412 and $8,182,138 in our statement of operations for three months and six months, respectively. The fair value of the derivative liability is determined using the Black-Scholes option pricing model and is affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. The Company will continue to classify the fair value of the embedded conversion option as a liability and re-measure on the Company’s reporting dates until the preferred stock is converted into common stock.

The embedded conversion option for the Series A Preferred, Series B Preferred and Series D Preferred was valued at $6,602,940 at June 30, 2011 at fair value using the Black-Scholes option pricing model. The fair market value of the derivative liability was computed using the Black-Scholes option-pricing model with the following weighted average assumptions as of the dates indicated:


	June 30, 2011			December 31, 2010
Expected life (years)	1.5 years			1.6 years
Interest rate		0.4	%		1.3	%
Dividend yield		—			—
Volatility		62	%		63	%

Note 8—Warrants

Series D Preferred Stock Warrants and Placement Agent Warrants

In connection with the Series D Convertible Preferred Stock transaction, the Company issued 12,268,000 warrants at an exercise price of $0.50 per share and 981,440 placement agent warrants at an exercise price of $0.50 per share during the first quarter of 2011. The warrants are liability classified since they have “down-round” price protection and they are re-measured on the Company’s reporting dates. The weighted average fair market value of the warrants, at the date of issuance, granted to the accredited investors and placement agents, based on the Black-Scholes valuation model, is estimated to be $0.45 per warrant.

The fair market value of the warrants was computed using the Black-Scholes option-pricing model with the following key weighted average assumptions as of the dates indicated:


	June 30, 2011			December 31, 2010
Expected life (years)	4.2 years			4.7 years
Interest rate		1.4	%		1.8	%
Dividend yield		—			—
Volatility		62	%		63	%

The following table summarizes outstanding warrants to purchase Common Stock as of June 30, 2011:


				Warrant liability
	Number of			Balance as of June
	Warrants		Expiration Dates	30, 2011
Warrants and placement warrants issued in Series A Preferred Stock offering		3,256,492	Oct. 2014	$	1,665,711
Warrants and placement warrants issued in March 2010 offering		4,917,602	Mar. 2015		2,599,340
Warrants and placement warrants issued in Series B Preferred Stock offering		9,650,650	Jul.-Nov. 2015		5,239,641
Warrants and placement warrants issued in Series D Preferred Stock offering		16,302,640	Dec. 2015-Mar. 2016		9,126,591

Total		34,127,384		$	18,631,283

All warrants have an exercise price of $0.50 per share as a result of the December 2010 Series D Preferred Stock financing transaction. There were 3,946,731 warrants exercised for the three and six months ended June 30, 2011 which resulted in receipts of $1,973,366 and the issuance of 3,946,731 shares of common stock. In addition, there were 5,433,667 and 6,387,235 cashless warrants exercised for the three and six months ended June 30, 2011, respectively, which resulted in the issuance of 3,283,372 and 3,572,971 shares of common stock for the three and six months ended June 30, 2011, respectively.

Note 9—Stock-based Compensation

Total stock-based compensation expense recognized using the straight-line attribution method in the consolidated statement of operations is as follows:


	Three months ended
	June 30, 2011		June 30, 2010
Stock option compensation expense for employees and directors	$	1,082,503	$	222,011
Restricted stock expense		18,000		18,000
Equity awards for nonemployees issued for services		250,473		33,206

Total stock-based compensation expense	$	1,350,976	$	273,217


	Six months ended
	June 30, 2011		June 30, 2010
Stock option compensation expense for employees and directors	$	2,078,054	$	546,388
Restricted stock expense		36,000		36,000
Equity awards for nonemployees issued for services		288,676		51,597

Total stock-based compensation expense	$	2,402,730	$	633,985


						Weighted-
						average
				Weighted-		remaining
				average		contractual		Aggregate
	Number of			exercise		term (in		intrinsic
	shares			price		years)		value

