Fibrocell Science Inc
Annual Report 2009

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2009OR 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 001-31564 87-0458888(State or other jurisdiction (Commission File Number) (I.R.S. Employerof incorporation) Identification No.)405 Eagleview BoulevardExton, Pennsylvania 19341(Address of principal executive offices, including zip code)(484) 713-6000(Issuer’s telephone number, including area code)Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Name of Each Exchange on which RegisteredCommon Stock, $.001 par value Over the Counter Bulletin Board Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes oNo Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the preceding 12 months (or for any shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No oIndicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in thisform, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or asmaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company  (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is shell company (as defined in the Exchange Act Rule 12b-2). Yes o No As of October 21, 2009, the aggregate market value of the issuer’s common stock held by non-affiliates of the issuer basedupon the price at which such common stock was sold Over the Counter Bulletin Board as of such date was $26,023,332. There was notrading in the market on June 30, 2009.Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  No oAs of March 26, 2010, issuer had 19,826,441 shares issued and outstanding of common stock, par value $0.001.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement for the 2009 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within120 days of the end of the fiscal year ended December 31, 2009, are incorporated by reference in Part III hereof. Except with respect toinformation specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof. TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS 3 ITEM 1A. RISK FACTORS 16 ITEM 1B. UNRESOLVED STAFF COMMENTS 32 ITEM 2. PROPERTIES 32 ITEM 3. LEGAL PROCEEDINGS 32 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES 32 ITEM 6. SELECTED FINANCIAL DATA 34 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE 43 ITEM 9A. CONTROLS AND PROCEDURES 43 ITEM 9B. OTHER INFORMATION 44 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 44 ITEM 11. EXECUTIVE COMPENSATION 44 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS 44 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE 44 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 44 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE 45 Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Exhibit 32.2 Table of ContentsPart IThis Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of FinancialCondition and Results of Operations) contains certain “forward-looking statements” within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating toFibrocell Science, Inc. and its subsidiaries (referred to as “Fibrocell,” “Company,” “we,” or “our”) that is based on management’sexercise of business judgment and assumptions made by and information currently available to management. Although forward-lookingstatements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based onfacts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties andactual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-lookingstatements. When used in this document and other documents, releases and reports released by us, 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 andare subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or shouldunderlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-lookingstatements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described insuch statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that ourexpectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements includingthose set forth in Item 1A of this report. Other unknown, unidentified or unpredictable factors could materially and adversely impact ourfuture results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to our forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.We file reports with the Securities and Exchange Commission (“SEC” or “Commission”). We make available on our website(www.Fibrocellscience.com) free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-Kand amendments to those reports as soon as reasonably practicable after we electronically file such materials with or furnish them to theSEC. Information appearing at our website is not a part of this Annual Report on Form 10-K. You can also read and copy any materialswe file with the Commission at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additionalinformation about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, theCommission maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other informationregarding issuers that file electronically with the Commission, including Fibrocell Science.Our corporate headquarters is located at 405 Eagleview Boulevard, Exton, Pennsylvania 19341. Our phone number is(484) 713-6000. Our fiscal year begins on January 1, and ends on December 31, and any references herein to “Fiscal 2009” mean the yearended December 31, 2009, and references to other “Fiscal” years mean the year ending December 31, of the year indicated.We own or have rights to various copyrights, trademarks and trade names used in our business including but not limited tothe following: Fibrocell Science, Fibrocell Therapy, Fibrocell Science Process, Agera and Agera Rx. This report also includes othertrademarks, service marks and trade names of other companies. Other trademarks and trade names appearing in this report are theproperty of the holder of such trademarks and trade names.We obtained statistical data, market data and other industry data and forecasts used in this Form 10-K from publiclyavailable information. While we believe that the statistical data, industry data, forecasts and market research are reliable, we have notindependently verified the data, and we do not make any representation as to the accuracy of that information. 2Table of ContentsItem 1. BusinessOverviewWe are an aesthetic and therapeutic development stage biotechnology company focused on developing novel skin and tissuerejuvenation products. Our clinical development product candidates are designed to improve the appearance of skin injured by the effectsof aging, sun exposure, acne and burn scars with a patient’s own, or autologous, fibroblast cells produced by our proprietary Fibrocellprocess. Our clinical development programs encompass both aesthetic and therapeutic indications. Our most advanced indication is forthe treatment of nasolabial folds/wrinkles (United States adopted name, or USAN, is azficel-T) and has completed Phase III clinicalstudies, and the related Biologics License Application, or BLA, has been submitted to the Food and Drug Administration, or FDA. InOctober 2009, the FDA’s Cellular, Tissue and Gene Therapies Advisory Committee reviewed this indication. On December 21, 2009,Fibrocell Science received a Complete Response letter from the FDA related to the BLA for azficel-T. A Complete Response letter is issuedby the FDA’s Center for Biologics Evaluation and Research (CBER) when the review of a file is completed and additional data are neededprior to approval. The Complete Response letter requested that we provide data from a histopathological study on biopsied tissue samplesfrom patients following injection of azficel-T. The letter also requested finalized Chemistry, Manufacturing and Controls(CMC) information regarding the manufacture of azficel-T as follow-up to discussions that occurred during the BLA review period, aswell as revised policies and procedures regarding shipping practices, and proposed labeling.During 2009 we completed a Phase II/III study for the treatment of acne scars. During 2008 we completed our open-label PhaseII 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.Exit from BankruptcyOn August 27, 2009, the United States Bankruptcy Court for the District of Delaware in Wilmington entered an order, orConfirmation Order, confirming the Joint First Amended Plan of Reorganization dated July 30, 2009, as supplemented by the PlanSupplement dated August 21, 2009, or the Plan, of Isolagen, Inc. and Isolagen’s wholly owned subsidiary, Isolagen Technologies, Inc.The effective date of the Plan was September 3, 2009. Isolagen, Inc. and Isolagen Technologies, Inc. were subsequently renamed FibrocellScience, Inc. and Fibrocell Technologies, Inc., respectively.Our officers and directors as of the effective date were all deemed to have resigned and a new board of directors was appointed.As of the effective date, our initial board of directors consisted of: David Pernock, Paul Hopper and Kelvin Moore. Dr. Robert Langer wasappointed to the Board in late September 2009. Declan Daly remained as chief operating officer and chief financial officer of thereorganized company, and in November 2009, he was appointed to the Board of Directors. Mr. Daly also acted as interim chief executiveofficer until February 1, 2010 when David Pernock became the chief executive officer.Pursuant to the Plan, all our equity interests, including without limitation our common stock, options and warrantsoutstanding as of the effective date were cancelled. On the effective date, we completed an exit financing of common stock in the amountof $2 million, after which the equity holders of our Successor Company were: • 7,320,000 shares, to our pre-bankruptcy lenders and the lenders that provided us our debtor-in-possession facility,collectively; • 3,960,000 shares, to the holders of our 3.5% convertible subordinated notes; • 600,000 shares, to our management as of the effective date, which was our chief operating officer; • 120,000 shares, to the holders of our general unsecured claims; and • 2,666,666 shares, to the purchasers of shares in the $2 million exit financing (our pre-bankruptcy lenders, the lendersthat provided us our debtor-in-possession facility and the holders of our 3.5% convertible subordinated notes werepermitted to participate in our exit financing). 3Table of ContentsIn the Plan, in addition to the common stock set forth above, each holder of Isolagen’s 3.5% convertible subordinated notes,due November 2024, in the approximate non-converted aggregate principal amount of $81 million, received, in full and final satisfaction,settlement, release and discharge of and in exchange for any and all claims arising out of the 3.5% convertible subordinated notes, its prorata share of an unsecured note in the principal amount of $6 million, or the New Note. The New Note has the following features: • 12.5% interest payable quarterly in cash or, at our option, 15% payable in kind by capitalizing such unpaid amountand adding it to the principal as of the date it was due; • matures June 1, 2012; • at any time prior to the maturity date, we may redeem any portion of the outstanding principal of the New Notes in cashat 125% of the stated face value of the New Notes; provided that we will be obligated to redeem all outstanding NewNotes upon the following events: (a) we or our subsidiary, Fibrocell Technologies, Inc. (formerly, Isolagen Technologies,Inc.) successfully complete a capital campaign raising in excess of $10,000,000; or (b) we or our subsidiary, FibrocellTechnologies, Inc., are acquired by, or sell a majority stake to, an outside party; • the New Notes contain customary representations, warranties and covenants, including a covenant that we and oursubsidiary, Fibrocell Technologies, Inc., shall be prohibited from the incurrence of additional debt without obtaining theconsent of 66 2/3% of the New Note holders.Going ConcernThe Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a going-concern. AtDecember 31, 2009, we had cash and cash equivalents of $1.4 million and working capital of $1.5 million. In early March 2010, weraised approximately $3.8 million less fees as a result of the issuance of common stock and warrants. We believe that our existing capitalresources are adequate to sustain our operation through approximately mid-June 2010. As such, we will require additional cash resourcesprior to or during approximately mid-June 2010, or we will likely cease operations. The Successor Company will need to access thecapital markets in the future in order to fund future operations. There is no guarantee that any such required financing will be availableon terms satisfactory to the Successor Company or available at all. These matters create uncertainty relating to our ability to continue as agoing concern. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability andclassification of assets or liabilities that might result from the outcome of these uncertainties.Through December 31, 2009, we have been primarily engaged in developing our initial product technology. In the course of ourdevelopment activities, we have sustained losses and expect such losses to continue through at least 2010. Our ability to completeadditional offerings is dependent on the state of the debt and/or equity markets at the time of any proposed offering, and such market’sreception of the Successor Company and the offering terms. Our ability to complete an offering is also dependent on the status of ourFDA regulatory milestones and our clinical trials, and in particular, the status of our indication for the treatment of nasolabial foldwrinkles and the status of the related BLA, which cannot be predicted. There is no assurance that capital in any form would be availableto us, and if available, on terms and conditions that are acceptable.As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the UnitedStates, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern iscontingent, among other things, upon our ability to secure additional adequate financing or capital prior to or during approximately mid-June 2010. If we do not obtain additional funding, or do not anticipate additional funding, prior to or during approximately mid-June 2010, we will likely enter into bankruptcy and/or cease operations. Further, if we do raise additional cash resources prior to mid-June 2010, it may be raised in contemplation of or in connection with bankruptcy. If we enter into bankruptcy, it is likely that ourcommon stock and common stock equivalents will become worthless and our creditors will receive significantly less than what is owed tothem. 4Table of ContentsFibrocell Science’s Technology PlatformWe use our proprietary Fibrocell Science Process to produce an autologous living cell therapy. We refer to this autologous livingcell therapy as the Fibrocell Therapy. We believe this therapy addresses the normal effects of aging or injury to the skin. Each of ourproduct candidates is designed to use Fibrocell Therapy to treat an indicated condition. We use our Fibrocell Science Process to harvestautologous fibroblasts from a small skin punch biopsy from behind the ear with the use of a local anesthetic. We chose this location bothbecause of limited exposure to the sun and to avoid creating a visible scar. In the case of our dental product candidate, the biopsy is takenfrom the patient’s palette. The biopsy is then packed in a vial in a special shipping container and shipped to our laboratory where thefibroblast cells are released from the biopsy and initiated into our cell culture process where the cells proliferate until they reach therequired cell count. The fibroblasts are then harvested, tested by quality control and released by quality assurance prior to shipment. Thenumber of cells and the frequency of injections may vary and will depend on the indication or application being studied.If and when approved, we expect our product candidates will offer patients their own living fibroblast cells in a personalizedtherapy designed to improve the appearance of damaged skin and wrinkles; or in the case of restrictive burn scars, improve range ofmotion. Our product candidates are intended to be a minimally invasive alternative to surgical intervention and a viable natural alternativeto other chemical, synthetic or toxic treatments. We also believe that because our product candidates are autologous, the risk of animmunological or allergic response is low. With regard to the therapeutic markets, we believe that our product candidates may address aninsufficiently met medical need for the treatment of each of restrictive burn scars, acne scars and dental papillary insufficiency, or gumrecession, and potentially help patients avoid surgical intervention. Certain of our product candidates are still in clinical developmentand, as such, benefits we expect to see associated with our product candidates may not be validated in our clinical trials. In addition,disadvantages of our product candidates may become known in the future.Our StrategyOur business strategy is primarily focused on our approval efforts related to our nasolabial fold/wrinkle indication, for whichwe have submitted a BLA in March 2009. Our additional objectives include achieving regulatory milestones related to our other PhaseII/III Acne Scar program and potentially pursuing other clinical trials in burn scarring, vocal scarring and the dental arena, as fundingpermits in the future. Refer to Clinical Development Programs below for current status.Trading of Common StockThe Predecessor’s common stock ceased trading on the NYSE Amex on May 6, 2009 and in June 2009 the NYSE Amexdelisted the Predecessor’s common stock from listing on the NYSE Amex. Upon the Effective Date, the outstanding common stock of thePredecessor Company was cancelled for no consideration. Consequently, the Predecessor’s stockholders prior to the Effective Date nolonger have any interest as stockholders of the Successor Company by virtue of their ownership of the Predecessor’s common stock priorto the emergence from bankruptcy. On October 21, 2009, the Successor Company was available for trading on the OTC Bulletin Boardunder the symbol “FCSC”.Clinical Development ProgramsOur product development programs are focused on the aesthetic and therapeutic markets. These programs are supported by anumber of clinical trial programs at various stages of development.Our aesthetics development programs include product candidates to treat targeted areas or wrinkles and to provide full-facerejuvenation that includes the improvement of fine lines, wrinkles, skin texture and appearance. Our therapeutic development programsare designed to treat acne scars, restrictive burn scars and dental papillary recession. All of our product candidates are non-surgical andminimally invasive. Although the discussions below may include estimates of when we expect trials to be completed, the prediction ofwhen a clinical trial will be completed is subject to a number of factors and uncertainties. Also, please refer to Part I, Item 1A of this Form10-K for a discussion of certain of our risk factors related to our clinical development programs, as well as other risk factors related toour business. 5Table of ContentsAesthetic Development ProgramsNasolabial Fold Wrinkles — Phase III Trials: In October 2006, we reached an agreement with the FDA, on the design of aPhase III pivotal study protocol for the treatment of nasolabial fold wrinkles (lines which run from the sides of the nose to the corners ofthe mouth). The randomized, double-blind protocol was submitted to the FDA under the agency’s Special Protocol Assessment, or SPA.Pursuant to this assessment process, the FDA has agreed that our study design for two identical trials, including subject numbers,clinical endpoints, and statistical analyses, is adequate to provide the necessary data that, depending on the outcome, could form thebasis of an efficacy claim for a marketing application. The pivotal Phase III trials evaluated the efficacy and safety of our Fibrocelltherapy (USAN name — azficel-T) against placebo in approximately 400 subjects total with approximately 200 subjects enrolled in eachtrial. The injections were completed in January 2008 and the trial data results were disclosed in October 2008. The Phase III trial dataresults indicated statistically significant efficacy results for the treatment of nasolabial fold wrinkles. The Phase III data analysis,including safety results, was disclosed in October 2008. We submitted the related BLA to the FDA in March 2009. In May 2009, theFDA accepted our BLA submission for filing. On October 9, 2009, the FDA’s Cellular, Tissue and Gene Therapies Advisory Committeereviewed azficel-T. The committee voted 11 “yes” to 3 “no” that the data presented on azficel-T demonstrated efficacy, and 6 “yes” to 8“no” that the data demonstrated safety, both for the proposed indication. The Committee’s recommendations are not binding on the FDA,but the FDA will consider their recommendations during their review of our application. On December 21, 2009, Fibrocell Sciencereceived a Complete Response letter from the FDA related to the BLA for azficel-T. A Complete Response letter is issued by the FDA’sCenter for Biologics Evaluation and Research (CBER) when the review of a file is completed and additional data are needed prior toapproval. The Complete Response letter requested that Fibrocell Science provide data from a histopathological study on biopsied tissuesamples from patients following injection of azficel-T. The letter also requested finalized Chemistry, Manufacturing and Controls (CMC)information regarding the manufacture of azficel-T as follow-up to discussions that occurred during the BLA review period, as well asrevised policies and procedures regarding shipping practices, and proposed labeling. The Company is currently working on obtaining thefinalized CMC information for the FDA as well as the revised policies and procedures regarding shipping practices and the proposedlabeling. In addition, the Company has submitted a proposed protocol concerning a histopathological study on biopsied samples to theFDA and to the Company’s Investigational Review Board (“IRB”). The IRB has approved the protocol and the Company is currentlyawaiting the FDA’s comments on the protocol.The United States Adopted Names (USAN) Council adopted the USAN name, azficel-T, on October 28, 2009, and the FDAis currently evaluating a proposed brand name, Laviv™.Full Face Rejuvenation — Phase II Trial: In March 2007, the Predecessor Company commenced an open label(unblinded) trial of approximately 50 subjects. Injections of azficel-T began to be administered in July 2007. This trial was designed tofurther evaluate the safety and use of azficel-T to treat fine lines and wrinkles for the full face. Five investigators across the United Statesparticipated in this trial. The subjects received two series of injections approximately one month apart. In late December 2007, all 45remaining subjects completed injections. The subjects were followed for twelve months following each subject’s last injection. Data resultsrelated to this trial were disclosed in August 2008, which included top line positive efficacy results related to this open label Phase II trial.Additional safety data from this trial, collected through telephone calls placed to participating subjects twelve months from thedate of their final study treatment, were submitted to the FDA on November 1, 2009. No changes to the safety profile of azficel-T wereidentified during our review of this data.Therapeutic Development ProgramsAcne Scars — Phase II/III Trial: In November 2007, the Predecessor Company commenced an acne scar Phase II/III study.This study included approximately 95 subjects. This placebo controlled trial was designed to evaluate the use of azficel-T to correct orimprove the appearance of acne scars. Each subject served as their own control, receiving azficel-T on one side of their face and placeboon the other. The subjects received three treatments two weeks apart. The follow-up and evaluation period was completed four monthsafter each subject’s last injection. In March 2009, the Predecessor Company disclosed certain trial data results, which includedstatistically significant efficacy results for the treatment of moderate to severe acne scars. Compilation of safety data and data related tothe validation of the study photo guide assessment scale discussed below is ongoing and is also subject to additional financing. 6Table of ContentsIn connection with this acne scar program, the Predecessor Company developed a photo guide for use in the evaluators’assessment of acne study subjects. The Predecessor Company had originally designed the acne scar clinical program as two randomized,double-blind, Phase III, placebo-controlled trials. However, our evaluator assessment scale and photo guide have not previously beenutilized in a clinical trial. In November 2007, the FDA recommended that the Predecessor Company consider conducting a Phase II studyin order to address certain study issues, including additional validation related to our evaluator assessment scale. As such, thePredecessor Company modified our clinical plans to initiate a single Phase II/III trial. This Phase II/III study, was powered to demonstrateefficacy, and has allowed for a closer assessment of the evaluator assessment scale and photo guide that is ongoing. The SuccessorCompany’s next step is to initiate a discussion with the FDA concerning the validation of the evaluator assessment scale and agree thepath forward. These steps will be subject to obtaining sufficient financial resources.Restrictive Burn Scars — Phase II Trial: In January 2007, the Predecessor Company met with the FDA to discuss ourclinical program for the use of azficel-T for restrictive burn scar patients. This Phase II trial would evaluate the use of azficel-T toimprove range of motion, function and flexibility, among other parameters, in existing restrictive burn scars in approximately 20 patients.However, the Predecessor Company delayed the screening and enrollment in this trial until such time as we raise sufficient additionalfinancing and gather additional data regarding the burn scar market.Dental Study — Phase II Trial: In late 2003, the Predecessor Company completed a Phase I clinical trial for the treatment ofcondition relating to periodontal disease, specifically to treat Interdental Papillary Insufficiency. In the second quarter of 2005, thePredecessor Company concluded the Phase II dental clinical trial with the use of azficel-T and subsequently announced that investigatorand subject visual analog scale assessments demonstrated that the azficel-T was statistically superior to placebo at four months aftertreatment. Although results of the investigator and subject assessment demonstrated that the azficel-T was statistically superior toplacebo, an analysis of objective linear measurements did not yield statistically significant results.In 2006, the Predecessor Company commenced a Phase II open-label dental trial for the treatment of Interdental PapillaryInsufficiency. This single site study included 11 subjects. All study treatment and follow up visits were completed, but full analysis ofthe study was previously placed on internal hold due to our financial resource constraints. The Company is also currently reviewingpotential other clinical paths in the dental arena.Agera Skincare SystemsThe Successor Company markets and sells a skin care product line through our majority-owned subsidiary, AgeraLaboratories, Inc., which the Predecessor Company acquired in August 2006. Agera offers a complete line of skincare systems based ona wide array of proprietary formulations, trademarks and nano-peptide technology. These skincare products can be packaged to offeranti-aging, anti-pigmentary and acne treatment systems. Agera primarily markets its products primarily in the United States and Europe(primarily the United Kingdom).Our Target Market OpportunitiesAesthetic Market OpportunityOur product candidate for wrinkles/nasolabial folds and full face rejuvenation are directed primarily at the aesthetic market.Aesthetic procedures have traditionally been performed by dermatologists, plastic surgeons and other cosmetic surgeons. According to theAmerican Society for Aesthetic Plastic Surgery, or ASAPS, the total market for non-surgical cosmetic procedures was approximately$4.5 billion in 2009. We believe the aesthetic procedure market is driven by: • aging of the “baby boomer” population, which currently includes ages approximately 46 to 64; • the desire of many individuals to improve their appearance; 7Table of Contents • impact of managed care and reimbursement policies on physician economics, which has motivated physicians to establish orexpand the menu of elective, private-pay aesthetic procedures that they offer; and • broadening base of the practitioners performing cosmetic procedures beyond dermatologists and plastic surgeons to non-traditional providers.According to the ASAPS, 10.0 million surgical and non-surgical cosmetic procedures were performed in 2009, as compared to10.3 million in 2008. Also according to the ASAPS, approximately 8.5 million non-surgical procedures were performed in 2009 and2008. We believe that the concept of non-surgical cosmetic procedures involving injectable materials has become more mainstream andaccepted. According to the ASAPS, the following table shows the top five non-surgical cosmetic procedures performed in 2009: Procedure Number Botulinum toxin type A 2,557,068 Hyaluronic acid 1,313,038 Laser hair removal 1,280,031 Microdermabrasion 621,943 Chemical peel 529,285 Procedures among the 35 to 50 year old age group made up approximately 44% of all cosmetic procedures in 2009. The 51 to64 year old age group made up 27% of all cosmetic procedures in 2009, while the 19 to 34 year old age group made up 20% of cosmeticprocedures in 2009. The Botulinum toxin type A injection was the most popular treatment among the 35 to 50 year old age group.Therapeutic Market OpportunitiesIn addition to the aesthetic market, we believe there are opportunities for our Fibrocell Therapy to treat certain medicalconditions such as acne scars, restrictive burn scars and tissue loss due to papillary recession. Presently, we are studying therapeuticapplications of our technology for acne scars. Indications related to restrictive burn scars and periodontal disease are on internal companyhold. We are not aware of other autologous cell-based treatments for any of these therapeutic applications.Sales and MarketingWhile our Fibrocell Therapy product candidates are still in the pre-approval phase in the United States, no marketing or salescan occur within the United States. Our Agera skincare products are primarily sold directly to our established distributors and salons,with historically and recently very little focus on marketing efforts. We continue to attempt to identify additional third party distributorsfor our Agera product line. We believe that our Agera products have the potential to complement our Fibrocell Therapy product candidatesin the future.Intellectual PropertyWe believe that patents, trademarks, copyrights, proprietary formulations (related to our Agera skincare products) and otherproprietary rights are important to our business. We also rely on trade secrets, know-how and continuing technological innovations todevelop and maintain our competitive position. We seek to protect our intellectual property rights by a variety of means, includingobtaining patents, maintaining trade secrets and proprietary know-how, and technological innovation to operate without infringing on theproprietary rights of others and to prevent others from infringing on our proprietary rights. Our policy is to seek to protect our proprietaryposition by, among other methods, actively seeking patent protection in the United States and certain foreign countries.As of December 31, 2009, we had 9 issued U.S. patents, 4 pending U.S. patent applications, 28 granted foreign patents and 3pending international patent applications. Our issued patents and patent applications primarily cover the method of using autologous cellfibroblasts for the repair of skin and soft tissue defects and the use of autologous fibroblast cells for tissue regeneration. We are in theprocess of pursuing several other patent applications. 