Outstanding at December 31, 2010		5,677,000		$	0.86		7.46	$	—
Granted		9,058,000		$	0.72
Exercised		(600,000	)	$	0.75
Forfeited		—		$	—

Outstanding at June 30, 2011		14,135,000		$	0.78		8.59	$	1,926,940


Exercisable at June 30, 2011		8,146,553		$	0.79		8.08	$	1,048,873

The total fair value of shares vested during the six months ended June 30, 2011 was $2.1 million. As of June 30, 2011, there was $2.0 million of total unrecognized compensation cost, related to non-vested stock options which vest over time. That cost is expected to be recognized over a weighted-average period of 1.9 years. As of June 30, 2011, there was $0.2 million of total unrecognized compensation expense related to performance-based, non-vested employee and consultant stock options. That cost will be recognized when the performance criteria within the respective performance-based option grants become probable of achievement.

During the three months ended June 30, 2011 and 2010, the weighted average fair market value using the Black-Scholes option-pricing model of the options granted was $0.48 and $0.63, respectively. The fair market value of the options was computed using the Black-Scholes option-pricing model with the following key weighted average assumptions for the three months ended as of the dates indicated:


	June 30, 2011			June 30, 2010
Expected life (years)	5.3 years			3.7 years
Interest rate		2.3	%		1.6	%
Dividend yield		—			—
Volatility		62	%		64	%

There were 600,000 cashless stock options exercised during the second quarter of June 30, 2011, which resulted in the issuance of 246,141 shares of common stock.

Restricted stock

As of June 30, 2011, there was $12,000 of total unrecognized compensation cost related to non-vested restricted stock that is expected to be recognized over a weighted-average period in September of 2011.

Note 10—Segment Information and Geographical information

The Company has two reportable segments: Fibrocell Therapy and Agera. The Fibrocell Therapy segment specializes in the development and commercialization of autologous cellular therapies for soft tissue regeneration. The Agera segment maintains proprietary rights to a scientifically-based advanced line of skincare products. There is no intersegment revenue. The following table provides operating financial information for the continuing operations of the Company’s two reportable segments:


	Segment
	Fibrocell Therapy			Agera		Consolidated
Three Months Ended June 30, 2011
Total operating revenue	$	—		$	253,274	$	253,274

Depreciation and amortization expense		10,117			—		10,117

Segment income (loss) from continuing operations	$	(10,133,362	)	$	38,249	$	(10,095,113	)


	Segment
	Fibrocell Therapy			Agera		Consolidated
Six Months Ended June 30, 2011
Total operating revenue	$	—		$	461,910	$	461,910

Depreciation and amortization expense		12,590			—		12,590

Segment income (loss) from continuing operations	$	(27,205,372	)	$	59,661	$	(27,145,711	)


Supplemental information as of June 30, 2011

Total assets	$	9,830,330		$	689,282	$	10,519,612
Property and equipment, net		709,512			—		709,512
Intangible assets		6,340,656			—		6,340,656

An intercompany receivable as of June 30, 2011, of $1.0 million, due from the Agera segment to the Fibrocell Therapy segment, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera by Fibrocell Technologies, Inc., as well as Agera’s working capital needs provided by Fibrocell Technologies, Inc., and has been excluded from total assets of the Fibrocell Therapy segment in the above table. There is no intersegment revenue. Total assets on the consolidated balance sheet at June 30, 2011 are approximately $10.5 million, which includes assets of discontinued operations of less than $0.1 million.