8Table of ContentsIn January 2003, we acquired two pending U.S. patent applications. As consideration, we issued 100,000 shares of ourcommon stock and agreed to pay a royalty on revenue from commercial applications and licensing, up to a maximum of $2.0 million.In August 2006, we acquired 57% of the common stock of Agera Laboratories. Agera has a number of trade names,trademarks, exclusive proprietary rights to product formulations and specified peptides that are used in the Agera skincare products.Our success depends in part on our ability to maintain our proprietary position through effective patent claims and theirenforcement against our competitors, and through the protection of our trade secrets. Although we believe our patents and patentapplications provide a competitive advantage, the patent positions of companies like ours are generally uncertain and involve complexlegal and factual questions. We do not know whether any of our patent applications or those patent applications which we have acquiredwill result in the issuance of any patents. Our issued patents, those that may be issued in the future or those acquired by us, may bechallenged, invalidated or circumvented, and the rights granted under any issued patent may not provide us with proprietary protection orcompetitive advantages against competitors with similar technology. In particular, we do not know if competitors will be able to designvariations on our treatment methods to circumvent our current and anticipated patent claims. Furthermore, competitors mayindependently develop similar technologies or duplicate any technology developed by us. Because of the extensive time required for thedevelopment, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized ormarketed, any related patent claim may expire or remain in force for only a short period following commercialization, thereby reducingthe advantage of the patent.We also rely upon trade secrets, confidentiality agreements, proprietary know-how and continuing technological innovation toremain competitive, especially where we do not believe patent protection is appropriate or obtainable. We continue to seek ways to protectour proprietary technology and trade secrets, including entering into confidentiality or license agreements with our employees andconsultants, and controlling access to and distribution of our technologies and other proprietary information. While we use these andother reasonable security measures to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose ourproprietary information to competitors.Our commercial success will depend in part on our ability to operate without infringing upon the patents and proprietary rightsof third parties. It is uncertain whether the issuance of any third party patents would require us to alter our products or technology, obtainlicenses or cease certain activities. Our failure to obtain a license to technology that we may require to discover, develop or commercializeour future products may have a material adverse impact on us. One or more third-party patents or patent applications may conflict withpatent applications to which we have rights. Any such conflict may substantially reduce the coverage of any rights that may issue fromthe patent applications to which we have rights. If third parties prepare and file patent applications in the United States that also claimtechnology to which we have rights, we may have to participate in interference proceedings in the United States Patent and TrademarkOffice to determine priority of invention.We have collaborated and may collaborate in the future with other entities on research, development and commercializationactivities. Disputes may arise about inventorship and corresponding rights in know-how and inventions resulting from the joint creationor use of intellectual property by us and our subsidiaries, collaborators, partners, licensors and consultants. As a result, we may not beable to maintain our proprietary position.CompetitionThe pharmaceutical and dermal aesthetics industries are characterized by intense competition, rapid product development andtechnological change. Competition is intense among manufacturers of prescription pharmaceuticals and dermal injection products. Ourcore products are considered dermal injection products.If certain of our product candidates are approved, we will compete with a variety of companies in the dermatology and plasticsurgery markets, many of which offer substantially different treatments for similar problems. These include silicone injections, laserprocedures, facial surgical procedures, such as facelifts and eyelid surgeries, fat injections, dermabrasion, collagen, allogenic celltherapies, hyaluronic acid injections and Botulinum toxin injections, and other dermal fillers. Indirect competition comes from facial caretreatment products. Items catering to the growing demand for therapeutic skin care products include facial scrubs, anti-aging treatments,tonics, astringents and skin-restoration formulas. 9Table of ContentsMany of our competitors are large, well-established pharmaceutical, chemical, cosmetic or health care companies withconsiderably greater financial, marketing, sales and technical resources than those available to us. Additionally, many of our present andpotential competitors have research and development capabilities that may allow them to develop new or improved products that maycompete with our product lines. Our products could be rendered obsolete or made uneconomical by the development of new products totreat the conditions addressed by our products, technological advances affecting the cost of production, or marketing or pricing actionsby one or more of our competitors. Our facial aesthetics product may compete for a share of the existing market with numerous productsand/or technologies that have become relatively accepted treatments recommended or prescribed by dermatologists and administered byplastic surgeons and aesthetic dermatologists.There are several dermal filler products under development and/or in the FDA pipeline for approval which claim to offercertain facial aesthetic benefits. Depending on the clinical outcomes of the Fibrocell Science Therapy trials in aesthetics, the success orfailure of gaining approval and the label granted by the FDA if and when the therapy is approved, the competition for the FibrocellTherapy may prove to be direct competition to certain dermal fillers, laser technologies or new technologies. However, if we gain approval,we believe our Fibrocell Therapy would be a “first to market” autologous cellular technology that could complement other modalities oftreatment and represent a significant additional market opportunity.The field for therapeutic treatments or tissue regeneration for use in wound healing is rapidly evolving. A number of companiesare either developing or selling therapies involving stem cells, human-based, animal-based or synthetic tissue products. If approved as atherapy for acne scars, restrictive burn scars or periodontal disease, our product candidates would or may compete with synthetic,human or animal derived cell or tissue products marketed by companies larger and better capitalized than us.The market for skincare products is quite competitive with low barriers to entry.Government RegulationOur Fibrocell Therapy technologies are subject to extensive government regulation, principally by the FDA and state and localauthorities in the United States and by comparable agencies in foreign countries. Governmental authorities in the United States extensivelyregulate the pre-clinical and clinical testing, safety, efficacy, research, development, manufacturing, labeling, storage, record-keeping,advertising, promotion, import, export, marketing and distribution, among other things, of pharmaceutical products under variousfederal laws including the Federal Food, Drug and Cosmetic Act, or FFDCA, the Public Health Service Act, or PHSA, and undercomparable laws by the states and in most foreign countries.Domestic RegulationIn the United States, the FDA, under the FFDCA, the PHSA, and other federal statutes and regulations, subjectspharmaceutical and biologic products to rigorous review. If we do not comply with applicable requirements, we may be fined, thegovernment may refuse to approve our marketing applications or allow us to manufacture or market our products or product candidates,and we may be criminally prosecuted. The FDA also has the authority to discontinue or suspend manufacture or distribution, require aproduct withdrawal or recall or revoke previously granted marketing authorizations if we fail to comply with regulatory standards or ifwe encounter problems following initial marketing. 10Table of ContentsFDA Approval ProcessTo obtain approval of a new product from the FDA, we must, among other requirements, submit data demonstrating theproduct’s safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In mostcases, this entails extensive laboratory tests and pre-clinical and clinical trials. This testing and the preparation of necessary applicationsand processing of those applications by the FDA are expensive and typically take many years to complete. The FDA may deny ourapplications or may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costsin our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may develop. The FDA also mayrequire post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals thatcould restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to complywith regulatory standards or if we encounter problems following initial marketing. With respect to patented products or technologies,delays imposed by the governmental approval process may materially reduce the period during which we will have the exclusive right toexploit the products or technologies.The FDA does not apply a single regulatory scheme to human tissues and the products derived from human tissue. On aproduct-by-product basis, the FDA may regulate such products as drugs, biologics, or medical devices, in addition to regulating them ashuman cells, tissues, or cellular or tissue-based products (“HCT/Ps”), depending on whether or not the particular product triggers any ofan enumerated list of regulatory factors. A fundamental difference in the treatment of products under these classifications is that the FDAgenerally permits HCT/Ps that do not trigger any of those regulatory factors to be commercially distributed without marketing approval.In contrast, products that trigger those factors, such as if they are more than minimally manipulated when processed or manufactured,are regulated as drugs, biologics, or medical devices and require FDA approval. We have determined that our Fibrocell Therapy ™triggers regulatory factors that make it a biologic, in addition to an HCT/P, and consequently, we must obtain approval from FDA beforemarketing Fibrocell Therapy ™ and must also satisfy all regulatory requirements for HCT/Ps.The process required by the FDA before a new drug or biologic may be marketed in the United States generally involves thefollowing: • completion of pre-clinical laboratory tests or trials and formulation studies; • submission to the FDA of an IND for a new drug or biologic, which must become effective before human clinical trialsmay begin; • performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposeddrug or biologic for its intended use; • detailed information on product characterization and manufacturing process; and • submission and approval of a New Drug Application, or NDA, for a drug, or a Biologics License Application, or BLA,for a biologic.Pre-clinical tests include laboratory evaluation of product chemistry formulation and stability, as well as animal and otherstudies to evaluate toxicity. In view of the autologous nature of our product candidates and our prior clinical experience with our productcandidates, we concluded that it was reasonably safe to initiate clinical trials without pre-clinical studies and that the clinical trials wouldbe adequate to further assess both the safety and efficacy of our product candidates. Under FDA regulations, the results of any pre-clinical testing, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application.The FDA requires a 30-day waiting period after the filing of each IND application before clinical trials may begin, in order to ensure thathuman research subjects will not be exposed to unreasonable health risks. At any time during this 30-day period or at any time thereafter,the FDA may halt proposed or ongoing clinical trials, or may authorize trials only on specified terms. The IND application process maybecome extremely costly and substantially delay development of our products. Moreover, positive results of pre-clinical tests will notnecessarily indicate positive results in clinical trials. 11Table of ContentsThe sponsor typically conducts human clinical trials in three sequential phases, which may overlap. These phases generallyinclude the following: • Phase I: The product is usually first introduced into healthy humans or, on occasion, into patients, and is tested forsafety, dosage tolerance, absorption, distribution, excretion and metabolism. • Phase II: The product is introduced into a limited subject population to: • assess its efficacy in specific, targeted indications; • assess dosage tolerance and optimal dosage; and • identify possible adverse effects and safety risks. • Phase III: These are commonly referred to as pivotal studies. If a product is found to have an acceptable safety profile andto be potentially effective in Phase II clinical trials, new clinical trials will be initiated to further demonstrate clinicalefficacy, optimal dosage and safety within an expanded and diverse subject population at geographically-dispersedclinical study sites. • If the FDA does ultimately approve the product, it may require post-marketing testing, including potentially expensivePhase IV studies, to confirm or further evaluate its safety and effectiveness.Before proceeding with a study, sponsors may seek a written agreement from the FDA regarding the design, size, and conductof a clinical trial. This is known as a Special Protocol Assessment, or SPA. Among other things, SPAs can cover clinical studies forpivotal trials whose data will form the primary basis to establish a product’s efficacy. SPAs thus help establish up-front agreement withthe FDA about the adequacy of a clinical trial design to support a regulatory approval, but the agreement is not binding if newcircumstances arise. Even if the FDA agrees to an SPA, the agreement may be changed by the sponsor or the FDA on written agreementby both parties, or a senior FDA official determines that a substantial scientific issue essential to determining the safety or effectiveness ofthe product was identified after the testing began. There is no guarantee that a study will ultimately be adequate to support an approvaleven if the study is subject to an SPA. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreementand the data and results from any study that is the subject of the SPA agreement.Clinical trials must meet requirements for Institutional Review Board, or IRB, oversight, patient informed consent and theFDA’s Good Clinical Practices. Prior to commencement of each clinical trial, the sponsor must submit to the FDA a clinical plan, orprotocol, accompanied by the approval of the committee responsible for overseeing clinical trials at the clinical trial sites. The FDA or theIRB at each institution at which a clinical trial is being performed may order the temporary or permanent discontinuation of a clinical trialat any time if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptablerisk to the clinical trial subjects. Data safety monitoring committees, who monitor certain studies to protect the welfare of study subjects,may also require that a clinical study be discontinued or modified.The sponsor must submit to the FDA the results of the pre-clinical and clinical trials, together with, among other things,detailed information on the manufacturing and composition of the product, and proposed labeling, in the form of an NDA, or, in the caseof a biologic, a BLA. The applicant must also submit with the NDA or BLA a substantial user fee payment, unless a waiver orreduction applies. On February 17, 2009, the US Small Business Administration issued a letter formally determining that we are a smallbusiness and therefore qualify for the Small Business Exception to the Prescription Drug and User fee Act of 1992 (21 USC §379h(b)(2)) related to our BLA submission for the nasolabial folds/wrinkles indication. For fiscal year 2009, this fee was $1,247,200for companies that did not receive an exception. The FDA has advised us it is regulating our Fibrocell Therapy as a biologic. Therefore,we expect to submit BLAs to obtain approval of our product candidates. In some cases, we may be able to expand the indications in anapproved BLA through a Prior Approval Supplement. Each NDA or BLA submitted for FDA approval is usually reviewed foradministrative completeness and reviewability within 45 to 60 days following submission of the application. If deemed complete, theFDA will “file” the NDA or BLA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA or BLAthat it deems incomplete or not properly reviewable. Once the submission has been accepted for filing, the FDA will review the applicationand will usually respond to the applicant in accordance with performance goals the FDA has established for the review of NDAs andBLAs — six months from the receipt of the application for priority applications and ten months for regular applications. The reviewprocess is often significantly extended by FDA requests for additional information, preclinical or clinical studies, clarification, or a riskevaluation and mitigation strategy, or REMS, or by changes to the application submitted by the applicant in the form of amendments.The FDA may refer the BLA to an advisory committee for review, evaluation and recommendation as to whether the application should beapproved, but the FDA is not bound by the recommendation of an advisory committee. 12Table of ContentsIt is possible that our product candidates will not successfully proceed through this approval process or that the FDA will notapprove them in any specific period of time, or at all. The FDA may deny or delay approval of applications that do not meet applicableregulatory criteria, or if the FDA determines that the clinical data do not adequately establish the safety and efficacy of the product.Satisfaction of FDA pre-market approval requirements for a new biologic is a process that may take a number of years and the actualtime required may vary substantially based upon the type, complexity and novelty of the product or disease. The FDA reviews theseapplications and, when and if it decides that adequate data are available to show that the product is both safe and effective and that otherapplicable requirements have been met, approves the drug or biologic for marketing. Government regulation may delay or preventmarketing of potential products for a considerable period of time and impose costly procedures upon our activities. Success in early stageclinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and maybe susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Upon approval, a product candidate maybe marketed only for those indications approved in the BLA or NDA and may be subject to labeling and promotional requirements orlimitations, including warnings, precautions, contraindications and use limitations, which could materially impact profitability. Onceapproved, the FDA may withdraw the product approval if compliance with pre- and post-market regulatory standards is not maintainedor if safety, efficacy or other problems occur after the product reaches the marketplace.The FDA may, during its review of an NDA or BLA, ask for additional test data. If the FDA does ultimately approve theproduct, it may require post-marketing testing, including potentially expensive Phase IV studies, to confirm or otherwise further evaluatethe safety and effectiveness of the product. The FDA also may require, as a condition to approval or continued marketing of a drug, arisk evaluation and mitigation strategy, or REMS, if deemed necessary to manage a known or potential serious risk associated with theproduct. An REMS can include additional educational materials for healthcare professionals and patients such as Medication Guides andPatient Package Inserts, a plan for communicating information to healthcare professionals, and restricted distribution of the product. Inaddition, the FDA may, in some circumstances, impose restrictions on the use of the product, which may be difficult and expensive toadminister and may require prior approval of promotional materials. Following approval, FDA may require labeling changes or imposenew post-approval study, risk management, or distribution restriction requirements.Ongoing FDA RequirementsBefore approving an NDA or BLA, the FDA usually will inspect the facilities at which the product is manufactured and willnot approve the product unless the manufacturing facilities are in compliance with the FDA’s current Good Manufacturing Practices, orcGMP, requirements which govern the manufacture, holding and distribution of a product. Manufacturers of human cellular or tissue-based biologics also must comply with the FDA’s Good Tissue Practices, as applicable, and the general biological product standards.Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with thecGMP requirements. Manufacturers must continue to expend time, money and effort in the areas of production, quality control, recordkeeping and reporting to ensure compliance with those requirements. Failure to comply with these requirements subjects the manufacturerto possible legal or regulatory action, such as suspension of manufacturing, seizure of product, voluntary recall of product, withdrawalof marketing approval or civil or criminal penalties. Adverse experiences with the product must be reported to the FDA and could result inthe imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliancewith regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliancewith FDA and FTC requirements which include, among others, standards and regulations for direct-to-consumer advertising, industry-sponsored scientific and educational activities, and promotional activities involving the internet. In general, all product promotion must beconsistent with the FDA approval for such product, contain a balanced presentation of information on the product’s uses and benefitsand important safety information and limitations on use, and otherwise not be false or misleading. The FDA and FTC have very broadenforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a Warning Letterdirecting a company to correct deviations from regulatory standards and enforcement actions that can include seizures, injunctions andcriminal prosecution. 13Table of ContentsManufacturers are also subject to various laws and regulations governing laboratory practices, the experimental use of animalsand the use and disposal of hazardous or potentially hazardous substances in connection with their research. In each of the above areas,the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuanceof approvals, seize or recall products and deny or withdraw approvals.HIPAA RequirementsOther federal legislation may affect our ability to obtain certain health information in conjunction with our research activities.The Health Insurance Portability and Accountability Act of 1996, or HIPAA, mandates, among other things, the adoption of standardsdesigned to safeguard the privacy and security of individually identifiable health information. In relevant part, the U.S. Department ofHealth and Human Services, or HHS, has released two rules to date mandating the use of new standards with respect to such healthinformation. The first rule imposes new standards relating to the privacy of individually identifiable health information. These standardsrestrict the manner and circumstances under which covered entities may use and disclose protected health information so as to protect theprivacy of that information. The second rule released by HHS establishes minimum standards for the security of electronic healthinformation. While we do not believe we are directly regulated as a covered entity under HIPAA, the HIPAA standards imposerequirements on covered entities conducting research activities regarding the use and disclosure of individually identifiable healthinformation collected in the course of conducting the research. As a result, unless they meet these HIPAA requirements, covered entitiesconducting clinical trials for us may not be able to share with us any results from clinical trials that include such health information.Other U.S. Regulatory RequirementsIn the United States, the research, manufacturing, distribution, sale, and promotion of drug and biological products arepotentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicareand Medicaid Services (formerly the Health Care Financing Administration), other divisions of the U.S. Department of Health andHuman Services (e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within theDepartment of Justice, and state and local governments. For example, sales, marketing and scientific/educational grant programs mustcomply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state laws, each asamended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the FederalSupply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are alsopotentially subject to federal and state consumer protection, unfair competition, and other laws.International RegulationThe regulation of our product candidates outside of the United States varies by country. Certain countries regulate humantissue products as a pharmaceutical product, which would require us to make extensive filings and obtain regulatory approvals beforeselling our product candidates. Certain other countries classify our product candidates as human tissue for transplantation but mayrestrict its import or sale. Other countries have no application regulations regarding the import or sale of products similar to our productcandidates, creating uncertainty as to what standards we may be required to meet.ManufacturingWe currently have one operational manufacturing facility located in Exton, Pennsylvania. The costs incurred in operating ourExton facility (except for costs related to general corporate administration) are currently classified as research and development expensesas the activities there have been devoted to the research and development of our clinical applications and the development of a commercialscale and in a cost-effective production method. All component parts used in our Exton, Pennsylvania manufacturing process are readilyavailable with short lead times, and all machinery is maintained and calibrated. We believe we have made improvements in ourmanufacturing processes, and we expect to continue such efforts in the future. 