	Segment
	Fibrocell Therapy			Agera			Consolidated
Three Months Ended June 30, 2010
Total operating revenue	$	—		$	264,062		$	264,062

Depreciation and amortization expense		2,288			—			2,288

Segment income (loss) from continuing operations	$	(1,676,370	)	$	(21,393	)	$	(1,697,763	)


	Segment
	Fibrocell Therapy			Agera			Consolidated
Six Months Ended June 30, 2010
Total operating revenue	$	—		$	473,132		$	473,132

Depreciation and amortization expense		3,140			—			3,140

Segment income (loss) from continuing operations	$	(6,402,918	)	$	(10,488	)	$	(6,413,406	)


Supplemental information as of June 30, 2010

Total assets		6,858,898			641,244			7,500,142
Property and equipment, net		26,535			—			26,535
Intangible assets		6,340,656			—			6,340,656

An intercompany receivable as of June 30, 2010, of $1.0 million, due from the Agera segment to the Fibrocell Therapy segment, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera by Fibrocell Technologies, as well as Agera’s working capital needs provided by Fibrocell Technologies, and has been excluded from total assets of the Fibrocell Therapy segment in the above table. There is no intersegment revenue. Total assets on the consolidated balance sheet at June 30, 2010 are approximately $7.5 million.

Geographical information concerning the Company’s revenue and fixed assets are as follows:


	Revenue
	Three months ended		Three months ended
	June 30, 2011		June 30, 2010
United States	$	47,350	$	61,654
United Kingdom		117,408		149,123
Other		88,516		53,285


Total	$	253,274	$	264,062


	Revenue
	Six months ended		Six months ended
	June 30, 2011		June 30, 2010
United States	$	95,473	$	121,848
United Kingdom		265,572		290,790
Other		100,865		60,494


Total	$	461,910	$	473,132


	Property, Plant & Equipment
	June 30, 2011		June 30, 2010
United States	$	709,512	$	21,589


Total	$	709,512	$	21,589

During the three months ended June 30, 2011, revenue from one foreign customer and one domestic customer represented 46% and 14% of consolidated revenue, respectively. During the three months ended June 30, 2010, revenue from one foreign customer and one domestic customer represented 75% and 16% of consolidated revenue, respectively.

During the six months ended June 30, 2011, revenue from one foreign customer and one domestic customer represented 57% and 15% of consolidated revenue, respectively. During the six months ended June 30, 2010, revenue from one foreign customer and one domestic customer represented 72% and 18% of consolidated revenue, respectively.

As of June 30, 2011 and December 31, 2010, one foreign customer represented 65% and 88%, respectively, of accounts receivable, net.

Note 11—Subsequent Events

Subsequent to June 30, 2011, 3,577 preferred shares were converted into 7,154,000 common shares and 734,564 warrants were exercised through August 9, 2011. Cash received for the warrants subsequent to June 30, 2011 was $367,282.

The Company announced on August 2, 2011, that it entered into a definitive Securities Purchase Agreement with certain accredited investors, pursuant to which the Company agreed to sell to the purchasers an aggregate of 41,245,822 shares of Company common stock at a purchase price of $0.55 per share in a private placement. Each purchaser will also receive a warrant to purchase 0.35 shares of common stock for every share of common stock acquired in the offering with an exercise price of $0.75 per share and a term of 5 years from issuance. The warrants are callable by the Company if the common stock trades over $1.75 for 20 consecutive trading days at any time after the shares underlying the warrants are registered or eligible for resale pursuant to Rule 144. The aggregate purchase price paid by the purchasers at closing for the common stock and the warrants was $22.7 million. The closing is expected to occur in the near future.

Pursuant to a Registration Rights Agreement between the Company and the purchasers, the Company is required to file a resale registration statement within 30 days that covers the resale of the shares of common stock and the shares of common stock issuable upon the exercise of the warrants.

Since the Company consummated a single offering of at least $10 million, certain note holders are entitled to a mandatory redemption of the outstanding principal plus any interest payable in cash within three business days of the consummation. Approximately 31% of the original note of $6.0 million has a mandatory redemption requiring that approximately $2.5 million including interest will have to be paid within three business days of consummation of the offering. The remaining note holders signed amendments to their notes raising the mandatory redemption for a single offering from $10 million to $30 million.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains certain “forward-looking statements” relating to Fibrocell that is based on management’s exercise of business judgment and assumptions made by and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Several of these factors include, without limitation:

•

our ability to finance our business and continue in operations;

•

our ability to decrease our manufacturing costs for laViv^® and other product candidates through the improvement of our manufacturing process, and our ability to validate any such improvements with the relevant regulatory agencies;

•

our ability to commercialized and sell our recently approved FDA product, laViv^®;

•

our ability to scale up our manufacturing facility over time;

•

our ability to meet requisite regulations or receive regulatory approvals in the United States, Europe, Asia and the Americas, and our ability to retain any regulatory approvals that we may obtain; and the absence of adverse regulatory developments in the United States, Europe, Asia and the Americas or any other country where we plan to conduct commercial operations;

•

whether our clinical human trials relating to the use of autologous cellular therapy applications, and such other indications as we may identify and pursue can be conducted within the timeframe that we expect, whether such trials will yield positive results, or whether additional applications for the commercialization of autologous cellular therapy can be identified by us and advanced into human clinical trials;

•

our ability to develop autologous cellular therapies that have specific applications in cosmetic dermatology, and our ability to explore (and possibly develop) applications for periodontal disease, reconstructive dentistry, treatment of restrictive scars and burns and other health-related markets;

•

our ability to reduce our need for fetal bovine calf serum by improved use of less expensive media combinations and different media alternatives;

•

continued availability of supplies at satisfactory prices;

•

new entrance of competitive products or further penetration of existing products in our markets;

•

the effect on us from adverse publicity related to our products or the company itself;

•

any adverse claims relating to our intellectual property;

•

the adoption of new, or changes in, accounting principles;

•

our issuance of certain rights to our shareholders that may have anti-takeover effects;

•

our dependence on physicians to correctly follow our established protocols for the safe administration of our Fibrocell Therapy; and

•

other risks referenced from time to time elsewhere in our filings with the SEC.

These factors are not necessarily all of the important factors that could cause actual results of operations to differ materially from those expressed in these forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. We cannot assure you that projected results will be achieved.

General

We are an aesthetic and therapeutic development stage biotechnology company focused on developing novel skin and tissue rejuvenation products. Our clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burn scars with a patient’s own, or autologous, fibroblast cells produced by our proprietary Fibrocell process. Our clinical development programs encompass both aesthetic and therapeutic indications.

Our most advanced indication is for the treatment of nasolabial folds (United States adopted name, or USAN, is azficel-T, product laViv^®). On June 22, 2011, the FDA approved laViv^®.

During 2009 we completed a Phase II/III study for the treatment of acne scars. During 2008 we completed our open-label Phase II study related to full face rejuvenation.

We also develop and market an advanced skin care product line through our Agera subsidiary, in which we acquired a 57% interest in August 2006.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates previously disclosed in our 2010 Annual Report on Form 10-K.

Results of Operations

Three Months Ended June 30, 2011 compared to the Three Months Ended June 30, 2010

Revenues and Cost of Sales. Revenue and cost of sales for the three months ended June 30, 2011 and 2010 were comprised of the following:


	Three months ended				Increase
	June 30,				(Decrease)
	2011		2010		$			%
	(in thousands)
Total revenue	$	253	$	264	$	(11	)		(4	%)

Cost of sales		126		176		(50	)		(28	%)


Gross profit	$	127	$	88	$	39			44	%

The revenue for Agera remained flat comparing the three months ended June 30, 2011 and 2010. As a percentage of revenue, Agera cost of sales were approximately 50% for the three months ended June 30, 2011 and 67% for the three months ended June 30, 2010. Cost of sales as a percentage of revenue was higher for the three months ended June 30, 2010 due to an obsolescence adjustment.

Selling General and Administrative Expense. Selling, general and administrative expense for the three months ended June 30, 2011 and 2010 were comprised of the following:


	Three months ended				Increase
	June 30,				(Decrease)
	2011		2010		$000s			%
	(in thousands)
Compensation and related expense	$	1,729	$	771	$	958			124	%
External services — consulting		160		215		(55	)		(26	%)
Facilities and related expense and other		1,376		835		541			65	%


Total selling, general and administrative expense	$	3,265	$	1,821	$	1,444			79	%

Selling, general and administrative expense increased $1.5 million to $3.3 million for the three months ended June 30, 2011 as compared to $1.8 million for the three months ended June 30, 2010. The increase is due primarily to an increase in stock compensation expense of $1.0 million, an increase in promotion expense of $0.6 million offset by a decrease of $0.1 million in payroll expenses, due primarily to no bonuses accrued in 2011.