14Table of ContentsOur Agera products are manufactured by a third-party contract manufacturer under a contract manufacturing agreement. Theagreement is effective through July 2014.Research and DevelopmentIn addition to our clinical development activities, our research and development activities include improving ourmanufacturing processes and reducing manufacturing costs. We expense research and development costs as they are incurred. For theyears ended December 31, 2009 and 2008, we incurred research and development expenses of $3.9 million and $10.2 million,respectively.EmployeesAs of March 26, 2010, we employed 22 people on a full-time basis, all located in the United States, and one employee, ourChief Operating and Chief Financial Officer, who is based in Ireland and works in both Ireland and the United States. We also employone full-time and one part-time Agera employees. None of our employees are covered by a collective bargaining agreement, and we considerour relationship with our employees to be good. We also employ consultants and temporary labor on an as needed basis to supplementexisting staff.Segment InformationFinancial information concerning the Company’s business segments and geographic areas of operation is included in Note 17in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.Discontinued OperationsAs part of our continuing efforts to evaluate the best uses of our resources, in the fourth quarter of 2006 our Board of Directorsapproved the closing of our United Kingdom operation. On March 31, 2007, we completed the closure of the United Kingdommanufacturing facility. As a result of the completion of the closure of the United Kingdom manufacturing facility, as of March 31, 2007our United Kingdom operation was classified as a discontinued operation. In addition, as a result of the closure of our United Kingdomoperation, the operations that we previously conducted in Switzerland and Australia, which had been absorbed into the United Kingdomoperation, were also classified as discontinued operations as of March 31, 2007. Accordingly, the historical results of the UnitedKingdom, Switzerland and Australia have been retrospectively adjusted herein, for all periods presented, to reflect the treatment of theseoperations as discontinued operations.Corporate HistoryOn August 10, 2001, our company, then known as American Financial Holding, Inc., acquired Isolagen Technologies throughthe merger of our wholly-owned subsidiary, Isolagen Acquisition Corp., and an affiliated entity, Gemini IX, Inc., with and into IsolagenTechnologies. As a result of the merger, Isolagen Technologies became our wholly owned subsidiary. On November 13, 2001, we changedour name to Isolagen, Inc. On August 27, 2009, the United States Bankruptcy Court for the District of Delaware in Wilmington enteredan order, or Confirmation Order, confirming the Joint First Amended Plan of Reorganization dated July 30, 2009, as supplemented by thePlan Supplement dated August 21, 2009, or the Plan, of Isolagen, Inc. and Isolagen’s wholly owned subsidiary, Isolagen Technologies,Inc. The effective date of the Plan was September 3, 2009. Isolagen, Inc. and Isolagen Technologies, Inc. were subsequently renamedFibrocell Science, Inc. and Fibrocell Technologies, Inc. respectively. 15Table of ContentsItem 1A. Risk FactorsInvesting in our company involves a high degree of risk. Before investing in our company you should carefully consider thefollowing risks, together with the financial and other information contained in this prospectus. If any of the following risksactually occurs, our business, prospects, financial condition and results of operations could be adversely affected. In that case,the trading price of our common stock would likely decline and you may lose all or a part of your investment.We could fail to remain a going concern. We will need to raise substantial additional capital to fund our operations throughcommercialization of our product candidates, and we do not have any commitments for that capital.There exists substantial doubt regarding our ability to continue as a going concern. As of December 31, 2009, we had cash andcash equivalents of $1.4 million and working capital of $1.5 million (including our cash and cash equivalents). In early March 2010,we raised approximately $3.8 million less fees as a result of the issuance of common stock and warrants. We believe our existing capitalresources are adequate to finance our operations through approximately mid-June 2010. We will need to access the capital markets in thefuture in order to fund future operations. Beyond our efforts to obtain future financing, which may not occur, we are incurring lossesfrom operations, have limited capital resources, and do not have access to a line of credit or other debt facility. As such, we will requireadditional cash resources prior to or during approximately mid-June 2010, or we will likely cease operations.We will need additional capital to achieve commercialization of our product candidates and to execute our business strategy,and if we are unsuccessful in raising additional capital we will be unable to achieve commercialization of our product candidates orunable to fully execute our business strategy on a timely basis, if at all. If we raise additional capital through the issuance of debtsecurities, the debt securities may be secured and any interest payments would reduce the amount of cash available to operate and growour business. If we raise additional capital through the issuance of equity securities, such issuances will likely cause dilution to ourstockholders, particularly if we are required to do so during periods when our common stock is trading at low price levels. If we file forbankruptcy, it is likely that our common stock will become worthless, given that there currently exists approximately $6.3 million ofdebt as of December 31, 2009, which has a priority over common shareholders. Additionally, we do not know whether any financing, ifobtained, will be adequate to meet our capital needs and to support our growth. If adequate capital cannot be obtained on satisfactoryterms, we may terminate or delay our efforts related to regulatory approval of one or more of our product candidates, curtail or delay theimplementation of manufacturing process improvements or delay the expansion of our sales and marketing capabilities, any of whichcould cause our business to fail.If we do not obtain additional funding, we will likely enter into bankruptcy and/or cease operations. Further, if we do raiseadditional cash resources prior to mid-June 2010, it may be raised in contemplation of or in connection with bankruptcy. If we enter intobankruptcy, it is likely that our common stock and common stock equivalents will become worthless and our creditors will receivesignificantly less than what is owed to them.Our independent registered public accounting firm issued their report for our fiscal year ended December 31, 2009, whichincluded an explanatory paragraph for our uncertainty to continue as a going concern. If we became unable to continue as a going concern,we would have to liquidate our assets and we may likely receive significantly less than the values at which they are carried on ourconsolidated financial statements. The inclusion of a going concern explanatory paragraph in our independent registered publicaccounting firm’s audit opinion for the year ended December 31, 2009 may materially and adversely affect our stock price and ourability to raise new capital.Obtaining FDA and other regulatory approvals is complex, time consuming and expensive, and the outcomes are uncertain.The process of obtaining FDA and other regulatory approvals is time consuming, expensive and difficult. Clinical trials arerequired and the marketing and manufacturing of our product candidates are subject to rigorous testing procedures. We have finishedinjections related to our pivotal Phase III clinical trial for our lead facial product candidate and have submitted the related BLA to theFDA. In October 2009, the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed our nasolabial fold/wrinklesproduct candidate. The Committee voted 11 “yes” to 3 “no” that the data presented on our product demonstrated efficacy, and 6 “yes” to8 “no” that the data demonstrated safety; both for the proposed indication of treatment of nasolabial fold wrinkles. The Committee’srecommendations are not binding on the FDA, but the FDA will consider their 16Table of Contentsrecommendations during their review of our application, which could adversely effect the application. On December 21, 2009, Fibrocellreceived a Complete Response letter from the FDA related to the BLA for azficel-T, an autologous cell therapy for the treatment of moderateto severe nasolabial fold wrinkles in adults. A Complete Response letter is issued by the FDA’s Center for Biologics Evaluation andResearch (CBER) when the review of a file is completed and additional data are needed prior to approval. The Complete Response letterrequested that Fibrocell Science provide data from a histopathological study on biopsied tissue samples from patients following injectionof azficel-T. The letter also requested finalized Chemistry, Manufacturing and Controls (CMC) information regarding the manufacture ofazficel-T as follow-up to discussions that occurred during the BLA review period, as well as revised policies and procedures. To theextent that the data obtained from the histopathological study is negative and/or the CMC information and revised policies and proceduresrequired by the FDA is not satisfactory, we may not obtain approval from the FDA or there may be a delay in approval.Our other product candidates will require additional clinical trials. The commencement and completion of clinical trials forany of our product candidates could be delayed or prevented by a variety of factors, including: • delays in obtaining regulatory approvals to commence a study; • delays in identifying and reaching agreement on acceptable terms with prospective clinical trial sites; • delays or failures in obtaining approval of our clinical trial protocol from an institutional review board, or IRB, to conduct aclinical trial at a prospective study site; • delays in the enrollment of subjects; • manufacturing difficulties; • failure of our clinical trials and clinical investigators to be in compliance with the FDA’s Good Clinical Practices, or GCP; • failure of our third-party contract research organizations, clinical site organizations and other clinical trial managers, to satisfytheir contractual duties, comply with regulations or meet expected deadlines; • lack of efficacy during clinical trials; or • unforeseen safety issues.We do not know whether our clinical trials will need to be restructured or will be completed on schedule, if at all, or whetherthey will provide data necessary to support necessary regulatory approval. Significant delays in clinical trials will impede our ability tocommercialize our product candidates and generate revenue, and could significantly increase our development costs.We utilize bovine-sourced materials to manufacture our Fibrocell Therapy. Future FDA regulations, as well as currentlyproposed regulations, may require us to change the source of the bovine-sourced materials we use in our products or to cease usingbovine-sourced materials. If we are required to use alternative materials in our products, and in the event that such alternative materialsare available to us, or if we choose to change the materials used in our products in the future, we would need to validate the newmanufacturing process and run comparability trials with the reformulated product, which could delay our submission for regulatoryapproval.Even if marketing approval from the FDA is received for one or more of our product candidates, the FDA may impose post-marketing requirements, such as: • labeling and advertising requirements, restrictions or limitations, including the inclusion of warnings, precautions, contra-indications or use limitations that could have a material impact on the future profitability of our product candidates; • testing and surveillance to further evaluate or monitor our future products and their continued compliance with regulatorystandards and requirements; 17Table of Contents • submitting products for inspection; or • imposing a risk evaluation and mitigation strategy, or REMS, to ensure that the benefits of the drug outweigh the risks.Because our consolidated financial statements for the year ended December 31, 2009 reflect fresh-start accounting adjustmentsmade on emergence from bankruptcy and because of the effects of the transactions that became effective pursuant to thePlan, financial information in our current and future financial statements will not be comparable to our financial informationfrom prior periods.In connection with our emergence from bankruptcy, we adopted fresh-start accounting as of September 1, 2009 in accordancewith ASC 852-10. The adoption of fresh-start accounting resulted in our becoming a new entity for financial reporting purposes. Asrequired by fresh-start accounting, our assets and liabilities have been preliminarily adjusted to fair value, and certain assets andliabilities not previously recognized in our financial statements have been recognized. In addition to fresh-start accounting, our financialstatements reflect all effects of the transactions implemented by the Plan. Accordingly, the financial statements prior to September 1, 2009are not comparable with the financial statements for periods on or after September 1, 2009. Furthermore, the estimates and assumptionsused to implement fresh-start accounting are inherently subject to significant uncertainties and contingencies beyond our control.Accordingly, we cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, andactual results could vary materially. For further information about fresh-start accounting, see Note 5 — “Fresh-Start Accounting” inNotes to Consolidated Financial Statements.Protocol deviations may release the FDA from its binding acceptance of our SPA study design, which may result in the delay,or non-approval, by the FDA of the Fibrocell Therapy.In connection with preparations for FDA Investigator Inspections related to our nasolabial fold/wrinkle Phase III studies, weidentified protocol deviations related to the timing of visits and other types of deviations. The possibility exists that our special protocolassessment could no longer be binding on the FDA if the FDA considers these deviations, individually or in aggregate, to be significant.Further, future investigator audits may identify deviations unknown at this time. Accordingly, the possibility exists that although ourPhase III studies yielded statistically significant results, the studies may not be acceptable to the FDA under the SPA.Clinical trials may fail to demonstrate the safety or efficacy of our product candidates, which could prevent or significantlydelay regulatory approval and prevent us from raising additional financing.Prior to receiving approval to commercialize any of our product candidates, we must demonstrate with substantial evidencefrom well-controlled clinical trials, and to the satisfaction of the FDA and other regulatory authorities in the United States and abroad,that our product candidates are both safe and effective. We will need to demonstrate our product candidates’ efficacy and monitor theirsafety throughout the process. We have recently completed a pivotal Phase III clinical trial related to our lead facial aesthetic productcandidate. The success of prior pre-clinical or clinical trials does not ensure the success of these trials, which are being conducted inpopulations with different racial and ethnic demographics than our previous trials. If our current trials or any future clinical trials areunsuccessful, our business and reputation would be harmed and the price at which our stock trades could be adversely affected. Inaddition, if our Phase III clinical trials related to our lead facial aesthetic product candidate is deemed to be unacceptable or deficient inany way by the FDA, we may be unable to raise additional equity or debt financing that we may require to continue our operations.All of our product candidates are subject to the risks of failure inherent in the development of biotherapeutic products. Theresults of early-stage clinical trials of our product candidates do not necessarily predict the results of later-stage clinical trials. Productcandidates in later-stage clinical trials may fail to demonstrate desired safety and efficacy traits despite having successfully progressedthrough initial clinical testing. Even if we believe the data collected from clinical trials of our product candidates is promising, this datamay not be sufficient to support approval by the FDA or any other U.S. or foreign regulatory approval. Pre-clinical and clinical data canbe interpreted in different ways. Accordingly, FDA officials could reach different conclusions in assessing such data than we do, whichcould delay, limit or prevent regulatory approval. In addition, the FDA, other regulatory authorities, our Institutional Review Boards orwe, may suspend or terminate clinical trials at any time. 18Table of ContentsUnlike our Phase III nasolabial/wrinkle trial, our Phase II/III Acne Scar trial is not subject to a SPA with the FDA. In addition,we have developed a photo guide for use in the evaluators’ assessment of acne study subjects. Our evaluator assessment scale and photoguide have not been previously used in a clinical trial. To obtain FDA approval with respect to the acne scar indication, we will requireFDA concurrence with the use of our evaluator assessment scale and photo guide.Any failure or delay in completing clinical trials for our product candidates, or in receiving regulatory approval for the sale ofany product candidates, has the potential to materially harm our business, and may prevent us from raising necessary, additionalfinancing that we may need in the future.We may issue additional equity securities and thereby materially and adversely affect the price of our common stock.Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales mayoccur, could cause the market price of our common stock to decline. We have used and it is likely that we will continue to use ourcommon stock or securities convertible into or exchangeable for our common stock to fund our working capital needs or to acquiretechnology, product rights or businesses, or for other purposes. If we issue additional equity securities, particularly during times whenour common stock is trading at relatively low price levels, the price of our common stock may be materially and adversely affected.We have a significant number of warrants and convertible preferred stock outstanding that contain anti-dilution and price-protection provisions that may result in the reduction of their exercise prices or conversion prices in the future.In October 2009, we completed an offering of Series A Preferred Stock and warrants, and, in March 2010, we completed anoffering of common stock and warrants. Each of the foregoing securities were subject to certain anti-dilution provisions, whichprovisions require the lowering the of conversion price or exercise price, as applicable, to the purchase price of future offerings.Furthermore, with respect to the warrants, if we complete an offering below the exercise price of such warrants, the number of sharesissuable under the warrants will be proportionately increased such that the aggregate exercise price payable after taking into account thedecrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. The conversion and exercise price ofsecurities issued in the October 2009 offering were adjusted due to the March 2010 offering. If in the future we issue securities for lessthan the conversion or exercise price of the securities we issued in the October 2009 and March 2010 offering, we may be required tofurther reduce the relevant conversion or exercise prices, and the number of shares underlying the warrants may be increased.During the term that the warrants and preferred stock are outstanding, the holders of those securities are given the opportunityto profit from a rise in the market price of our common stock. In addition, certain of the warrants are not redeemable by us. We may findit more difficult to raise additional equity capital while these warrants or preferred stock are outstanding. At any time during which thesewarrants are likely to be exercised, we may be able to obtain additional equity capital on more favorable terms from other sources.We have yet to be profitable, losses may continue to increase from current levels and we will continue to experience significantnegative cash flow as we expand our operations, which may limit or delay our ability to become profitable.We have incurred losses since our inception, have never generated significant revenue from commercial sales of our products,and have never been profitable. We are focused on product development, and we have expended significant resources on our clinicaltrials, personnel and research and development. We expect these costs to continue to rise in the future. We expect to continue to experienceincreasing operating losses and negative cash flow as we expand our operations. 19Table of ContentsWe expect to continue to incur significant additional costs and expenses related to: • FDA clinical trials and regulatory approvals; • expansion of laboratory and manufacturing operations; • research and development; • brand development; • personnel costs; • development of relationships with strategic business partners, including physicians who might use our future products; and • interest expense and amortization of issuance costs related to our outstanding note payables.If our product candidates fail in clinical trials or do not gain regulatory approval, if our product candidates do not achievemarket acceptance, or if we do not succeed in effectively and efficiently implementing manufacturing process and technologyimprovements to make our product commercially viable, we will not be profitable. If we fail to become and remain profitable, or if we areunable to fund our continuing losses, our business may fail.We will continue to experience operating losses and significant negative cash flow until we begin to generate significant revenuefrom (a) the sale of our product candidates, which is dependent on the receipt of FDA approval for our product candidates and isdependent on our ability to successfully market and sell such product candidates, and (b) our Agera product line, which is dependent onachieving significant market penetration in its markets.We may be unable to successfully commercialize any of our product candidates currently under development.Before we can commercialize any of our product candidates in the United States, we will need to: • conduct substantial additional research and development; • successfully complete lengthy and expensive pre-clinical and clinical testing, including the Phase II/III clinical trial for our acnescar product candidate; • successfully improve our manufacturing process; and • obtain FDA approvals.Even if our product development efforts are successful, we cannot assure you that we will be able to commercialize any of ourproduct candidates currently under development. In that event, we will be unable to generate significant revenue, and our business willfail.We have not generated significant revenue from commercial sales of our products to date, and we do not know whether we willever generate significant revenue.We are focused on product development and have not generated significant revenue from commercial sales of our products todate. Prior to the fourth quarter of 2006 we offered the Fibrocell Therapy for sale in the United Kingdom. Our United Kingdom operationhad been operating on a negative gross margin as we investigated means to improve manufacturing technologies for the Fibrocell Process. 20Table of ContentsWe do not currently offer any products for sale that are based upon our Fibrocell Therapy, and we cannot guarantee that wewill ever market any such products. We must demonstrate that our product candidates satisfy rigorous standards of safety and efficacybefore the FDA and other regulatory authorities in the United States and abroad will approve the product candidates for commercialmarketing. We will need to conduct significant additional research, including potentially pre-clinical testing and clinical testing before wecan file additional applications with the FDA for approval of our product candidates. We must also develop, validate and obtain FDAapproval of any improved manufacturing process. In addition, to compete effectively our future products must be easy to use, cost-effective and economical to manufacture on a commercial scale. We may not achieve any of these objectives, and we may never generaterevenue from our product candidates.Our ability to effectively commercialize our product candidates depends on our ability to improve our manufacturing processand validate such future improvements.As part of the approval process, we must pass a pre-approval inspection of our manufacturing facility before we can obtainmarketing approval for our product candidates. The Complete Response letter that we received from the FDA in December 2009 requestedfinalized Chemistry, Manufacturing and Controls (CMC) information regarding the manufacture of azficel-T as follow-up to discussionsthat occurred during the BLA review period. FDA. We cannot guarantee that this CMC information will satisfy the FDA’s requirementsfor approval. All of our manufacturing methods, equipment and processes for the active pharmaceutical ingredient and finished productmust comply with the FDA’s current Good Manufacturing Practices, or cGMP, requirements. We will also need to perform extensiveaudits of our suppliers, vendors and contract laboratories. The cGMP requirements govern all areas of recordkeeping, productionprocesses and controls, personnel and quality control. To ensure that we meet these requirements, we will expend significant time, moneyand effort. Due to the unique nature of our Fibrocell Therapy, we cannot predict the likelihood that the FDA will approve our facility ascompliant with cGMP requirements even if we believe that we have taken the steps necessary to achieve compliance.The FDA, in its regulatory discretion, may require us to undergo additional clinical trials with respect to any new or improvedmanufacturing process we develop or utilize, in the future, if any. This could include a requirement to change the materials used in ourmanufacturing process. These improvements or modifications could delay or prevent approval of our product candidates. If we fail tocomply with cGMP requirements, pass an FDA pre-approval inspection or obtain FDA approval of our manufacturing process, wewould not receive FDA approval and would be subject to possible regulatory action. The failure to successfully implement ourmanufacturing process may delay or prevent our future profitability.Even if we obtain FDA approval in the future and satisfy the FDA with regard to a validated manufacturing process, we stillmay be unable to commercially manufacture the Fibrocell Therapy profitably. Our manufacturing cost has been subject to fluctuation,depending, in part, on the yields obtained from our manufacturing process. There is no guarantee that future manufacturingimprovements will result in a manufacturing cost low enough to effectively compete in the market. Further, we currently manufacture theFibrocell Therapy on a limited basis (for research and development and for trial purposes only) and we have not manufacturedcommercial levels of the Fibrocell Therapy in the United States. Such commercial manufacturing volumes, in the future, could lead tounexpected inefficiencies and result in unprofitable performance results.We may not be successful in our efforts to develop commercial-scale manufacturing technology and methods.In order to successfully commercialize any approved product candidates, we will be required to produce such products on acommercial scale and in a cost-effective manner. As stated in the preceding risk factor, we intend to seek FDA approval of ourmanufacturing process as a component of the BLA application and approval process. However, we can provide no assurance that we willbe able to cost-effectively and commercially scale our operations using our current manufacturing process. If we are unable to developsuitable techniques to produce and manufacture our product candidates, our business prospects will suffer. 21Table of ContentsWe depend on a third-party manufacturer for our Agera product line, the loss or unavailability of which would require us tofind a substitute manufacturer, if available, resulting in delays in production and additional expenses.Our Agera skin care product line is manufactured by a third party. We are dependent on this third party to manufactureAgera’s products, and the manufacturer is responsible for supplying the formula ingredients for the Agera product lines. If for any reasonthe manufacturer discontinues production of Agera’s products at a time when we have a low volume of inventory on hand or areexperiencing a high demand for the products, significant delays in production of the products and interruption of product sales mayresult as we seek to establish a relationship and commence production with a new manufacturer, which would negatively impact ourresults of operation.The large majority of our revenue, which relates to the Agera business segment, is to one, international customer.Our revenues, which relate solely to the Agera business segment, are highly concentrated in one large, international customer.This large customer represented 64% of 2009 and 2008 consolidated revenues. Further, this large customer represented 87% and 94% ofconsolidated accounts receivable, net, at December 31, 2009 and December 31, 2008, respectively. A reduction of revenue related to thislarge customer, due to competitor product alternatives, pricing pressures, the financial health of the large customer, or otherwise, wouldhave a significant, negative impact on the business of Agera, and the related value thereof.If our Fibrocell Therapy is found to be unsafe or ineffective, or if our Fibrocell Therapy is perceived to be unsafe or ineffective,our business would be materially harmed.Our product candidates utilize our Fibrocell Therapy. In addition, we expect to utilize our Fibrocell Therapy in the developmentof any future product candidates. If our Fibrocell Therapy is found to be, or perceived to be, unsafe or ineffective, we will not besuccessful in obtaining marketing approval for any product candidates then pending, and we may have to modify or cease production ofany products that previously may have received regulatory approval. Negative media exposure, whether founded or unfounded, related tothe safety and/or effectiveness of our Fibrocell Therapy may harm our reputation and/or competitive position.If physicians do not follow our established protocols, the efficacy and safety of our product candidates may be adverselyaffected.We are dependent on physicians to follow our established protocols both as to the administration and the handling of ourproduct candidates in connection with our clinical trials, and we will continue to be dependent on physicians to follow such protocols ifour product candidates are commercialized. The treatment protocol requires each physician to verify the patient’s name and date of birthwith the patient and the patient records immediately prior to injection. In the event more than one patient’s cells are delivered to a physicianor we deliver the wrong patient’s cells to the physician, which has occurred in the past, it is the physician’s obligation to follow thetreatment protocol and assure that the patient is treated with the correct cells. If the physicians do not follow our protocol, the efficacy andsafety of our product candidates may be adversely affected.Our business, which depends on one facility, is vulnerable to natural disasters, telecommunication and information systemsfailures, terrorism and similar problems, and we are not fully insured for losses caused by all of these incidents.We currently conduct all our research, development and manufacturing operations in one facility located in Exton,Pennsylvania. As a result, if we obtain FDA approval of any of our product candidates, all of the commercial manufacturing for the U.S.market are currently expected to take place at a single U.S. facility. If regulatory, manufacturing or other problems require us todiscontinue production at that facility, we will not be able to supply product, which would adversely impact our business.Our Exton facility could be damaged by fire, floods, power loss, telecommunication and information systems failures orsimilar events. Our insurance policies have limited coverage levels for loss or damages in these events and may not adequatelycompensate us for any losses that may occur. In addition, terrorist acts or acts of war may cause harm to our employees or damage ourExton facility. The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats tonational security, and other acts of war or hostility have created many economic and political uncertainties that could adversely affect ourbusiness and results of operations in ways that we cannot predict, and could cause our stock price to fluctuate or decline. We areuninsured for these types of losses. 22Table of ContentsAs a result of our limited operating history, we may not be able to correctly estimate our future operating expenses, whichcould lead to cash shortfalls.We have a limited operating history and our primary business activities consist of conducting clinical trials. As such, ourhistorical financial data is of limited value in estimating future operating expenses. Our budgeted expense levels are based in part on ourexpectations concerning the costs of our clinical trials, which depend on the success of such trials and our ability to effectively andefficiently conduct such trials, and expectations related to our efforts to achieve FDA approval with respect to our product candidates. Inaddition, our budgeted expense levels are based in part on our expectations of future revenue that we may receive from our Agera productline, and the size of future revenue depends on the choices and demand of individuals. Our limited operating history and clinical trialexperience make these costs and revenues difficult to forecast accurately. We may be unable to adjust our operations in a timely manner tocompensate for any unexpected increase in costs or shortfall in revenue. Further, our fixed manufacturing costs and businessdevelopment and marketing expenses will increase significantly as we expand our operations. Accordingly, a significant increase in costsor shortfall in revenue could have an immediate and material adverse effect on our business, results of operations and financial condition.Our operating results may fluctuate significantly in the future, which may cause our results to fall below the expectations ofsecurities analysts, stockholders and investors.Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside ofour control. These factors include, but are not limited to: • the level of demand for the products that we may develop; • the timely and successful implementation of improved manufacturing processes; • our ability to attract and retain personnel with the necessary strategic, technical and creative skills required for effectiveoperations; • the amount and timing of expenditures by practitioners and their patients; • introduction of new technologies; • product liability litigation, class action and derivative action litigation, or other litigation; • the amount and timing of capital expenditures and other costs relating to the expansion of our operations; • the state of the debt and/or equity markets at the time of any proposed offering we choose to initiate; • our ability to successfully integrate new acquisitions into our operations; • government regulation and legal developments regarding our Fibrocell Therapy in the United States and in the foreign countriesin which we may operate in the future; and • general economic conditions.As a strategic response to changes in the competitive environment, we may from time to time make pricing, service, technologyor marketing decisions or business or technology acquisitions that could have a material adverse effect on our operating results. Due toany of these factors, our operating results may fall below the expectations of securities analysts, stockholders and investors in any futureperiod, which may cause our stock price to decline. 23Table of ContentsWe may be liable for product liability claims not covered by insurance, and, our predecessor company was publiclythreatened with claims related to our product in the United Kingdom.Physicians who used our facial aesthetic product in the past, or who may use any of our future products, and patients whohave been treated by our facial aesthetic product in the past, or who may use any of our future products, may bring product liabilityclaims against us. In particular, our predecessor company received negative publicity and negative correspondence from patients in theUnited Kingdom that had previously received our treatment. While we have taken, and continue to take, what we believe are appropriateprecautions, we may be unable to avoid significant liability exposure. We currently keep in force product liability insurance, althoughsuch insurance may not be adequate to fully cover any potential claims or may lapse in accordance with its terms prior to the assertion ofclaims. We may be unable to obtain product liability insurance in the future, or we may be unable to do so on acceptable terms. Anyinsurance we obtain or have obtained in the past may not provide adequate coverage against any asserted claims. In addition, regardlessof merit or eventual outcome, product liability claims may result in: • diversion of management’s time and attention; • expenditure of large amounts of cash on legal fees, expenses and payment of damages; • decreased demand for our products or any of our future products and services; or • injury to our reputation.If we are the subject of any future product liability claims, our business could be adversely affected, and if these claims are inexcess of insurance coverage, if any, that we may possess, our financial position will suffer.Our failure to comply with extensive governmental regulation may significantly affect our operating results.Even if we obtain regulatory approval for some or all our product candidates, we will continue to be subject to extensiveongoing requirements by the FDA, as well as by a number of foreign, national, state and local agencies. These regulations will impactmany aspects of our operations, including testing, research and development, manufacturing, safety, efficacy, labeling, storage, qualitycontrol, adverse event reporting, import and export, record keeping, approval, distribution, advertising and promotion of our futureproducts. We must also submit new or supplemental applications and obtain FDA approval for certain changes to an approved product,product labeling or manufacturing process. Application holders must also submit advertising and other promotional material to the FDAand report on ongoing clinical trials. The FDA enforces post-marketing regulatory requirements, including the cGMP requirements,through periodic unannounced inspections. We do not know whether we will pass any future FDA inspections. Failure to pass aninspection could disrupt, delay or shut down our manufacturing operations. Failure to comply with applicable regulatory requirementscould, among other things, result in: • administrative or judicial enforcement actions; • changes to advertising; • failure to obtain marketing approvals for our product candidates; • revocation or suspension of regulatory approvals of products; • product seizures or recalls; • court-ordered injunctions; • import detentions; • delay, interruption or suspension of product manufacturing, distribution, marketing and sales; or • civil or criminal sanctions. 24Table of ContentsThe discovery of previously unknown problems with our future products may result in restrictions of the products, includingwithdrawal from the market. In addition, the FDA may revisit and change its prior determinations with regard to the safety or efficacy ofour future products. If the FDA’s position changes, we may be required to change our labeling or cease to manufacture and market ourfuture products. Even prior to any formal regulatory action, we could voluntarily decide to cease the distribution and sale or recall any ofour future products if concerns about their safety or efficacy develop.In their regulation of advertising and other promotion, the FDA and the FTC may issue correspondence alleging that someadvertising or promotional practices are false, misleading or deceptive. The FDA and FTC are authorized to impose a wide array ofsanctions on companies for such advertising and promotion practices, which could result in any of the following: • incurring substantial expenses, including fines, penalties, legal fees and costs to comply with the FDA’s requirements; • changes in the methods of marketing and selling products; • taking FDA mandated corrective action, which may include placing advertisements or sending letters to physicians rescindingprevious advertisements or promotions; or • disruption in the distribution of products and loss of sales until compliance with the FDA’s position is obtained.Improper promotional activities may also lead to investigations by federal or state prosecutors, and result in criminal and civilpenalties. If we become subject to any of the above requirements, it could be damaging to our reputation and restrict our ability to sell ormarket our future products, and our business condition could be adversely affected. We may also incur significant expenses in defendingourselves.Physicians may prescribe pharmaceutical or biologic products for uses that are not described in a product’s labeling or differfrom those tested by us and approved by the FDA. While such “off-label” uses are common and the FDA does not regulate physicians’choice of treatments, the FDA does restrict a manufacturer’s communications on the subject of off-label use. Companies cannot promoteFDA-approved pharmaceutical or biologic products for off-label uses, but under certain limited circumstances they may disseminate topractitioners articles published in peer-reviewed journals. To the extent allowed by the FDA, we intend to disseminate peer-reviewedarticles on our future products to practitioners. If, however, our activities fail to comply with the FDA’s regulations or guidelines, we maybe subject to warnings from, or enforcement action by, the FDA or other regulatory or law enforcement authorities.Our sales, marketing, and scientific/educational grant programs, if any in the future, must also comply with applicablerequirements of the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the federal anti-kickback law, andsimilar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the OmnibusBudget Reconciliation Act of 1990 and the Veteran’s Health Care Act of 1992, each as amended. If products are made available toauthorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All ofthese activities are also potentially subject to federal and state consumer protection and unfair competition laws. The distribution ofproduct samples to physicians must comply with the requirements of the Prescription Drug Marketing Act.Depending on the circumstances, failure to meet post-approval requirements can result in criminal prosecution, fines or otherpenalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketingproduct approvals, or refusal to allow us to enter into supply contracts, including government contracts. Any government investigation ofalleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. 25Table of ContentsLegislative or regulatory reform of the healthcare system may affect our ability to sell our future products profitably.In the United States and a number of foreign jurisdictions, there have been legislative and regulatory proposals to change thehealthcare system in ways that could impact our ability to sell our future products profitably. For instance, there currently is no legalpathway for generic or similar versions of BLA-approved biologics, sometimes called “follow-on biologics” or “biosimilars,” but there iscontinuing interest by Congress on this issue and on healthcare reform in general. It is unknown what type of regulatory framework,what legal provisions, and what timeframes for issuance of regulations or guidance any final legislation on biosimilars would contain,but the future profitability of any approved biological product could be materially adversely impacted by the approval of a biosimilarproduct. The FDA’s policies may change and additional government regulations may be enacted, which could prevent or delay regulatoryapproval of our product candidates. We cannot predict the likelihood, nature or extent of adverse government regulation that may arisefrom future legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance,we might not be permitted to market our future products and our business could suffer.Any future products that we develop may not be commercially successful.Even if we obtain regulatory approval for our product candidates in the United States and other countries, those products maynot be accepted by the market. A number of factors may affect the rate and level of market acceptance of our products, including: • labeling requirements or limitations; • market acceptance by practitioners and their patients; • our ability to successfully improve our manufacturing process; • the effectiveness of our sales efforts and marketing activities; and • the success of competitive products.If our current or future product candidates fail to achieve market acceptance, our profitability and financial condition willsuffer.Our competitors in the pharmaceutical, medical device and biotechnology industries may have superior products,manufacturing capabilities, financial resources or marketing position.The human healthcare products and services industry is extremely competitive. Our competitors include majorpharmaceutical, medical device and biotechnology companies. Most of these competitors have more extensive research and development,marketing and production capabilities and greater financial resources than we do. Our future success will depend on our ability todevelop and market effectively our future products against those of our competitors. If our future products receive marketing approval butcannot compete effectively in the marketplace, our results of operations and financial position will suffer.We are dependent on our key scientific and other management personnel, and the loss of any of these individuals could harmour business.We are dependent on the efforts of our key management and scientific staff. The loss of any of these individuals, or ourinability to recruit and train additional key personnel in a timely manner, could materially and adversely affect our business and ourfuture prospects. A loss of one or more of our current officers or key personnel could severely and negatively impact our operations. Wehave employment agreements with most of our key management personnel, but some of these people are employed “at-will,” and any ofthem may elect to pursue other opportunities at any time. We have no present intention of obtaining key man life insurance on any of ourexecutive officers or key management personnel. 26Table of ContentsWe may need to attract, train and retain additional highly qualified senior executives and technical and managerial personnelin the future.In the future, we may need to seek additional senior executives, as well as technical and managerial staff members. There is ahigh demand for highly trained executive, technical and managerial personnel in our industry. We do not know whether we will be able toattract, train and retain highly qualified technical and managerial personnel in the future, which could have a material adverse effect onour business, financial condition and results of operations.If we are unable to effectively promote our brands and establish a competitive position in the marketplace, our business mayfail.Our Fibrocell Therapy brand names are new and unproven. We believe that the importance of brand recognition will increaseover time. In order to gain brand recognition, we may increase our marketing and advertising budgets to create and maintain brandloyalty. We do not know whether these efforts will lead to greater brand recognition. If we are unable effectively to promote our brands,including our Agera product line, and establish competitive positions in the marketplace, our business results will be materially adverselyaffected.If we are unable to adequately protect our intellectual property and proprietary technology, the value of our technology andfuture products will be adversely affected, and if we are unable to enforce our intellectual property against unauthorized useby third parties our business may be materially harmed.Our long-term success largely depends on our future ability to market technologically competitive products. Our ability toachieve commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of ourtechnology and future products, as well as successfully defending these patents against third party challenges. In order to do so we must: • obtain and protect commercially valuable patents or the rights to patents both domestically and abroad; • operate without infringing upon the proprietary rights of others; and • prevent others from successfully challenging or infringing our proprietary rights.As of December 31, 2009, we had 9 issued U.S. patents, 4 pending U.S. patent applications, 28 granted foreign patents and 3pending international patent application. However, we may not be able to obtain additional patents relating to our technology or otherwiseprotect our proprietary rights. If we fail to obtain or maintain patents from our pending and future applications, we may not be able toprevent third parties from using our proprietary technology. We will be able to protect our proprietary rights from unauthorized use only tothe extent that these rights are covered by valid and enforceable patents that we control or are effectively maintained by us as trade secrets.Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection andmay not adequately protect our rights or permit us to gain or keep a competitive advantage.The patent situation of companies in the markets in which we compete is highly uncertain and involves complex legal andfactual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed insuch companies’ patents has emerged to date in the United States. The laws of other countries do not protect intellectual property rights tothe same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defendingsuch rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor theenforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals,which could make it difficult for us to stop the infringement of our patents in foreign countries in which we hold patents. Proceedings toenforce our patent rights in the United States or in foreign jurisdictions would likely result in substantial cost and divert our efforts andattention from other aspects of our business. Changes in either the patent laws or in interpretations of patent laws in the United States orother countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may beallowed or enforced in our patents or in third-party patents. 27Table of ContentsOther risks and uncertainties that we face with respect to our patents and other proprietary rights include the following: • the inventors of the inventions covered by each of our pending patent applications might not have been the first to make suchinventions; • we might not have been the first to file patent applications for these inventions or similar technology; • the future and pending applications we will file or have filed, or to which we will or do have exclusive rights, may not result inissued patents or may take longer than we expect to result in issued patents; • the claims of any patents that are issued may not provide meaningful protection; • our issued patents may not provide a basis for commercially viable products or may not be valid or enforceable; • we might not be able to develop additional proprietary technologies that are patentable; • the patents licensed or issued to us may not provide a competitive advantage; • patents issued to other companies, universities or research institutions may harm our ability to do business; • other individual companies, universities or research institutions may independently develop or have developed similar oralternative technologies or duplicate our technologies and commercialize discoveries that we attempt to patent; • other companies, universities or research institutions may design around technologies we have licensed, patented or developed;and • many of our patent claims are method, rather than composition of matter, claims; generally composition of matter claims areeasier to enforce and are more difficult to circumvent.Our business may be harmed and we may incur substantial costs as a result of litigation or other proceedings relating topatent and other intellectual property rights.A third party may assert that we, one of our subsidiaries or one of our strategic collaborators has infringed his, her or itspatents and proprietary rights or challenge the validity or enforceability of our patents and proprietary rights. Likewise, we may need toresort to litigation to enforce our patent rights or to determine the scope and validity of a third party’s proprietary rights.We cannot be sure that other parties have not filed for or obtained relevant patents that could affect our ability to obtain patentsor operate our business. Even if we have previously filed patent applications or obtain issued patents, others may file their own patentapplications for our inventions and technology, or improvements to our inventions and technology. We have become aware of publishedpatent applications filed after the issuance of our patents that, should the owners pursue and obtain patent claims to our inventions andtechnology, could require us to challenge such patent claims. Others may challenge our patent or other intellectual property rights or sueus for infringement. In all such cases, we may commence legal proceedings to resolve our patent or other intellectual property disputes ordefend against charges of infringement or misappropriation. An adverse determination in any litigation or administrative proceeding towhich we may become a party could subject us to significant liabilities, result in our patents being deemed invalid, unenforceable orrevoked, or drawn into an interference, require us to license disputed rights from others, if available, or to cease using the disputedtechnology. In addition, our involvement in any of these proceedings may cause us to incur substantial costs and result in diversion ofmanagement and technical personnel. Furthermore, parties making claims against us may be able to obtain injunctive or other equitablerelief that could effectively block our ability to develop, commercialize and sell products, and could result in the award of substantialdamages against us. 28Table of ContentsThe outcome of these proceedings is uncertain and could significantly harm our business. If we do not prevail in this type oflitigation, we or our strategic collaborators may be required to: • pay monetary damages; • expend time and funding to redesign our Fibrocell Therapy so that it does not infringe others’ patents while still allowing us tocompete in the market with a substantially similar product; • obtain a license, if possible, in order to continue manufacturing or marketing the affected products or services, and pay licensefees and royalties, which may be non-exclusive. This license may be non-exclusive, giving our competitors access to the sameintellectual property, or the patent owner may require that we grant a cross-license to our patented technology; or • stop research and commercial activities relating to the affected products or services if a license is not available on acceptableterms, if at all.Any of these events could materially adversely affect our business strategy and the value of our business.In addition, the defense and prosecution of intellectual property suits, interferences, oppositions and related legal andadministrative proceedings in the United States and elsewhere, even if resolved in our favor, could be expensive and time consuming andcould divert financial and managerial resources. Some of our competitors may be able to sustain the costs of complex patent litigationmore effectively than we can because they have substantially greater financial resources.If we are unable to keep up with rapid technological changes, our future products may become obsolete or unmarketable.Our industry is characterized by significant and rapid technological change. Although we attempt to expand our technologicalcapabilities in order to remain competitive, research and discoveries by others may make our future products obsolete. If we cannotcompete effectively in the marketplace, our potential for profitability and financial position will suffer.We have not declared any dividends on our common stock to date, and we have no intention of declaring dividends in theforeseeable future.The decision to pay cash dividends on our common stock rests with our Board of Directors and will depend on our earnings,unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future,as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend incomeon their investment, and investors will be dependent on the appreciation of our common stock to earn a return on their investment.Provisions in our charter documents could prevent or delay stockholders’ attempts to replace or remove current management.Our charter documents provide for staggered terms for the members of our Board of Directors. Our Board of Directors isdivided into three staggered classes, and each director serves a term of three years. At stockholders’ meetings, only those directorscomprising one of the three classes will have completed their term and be subject to re-election or replacement.In addition, our Board of Directors is authorized to issue “blank check” preferred stock, with designations, rights andpreferences as they may determine. Accordingly, our Board of Directors may, without stockholder approval, issue shares of preferredstock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of theholders of our common stock. This type of preferred stock could also be issued to discourage, delay or prevent a change in our control. 29Table of ContentsIn May 2006, our Board of Directors declared a dividend of one right for each share of our common stock to purchase ournewly created Series C participating preferred stock in connection with the adoption of a stockholder rights plan. These rights may havecertain anti-takeover effects. For example, the rights may cause substantial dilution to a person or group that attempts to acquire us in amanner which causes the rights to become exercisable. As such, the rights may have the effect of rendering more difficult or discouragingan acquisition of our company which is deemed undesirable by our board of directors.The use of a staggered Board of Directors, the ability to issue “blank check” preferred stock, and the adoption of stockholderrights plans are traditional anti-takeover measures. These provisions in our charter documents make it difficult for a majoritystockholder to gain control of the Board of Directors and of our company. These provisions may be beneficial to our management and ourBoard of Directors in a hostile tender offer and may have an adverse impact on stockholders who may want to participate in such atender offer, or who may want to replace some or all of the members of our Board of Directors.Provisions in our bylaws provide for indemnification of officers and directors, which could require us to direct funds away fromour business and future products.Our bylaws provide for the indemnification of our officers and directors. We have in the past and may in the future berequired to advance costs incurred by an officer or director and to pay judgments, fines and expenses incurred by an officer or director,including reasonable attorneys’ fees, as a result of actions or proceedings in which our officers and directors are involved by reason ofbeing or having been an officer or director of our company. Funds paid in satisfaction of judgments, fines and expenses may be funds weneed for the operation of our business and the development of our product candidates, thereby affecting our ability to attain profitability.Future sales of our common stock may depress our stock price.The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in thepublic market, or as a result of the perception that these sales could occur, which could occur if we issue a large number of shares ofcommon stock (or securities convertible into our common stock) in connection with a future financing, as our common stock is tradingat low levels. These factors could make it more difficult for us to raise funds through future offerings of common stock. As ofMarch 26, 2009, there were 19,826,441 shares of common stock issued and outstanding. All of our outstanding shares are freelytransferable without restriction or further registration under the Securities Act.There is a limited, volatile and sporadic public trading market for our common stock.There is a limited, volatile and sporadic public trading market for our common stock. Without an active trading market, therecan be no assurance of any liquidity or resale value of our common stock, and stockholders may be required to hold shares of ourcommon stock for an indefinite period of time.Lack of effectiveness of internal controls over financial reporting could adversely affect the value of our securities.As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring public companies to include a report ofmanagement on the company’s internal control over financial reporting in their annual reports on Form 10-K that contains an assessmentby management of the effectiveness of the company’s internal control over financial reporting. In addition, the independent registeredpublic accounting firm auditing the company’s financial statements has been required to and may be required in the future to attest to andreport on the company’s internal control over financial reporting. Ineffective internal controls over our financial reporting have occurred inthe past and may arise in the future. As a consequence, our investors could lose confidence in the reliability of our financial statements,which could result in a decrease in the value of our securities. 