Research and Development Expense. Research and development expense for the three months ended June 30, 2011 and 2010 were comprised of the following:


	Three months ended				Increase
	June 30,				(Decrease)
	2011		2010		$000s			%
	(in thousands)
Compensation and related expense	$	471	$	407	$	64			16	%
External services — consulting		421		616		(195	)		(32	%)
Lab costs and related expense		479		227		252			111	%
Facilities and related expense		231		224		7			3	%


Total research and development expense	$	1,602	$	1,474	$	128			9	%

Research and development expense increased $0.1 million to $1.6 million for the three months ended June 30, 2011 from $1.5 million for the three months ended June 30, 2010. The increase is due primarily to a $0.3 million increase in lab supplies offset by a $0.2 million decrease in consulting fees. The increase of $0.3 million for lab services related primarily to the histology study we completed in connection with the approval process for azficel-T. Research and development costs are composed primarily of costs related to our efforts to gain FDA approval for our Fibrocell Therapy for specific dermal applications in the United States, as well as costs related to other potential indications for our Fibrocell Therapy, such as acne scars and burn scars. Also, research and development expense includes costs to develop manufacturing, cell collection and logistical process improvements. Research and development costs primarily include personnel and laboratory costs related to these FDA trials and certain consulting costs.

Interest Income (Expense). Interest expense for the three months ended June 30, 2011 increased by approximately $0.1 million, or 40%, from the three months ended June 30, 2010 due to higher debt balances. Our interest expense is related to the notes we issued in connection with our bankruptcy plan. We have been accreting the interest to principal at the rate of 15% per annum in accordance with the terms of the notes.

Change in Revaluation of Warrant and Derivative Liability. During the three months ended June 30, 2011, we recorded a non-cash expense of $3.5 million and $1.6 million for warrant expense and derivative revaluation expense, respectively, in our statements of operations due to an increase in the fair value of the warrant liability and derivative liability related to the Series A, B and D preferred stock financings. This increase in fair value was primarily due to an increase in the price per share of our common stock on June 30, 2011 as compared to March 31, 2011. During the three months ended June 30, 2010, we recorded non-cash income of $1.7 million for warrant expense in our statements of operations due to a decrease in the fair value of the warrant liability for warrants to purchase preferred stock that were liability-classified.

Net loss attributable to common shareholders. Net loss attributable to common shareholders increased approximately $8.4 million to a net loss of $10.1 million for the three months ended June 30, 2011, as compared to a net loss of $1.7 million for the three months ended June 30, 2010 primarily due to an increase in the fair value of the warrant liability and derivative liability related to the Series A, B and D preferred stock financings.

Six Months Ended June 30, 2011 compared to the Six Months Ended June 30, 2010

Revenues and Cost of Sales. Revenue and cost of sales for the six months ended June 30, 2011 and 2010 were comprised of the following:


	Six months ended				Increase
	June 30,				(Decrease)
	2011		2010		$000s			%
	(in thousands)
Total revenue	$	462	$	473	$	(11	)		(2	%)

Cost of sales		224		276		(52	)		(19	%)


Gross profit	$	238	$	197	$	41			21	%

The revenue for Agera remained flat comparing the six months ended June 30, 2011 and 2010. As a percentage of revenue, Agera cost of sales were approximately 48% for the six months ended June 30, 2011 and 58% for the six months ended June 30, 2010. Cost of sales as a percentage of revenue was higher for the six months ended June 30, 2010 due to an obsolescence adjustment.