30Table of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis prospectus, including the documents we incorporate by reference, contains certain “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, asamended, as well as information relating to Fibrocell that is based on management’s exercise of business judgment and assumptions madeby and information currently available to management. When used in this document and other documents, releases and reports releasedby us, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended toidentify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statementsreflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of theserisks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from thoseanticipated 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, wecan give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forwardlooking statements. Several of these factors include, without limitation: • our ability to finance our business and continue in operations; • whether the results of our full Phase III pivotal study and our BLA filing will result in approval of our product candidate,and whether any approval will occur on a timely basis; • our ability to meet requisite regulations or receive regulatory approvals in the United States, Europe, Asia and theAmericas, and our ability to retain any regulatory approvals that we may obtain; and the absence of adverse regulatorydevelopments in the United States, Europe, Asia and the Americas or any other country where we plan to conductcommercial operations; • whether our clinical human trials relating to the use of autologous cellular therapy applications, and such otherindications as we may identify and pursue can be conducted within the timeframe that we expect, whether such trials willyield positive results, or whether additional applications for the commercialization of autologous cellular therapy can beidentified by us and advanced into human clinical trials; • our ability to develop autologous cellular therapies that have specific applications in cosmetic dermatology, and ourability to explore (and possibly develop) applications for periodontal disease, reconstructive dentistry, treatment ofrestrictive scars and burns and other health-related markets; • our ability to decrease our manufacturing costs for our Fibrocell Therapy product candidates through the improvement ofour manufacturing process, and our ability to validate any such improvements with the relevant regulatory agencies; • our ability to reduce our need for fetal bovine calf serum by improved use of less expensive media combinations anddifferent 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 FibrocellTherapy; and • other risks referenced from time to time elsewhere in this prospectus and in our filings with the SEC. 31Table of ContentsThese factors are not necessarily all of the important factors that could cause actual results of operations to differ materiallyfrom those expressed in these forward-looking statements. Other unknown or unpredictable factors also could have material adverseeffects on our future results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions tothese forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipatedevents. We cannot assure you that projected results will be achieved.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesOur corporate headquarters and manufacturing operations are located in one location, Exton, Pennsylvania. The Exton,Pennsylvania location is leased and consists of approximately 86,500 square feet. The lease is noncancelable through March 31, 2013.Item 3. Legal ProceedingsNone.Item 4.Reserved.Part IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOn October 21, 2009, our common stock became available for trading OTCBB under the symbol “FCSC.” Currently, thereis only a limited, sporadic and volatile market for our stock on the OTCBB. The table below presents the high and low bid price for ourcommon stock each quarter during the past two years and reflects inter-dealer prices, without retail markup, markdown, or commission,and may not represent actual transactions. December 31, 2009 High Low Fourth Quarter (from October 21, 2009) $2.40 $0.50 The closing price of our common stock on March 26, 2010 was $1.02.The common stock of our predecessor company, Isolagen, Inc., traded on the NYSE Amex under the symbol “ILE.” Thecommon stock ceased trading on the NYSE Amex on May 6, 2009 and in June 2009 the NYSE Amex delisted the common stock fromlisting on the NYSE Amex. Upon the effective date of our bankruptcy plan, the outstanding common stock of Isolagen was cancelled.Consequently, the stockholders of Isolagen prior to the effective date of the bankruptcy plan no longer have any interest as stockholdersof Fibrocell by virtue of their ownership of Isolagen’s common stock prior to the emergence from bankruptcy. 32Table of ContentsHoldersAs of March 26, 2010, there were 19,826,441 shares of our common stock outstanding and held by 204 stockholders ofrecord. As of March 26, 2010, there were 3,250 shares of Series A Preferred issued and outstanding.DividendsWe have never paid any cash dividends on our common stock and our board of directors does not intend to do so in theforeseeable future. The declaration and payment of dividends in the future, of which there can be no assurance, will be determined by theboard of directors in light of conditions then existing, including earnings, financial condition, capital requirements and other factors.Holders of the Series A Preferred are entitled to receive cumulative dividends at the rate per share (as a percentage of the statedvalue per share) of 6% per annum (subject to increase in certain circumstances), payable quarterly in arrears on January 15, April 15,July 15 and October 15, beginning on April 15, 2010. The dividends are payable in cash, or at our option, in duly authorized, validlyissued, fully paid and non-assessable shares of common stock equal to 110% of the cash dividend amount payable on the dividendpayment date, or a combination thereof; provided that we may not pay the dividends in shares of common stock unless we meet certainconditions described in the Certificate of Designation, including that the resale of the shares has been registered under the Securities Act. Ifwe pay the dividend in shares of common stock, the common stock will be valued for such purpose at 80% of the average of the volumeweighted average price for the 10 consecutive trading days ending on the trading day that is immediately prior to the dividend paymentdate.Penny StockThe SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Our stock iscurrently a “penny stock.” Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered oncertain national securities exchanges. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwiseexempt from those rules, deliver a standardized risk disclosure document prepared by the SEC, which: (a) contains a description of thenature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of thebroker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to suchduties or other requirements of securities’ laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and askprices for penny stocks and significance of the spread between the bid and ask price; (d) contains a toll-free telephone number forinquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks;and (f) contains such other information and is in such form as the SEC shall require by rule or regulation. The broker-dealer also mustprovide to the customer, prior to effecting any transaction in a penny stock, (a) bid and offer quotations for the penny stock; (b) thecompensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask pricesapply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly accountstatements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require thatprior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determinationthat the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a riskdisclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitablystatement.These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock if itbecomes subject to these penny stock rules. 33Table of ContentsRecent Sales of Unregistered SecuritiesOn August 27, 2009, the United States Bankruptcy Court for the District of Delaware in Wilmington entered an order, orConfirmation Order, confirming the Joint First Amended Plan of Reorganization dated July 30, 2009, as supplemented by the PlanSupplement dated August 21, 2009, or the Plan, of Isolagen, Inc. and Isolagen’s wholly owned subsidiary, Isolagen Technologies, Inc.The effective date of the Plan was September 3, 2009.Pursuant to the Plan, all Isolagen equity interests, including without limitation its common stock, options and warrantsoutstanding as of the effective date were cancelled. On the effective date, Fibrocell completed an exit financing of common stock in theamount of $2 million. Fibrocell issued the following shares of common stock pursuant to the Plan: • 7,320,000 shares, to its pre-bankruptcy lenders and the lenders that provided its debtor-in-possession facility,collectively; • 3,960,000 shares, to the holders of the 3.5% convertible subordinated notes issued by Isolagen; • 600,000 shares, to its management as of the effective date, which was its chief operating officer; • 120,000 shares, to the holders of its general unsecured claims; and • 2,666,666 shares, to the purchasers of shares in the exit financing (its pre-bankruptcy lenders, the lenders thatprovided the debtor-in-possession facility and the holders of the 3.5% convertible subordinated notes were permitted toparticipate in the exit financing).The common stock issued pursuant to the Plan was issued pursuant to Section 1145 of the United States Bankruptcy Code,which exempts the issuance of securities from the registration requirements of the Securities Act.A condition precedent to Fibrocell’s exit from bankruptcy was that it execute an investment banking agreement with JohnCarris Investments LLC and Viriathus Capital LLC. In connection with this agreement, Fibrocell was required to pay a retainer, whichconsisted in part of the issuance of options to purchase an aggregate of 1,000,000 shares of common stock at $0.75 per share. Thesesecurities were issued pursuant to the exemption from registration permitted under Section 4(2) of the Securities Act.The Series A Preferred and the warrants issued in our October 2009 offering were sold in a transaction exempt fromregistration under the Securities Act, in reliance on Section 4(2) thereof and Rule 506 of Regulation D thereunder. Each purchaserrepresented that it was an “accredited investor” as defined in Regulation D.In October 2009, we entered into two consulting agreements with two individuals. We issued the two consultants options topurchase 200,000 shares and 150,000 shares, respectively. The options have an expiration date five years from the date of issuance andan exercise price of $0.75 per share. The options were issued in a transaction exempt from registration under the Securities Act of 1933,in reliance on Section 4(2) thereof.In December 2009, we entered into a consulting agreement with one individual and issued the consultant options to purchase100,000 shares. The options have an expiration date five years from the date of issuance and an exercise price of $1.25 per share. Theoptions were issued in a transaction exempt from registration under the Securities Act of 1933, in reliance on Section 4(2) thereof.Purchases of Equity Securities.We did not repurchase any of our equity securities during the fourth quarter of 2009.Item 6. Selected Financial DataWe are a smaller reporting company, and are not required to report this information. 34Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsGeneralWe are an aesthetic and therapeutic development stage biotechnology company focused on developing novel skin and tissuerejuvenation products. Our clinical development product candidates are designed to improve the appearance of skin injured by the effectsof aging, sun exposure, acne and burn scars with a patient’s own, or autologous, fibroblast cells produced by our proprietary FibrocellProcess. Our clinical development programs encompass both aesthetic and therapeutic indications. Our most advanced indicationutilizing the Fibrocell Therapy is for the treatment of nasolabial fold wrinkles, which completed Phase III clinical studies and the relatedBiologics License Application (“BLA”) was been accepted for filing by the Food and Drug Administration (“FDA”) during May 2009.On October 9, 2009 the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed our nasolabial fold wrinkles productcandidate. The Committee voted 11 “yes” to 3 “no” that the data presented on our product demonstrated efficacy, and 6 “yes” to 8 “no”that the data demonstrated safety; both for the proposed indication of treatment of nasolabial fold wrinkles. The committee’srecommendations are not binding on the FDA, but the FDA will consider their recommendations during their review of our application.The United States Adopted Names (“USAN”) Council adopted the USAN name, azficel-T, for our product on October 28, 2009, andthe FDA is currently evaluating a proposed brand name, Laviv™. On December 21, 2009, Fibrocell Science received a CompleteResponse letter from the FDA related to the BLA for azficel-T. A Complete Response letter is issued by the FDA’s Center for BiologicsEvaluation and Research (CBER) when the review of a file is completed and additional data are needed prior to approval. The CompleteResponse letter requested that Fibrocell Science provide data from a histopathological study on biopsied tissue samples from patientsfollowing injection of azficel-T. The letter also requested finalized Chemistry, Manufacturing and Controls (CMC) information regardingthe manufacture of azficel-T as follow-up to discussions that occurred during the BLA review period, as well as revised policies andprocedures regarding shipping practices, and proposed labeling.During 2009 we completed a Phase II/III study for the treatment of acne scars. During 2008 we completed our open-label PhaseII 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.Exit from BankruptcyOn August 27, 2009, the United States Bankruptcy Court for the District of Delaware in Wilmington entered an order, orConfirmation Order, confirming the Joint First Amended Plan of Reorganization dated July 30, 2009, as supplemented by the PlanSupplement dated August 21, 2009, or the Plan, of Isolagen, Inc. and Isolagen’s wholly owned subsidiary, Isolagen Technologies, Inc.The effective date of the Plan was September 3, 2009.Our officers and directors as of the effective date were all deemed to have resigned and a new board of directors was appointed.As of the effective date, our initial board of directors consisted of: David Pernock, Paul Hopper and Kelvin Moore. Dr. Robert Langer wasappointed to the Board in late September 2009. Declan Daly remained as chief operating officer and chief financial officer of thereorganized company, and in November 2009, he was appointed to the Board of Directors. Mr. Daly also acted as interim chief executiveofficer until February 1, 2010 when David Pernock became the chief executive officer.Pursuant to the Plan, all our equity interests, including without limitation our common stock, options and warrantsoutstanding as of the effective date were cancelled. On the effective date, we completed an exit financing of common stock in the amountof $2 million, after which the equity holders of our Successor Company were: • 7,320,000 shares, to our pre-bankruptcy lenders and the lenders that provided us our debtor-in-possession facility,collectively; • 3,960,000 shares, to the holders of our 3.5% convertible subordinated notes; • 600,000 shares, to our management as of the effective date, which was our chief operating officer; 35Table of Contents • 120,000 shares, to the holders of our general unsecured claims; and • 2,666,666 shares, to the purchasers of shares in the $2 million exit financing (our pre-bankruptcy lenders, the lendersthat provided us our debtor-in-possession facility and the holders of our 3.5% convertible subordinated notes werepermitted to participate in our exit financing).In the Plan, in addition to the common stock set forth above, each holder of Isolagen’s 3.5% convertible subordinated notes,due November 2024, in the approximate non-converted aggregate principal amount of $81 million, received, in full and final satisfaction,settlement, release and discharge of and in exchange for any an all claims arising out of the 3.5% convertible subordinated notes, its prorata share of an unsecured note in the principal amount of $6 million, or the New Note. The New Note has the following features: • 12.5% interest payable quarterly in cash or, at our option, 15% payable in kind by capitalizing such unpaid amountand adding it to the principal as of the date it was due; • matures June 1, 2012; • at any time prior to the maturity date, we may redeem any portion of the outstanding principal of the New Notes in cashat 125% of the stated face value of the New Notes; provided that we will be obligated to redeem all outstanding NewNotes upon the following events: (a) we or our subsidiary, Fibrocell Technologies, Inc. (formerly, Isolagen Technologies,Inc.) successfully complete a capital campaign raising in excess of $10,000,000; or (b) we or our subsidiary, FibrocellTechnologies, Inc., are acquired by, or sell a majority stake to, an outside party; • the New Notes contain customary representations, warranties and covenants, including a covenant that we and oursubsidiary, Fibrocell Technologies, Inc., shall be prohibited from the incurrence of additional debt without obtaining theconsent of 66 2/3% of the New Note holders.Going ConcernThe Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a going concern. AtDecember 31, 2009, we had cash and cash equivalents of $1.4 million and working capital of $1.5 million. In early March 2010, weraised approximately $3.8 million less fees as a result of the issuance of common stock and warrants. We believe that our existing capitalresources are adequate to sustain our operation through approximately mid-June 2010. As such, we will require additional cash resourcesprior to or during approximately mid-June 2010, or we will likely cease operations. The Successor Company will need to access thecapital markets in the future in order to fund future operations. There is no guarantee that any such required financing will be availableon terms satisfactory to the Successor Company or available at all. These matters create uncertainty relating to our ability to continue as agoing concern. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability andclassification of assets or liabilities that might result from the outcome of these uncertainties.Further, if we do raise additional cash resources prior to mid-June 2010, it may be raised in contemplation of or in connectionwith bankruptcy. In the event of a bankruptcy, it is likely that our common stock and common stock equivalents will become worthlessand our creditors will receive significantly less than what is owed to them.Through December 31, 2009, we have been primarily engaged in developing our initial product technology. In the course of ourdevelopment activities, we have sustained losses and expect such losses to continue through at least 2010. There is substantial doubtabout our ability to continue as a going concern.Our ability to complete additional offerings is dependent on the state of the debt and/or equity markets at the time of anyproposed offering, and such market’s reception of the Successor Company and the offering terms. Our ability to complete an offering isalso dependent on the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for thetreatment of nasolabial fold wrinkles and the status of the related BLA, which cannot be predicted. There is no assurance that capital inany form would be available to us, and if available, on terms and conditions that are acceptable. 36Table of ContentsAs a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the UnitedStates, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern iscontingent, among other things, upon our ability to secure additional adequate financing or capital prior to or during approximately mid-June 2010. If we do not obtain additional funding, or do not anticipate additional funding, prior to or during approximately mid-June 2010, we will likely enter into bankruptcy and/or cease operations. Further, if we do raise additional cash resources prior to mid-June 2010, it may be raised in contemplation of or in connection with bankruptcy. If we enter into bankruptcy, it is likely that ourcommon stock and common stock equivalents will become worthless and our creditors will receive significantly less than what is owed tothem.Critical Accounting PoliciesThe following discussion and analysis of financial condition and results of operations are based upon our consolidatedfinancial statements, which have been prepared in conformity with accounting principles generally accepted in the United States ofAmerica. However, certain accounting policies and estimates are particularly important to the understanding of our financial position andresults of operations and require the application of significant judgment by our management or can be materially affected by changesfrom period to period in economic factors or conditions that are outside of the control of management. As a result they are subject to aninherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions tobe used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans andprojected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by ourcustomers and information available from other outside sources, as appropriate. The following discusses our critical accounting policiesand estimates.Warrant Liability: We account for our warrants in accordance with U.S. GAAP. The warrants are measured at fair value andliability-classified under ASC 815, Derivatives and Hedging, (“ASC 815”) because the warrants contain “down-round protection” andtherefore, do not meet the scope exception for treatment as a derivative under ASC 815. Since “down-round protection” is not an inputinto the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is arequirement for the scope exception as outlined under ASC 815. The fair value of the warrants is determined using the Black-Scholesoption pricing model and is affected by changes in inputs to that model including our stock price, expected stock price volatility, thecontractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the warrantsare exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability.Stock-Based Compensation: We account for stock-based awards to employees and non-employees using the fair value basedmethod to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. We usea Black-Scholes options-pricing model to determine the fair value of each option grant as of the date of grant for expense incurred. TheBlack-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility and expected lives of the options. Expectedvolatility is based on historical volatility of our competitor’s stock since the Predecessor Company ceased trading as part of thebankruptcy and emerged as a new entity. The risk-free rate for periods within the contractual life of the option is based on the U.S.Treasury yield curve in effect at the time of the grant. The expected lives for options granted represents the period of time that optionsgranted are expected to be outstanding and is derived from the contractual terms of the options granted. We estimate future forfeitures ofoptions based upon expected forfeiture rates.Research and Development Expenses: Research and development costs are expensed as incurred and include salaries andbenefits, costs paid to third-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials anddelivery devices, and a portion of facilities cost. Clinical trial costs are a significant component of research and development expenses andinclude costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag severalmonths. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of managementfees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimated clinical trialcosts and are adjusted for in the period in which they become known. 37Table of ContentsEmergence from Voluntary Reorganization Under Chapter 11 Proceedings and Reorganization PlanFibrocell emerged from Chapter 11 on September 3, 2009. See Note 1 in the accompanying Consolidated Financial Statements.Basis of PresentationAs of September 1, 2009, the Successor Company adopted fresh-start accounting in accordance with ASC 852-10,Reorganizations. The Successor Company selected September 1, 2009, as the date to effectively apply fresh-start accounting based on theabsence of any material contingencies at the August 27, 2009 confirmation hearing and the immaterial impact of transactions betweenAugust 27, 2009 and September 1, 2009. The adoption of fresh-start accounting resulted in the Successor Company becoming a newentity for financial reporting purposes.Accordingly, the financial statements prior to September 1, 2009 are not comparable with the financial statements for periodson or after September 1, 2009. References to “Successor” or “Successor Company” refer to the Company on or after September 1, 2009,after giving effect to the cancellation of Isolagen, Inc. common stock issued prior to the Effective Date, the issuance of new FibrocellScience, Inc. common stock in accordance with the Plan, and the application of fresh-start accounting. References to “Predecessor” or“Predecessor Company” refer to the Company prior to September 1, 2009. See Note 5 — “Fresh Start Accounting” in the notes to theseConsolidated Financial Statements for further details.For discussions on the results of operations, the Successor Company has combined the results of operations for the eightmonths ended August 31, 2009, with the results of operations for the four months ended December 31, 2009. The combined periods havebeen compared to the year-ended December 31, 2008. The Successor Company believes that the combined financial results providemanagement and investors a more meaningful analysis of the Company’s performance and trends for comparative purposes.The following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanyingNotes to the Consolidated Financial Statements in Part 1, Item 1 of this report.Results of Operations—Comparison of Years Ending December 31, 2009 and 2008REVENUES. Revenue decreased $0.2 million to $0.9 million for the year ended December 31, 2009, as compared to$1.1 million for the year ended December 31, 2008. Our revenue from continuing operations is from the operations of Agera which weacquired on August 10, 2006. Agera markets and sells a complete line of advanced skin care systems based on a wide array ofproprietary formulations, trademarks and non-peptide technology. Due to our financial statement presentation of our United Kingdomoperation as a discontinued operation, our revenue for all periods presented is representative of only Agera, as all historical UnitedKingdom revenue is reflected in loss from discontinued operations. We believe that the decline in Agera’s sales in fiscal 2009 was due tothe general economic conditions during 2009.COST OF SALES. Costs of sales remained constant at $0.6 million for the year ended December 31, 2009 and December 31,2008. Our cost of sales relates to the operation of Agera. As a percentage of revenue, Agera cost of sales were approximately 70% for theyear ended December 31, 2009 and 55% for the year ended December 31, 2008. Cost of sales as a percentage of revenue has increasedprimarily due to a reserve recorded during the three months ended September 30, 2009 of approximately $0.2 million, as compared to areserve of less than $0.1 million recorded for slow moving and/or obsolete inventory recorded during the three months endedSeptember 30, 2008, and changes in Agera’s product mix.IMPAIRMENT OF LONG-LIVED ASSETS. There was no impairment of assets in 2009. During 2008, due to the likelihoodof bankruptcy and in connection with the Company’s review for impairment of long-lived assets in accordance with ASC 360,“Accounting for the Impairment or Disposal of Long-lived Assets,” we recorded a full impairment on all of our long-lived assets as ofDecember 31, 2008 in the consolidated statement of operations, and as such, we have recorded an impairment charge of $6.7 millionduring the year ended December 31, 2008. 38Table of ContentsSELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreasedapproximately $2.4 million, or 28%, to $6.1 million for the year ended December 31, 2009, as compared to $8.5 million for the yearended December 31, 2008. The decrease in selling, general and administrative expense is primarily due to the following:a) Salaries, bonuses and payroll taxes decreased by approximately $1.0 million to $2.8 million for the year endedDecember 31, 2009, as compared to $3.8 million for the year ended December 31, 2008, due to a decrease in the number of ouremployees which resulted in lower salary expense.b) Marketing expense decreased by less than $0.1 million to less than $0.1 million for the year ended December 31, 2009, ascompared to $0.1 million during the year ended December 31, 2008 due primarily to decreased marketing and promotional effortsrelated to marketing and selling our Agera line of advanced skin care systems.c) Travel expense decreased by approximately $0.1 million to $0.1 million for the year ended December 31, 2009, as comparedto $0.2 million for the year ended December 31, 2008 due to the decrease in the number of our employees, primarily at the executivemanagement level and focused efforts to conserve cash resources during 2009.d) Other general and administrative expenses decreased by approximately $1.1 million to $3.0 million for the year endedDecember 31, 2009, as compared to $4.1 million for the year ended December 31, 2008. The decrease of $1.1 million in othergeneral and administrative expenses are due to cost-saving measures continued during 2009, including savings related to accountingand audit expenses, insurance premiums, consultants and other general costs.e) Legal expenses decreased by approximately $0.1 million to $0.2 million for the year ended December 31, 2009, as comparedto $0.3 million for the year ended December 31, 2008. For the years ended December 31, 2009 and December 30, 2008, we received$0.3 million and $1.3 million, respectively, of reimbursements from our insurance carrier as reimbursement for defense costsrelated to our class action and derivative matters. If we had not received these reimbursements, our legal expenses would have been$0.5 million for the year ended December 31, 2009 and $1.6 million for the year ended December 31, 2008. As such, excludingreimbursements of legal defense costs, our legal expenses have decreased $1.1 million in 2009 from the prior year as a result of theJune 2008 mediation efforts which resulted in a settlement in principle related to our class action and derivative action matters. Ourlegal expenses fluctuated primarily as a result of the amount and timing of defense costs related to our class action and derivativeaction matters, as well as a result of the amount and timing of defense cost reimbursements from our insurance carrier. Suchreimbursements are recorded when received. We also incurred $0.2 million in legal costs, during the year ended December 31, 2008,related to investigating and responding to claims related to our previous United Kingdom operation.RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $6.3 million for theyear ended December 31, 2009 to $3.9 million, as compared to $10.2 million for the year ended December 31, 2008. Research anddevelopment costs are composed primarily of costs related to our efforts to gain FDA approval for our Fibrocell Therapy for specificdermal applications in the United States, as well as costs related to other potential indications for our Fibrocell Therapy, such as acnescars and burn scars. Also, research and development expense includes costs to develop manufacturing, cell collection and logisticalprocess improvements. Research and development costs primarily include personnel and laboratory costs related to these FDA trials andcertain consulting costs. The total inception 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 December 31, 2009, for theSuccessor Company was $1.8 million. 39Table of ContentsThe FDA approval process is extremely complicated and is dependent upon our study protocols and the results of our studies.In the event that the FDA requires additional studies for our product candidate or requires changes in our study protocols or in the eventthat the results of the studies are not consistent with our expectations, the process will be more expensive and time consuming. Due to thecomplexities of the FDA approval process, we are unable to predict what the cost of obtaining approval for our dermal product candidatewill be.The major changes in research and development expenses are due primarily to the following:a) Consulting expense decreased by approximately $3.3 million to $1.6 million for the year ended December 31, 2009, ascompared to $4.9 million for the year ended December 31, 2008, primarily as a result of decreased expenditures related to our PhaseIII wrinkle/nasolabial fold study, which concluded during 2008.b) Salaries, bonuses and payroll taxes decreased by approximately $1.5 million to $0.9 million for the year endedDecember 31, 2009, as compared to $2.4 million for the year ended December 31, 2008, as a result of decreased employees engagedin research and development activities.c) Laboratory costs decreased by approximately $0.4 million to $0.6 million for the year ended December 31, 2009, ascompared to $1.0 million for the year ended December 31, 2008, as a result of decreased clinical and manufacturing activities in ourExton, Pennsylvania location, primarily due to the completion of the Phase III nasolabial folds trials during 2008.d) Contract labor support related to our clinical manufacturing operation decreased $0.2 million to less than $0.1 million forthe year ended December 31, 2009, as compared to $0.2 million for the year ended December 31, 2008, as a result of decreasedclinical activities in our Exton, Pennsylvania location.e) Facilities, depreciation and travel costs decreased $0.9 million to $0.8 million for the year ended December 31, 2009 ascompared to $1.7 million for the year ended December 31, 2008. The decrease is due primarily to the impairment of fixes assets atDecember 31, 2008 resulting in no depreciation for 2009.LOSS FROM DISCONTINUED OPERATIONS.Discontinued operations had income of less than $0.1 million for the year ended December 31, 2009 as compared to a loss of$4.5 million for the year ended December 31, 2008. The $4.5 million loss from discontinued operations for the year ended December 31,2008, primarily related to the sale of our Swiss campus in March 2008. In connection with this sale, we recorded a loss on sale of$6.3 million, offset by a foreign currency exchange gain of $2.1 million upon the substantial liquidation of the Swiss subsidiary. Theforeign exchange gain recorded during the three months ended March 31, 2008 results from removing from the accumulated foreigncurrency translation adjustment account in stockholders’ equity, a credit balance which related to the translation into U.S. dollars of ourSwiss franc assets and liabilities. The credit balance which had accumulated, and the resulting gain recorded upon the substantialliquidation of our Swiss franc assets, reflected the increase in the value of the Swiss franc relative to the U.S. dollar over the period thatwe had operated in Switzerland. Administrative costs and facility costs related to the United Kingdom and Swiss operations comprisedapproximately $0.3 million, net, during the year ended December 31, 2008.As of December 31, 2008, all previously leased facilities related to discontinued operations have been exited, and all buildings,property and equipment related to discontinued operations have been sold or otherwise disposed of.INTEREST INCOME. Interest income decreased approximately $0.2 million to less than $0.1 million for the year endedDecember 31, 2009, as compared to $0.2 million for the year ended December 31, 2008. The decrease in interest income of $0.2 millionresulted from a decrease in the amount of cash, cash equivalents and restricted cash balances, as a result of our use of these balancesprimarily to fund our operating activities related to our efforts to gain FDA approval for our Fibrocell Therapy.REORGANIZATION ITEMS, NET. On June 15, 2009, Isolagen, Inc. and its wholly-owned, U.S. subsidiary IsolagenTechnologies, Inc., filed voluntary petitions for relief under Chapter 11 of the federal bankruptcy laws in the United States BankruptcyCourt for the District of Delaware, as more fully discussed under Bankruptcy, Debt and Going Concern. A reorganization gain, net ofreorganization costs, of $73.5 million was recorded for the year ended December 31, 2009, which was comprised primarily of legal feesand the unamortized debt acquisition costs, and gain of discharge of liabilities. 40Table of ContentsINTEREST EXPENSE. Interest expense decreased $1.4 million to $2.5 million for the year ended December 31, 2009, ascompared to $3.9 million for the year ended December 31, 2008. Our interest expense is related to our $90.0 million, 3.5% convertiblesubordinated notes, as well as the related amortization of deferred debt issuance costs of $0.1 million and interest expense related to thesecured bridge loan and DIP financing until the emergence out of bankruptcy for the year ended December 31, 2009. With the emergenceout of bankruptcy, the 3.5% convertible subordinated notes were exchanged for $6.0 million of debt and 3,960,000 shares of the newcommon stock. There is also interest expense related to the 12.5% note for the year end December 31, 2009. For the year endedDecember 31, 2008, our interest expense is related to our $90.0 million, 3.5% convertible subordinated notes, as well as the relatedamortization of deferred debt issuance costs of $0.8 million.NONCONTROLLING INTEREST. The noncontrolling interest loss was $0.2 million for the year ended December 31, 2009,as compared to noncontrolling interest income of $1.7 million for the year ended December 31, 2008. The decrease in minority interestincome of $1.5 million is primarily due to an impairment charge recorded during the year ended December 31, 2008 of $3.7 million,which related to the full impairment of the Agera segment intangible assets, and the associated 43% minority interest ownership of Agera.NET INCOME/(LOSS). Net loss, excluding reorganization items, was $12.8 million for the year ended December 31, 2009as compared to a net loss of $31.4 million for the year ended December 31, 2008. This decrease in our net loss primarily is a result of adecrease in research and development expenses, general and administrative expenses, the reduction in employees and compensationexpense and cost saving measures continued in 2009, offset by the impairment charge of $6.7 million related to long-lived assets for theyear ended December 31, 2008, the increase in loss from discontinued operations and reductions in interest income, as discussed above.Net income of $60.7 million for the year ended December 31, 2009, included reorganization items of $73.5 million as a result of theemergence out of bankruptcy and discharge of debt and unsecured liabilities.Liquidity and Capital ResourcesCash FlowsNet cash provided by (used in) operating, investing and financing activities for the two years ended December 31, 2009 and2008 were as follows: Year Ended December 31, 2009 2008 (in millions) Cash flows from operating activities $(9.0) $(20.0)Cash flows from investing activities — 6.4 Cash flows from financing activities 7.5 — OPERATING ACTIVITIES. Cash used in operating activities during the year ended December 31, 2009 amounted to$9.0 million, a decrease of $11.0 million over the year ended December 31, 2008. The decrease in our cash used in operating activitiesover the prior year is primarily due to a decrease in net losses (adjusted for non-cash items) of $7.1 million, in addition to operating cashinflows from changes in operating assets and liabilities. The change in operating assets and liabilities is primarily due to a large increasein accrued liabilities (see Note 10 of Notes to the Consolidated Financial Statements) at December 31, 2009 as compared to December 31,2008.Our negative operating cash flows in 2009 were funded from cash on hand at December 31, 2008, which were primarily theresult of previously completed debt and equity offerings, as well as from the proceeds of the sale of our Swiss campus in March 2008,discussed further below, as well as funds received from the secured bridge loan, DIP financing, exit financing and the funds received forthe issuance of preferred stock in 2009.INVESTING ACTIVITIES. No cash was provided by investing activities during the year ended December 31, 2009 ascompared to cash provided in investing activities of $6.4 million during the year ended December 31, 2008. Investing activities during theyear ended December 31, 2008 related primarily to the sale of our Swiss campus in March 2008 for approximately $6.4 million, net ofselling costs. 41Table of ContentsFINANCING ACTIVITIES. There was $7.5 million cash proceeds from financing activities during the year endedDecember 31, 2009, as compared to no cash received from financing activities during the year ended December 31, 2008. During 2009,we raised cash while reorganizing under bankruptcy and with the issuance of preferred stock.Cash Flows Related to Discontinued OperationsCash flows related to discontinued operations, which are included in the table of cash flows above, were as follows: Years Ended December 31, 2009 2008 (in millions) Cash flows used in operating activities $(0.1) $(0.3)Cash flows provided by investing activities — 6.4 The cash provided by investing activities during the year ended December 31, 2008 of $6.4 million related to the sale of ourSwiss campus during 2008 and is discussed above under “Investing Activities.”Working CapitalAs of December 31, 2009, we had cash and cash equivalents of $1.4 million and working capital of $1.5 million. In earlyMarch 2010, we raised approximately $3.8 million less fees as a result of the issuance of common stock and warrants. We believe thatour existing capital resources are adequate to sustain our operation through approximately mid-June 2010. As such, we will requireadditional cash resources prior to or during approximately mid-June 2010, or we will likely cease operations. The Successor Companywill need to access the capital markets in the future in order to fund future operations. There is no guarantee that any such requiredfinancing will be available on terms satisfactory to the Successor Company or available at all. These matters create uncertainty relating toour ability to continue as a going concern. The accompanying consolidated financial statements do not reflect any adjustments relating tothe recoverability and classification of assets or liabilities that might result from the outcome of these uncertainties.DebtAs part of the Plan of Reorganization, the Successor Company was discharged of the Pre-petition Secured Loan, Debtor-in-Possession Credit Facility, related accrued interest and converted the 3.5% Convertible Subordinated Notes into new 12% Promissorynotes as defined below. The Successor Company recorded a $74,648,976 gain relating to the extinguishment of debt as a result of thisPlan of Reorganization.The Successor Company’s outstanding long-term debt at December 31, 2009 consists of $6 million of 12.5% UnsecuredPromissory Notes (“New Notes”). The New Notes have the following features: (1) 12.5% interest payable quarterly in cash or, at theSuccessor Company’s option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of the date itwas due; (2) maturing June 1, 2012; (3) at any time prior to the maturity date, the Successor Company may redeem any portion of theoutstanding principal of the New Notes in Cash at 125% of the stated face value of the New Notes. There is a mandatory redemptionfeature that requires the Successor Company to redeem all outstanding new notes if: (1) the Successor Company successfully completes acapital campaign raising in excess of $10 million; or (2) the Successor Company is acquired by, or sell a majority stake to, an outsideparty.Factors Affecting Our Capital ResourcesInflation did not have a significant impact on the Company’s results during the year ended December 31, 2009. 42Table of ContentsOff-Balance Sheet TransactionsWe do not engage in material off-balance sheet transactions.Item 8. Financial Statements and Supplementary DataThe financial statements, including the notes thereto and report of the independent registered public accounting firm thereon areincluded in this report as set forth in the “Index to Financial Statements.” See F-1 for Index to Consolidated Financial Statements.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresDuring the fourth quarter of 2009, management, including our principal executive officer and principal financial officer,evaluated the disclosure controls and procedures related to the recording, processing, summarization and reporting of information in theperiodic reports that the Company files with the SEC. These disclosure controls and procedures have been designed to ensure that(a) material information relating to the Company, including its consolidated subsidiaries, is made known to management, including theseofficers, by other employees of the Company, and (b) this information is recorded, processed, summarized, evaluated and reported, asapplicable, within the time periods specified in the SEC’s rules and forms.Accordingly, as of December 31, 2009, the officer (the principal executive officer and principal financial officer) concludedthat the Company’s disclosure controls and procedures were effective.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as suchterm is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internalcontrol over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission.Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples in the United States of America. Our internal control over financial reporting includes those policies and procedures that(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect onthe financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 43Table of ContentsBased on our evaluation under the framework in Internal Control — Integrated Framework, our management concludedthat our internal control over financial reporting was effective as of December 31, 2009. This annual report does not include an attestationreport of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject toattestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permitus to provide only management’s report in this annual report.Changes in Internal ControlsThere was no change in our internal control over financial reporting that occurred during the fourth fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationNone.Part IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by this Item 10 will be included in the Company’s Proxy Statement for the 2010 Annual Meeting ofStockholders which will be filed with the Securities and Exchange Commission no later than April 30, 2010 and is incorporated into thisItem 10 by reference.Code of Ethics. We have adopted a written code of ethics that applies to our principal executive officer, principal financialofficer, principal accounting officer or controller and any persons performing similar functions. The code of ethics is on our website atwww.fibrocellscience.com. We intend to disclose any future amendments to, or waivers from, the code of ethics within four businessdays of the waiver or amendment through a website posting or by filing a Current Report on Form 8-K with the SEC.Item 11. Executive CompensationThe information required by this Item 11 will be included in the Company’s Proxy Statement for the 2010 Annual Meeting ofStockholders which will be filed with the Securities and Exchange Commission no later than April 30, 2010 and is incorporated into thisItem 11 by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item 12 will be included in the Company’s Proxy Statement for the 2010 Annual Meeting ofStockholders which will be filed with the Securities and Exchange Commission no later than April 30, 2010 and is incorporated into thisItem 12 by reference.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item 13 will be included in the Company’s Proxy Statement for the 2010 Annual Meeting ofStockholders which will be filed with the Securities and Exchange Commission no later than April 30, 2010 and is incorporated into thisItem 13 by reference.Item 14. Principal Accountant Fees and ServicesThe information required by this Item 14 will be included in the Company’s Proxy Statement for the 2010 Annual Meeting ofStockholders which will be filed with the Securities and Exchange Commission no later than April 30, 2010 and is incorporated into thisItem 14 by reference. 44Table of ContentsPart IVItem 15. Exhibits and Financial Statement Schedule(a)(1) Financial Statements. • Report of Independent Registered Public Accounting Firm • Consolidated Balance Sheets as of December 31, 2009 (Successor Company) and 2008 (Predecessor Company) • Consolidated Statements of Operations for the four months ended December 31, 2009 (Successor Company), eightmonths ended August 31, 2009 (Predecessor Company) and for the year ended 2008 (Predecessor Company) and frominception to August 31, 2009 (Predecessor Company) • Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss) From Inception toAugust 31, 2009 (Predecessor Company) and four months ended December 31, 2009 (Successor Company) • Consolidated Statements of Cash Flows for the four months ended December 31, 2009 (Successor Company), eightmonths ended August 31, 2009 (Predecessor Company) and year ended December 31, 2008 (Predecessor Company) andcumulative period from inception to August 31, 2009 (Predecessor Company) • Notes to Consolidated Financial Statements(a)(2) Financial Statement Schedule.All schedules are omitted because of the absence of conditions under which they are required or because the requiredinformation is presented in the Financial Statements or Notes thereto.(a)(3) The exhibits listed under Item 15(b) are filed or incorporated by reference herein.(b) Exhibits.The following exhibits are filed as part of this annual report:EXHIBIT NO. IDENTIFICATION OF EXHIBIT EXHIBIT NO. IDENTIFICATION OF EXHIBIT 2.1 Debtors’ First Amended Joint Plan of Reorganization dated July 30, 2009 and Disclosure Statement (filed asExhibit 10.2 to the Company’s Form 10-Q for quarter ended June 30, 2009, filed on August 12, 2009 and asExhibit 99.1 to our Form 8-K filed September 2, 2009) 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Form 8-Kfiled September 2, 2009) 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Form 8-K filed September 2,2009) 3.3 Certificate of Designation of Preferences, Rights and Limitations of Series A 6% Convertible Preferred Stock(incorporated by reference to Exhibit 3.1 to our Form 8-K filed October 14, 2009) 4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our Form 10-Q filedNovember 23, 2009) 4.2 Form of Class A/B Common Stock Purchase Warrant issued in October 2009 offering (incorporated byreference to Exhibit 4.1 to our Form 8-K filed October 14, 2009) 4.3 Form of 12.5% Promissory Note (incorporated by reference to Exhibit 10.1 to our Form 8-K filedSeptember 10, 2009) 45Table of Contents EXHIBIT NO. IDENTIFICATION OF EXHIBIT 4.4 Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 to our Form 10-Q filedNovember 23, 2009) 4.5 Common Stock Purchase Warrant issued in March 2010 offering (incorporated by reference to Exhibit 4.1 toour Form 8-K filed March 3, 2010) 10.1 Securities Purchase Agreement dated October 13, 2009 between the Company and the Series A Preferred StockPurchasers (incorporated by reference to Exhibit 10.1 to our Form 8-K filed October 14, 2009) 10.2 Employment Agreement between the Company and Declan Daly (incorporated by reference to Exhibit 10.1 toour Form 10-Q filed November 23, 2009) 10.3 Consulting Agreement between the Company and Robert Langer (incorporated by reference to Exhibit 10.2 toour Form 10-Q filed November 23, 2009) 10.4 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to our Form 10-Q filed November 23,2009) 10.5 Lease Agreement between Isolagen, Inc and The Hankin Group dates April 7, 2005 (previously filed as anexhibit to the company’s Form 8-K, filed on April 12, 2005) 10.6 Purchase Option Agreement between Isolagen, Inc and 405 Eagleview Associates dated April 7, 2005(previously filed as an exhibit to the company’s Form 8-K, filed on April 12, 2005) 10.7 Intellectual Property Purchase Agreement between Isolagen Technologies, Inc., Gregory M. Keller, and PacGenPartners (previously filed as an exhibit to the company’s amended Form S-1, as filed on October 24, 2003) 10.8 Employment Agreement between the Company and David Pernock (incorporated by reference to Exhibit 10.1 toour Form 8-K filed February 1, 2010) 10.9 Securities Purchase Agreement dated March 2, 2010 (incorporated by reference to Exhibit 10.1 to our Form 8-Kfiled March 3, 2010) 10.10 Registration Rights Agreement dated March 2, 2010 (incorporated by reference to Exhibit 10.1 to our Form 8-Kfiled March 3, 2010) 10.11 Registration Rights Agreement between the Company and the Series A Preferred Stock Purchasers, datedOctober 13, 2009 (incorporated by reference to Exhibit 10.2 to our Form 8-K filed October 14, 2009) 21 List of Subsidiaries (previously filed as an exhibit to the company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2006) *31.1 Certification pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Actof 2002 *31.2 Certification pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Actof 2002 *32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 *32.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 * Filed herewith. 46Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto duly authorized. Fibrocell Science, Inc. By: /s/ David Pernock David Pernock Chief Executive Officer Date: March 31, 2010Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date /s/ David PernockDavid Pernock Chief Executive Officer and Chairman of the Board of Directors March 31, 2010 /s/ Declan DalyDeclan Daly Chief Financial Officer, Chief Operating Officer and Director March 31, 2010 /s/ Kelvin MooreKelvin Moore Director March 31, 2010 /s/ Dr. Robert LangerDr. Robert Langer Director March 31, 2010 /s/ Paul HopperPaul Hopper Director March 31, 2010 47Table of ContentsFibrocell Science, Inc.(A Development Stage Company)Index to Consolidated Financial Statements PAGE Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2009 (Successor Company) and 2008 (Predecessor Company) F-3 Consolidated Statements of Operations for the four months ended December 31, 2009 (Successor Company), eightmonths ended August 31, 2009 (Predecessor Company) and for the year ended 2008 (Predecessor Company) andfrom inception (December 28, 1995) to August 31, 2009 (Predecessor Company) F-4 Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss) From Inception(December 28, 1995) to August 31, 2009 (Predecessor Company) and four months ended December 31, 2009(Successor Company) F-5-15 Consolidated Statements of Cash Flows for the four months ended December 31, 2009 (Successor Company), eightmonths ended August 31, 2009 (Predecessor Company) and year ended December 31, 2008 (PredecessorCompany) and cumulative period from inception (December 28, 1995) to August 31, 2009 (PredecessorCompany) F-16-17 Notes to Consolidated Financial Statements F-18-42 F1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of Fibrocell Science, Inc. (a development stage company)Exton, PennsylvaniaWe have audited the accompanying consolidated balance sheets of Fibrocell Science, Inc. (in the development stage) as of December 31,2009 (“Successor”) and 2008 (“Predecessor” as described in Note 1 of the notes to the consolidated financial statements) and the relatedconsolidated statements of operations, shareholders’ equity (deficit) and comprehensive loss, and cash flows for the year endedDecember 31, 2008 (“Predecessor”), for the period from January 1 to August 31, 2009 (“Predecessor”) and for the period from theSuccessor’s inception of operations (September 1, 2009) through December 31, 2009. We have also audited the statements ofshareholders’ equity (deficit) for the period from December 28, 1995 (Predecessor’s inception) to December 31, 2007. These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financialreporting as of December 31, 2009. Our audit for the four months ended December 31, 2009 (“Successor”) and eight months endedAugust 31, 2009 (“Predecessor”) included consideration of internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position ofFibrocell Science, Inc. at December 31, 2009 (“Successor”) and 2008 (“Predecessor”), and the results of its operations and its cash flowsfor the year ended December 31, 2008 (“Predecessor”), for the period from January 1 to August 31, 2009 (“Predecessor”) and for theperiod from the Successor’s inception of operations (September 1, 2009) through December 31, 2009 and the statements of shareholders’equity (deficit) for the period from December 28, 1995 (Predecessor’s inception) to August 31, 2009 and for the period from theSuccessor’s inception of operations (September 1, 2009) through December 31, 2009, in conformity with accounting principles generallyaccepted in the United States of America.The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussedin Note 3 to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficit, and haslimited cash resources that raise substantial doubt about its ability to continue as a going concern. Management’s plan in regard to thesematters is also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of thisuncertainty./s/ BDO Seidman, LLPHouston, TexasMarch 31, 2010 F2Table of ContentsFibrocell Science, Inc.