Selling General and Administrative Expense. Selling, general and administrative expense for the six months ended June 30, 2011 and 2010 were comprised of the following:


	Six months ended				Increase
	June 30,				(Decrease)
	2011		2010		$000s			%
	(in thousands)
Compensation and related expense	$	2,993	$	1,722	$	1,271			74	%
External services — consulting		396		452		(56	)		(12	%)
Facilities and related expense and other		2,231		1,667		564			34	%


Total selling, general and administrative expense	$	5,620	$	3,841	$	1,779			46	%

Selling, general and administrative expense increased $1.8 million to $5.6 million for the six months ended June 30, 2011 as compared to $3.8 million for the six months ended June 30, 2010. The increase is primarily due to an increase in stock compensation expense of $1.6 million offset by a decrease of $0.3 million in payroll expenses, due primarily to no bonuses accrued in 2011 and an increase in promotion expense of $0.6 million.

Research and Development Expense. Research and development expense for the six months ended June 30, 2011 and 2010 were comprised of the following:


	Six months ended				Increase
	June 30,				(Decrease)
	2011		2010		$000s			%
	(in thousands)
Compensation and related expense	$	995	$	770	$	225			29	%
External services — consulting		1,042		1,013		29			3	%
Lab costs and related expense		756		451		305			68	%
Facilities and related expense		425		432		(7	)		(2	%)


Total research and development expense	$	3,218	$	2,666	$	552			21	%

Research and development expense increased $0.5 million to $3.2 million for the six months ended June 30, 2011 as compared to $2.7 million for the six months ended June 30, 2010. The increase is primarily due to an increase in compensation and related expense related to an increase of $0.2 million for stock compensation expense and $0.2 million for lab supplies. Research and development costs are composed primarily of costs related to our efforts to gain FDA approval for laViv^®. Also, research and development expense includes costs to develop manufacturing, cell collection and logistical process improvements. Research and development costs primarily include personnel and laboratory costs related to these FDA trials and certain consulting costs. The total inception (December 28, 1995) to date cost of research and development as of August 31, 2009 for the Predecessor Company was $56.3 million and total inception (September 1, 2009) to date cost of research and development as of June 30, 2011, for the Successor Company was $10.5 million.

Interest Income (Expense). Interest expense for the six months ended June 30, 2011 increased by $0.2 million, or 39%, from the three months ended June 30, 2010 due to higher debt balances. Our interest expense is related to the notes we issued in connection with our bankruptcy plan. We have been accreting the interest to principal at the rate of 15% per annum in accordance with the terms of the notes.

Change in Revaluation of Warrant and Derivative Liability. During the six months ended June 30, 2011, we recorded a non-cash expense of $9.8 million and $8.2 million for warrant expense and derivative revaluation expense, respectively, in our statements of operations due to an increase in the fair value of the warrant liability and derivative liability related to the Series A, B and D preferred stock financings. This increase in fair value was primarily due to an increase in the price per share of our common stock on June 30, 2011 as compared to December 31, 2010. During the six months ended June 30, 2010, we recorded non-cash income of $0.3 million for warrant expense in our statements of operations due to an decrease in the fair value of the warrant liability for warrants to purchase preferred stock that were liability-classified.

Net loss attributable to common shareholders. Net loss attributable to common shareholders increased approximately $20.7 million to a net loss of $27.2 million for the six months ended June 30, 2011, as compared to a net loss of $6.5 million for the six months ended June 30, 2010 primarily due to an increase in the fair value of the warrant liability and derivative liability related to the Series A, B and D preferred stock financings.

Liquidity and Capital Resources

The following table summarizes our cash flows from operating, investing and financing activities for the six months ended June 30, 2011 and 2010:


	Six Months Ended June 30,
	2011			2010
	(in thousands)
Statement of Cash Flows Data:
Total cash provided by (used in):
Operating activities	$	(6,604	)	$	(4,376	)
Investing activities		(701	)		(30	)
Financing activities		9,037			3,338

Operating Activities. Cash used in operating activities during the six months ended June 30, 2011 amounted to $6.6 million, an increase of $2.2 million over the six months ended June 30, 2010. The increase in our cash used in operating activities over the prior year is primarily due to an increase in net losses (adjusted for non-cash items) of $0.7 million, in addition to operating cash outflows from changes in operating assets and liabilities.

Investing Activities. Cash was used in investing activities during the six months ended June 30, 2011 amounted to $0.7 million due to the purchase of property and equipment for the lab facility in Exton, Pennsylvania.

Financing Activities. There were $9.0 million cash proceeds from financing activities during the six months ended June 30, 2011, as compared to $3.3 million received from financing activities during the six months ended June 30, 2010. During the six months ended June 30, 2011, we raised cash from the issuance of common stock, preferred stock and warrants. During the six months ended June 30, 2010, we raised cash from the issuance of common stock and warrants.

Working Capital

As of June 30, 2011, we had cash and cash equivalents of $2.6 million and negative working capital of $6.9 million. On June 16, 2011, the Company completed a private placement, pursuant to which it sold an aggregate of 1,908,889 shares of Company common stock to 8 accredited investors for an aggregate purchase price of $1,718,000. The placement agent for the transaction received cash compensation of $137,440 and warrants to purchase 152,711 shares of Company common stock at an exercise price of $0.90 per share. On August 2, 2011, the Company announced that it entered into a definitive Securities Purchase Agreement to raise $22.7 million in a private placement. The closing is expected to occur in the near future.

Debt

The Company’s outstanding debt at June 30, 2011 and December 31, 2010 consists of $7.9 million and $7.3 million, respectively, of unsecured promissory notes (“Notes”). Unpaid interest has been accreted to the principal at a rate of 15%. The Notes have the following features: (1) 12.5% interest payable quarterly in cash or, at the Company’s option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of the date it was due; (2) maturing June 1, 2012; (3) at any time prior to the maturity date, the Company may redeem any portion of the outstanding principal of the Notes in cash at 125% of the stated face value of the Notes. There is a mandatory redemption feature that requires the Company to redeem all outstanding Notes if: (1) the Company consummates an offering or series of offerings with proceeds in excess of $10 million during a six month period; or (2) the Company is acquired by, or sells a majority stake to, an outside party; provided that holders of $4.1 million in Notes have agreed that such mandatory redemption shall apply after the Company consummates an offering or series of offerings with proceeds in excess of $30 million during a six month period. As of June 30, 2011 the Notes have been classified as current since the maturity date is June 1, 2012.

On August 2, 2011, the Company announced that it entered into a definitive Securities Purchase Agreement with certain accredited investors, pursuant to which the Company agreed to sell to the purchasers an aggregate of 41,245,822 shares of Company common stock at a purchase price of $0.55 per share in a private placement for an aggregate purchase price of $22.7 million. The closing is expected to occur in the near future.

Since the Company consummated a single offering of at least $10 million, note holders holding approximately $2.5 million, including interest, are entitled to a mandatory redemption of the outstanding principal plus any interest payable in cash within three business days of the consummation.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates or interest rates.

Foreign Exchange Rate Risk

We do not believe that we have significant foreign exchange rate risk at June 30, 2011.

We do not enter into derivatives or other financial instruments for trading or speculative purposes.


Item 4.		Controls and Procedures.

Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.		Legal Proceedings.

None


Item 1A.		Risk Factors.

There were no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K filed on March 30, 2011.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

All information regarding the financings we completed during the three months ended June 30, 2011, have been previously disclosed in current reports we have filed on Form 8-K.


Item 3.		Defaults Upon Senior Securities.

None


Item 4.		(Removed and Reserved)


Item 5.		Other Information.

None

Item 6. Exhibits


(a)		Exhibits


EXHIBIT NO.		IDENTIFICATION OF EXHIBIT

	31.1	Certification pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Fibrocell Science, Inc.
By:	/s/ Declan Daly
	Declan Daly
	Chief Financial Officer

Date: August 15, 2011

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