(A Development Stage Company)Consolidated Balance Sheets Successor Predecessor December 31, December 31, 2009 2008 Assets Current assets: Cash and cash equivalents $1,362,488 $2,854,300 Accounts receivable, net 269,759 338,850 Inventory, net 226,032 467,246 Prepaid expenses 524,814 738,652 Other current assets — 624,365 Current assets of discontinued operations, net 210 29,992 Total current assets 2,383,303 5,053,405 Other assets 250 — Intangible assets 6,340,656 — Total assets $8,724,209 $5,053,405 Liabilities, Redeemable Preferred Stock, Shareholders’ Deficit and NoncontrollingInterest Current liabilities: Current debt $47,795 $90,072,286 Accounts payable 245,023 415,909 Accrued expenses 536,855 1,647,713 Deferred revenue — 7,522 Current liabilities of discontinued operations 7,405 209,458 Total current liabilities 837,078 92,352,888 Long-term debt 6,000,060 — Deferred tax liability 2,500,000 — Warrant liability 635,276 — Other long-term liabilities 369,210 1,171,638 Total liabilities 10,341,624 93,524,526 Commitments and contingencies (see Note 13) Redeemable preferred stock series A, $1,000 par value; 9,000 shares authorized; 3,250 sharesissued 2,511,070 — Equity Fibrocell Science, Inc. shareholders’ deficit: Predecessor common stock, $.001 par value; 100,000,000 shares authorized — 41,639 Successor common stock, $.001 par value; 250,000,000 shares authorized 14,692 — Additional paid-in capital 508,347 131,341,227 Predecessor treasury stock, at cost, 4,000,000 shares — (25,974,000)Accumulated deficit during development stage (5,049,999) (194,057,337)Total Fibrocell Science, Inc. shareholders’ deficit (4,526,960) (88,648,471)Noncontrolling interest 398,475 177,350 Total deficit and noncontrolling interest (4,128,485) (88,471,121)Total liabilities, redeemable preferred stock, shareholders’ deficit and noncontrolling interest $8,724,209 $5,053,405 The accompanying notes are an integral part of these consolidated financial statements. F3Table of ContentsFibrocell Science, Inc.(A Development Stage Company)Consolidated Statements of Operations Successor Predecessor Predecessor Predecessor Cumulative period from December 28, For the four For the eight 1995 (date of months ended months ended For the year ended inception) to December 31, 2009 August 31, 2009 December 31, 2008 August 31, 2009 Revenue Product sales $329,941 $538,620 $1,104,885 $4,818,994 License fees — — — 260,000 Total revenue 329,941 538,620 1,104,885 5,078,994 Cost of sales 182,048 424,139 602,511 2,279,335 Gross profit 147,893 114,481 502,374 2,799,659 Impairment of long-lived assets — — 6,732,754 6,732,754 Selling, general and administrative expenses 2,708,356 3,427,374 8,499,307 78,072,766 Research and development expenses 1,823,196 2,107,718 10,173,117 56,269,869 Operating loss (4,383,659) (5,420,611) (24,902,804) (138,275,730)Other income (expense) Interest income 1 248 181,514 6,989,539 Reorganization items, net (72,477) 73,538,984 — 73,538,984 Other income/(expense) — (6,243) — 316,338 Warrant expense (319,084) — — Interest expense (247,174) (2,232,138) (3,899,239) (18,790,218) Income/(loss) from continuing operations before income taxes (5,022,393) 65,880,240 (28,620,529) (76,221,087)Income tax benefit — — — 190,754 Income/(loss) from continuing operations (5,022,393) 65,880,240 (28,620,529) (76,030,333) Income/(loss) from discontinued operations, net of tax (12,113) 46,923 (4,471,326) (41,091,311)Net (loss)/income (5,034,506) 65,927,163 (33,091,855) (117,121,644) Deemed dividend associated with beneficial conversion — — — (11,423,824)Preferred stock dividends — — — (1,589,861)Plus/(less): Net loss/(income) attributable to noncontrollinginterest (15,493) (205,632) 1,680,676 1,799,523 Net income/(loss) attributable to Fibrocell Science, Inc. commonshareholders $(5,049,999) $65,721,531 $(31,411,179) $(128,335,806) Per share information: Income/(loss) from continuing operations—basic and diluted $(0.35) $1.72 $(0.72) $(4.30)Loss from discontinued operations—basic and diluted — — (0.12) (2.32)Income attributable to noncontrolling interest — — — 0.10 Deemed dividend associated with beneficial conversion ofpreferred stock — — — (0.65)Preferred stock dividends — — — (0.09) Net income/(loss) attributable to common shareholders percommon share—basic and diluted $(0.35) $1.72 $(0.84) $(7.26)Weighted average number of basic and diluted common sharesoutstanding 14,380,381 38,230,886 37,639,492 17,678,219 The accompanying notes are an integral part of these consolidated financial statements. F4Table of ContentsFibrocell Science, Inc.(A Development Stage Company)Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss) 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 commonstock for cash on12/28/95 — $— — $— 2,285,291 $2,285 $(1,465) — $— $— $— $820 Issuance of commonstock for cash on11/7/96 — — — — 11,149 11 49,989 — — — — 50,000 Issuance of commonstock for cash on11/29/96 — — — — 2,230 2 9,998 — — — — 10,000 Issuance of commonstock for cash on12/19/96 — — — — 6,690 7 29,993 — — — — 30,000 Issuance of commonstock for cash on12/26/96 — — — — 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 commonstock for cash on12/27/97 — — — — 21,182 21 94,979 — — — — 95,000 Issuance of commonstock for serviceson 9/1/97 — — — — 11,148 11 36,249 — — — — 36,260 Issuance of commonstock for serviceson 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. F5Table of Contents 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 commonstock for cash on8/23/98 — $— — $— 4,459 $4 $20,063 — $— $— $— $20,067 Repurchase ofcommon stock on9/29/98 — — — — — — — 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 ofcommon stockfor cash on9/10/99 — — — — 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 ofcommon stockfor cash on1/18/00 — — — — 53,583 54 1,869 — — — — 1,923 Issuance ofcommon stockfor services on3/1/00 — — — — 68,698 69 (44) — — — — 25 Issuance ofcommon stockfor services on4/4/00 — — — — 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. F6Table of Contents 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 commonstock for serviceson 7/1/01 — $— — $— 156,960 $157 $(101) — $— $— $— $56 Issuance of commonstock for serviceson 7/1/01 — — — — 125,000 125 (80) — — — — 45 Issuance of commonstock forcapitalization ofaccrued salarieson 8/10/01 — — — — 70,000 70 328,055 — — — — 328,125 Issuance of commonstock forconversion ofconvertible debton 8/10/01 — — — — 1,750,000 1,750 1,609,596 — — — — 1,611,346 Issuance of commonstock forconversion ofconvertibleshareholder notespayable on8/10/01 — — — — 208,972 209 135,458 — — — — 135,667 Issuance of commonstock for bridgefinancing on8/10/01 — — — — 300,000 300 (192) — — — — 108 Retirement oftreasury stock on8/10/01 — — — — — — (50,280) (2,400) 50,280 — — — Issuance of commonstock for netassets of Geminion 8/10/01 — — — — 3,942,400 3,942 (3,942) — — — — — Issuance of commonstock for netassets of AFH on8/10/01 — — — — 3,899,547 3,900 (3,900) — — — — — Issuance of commonstock for cash on8/10/01 — — — — 1,346,669 1,347 2,018,653 — — — — 2,020,000 Transaction andfund raisingexpenses on8/10/01 — — — — — — (48,547) — — — — (48,547)Issuance of commonstock for serviceson 8/10/01 — — — — 60,000 60 — — — — — 60 Issuance of commonstock for cash on8/28/01 — — — — 26,667 27 39,973 — — — — 40,000 Issuance of commonstock for serviceson 9/30/01 — — — — 314,370 314 471,241 — — — — 471,555 The accompanying notes are an integral part of these consolidated financial statements. F7Table of Contents 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) Uncompensatedcontribution ofservices—3rdquarter — $— — $— — $— $55,556 — $— $— $— $55,556 Issuance of commonstock forservices on11/1/01 — — — — 145,933 146 218,754 — — — — 218,900 Uncompensatedcontribution ofservices—4thquarter — — — — — — 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 Uncompensatedcontribution ofservices—1stquarter — — — — — — 100,000 — — — — 100,000 Issuance ofpreferred stockfor cash on4/26/02 905,000 905 — — — — 2,817,331 — — — — 2,818,236 Issuance ofpreferred stockfor cash on5/16/02 890,250 890 — — — — 2,772,239 — — — — 2,773,129 Issuance ofpreferred stockfor cash on5/31/02 795,000 795 — — — — 2,473,380 — — — — 2,474,175 Issuance ofpreferred stockfor cash on6/28/02 229,642 230 — — — — 712,991 — — — — 713,221 Uncompensatedcontribution ofservices—2ndquarter — — — — — — 100,000 — — — — 100,000 Issuance ofpreferred stockfor cash on7/15/02 75,108 75 — — — — 233,886 — — — — 233,961 Issuance of commonstock for cashon 8/1/02 — — — — 38,400 38 57,562 — — — — 57,600 Issuance ofwarrants forservices on9/06/02 — — — — — — 103,388 — — — — 103,388 Uncompensatedcontribution ofservices—3rdquarter — — — — — — 100,000 — — — — 100,000 Uncompensatedcontribution ofservices—4thquarter — — — — — — 100,000 — — — — 100,000 Issuance ofpreferred stockfor dividends 143,507 144 — — — — 502,517 — — — (502,661) — Deemed dividendassociated withbeneficialconversion ofpreferred stock — — — — — — 10,178,944 — — — (10,178,944) — Comprehensiveincome: Net loss — — — — — — — — — — (5,433,055) (5,433,055)Othercomprehensiveincome, foreigncurrencytranslationadjustment — — — — — — — — — 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. F8Table of Contents 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 forcash on 1/7/03 — $— — $— 61,600 $62 $92,338 — $— $— $— $92,400 Issuance of common stock forpatent pending acquisitionon 3/31/03 — — — — 100,000 100 539,900 — — — — 540,000 Cancellation of common stockon 3/31/03 — — — — (79,382) (79) (119,380) — — — — (119,459)Uncompensated contribution ofservices—1st quarter — — — — — — 100,000 — — — — 100,000 Issuance of preferred stock forcash on 5/9/03 — — 110,250 110 — — 2,773,218 — — — — 2,773,328 Issuance of preferred stock forcash on 5/16/03 — — 45,500 46 — — 1,145,704 — — — — 1,145,750 Conversion of preferred stockinto common stock—2ndqtr (70,954) (72) — — 147,062 147 40,626 — — — — 40,701 Conversion of warrants intocommon stock—2nd qtr — — — — 114,598 114 (114) — — — — — Uncompensated contribution ofservices—2nd quarter — — — — — — 100,000 — — — — 100,000 Issuance of preferred stockdividends — — — — — — — — — — (1,087,200) (1,087,200)Deemed dividend associatedwith beneficial conversion ofpreferred stock — — — — — — 1,244,880 — — — (1,244,880) — Issuance of common stock forcash—3rd qtr — — — — 202,500 202 309,798 — — — — 310,000 Issuance of common stock forcash on 8/27/03 — — — — 3,359,331 3,359 18,452,202 — — — — 18,455,561 Conversion of preferred stockinto common stock—3rdqtr (2,967,553) (2,967) (155,750) (156) 7,188,793 7,189 (82,875) — — — — (78,809)Conversion of warrants intocommon stock—3rd qtr — — — — 212,834 213 (213) — — — — — Compensation expense onwarrants issued to non-employees — — — — — — 412,812 — — — — 412,812 Issuance of common stock forcash—4th qtr — — — — 136,500 137 279,363 — — — — 279,500 Conversion of warrants intocommon stock—4th qtr — — — — 393 — — — — — — — Comprehensive income: Net loss — — — — — — — — — — (11,268,294) (11,268,294)Other comprehensive income,foreign currency translationadjustment — — — — — — — — — 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. F9Table of Contents 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) Conversion of warrants intocommon stock—1st qtr — $— — $— 78,526 $79 $(79) — $— $— $— $— Issuance of common stock forcash in connection withexercise of stock options—1st qtr — — — — 15,000 15 94,985 — — — — 95,000 Issuance of common stock forcash in connection withexercise of warrants—1st qtr — — — — 4,000 4 7,716 — — — — 7,720 Compensation expense onoptions and warrants issuedto non-employees anddirectors—1st qtr — — — — — — 1,410,498 — — — — 1,410,498 Issuance of common stock inconnection with exercise ofwarrants—2nd qtr — — — — 51,828 52 (52) — — — — — Issuance of common stock forcash—2nd qtr — — — — 7,200,000 7,200 56,810,234 — — — — 56,817,434 Compensation expense onoptions and warrants issuedto non-employees anddirectors—2nd qtr — — — — — — 143,462 — — — — 143,462 Issuance of common stock inconnection with exercise ofwarrants—3rd qtr — — — — 7,431 7 (7) — — — — — Issuance of common stock forcash in connection withexercise of stock options—3rd qtr — — — — 110,000 110 189,890 — — — — 190,000 Issuance of common stock forcash in connection withexercise of warrants—3rdqtr — — — — 28,270 28 59,667 — — — — 59,695 Compensation expense onoptions and warrants issuedto non-employees anddirectors—3rd qtr — — — — — — 229,133 — — — — 229,133 Issuance of common stock inconnection with exercise ofwarrants—4th qtr — — — — 27,652 28 (28) — — — — — Compensation expense onoptions and warrants issuedto non-employees,employees, and directors—4th qtr — — — — — — 127,497 — — — — 127,497 Purchase of treasury stock—4thqtr — — — — — — — 4,000,000 (25,974,000) — — (25,974,000)Comprehensive income: Net loss — — — — — — — — — — (21,474,469) (21,474,469)Other comprehensive income,foreign currency translationadjustment — — — — — — — — — 79,725 — 79,725 Other comprehensive income,net unrealized gain onavailable-for-saleinvestments — — — — — — — — — 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. F10Table of Contents 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 forcash in connection withexercise of stock options—1st qtr — $— — $— 25,000 $25 $74,975 — $— $— $— $75,000 Compensation expense onoptions and warrantsissued to non-employees—1st qtr — — — — — — 33,565 — — — — 33,565 Conversion of warrants intocommon stock—2nd qtr — — — — 27,785 28 (28) — — — — — Compensation expense onoptions and warrantsissued to non-employees—2nd qtr — — — — — — (61,762) — — — — (61,762)Compensation expense onoptions and warrantsissued to non-employees—3rd qtr — — — — — — (137,187) — — — — (137,187)Conversion of warrants intocommon stock—3rd qtr — — — — 12,605 12 (12) — — — — — Compensation expense onoptions and warrantsissued to non-employees—4th qtr — — — — — — 18,844 — — — — 18,844 Compensation expense onacceleration of options—4thqtr — — — — — — 14,950 — — — — 14,950 Compensation expense onrestricted stock awardissued to employee—4thqtr — — — — — — 606 — — — — 606 Conversion of predecessorcompany shares — — — — 94 — — — — — — — Comprehensive loss: Net loss — — — — — — — — — — (35,777,584) (35,777,584)Other comprehensive loss,foreign currency translationadjustment — — — — — — — — — (1,372,600) — (1,372,600)Foreign exchange gain onsubstantial liquidation offoreign entity 133,851 133,851 Other comprehensive loss, netunrealized gain onavailable-for-saleinvestments. — — — — — — — — — (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. F11Table of Contents 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 onoptions and warrantsissued to non-employees—1st qtr — $— — $— — $— $42,810 — $— $— $— $— $42,810 Compensation expense onoption awards issued toemployees and directors—1st qtr — — — — — — 46,336 — — — — — 46,336 Compensation expense onrestricted stock issued toemployees—1st qtr — — — — 128,750 129 23,368 — — — — — 23,497 Compensation expense onoptions and warrantsissued to non-employees—2nd qtr — — — — — — 96,177 — — — — — 96,177 Compensation expense onoption awards issued toemployees and directors—2nd qtr — — — — — — 407,012 — — — — — 407,012 Compensation expense onrestricted stock toemployees—2nd qtr — — — — — — 4,210 — — — — — 4,210 Cancellation of unvestedrestricted stock — 2nd qtr — — — — (97,400) (97) 97 — — — — — — Issuance of common stock forcash in connection withexercise of stock options—2nd qtr — — — — 10,000 10 16,490 — — — — — 16,500 Compensation expense onoptions and warrantsissued to non-employees—3rd qtr — — — — — — 25,627 — — — — — 25,627 Compensation expense onoption awards issued toemployees and directors—3rd qtr — — — — — — 389,458 — — — — — 389,458 Compensation expense onrestricted stock toemployees—3rd qtr — — — — — — 3,605 — — — — — 3,605 Issuance of common stock forcash in connection withexercise of stock options—3rd qtr — — — — 76,000 76 156,824 — — — — — 156,900 Acquisition of Agera — — — — — — — — — — — 2,182,505 2,182,505 Compensation expense onoptions and warrantsissued to non-employees—4th qtr — — — — — — 34,772 — — — — — 34,772 Compensation expense onoption awards issued toemployees and directors—4th qtr — — — — — — 390,547 — — — — — 390,547 Compensation expense onrestricted stock toemployees—4th qtr — — — — — — 88 — — — — — 88 Cancellation of unvestedrestricted stock award—4thqtr — — — — (15,002) (15) 15 — — — — — — Comprehensive loss: Net loss — — — — — — — — — — (35,821,406) (78,132) (35,899,538)Other comprehensive gain,foreign currency translationadjustment — — — — — — — — — 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. F12Table of Contents 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 onoptions and warrantsissued to non-employees—1st qtr — $— — $— — $— $39,742 — $— $— $— $— $39,742 Compensation expense onoption awards issued toemployees and directors—1st qtr — — — — — — 448,067 — — — — — 448,067 Compensation expense onrestricted stock issued toemployees—1st qtr — — — — — — 88 — — — — — 88 Issuance of common stock forcash in connection withexercise of stock options—1st qtr — — — — 15,000 15 23,085 — — — — — 23,100 Expense in connection withmodification of employeestock options —1st qtr — — — — — — 1,178,483 — — — — — 1,178,483 Compensation expense onoptions and warrantsissued to non-employees—2nd qtr — — — — — — 39,981 — — — — — 39,981 Compensation expense onoption awards issued toemployees and directors—2nd qtr — — — — — — 462,363 — — — — — 462,363 Compensation expense onrestricted stock issued toemployees—2nd qtr — — — — — — 88 — — — — — 88 Compensation expense onoption awards issued toemployees and directors—3rd qtr — — — — — — 478,795 — — — — — 478,795 Compensation expense onrestricted stock issued toemployees—3rd qtr — — — — — — 88 — — — — — 88 Issuance of common stockupon exercise of warrants—3rd qtr — — — — 492,613 493 893,811 — — — — — 894,304 Issuance of common stock forcash, net of offering costs—3rd qtr — — — — 6,767,647 6,767 13,745,400 — — — — — 13,752,167 Issuance of common stock forcash in connection withexercise of stock options—3rd qtr — — — — 1,666 2 3,164 — — — — — 3,166 Compensation expense onoption awards issued toemployees and directors—4thqtr — — — — — — 378,827 — — — — — 378,827 Compensation expense onrestricted stock issued toemployees—4thqtr — — — — — — 88 — — — — — 88 Comprehensive loss: Net loss — — — — — — — — — — (35,573,114) (246,347) (35,819,461)Other comprehensive gain,foreign currency translationadjustment — — — — — — — — — 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. F13Table of Contents 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 onvested options related tonon-employees—1st qtr — $— — $— — $— $44,849 — $— $— $— $— $44,849 Compensation expense onoption awards issued toemployees and directors—1st qtr — — — — — — 151,305 — — — — — 151,305 Expense in connection withmodification of employeestock options —1st qtr — — — — — — 1,262,815 — — — — — 1,262,815 Retirement of restricted stock — — — — (165) (1) — — — — — — (1)Compensation expense onvested options related tonon-employees—2nd qtr — — — — — — 62,697 — — — — — 62,697 Compensation expense onoption awards issued toemployees and directors—2nd qtr — — — — — — 193,754 — — — — — 193,754 Compensation expense onvested options related tonon-employees—3rd qtr — — — — — — 166,687 — — — — — 166,687 Compensation expense onoption awards issued toemployees and directors—3rd qtr — — — — — — 171,012 — — — — — 171,012 Compensation expense onvested options related tonon-employees—4th qtr — — — — — — (86,719) — — — — — (86,719)Compensation expense onoption awards issued toemployees and directors—4th qtr — — — — — — 166,196 — — — — — 166,196 Comprehensive loss: Net loss — — — — — — — — — — (31,411,179) (1,680,676) (33,091,855)Reclassification of foreignexchange gain onsubstantial liquidation offoreign entities — — — — — — — — — (2,152,569) — — (2,152,569)Other comprehensive gain,foreign currencytranslation 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. F14Table of Contents 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 onvested options related tonon-employees—1st qtr — $— — $— — $— $1,746 — $— $— $— $— $1,746 Compensation expense onoption awards issued toemployees and directors—1st qtr — — — — — — 138,798 — — — — — 138,798 Conversion of debt intocommon stock — 1stqtr 2009 — — — — 37,564 38 343,962 — — — — — 344,000 Compensation expense onoption awards issued toemployees and directors—2nd qtr — — — — — — 112,616 — — — — — 112,616 Conversion of debt intocommon stock — 2ndqtr 2009 — — — — 1,143,324 1,143 10,468,857 — — — — — 10,470,000 Compensation expense onoption awards issued toemployees and directors—2 months ended8/31/09 — — — — — — 35,382 — — — — — 35,382 Balance of expense due tocancellation of optionsissued to employees anddirectors in bankruptcy—2 months ended8/31/09 — — — — — — 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 Predecessorcommon stock andfresh start adjustments — — — — (42,820,380) (42,820) (150,426,331) (4,000,000) 25,974,000 — — — (124,495,151)Elimination of Predecessoraccumulated deficit andaccumulated othercomprehensive loss — — — — — — — — — — 128,335,806 — 128,335,806 Balance 9/1/09 (Predecessor) — — — — — — (7,688,831) — — — — 382,982 (7,305,849)Issuance of 11.4 millionshares of common stockin connection withemergence fromChapter 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 millionshares of common stockin connection with the exitfinancing — — — — 2,666,666 2,667 1,797,333 — — — — — 1,800,000 Issuance of common stockon Oct. 28, 2009 — — — — 25,501 25 58,627 — — — — — 58,652 Compensation expense onshares issued tomanagement — — — — 600,000 600 167,400 — — — — — 168,000 Compensation expense onoption awards issued todirectors — — — — — — 326,838 — — — — — 326,838 Compensation expense onoption awards issued tonon-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. F15Table of ContentsFibrocell Science, Inc.(A Development Stage Company)Consolidated Statements of Cash Flows Successor Predecessor Predecessor Cumulative period from December 31, 1995 (date of Four months ended Eight months ended For the year ended inception) to December 31, 2009 August 31, 2009 December 31, 2008 August 31, 2009 Cash flows from operating activities: Net (loss) income $(5,049,999) $65,721,531 $(31,411,179) $(115,322,121)Adjustments to reconcile net (loss) income to net cashused in operating activities: Reorganization items, net 72,477 (74,648,976) — (74,648,976)Expense related to equity awards and issuance ofstock 881,218 583,453 2,132,597 10,608,999 Warrant expense 319,084 — — — Uncompensated contribution of services — — — 755,556 Depreciation and amortization — — 1,376,863 9,091,990 Provision for doubtful accounts (46,619) 501 7,191 337,810 Provision for excessive and/or obsolete inventory 11,664 169,085 90,342 259,427 Amortization of debt issue costs — 985,237 749,239 4,107,067 Amortization of debt discounts on investments — — — (508,983)Loss on disposal or impairment of property andequipment — — 13,059,375 17,668,477 Foreign exchange gain on substantial liquidation offoreign entity (2,614) 30,012 (2,152,569) (2,256,408)Net (loss) income attributable to non-controllinginterest 15,493 205,632 (1,680,676) (1,799,523)Change in operating assets and liabilities, excludingeffects of acquisition: Decrease in restricted cash — — 451,383 — Decrease (increase) in accounts receivable 23,544 91,666 (26,367) (91,496)Decrease in other receivables 4,740 23,632 46,870 218,978 Decrease (increase) in inventory 30,923 29,543 111,530 (455,282)Decrease (increase) in prepaid expenses (244,905) 628,197 64,362 34,341 Decrease (increase) in other assets 4,120 (112,441) 42,937 71,000 Increase (decrease) in accounts payable 107,622 (230,592) (6,021) 57,648 Increase (decrease) in accrued expenses, liabilitiessubject to compromise and other liabilities (425,794) 1,868,162 (2,874,518) 3,311,552 Increase (decrease) in deferred revenue — (7,522) 7,522 (50,096) Net cash used in operating activities (4,299,046) (4,662,880) (20,011,119) (148,610,040)Cash flows from investing activities: Acquisition of Agera, net of cash acquired — — (6,679) (2,016,520)Purchase of property and equipment — — (33,337) (25,515,170)Proceeds from the sale of property and equipment, net ofselling costs — — 6,444,386 6,542,434 Purchase of investments — — — (152,998,313)Proceeds from sales and maturities of investments — — — 153,507,000 Net cash provided by (used in) investing activities — — 6,404,370 (20,480,569)Cash flows from financing activities: Proceeds from convertible debt — — — 91,450,000 Offering costs associated with the issuance of convertibledebt — — — (3,746,193)Proceeds from notes payable to shareholders, net — — — 135,667 Proceeds from the issuance of redeemable preferred stock,net 2,870,000 — — 12,931,800 Proceeds from the issuance of common stock, net 1,800,000 — — 93,753,857 Costs associated with secured loan and debtor-in-possession loan — (360,872) (360,872)Proceeds from secured loan — 500,471 — 500,471 Proceeds from debtor-in-possession loan — 2,750,000 — 2,750,000 Payments on insurance loan (21,891) (63,983) (15,336) (79,319)Cash dividends paid on preferred stock — — — (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 (used in) financing activities 4,648,109 2,825,616 (15,336) 170,137,276 Effect of exchange rate changes on cash balances 3,149 (6,760) (114,335) (36,391)Net increase (decrease) in cash and cash equivalents 352,212 (1,844,024) (13,736,420) 1,010,276 Cash and cash equivalents, beginning of period 1,010,276 2,854,300 16,590,720 — Cash and cash equivalents, end of period $1,362,488 $1,010,276 $2,854,300 $1,010,276 F16Table of Contents Successor Predecessor Predecessor Cumulative period from December 31, 1995 (date of Four months ended Eight months ended For the year ended inception) to December 31, 2009 August 31, 2009 December 31, 2008 August 31, 2009 Supplemental disclosures of cash flow information: Predecessor cash paid for interest $— $— $3,150,000 $12,715,283 Non-cash investing and financing activities: Predecessor deemed dividend associated with beneficialconversion of preferred stock $— $— $— $11,423,824 Predecessor preferred stock dividend — — — 1,589,861 Successor accrued preferred stock dividend 42,740 — — — Predecessor uncompensated contribution of services — — — 755,556 Predecessor common stock issued for intangible assets — — — 540,000 Predecessor common stock issued in connection withconversion of debt — 10,814,000 — 10,814,000 Predecessor equipment acquired through capital lease — — — 167,154 Successor/Predecessor financing of insurance premiums 81,517 — 87,623 87,623 Successor issuance of notes payable — 6,000,060 — 6,000,060 Successor common stock issued in connection withreorganization — 5,472,000 — 5,472,000 Successor intangible assets — 6,340,656 — 6,340,656 Successor deferred tax liability in connection with fresh-start — 2,500,000 2,500,000 Elimination of Predecessor common stock and fresh startadjustment — 14,780,320 — 14,780,320 Successor accrued warrant liability 316,192 — — — The accompanying notes are an integral part of these consolidated financial statements. F17Table of ContentsFibrocell Science, Inc.(A Development Stage Company)Notes to Consolidated Financial StatementsNote 1—Emergence from Voluntary Reorganization Under Chapter 11 Proceedings and Reorganization PlanBackgroundOn June 15, 2009 Isolagen, Inc. (“the Predecessor”) and Isolagen’s wholly owned subsidiary, Isolagen Technologies, Inc. (“IsolagenTech”) (Isolagen and Isolagen Tech are referred as the “Debtors”), each filed a voluntary petition for reorganization under Chapter 11 ofthe United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware inWilmington (the “Bankruptcy Court”) under Case Nos. 09-12072 and 09-12073, respectively.On August 27, 2009 (the “Confirmation Date”), the Bankruptcy Court entered an order (the “Confirmation Order”) confirming theDebtors’ Joint First Amended Plan of Reorganization dated July 30, 2009, as supplemented by the Plan Supplement dated August 21,2009 (as so modified and supplemented, the “Plan”). The (“Effective Date”) of the Plan was September 3, 2009. Isolagen and IsolagenTech emerged from bankruptcy as the reorganized debtors, Fibrocell Science, Inc. (“Fibrocell” or the “Company” or the “Successor”) andFibrocell Technologies, Inc. (“Fibrocell Tech”), respectively (collectively, the “Reorganized Debtors”), and the bankruptcy cases remainpending only to reconcile the claims asserted against the Debtors. Fibrocell now operates outside of the restraints of the bankruptcyprocess, free of the debts and liabilities discharged by the Plan.Our officers and directors as of the effective date were all deemed to have resigned and a new board of directors was appointed. As ofthe effective date, our initial board of directors consisted of: David Pernock, Paul Hopper and Kelvin Moore. Dr. Robert Langer wasappointed to the Board in late September 2009. Declan Daly remained as chief operating officer and chief financial officer of thereorganized company, and in November 2009, he was appointed to the Board of Directors. Mr. Daly received 5% of the New CommonStock which is subject to a two-year vesting schedule whereby 50% vested on the Effective Date, 25% shall vest on the first anniversaryand 25% shall vest on the second anniversary. Mr. Daly was the acting interim chief executive officer until February 1, 2010.Plan of ReorganizationPursuant to the Plan, all our equity interests, including without limitation our common stock, options and warrants outstanding asof the effective date were cancelled. On the effective date, we completed an exit financing of common stock in the amount of $2 million,after which the equity holders of our company were: • 7,320,000 shares, to our pre-bankruptcy lenders and the lenders that provided us our debtor-in-possession facility,collectively; • 3,960,000 shares, to the holders of our 3.5% convertible subordinated notes; • 600,000 shares, to our management as of the effective date, which was our chief operating officer; • 120,000 shares, to the holders of our general unsecured claims; and • 2,666,666 shares, to the purchasers of shares in the $2 million exit financing (our pre-bankruptcy lenders, the lenders thatprovided us our debtor-in-possession facility and the holders of our 3.5% convertible subordinated notes were permitted toparticipate in our exit financing). F18Table of ContentsIn the Plan, in addition to the common stock set forth above, each holder of Isolagen’s 3.5% convertible subordinated notes, dueNovember 2024, in the approximate non-converted aggregate principal amount of $81 million, received, in full and final satisfaction,settlement, release and discharge of and in exchange for any an all claims arising out of the 3.5% convertible subordinated notes, its prorata share of an unsecured note in the principal amount of $6 million, or the New Note. The New Note has the following features:• 12.5% interest payable quarterly in cash or, at our option, 15% payable in kind by capitalizing such unpaid amount and adding itto the principal as of the date it was due; • matures June 1, 2012; • at any time prior to the maturity date, we may redeem any portion of the outstanding principal of the New Notes in cash at 125% ofthe stated face value of the New Notes; provided that we will be obligated to redeem all outstanding New Notes upon the followingevents: (a) we or our subsidiary, Fibrocell Technologies, Inc. (formerly, Isolagen Technologies, Inc.) successfully complete a capitalcampaign raising in excess of $10,000,000; or (b) we or our subsidiary, Fibrocell Technologies, Inc., are acquired by, or sell amajority stake to, an outside party; • the New Notes contain customary representations, warranties and covenants, including a covenant that we and our subsidiary,Fibrocell Technologies, Inc., shall be prohibited from the incurrence of additional debt without obtaining the consent of 66 2/3% ofthe New Note holders.Trading of Common StockThe Predecessor’s common stock ceased trading on the NYSE Amex on May 6, 2009 and in June 2009 the NYSE Amex delistedthe Predecessor’s common stock from listing on the NYSE Amex. Upon the Effective Date, the outstanding common stock of thePredecessor Company was cancelled for no consideration. Consequently, the Predecessor’s stockholders prior to the Effective Date nolonger have any interest as stockholders of the Predecessor Company by virtue of their ownership of the Predecessor’s common stockprior to the emergence from bankruptcy. On October 21, 2009, the Successor Company was available for trading on the OTC BulletinBoard under the symbol “FCSC”.Note 2—Basis of Presentation, Business and OrganizationFibrocell Science, Inc., a Delaware corporation, is the parent company of Fibrocell Technologies, Inc. a Delaware corporation(“Fibrocell Technologies”) and Agera Laboratories, Inc., a Delaware corporation (“Agera”). Fibrocell Technologies is the parent companyof Isolagen Europe Limited, a company organized under the laws of the United Kingdom (“Isolagen Europe”), Isolagen Australia PtyLimited, a company organized under the laws of Australia (“Isolagen Australia”), and Isolagen International, S.A., a company organizedunder the laws of Switzerland (“Isolagen Switzerland”).The Company is an aesthetic and therapeutic company focused on developing novel skin and tissue rejuvenation products. TheCompany’s clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sunexposure, 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 Agera subsidiary.In October 2006, the Predecessor Company reached an agreement with the U.S. Food and Drug Administration (“FDA”) on thedesign of a Phase III pivotal study protocol for the treatment of nasolabial fold wrinkles. The randomized, double-blind protocol wassubmitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Pursuant to this assessment process, the FDAhas agreed that the Predecessor Company’s study design for two identical trials, including patient numbers, clinical endpoints, andstatistical analyses, is acceptable to the FDA to form the basis of an efficacy claim for a marketing application. The randomized, double-blind, pivotal Phase III trials will evaluate the efficacy and safety of our product against placebo in approximately 400 patients withapproximately 200 patients enrolled in each trial. The Predecessor Company completed enrollment of the study and commenced injectionof subjects in early 2007. All injections were completed in January 2008 and top line results from this trial were publically announced inAugust 2008. The data analysis, including safety data, was publically released in October 2008. The related Biologics LicenseApplication (“BLA”) was submitted to the FDA in March 2009. In May 2009, the Predecessor Company announced that the FDA hadcompleted its initial review of the Company’s BLA related to its nasolabial fold wrinkles product candidate and that the FDA hadaccepted (or filed) the BLA for full review. F19Table of ContentsOn October 9, 2009, the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed our nasolabial fold wrinklesproduct candidate. The Committee voted 11 “yes” to 3 “no” that the data presented on our product demonstrated efficacy, and 6 “yes” to8 “no” that the data demonstrated safety; both for the proposed indication of treatment of nasolabial fold wrinkles. The Committee’srecommendations are not binding on the FDA, but the FDA will consider their recommendations during their review of our application.The United States Adopted Names (“USAN”) Council adopted the USAN name, azficel-T, for our nasolabial fold wrinkles productcandidate on October 28, 2009, and the FDA is currently evaluating a proposed brand name, Laviv™.On December 21, 2009, Fibrocell received a Complete Response letter from the FDA related to the BLA for azficel-T, an autologouscell therapy for the treatment of moderate to severe nasolabial fold wrinkles in adults. A Complete Response letter is issued by the FDA’sCenter for Biologics Evaluation and Research (CBER) when the review of a file is completed and additional data are needed prior toapproval. The Complete Response letter requested that Fibrocell Science provide data from a histopathological study on biopsied tissuesamples from patients following injection of azficel-T. The letter also requested finalized Chemistry, Manufacturing and Controls (CMC)information regarding the manufacture of azficel-T as follow-up to discussions that occurred during the BLA review period, as well asrevised policies and procedures. In addition, the Company has submitted a proposed protocol concerning a histopathological study onbiopsied samples to the FDA and to the Company’s Investigational Review Board (“IRB”). The IRB has approved the protocol and theCompany is currently awaiting the FDA’s comments on the protocol.Basis of PresentationIn June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification 105 (“ASC”),Generally Accepted Accounting Principles, which became the single source of authoritative nongovernmental U.S. generally acceptedaccounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), EmergingIssues Task Force (“EITF”), and related accounting literature. This pronouncement reorganizes the thousands of GAAP pronouncementsinto roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and ExchangeCommission guidance organized using the same topical structure in separate sections and will be effective for financial statements issuedfor reporting periods that end after September 15, 2009. This will have an impact on our financial disclosures since all future referencesto authoritative accounting literature will be references in accordance with ASC 105.Financial Reporting by Entities in Reorganization under the Bankruptcy CodeOverall, ASC 852-10, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, (“ASC 852”) applies to theCompany’s financial statements for the periods that the Company operated under the provisions of Chapter 11. ASC 852 does notchange the application of generally accepted accounting principles in the preparation of financial statements. However, for periodsincluding and subsequent to the filing of the Chapter 11 petition, ASC 852 does require that the financial statements distinguishtransactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly,certain revenues, expenses, gains, and losses that were realized or incurred during the Chapter 11 proceedings have been classified as“reorganization items, net” on the accompanying consolidated statements of operations. F20Table of ContentsAs of September 1, 2009, the Successor Company adopted fresh-start accounting in accordance with ASC 852-10. The SuccessorCompany selected September 1, 2009, as the date to effectively apply fresh-start accounting based on the absence of any materialcontingencies at the September 3, 2009 effective date and the immaterial impact of transactions between September 1, 2009 andSeptember 3, 2009. The adoption of fresh-start accounting resulted in the Successor Company becoming a new entity for financialreporting purposes. The Successor Company is a development stage company in accordance with ASC 915, Development Stage Entities.As such, the four month period results ended December 31, 2009 equal the cumulative to-date totals.Accordingly, the financial statements prior to September 1, 2009 are not comparable with the financial statements for periods on orafter September 1, 2009. References to “Successor” or “Successor Company” refer to the Company on or after September 1, 2009, aftergiving effect to the cancellation of Isolagen, Inc. common stock issued prior to the Effective Date, the issuance of new Fibrocell Science,Inc. common stock in accordance with the Plan, and the application of fresh-start accounting. References to “Predecessor” or “PredecessorCompany” refer to the Company prior to September 1, 2009. See Note 5 — “Fresh-Start Accounting” in the notes to these ConsolidatedFinancial Statements for further details.For discussions on the results of operations, the Successor Company has combined the results of operations for the eight monthsended August 31, 2009, with the results of operations for the four months ended December 31, 2009. The combined periods have beencompared to the twelve months ended December 31, 2008. The Successor Company believes that the combined financial results providemanagement and investors a more meaningful analysis of the Successor Company’s performance and trends for comparative purposes.Note 3—Going ConcernThe Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a going concern. AtDecember 31, 2009, we had cash and cash equivalents of $1.4 million and working capital of $1.5 million. In early March 2010, weraised approximately $3.8 million less fees as a result of the issuance of common stock and warrants. We believe that our existing capitalresources are adequate to sustain our operation through approximately mid-June 2010. As such, we will require additional cash resourcesprior to or during approximately mid-June 2010, or we will likely cease operations. The Successor Company will need to access thecapital markets in the future in order to fund future operations. There is no guarantee that any such required financing will be availableon terms satisfactory to the Successor Company or available at all. These matters create uncertainty relating to our ability to continue as agoing concern. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability andclassification of assets or liabilities that might result from the outcome of these uncertainties.Further, if we do raise additional cash resources prior to mid-June 2010, it may be raised in contemplation of or in connection withbankruptcy. In the event of a bankruptcy, it is likely that our common stock and common stock equivalents will become worthless andour creditors will receive significantly less than what is owed to them.Through December 31, 2009, we have been primarily engaged in developing our initial product technology. In the course of ourdevelopment activities, we have sustained losses and expect such losses to continue through at least 2010. In fiscal 2009 we financed ouroperations primarily through our existing cash, but as discussed above we now require additional financing. There is substantial doubtabout our ability to continue as a going concern.Our ability to complete additional offerings is dependent on the state of the debt and/or equity markets at the time of any proposedoffering, and such market’s reception of the Successor Company and the offering terms. Our ability to complete an offering is alsodependent on the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for thetreatment of nasolabial fold wrinkles and the status of the related BLA, which cannot be predicted. There is no assurance that capital inany form would be available to us, and if available, on terms and conditions that are acceptable. F21Table of ContentsAs a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States,there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern iscontingent, among other things, upon our ability to secure additional adequate financing or capital prior to or during approximately mid-June 2010. If we do not obtain additional funding, or do not anticipate additional funding, prior to or during approximately mid-June 2010, we will likely enter into bankruptcy and/or cease operations. Further, if we do raise additional cash resources prior to mid-June 2010, it may be raised in contemplation of or in connection with bankruptcy. If we enter into bankruptcy, it is likely that ourcommon stock and common stock equivalents will become worthless and our creditors will receive significantly less than what is owed tothem.Note 4—Summary of Significant Accounting PoliciesUse of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during thereporting period. In addition, management’s assessment of the Successor Company’s ability to continue as a going concern involves theestimation of the amount and timing of future cash inflows and outflows. Actual results may differ materially from those estimates.Under fresh-start accounting, the Successor Company’s asset values are remeasured and allocated in conformity with ASC 805-20,Business Combinations, Identifiable Assets and Liabilities, and Any Noncontrolling Interest, (“ASC 805”). In addition, fresh-startaccounting also requires that all liabilities, other than deferred taxes and pension and other postretirement benefit obligations, be reportedat fair value or the present values of the amounts to be paid using appropriate market interest rates.Estimates of fair value represent the Successor Company’s best estimates based on independent appraisals and valuations, industrydata and trends to relevant market rates and transactions. The estimates and assumptions are inherently subject to significantuncertainties and contingencies beyond the control of the Successor Company. Accordingly, we cannot provide assurance that theestimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. Any adjustmentsto the recorded fair values of these assets and liabilities may impact the amount of recorded intangibles.Cash and Cash EquivalentsThe Company considers highly liquid investments with an original maturity of three months or less when purchased to be cashequivalents.Concentration of Credit RiskAs of December 31, 2009, the Successor Company maintains the majority of its cash primarily with one major U.S. domesticbank. The amounts held in this bank exceed the insured limit of $250,000. The terms of these deposits are on demand to minimize risk.The Successor Company has not incurred losses related to these deposits. Cash and cash equivalents of approximately $0.2 million,related to Agera and the Successor Company’s Swiss subsidiary, is maintained in two separate financial institutions. The SuccessorCompany invests these funds primarily in demand deposit accounts. F22Table of ContentsAllowance for Doubtful AccountsThe Successor Company maintains an allowance for doubtful accounts related to its accounts receivable that have been deemed tohave a high risk of collectability. Management reviews its accounts receivable on a monthly basis to determine if any receivables willpotentially be uncollectible. One foreign customer represents 87% and 94% of accounts receivable, net, at December 31, 2009 andDecember 31, 2008, respectively. Management analyzes historical collection trends and changes in its customer payment patterns,customer concentration, and creditworthiness when evaluating the adequacy of its allowance for doubtful accounts. In its overallallowance for doubtful accounts, the Successor Company includes any receivable balances that are determined to be uncollectible. Basedon the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs mightexceed the recorded allowance.The allowance for doubtful accounts related to continuing operations was $37,098 and $25,303 at December 31, 2009 and 2008,respectively. The allowance for doubtful accounts related to discontinued operations was zero and $51,354 at December 31, 2009 and2008, respectively.InventoryAgera purchases the large majority of its inventory from one contract manufacturer. Agera accounts for its inventory on the first-in-first-out method. At December 31, 2009, Agera’s inventory of $0.2 million consisted of $0.2 million of raw materials and less than$0.1 million of finished goods. At December 31, 2008, Agera’s inventory of $0.5 million consisted of $0.2 million of raw materials and$0.3 million of finished goods.Intangible assetsIntangible assets are research and development assets related to our primary study that were recognized upon emergence frombankruptcy (see Note 5). Intangibles are tested for recoverability whenever events or changes in circumstances indicate the carryingamount may not be recoverable. An impairment loss, if any, would be measured as the excess of the carrying value over the fair valuedetermined by discounted cash flows. There was no impairment of the intangible assets as of December 31, 2009.Revenue recognitionThe Successor Company recognizes revenue over the period the service is performed in accordance with ASC 605, RevenueRecognition (“ASC 605”). In general, ASC 605 requires that four basic criteria must be met before revenue can be recognized:(1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed and determinable and(4) collectability is reasonably assured.Revenue from the sale of Agera’s products is recognized upon transfer of title, which is upon shipment of the product to thecustomer. The Successor Company believes that the requirements of ASC 605 are met when the ordered product is shipped, as the riskof loss transfers to our customer at that time, the fee is fixed and determinable and collection is reasonably assured. Any advancedpayments are deferred until shipment.Shipping and handling costsAgera charges its customers for shipping and handling costs. Such charges to customers are presented net of the costs of shippingand handling, as selling, general and administrative expense, and are not significant to the consolidated statements of operations.Advertising costAgera advertising costs are expensed as incurred and include the costs of public relations and certain marketing related activities.These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. F23Table of ContentsResearch and development expensesResearch and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors toperform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost.Research and development costs also include costs to develop manufacturing, cell collection and logistical process improvements.Clinical trial costs are a significant component of research and development expenses and include costs associated with third-partycontractors. Invoicing from third-party contractors for services performed can lag several months. The Successor Company accrues thecosts of services rendered in connection with third-party contractor activities based on its estimate of management fees, site managementand monitoring costs and data management costs. Actual clinical trial costs may differ from estimated clinical trial costs and are adjustedfor in the period in which they become known.Warrant LiabilityWe account for our warrants in accordance with U.S. GAAP. The warrants are measured at fair value and liability-classified underASC 815, Derivatives and Hedging, (“ASC 815”) because the warrants contain “down-round protection” and therefore, do not meet thescope exception for treatment as a derivative under ASC 815. Since “down-round protection” is not an input into the calculation of thefair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scopeexception as outlined under ASC 815. The fair value of the warrants is determined using the Black-Scholes option pricing model and isaffected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or areamended in a way that would no longer require these warrants to be classified as a liability.Stock-based CompensationWe account for stock-based awards to employees and non-employees using the fair value based method to determine compensationfor all arrangements where shares of stock or equity instruments are issued for compensation. We use a Black-Scholes options-pricingmodel to determine the fair value of each option grant as of the date of grant for expense incurred. The Black-Scholes model requiresinputs for risk-free interest rate, dividend yield, volatility and expected lives of the options. Expected volatility is based on historicalvolatility of our competitor’s stock since the Predecessor Company ceased trading as part of the bankruptcy and emerged as a new entity.The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of thegrant. The expected lives for options granted represents the period of time that options granted are expected to be outstanding and isderived from the contractual terms of the options granted. We estimate future forfeitures of options based upon expected forfeiture rates.Income taxesAn asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise fromtemporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in differentperiods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred taxasset can be generated by net operating loss (“NOLs”) carryover. If it is more likely than not that some portion or all of a deferred tax assetwill not be realized, a valuation allowance is recognized.In the event the Company is charged interest or penalties related to income tax matters, the Company would record such interest asinterest expense and would record such penalties as other expense in the consolidated statement of operations. No such charges have beenincurred by the Company. As of December 31, 2009 and December 31, 2008, the Successor and Predecessor Company had no accruedinterest related to uncertain tax positions. F24Table of ContentsAt December 31, 2009 and December 31, 2008, the Successor and Predecessor have provided a full valuation allowance for the netdeferred tax assets, the large majority of which relates to the future benefit of loss carryovers. In addition, as a result of fresh-startaccounting, the Successor Company may be limited by section 382 of the Internal Revenue Service Code. The tax years 2006 through2009 remain open to examination by the major taxing jurisdictions to which we are subject. The deferred tax liability at December 31,2009 relates to the intangible assets recognized upon fresh-start accounting.Earnings (Loss) per share dataBasic earnings (loss) per share is calculated based on the weighted average common shares outstanding during the period. Dilutedearnings per share (“Diluted EPS’) also gives effect to the dilutive effect of stock options, warrants, restricted stock and convertiblepreferred stock calculated based on the treasury stock method.The Predecessor and Successor Company’s potentially dilutive securities consist of potential common shares related to stockoptions, warrants, restricted stock and convertible preferred stock. Diluted EPS includes the impact of potentially dilutive securitiesexcept in periods in which there is a loss because the inclusion of the potential common shares would be anti-dilutive. There were nopotentially dilutive securities issued or outstanding for the four months ended December 31, 2009. There were no potentially dilutivesecurities for the eight months ended August 31, 2009, due to the cancellation of the convertible notes and the cancellation of all theoutstanding stock option plans and the last known market price was less than exercise price.Fair Value of Financial InstrumentsThe carrying values of certain of the Successor Company’s financial instruments, including cash equivalents and accounts payableapproximates fair value due to their short maturities. The fair values of the Successor Company’s long-term obligations are based onassumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees ofrisk. The carrying values of the Successor Company’s long-term obligations approximate their fair values.The fair value of the reorganization value which applies in fresh-start accounting was estimated by applying the income approachand a market approach. This fair value measurement is based on significant inputs that are not observable in the market and, therefore,represents a Level 3 measurement as defined in ASC 820, Fair Value Measurements.New PronouncementsOn December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Topic 820 “ImprovingDisclosures about Fair Value Measurements”. This ASU requires some new disclosures and clarifies some existing disclosurerequirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve thesedisclosures and, thus, increase the transparency in financial reporting. The adoption of this ASU will not have a material impact on theCompany’s consolidated financial statements.In August 2009, the FASB issued Accounting Standard Update No. 2009-05, Measuring Liabilities at Fair Value, or ASU 2009-05.ASU 2009-05 amends ASC 820, Fair Value Measurements. Specifically, ASU 2009-05 provides clarification that in circumstances inwhich a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair valueusing one or more of the following methods: 1) a valuation technique that uses a) the quoted market price of the identical liability whentrades as an asset or b) quoted prices for similar liabilities or similar liabilities when trades as assets and/or 2) a valuation technique thatis consistent with the principles of ASC Topic 820. ASU 2009-05 also clarifies that when estimating the fair value of a liability, areporting entity is not required to adjust inputs relating to the existence of transfer restrictions on that liability. The adoption of thisstandard did not have an impact on our financial position or results of operations; however, this standard may impact us in futureperiods. F25Table of ContentsIn May 2009, the FASB released a new accounting pronouncement which establishes the accounting for and disclosures of eventsthat occur after the balance sheet date but before financial statements are issued or are available to be issued. This pronouncement requiresthe disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that daterepresents the date the financial statements were issued or were available to be issued. See “Basis of Presentation” for the relateddisclosures. The adoption of this pronouncement did not have a material impact on our financial statements.In December 2007, the FASB issued a pronouncement which establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. We adopted the pronouncement on January 1, 2009with no impact on operating results or financial position.Note 5—Fresh-Start AccountingOn September 1, 2009, the Successor Company adopted fresh-start accounting upon the emergence of bankruptcy in accordancewith ASC 852-10, Reorganization. Fresh-start accounting results in the Company becoming a new entity for financial reporting purposes.Accordingly, the Company’s consolidated financial statements for periods prior to September 1, 2009 are not comparable to consolidatedfinancial statements presented on or after September 1, 2009. The Company selected September 1, 2009, as the date to apply fresh-startaccounting based on the absence of any material contingencies at the September 3, 2009 effective date and the immaterial impact oftransactions between September 1, 2009 and September 3, 2009.Under ASC 852-10, the Successor Company must determine a value to be assigned to the equity of the emerging company as of thedate of the adoption of fresh-start accounting. The Successor Company obtained an independent appraisal to value the equity and itserved as the fair market value of the emerging Company’s equity.Fresh-start accounting reflects the value of the Successor Company as determined in the confirmed Plan. Under fresh-startaccounting, the Successor Company’s assets values are remeasured and allocated in conformity with ASC 805-20, BusinessCombinations, Identifiable Assets and Liabilities, and Any Noncontrolling Interest. Fresh-start accounting also requires that all liabilitiesshould be stated at fair value. The portion of the reorganization value which was attributed to identified intangible assets was$6,340,656. This value is related to research and development assets that are not subject to amortization. In accordance with ASC 805-20, this amount is reported as intangibles in the consolidated financial statements as of December 31, 2009, and is not being amortized.The following fresh-start Consolidated Balance Sheet presents the financial effects on the Successor Company with theimplementation of the Plan and the adoption of fresh-start accounting. The effect of the consummation of the transactions contemplated inthe Plan included the settlement of liabilities and the issuance of common stock. F26Table of ContentsThe effects of the Plan and fresh-start reporting on the Successor Company’s Consolidated Balance Sheet are as follows: Predecessor Reclassifications Fresh Start Successor August 31, And Plan of Accounting September 1, 2009 Reorganization Adjustments 2009 Assets Current assets: Cash and cash equivalents $1,010,277 $— $— $1,010,277 Accounts receivable, net 246,684 — — 246,684 Inventory, net 268,619 — — 268,619 Prepaid expenses 221,225 — — 221,225 Other current assets 4,140 — — 4,140 Current assets of discontinued operations, net 785 — — 785 Total current assets 1,751,730 — — 1,751,730 Intangible assets — — 6,340,656(e) 6,340,656 Other assets 1,671 — — 1,671 Total assets $1,753,401 $— $6,340,656 $8,094,057 Liabilities, Shareholders’ Equity/(Deficit) and NoncontrollingInterests Current liabilities: Current debt $8,304 $— $— $8,304 Accounts payable 137,401 — — 137,401 Accrued expenses 849,395 — — 849,395 Liabilities subject to compromise 82,181,741 (82,181,741)(a) — — Prepetition secured loan, subject to compromise 500,471 (500,471)(b) — — Debtor-in-possession loan 2,750,000 (2,750,000)(b) — — Current liabilities of discontinued operations 25,668 — — 25,668 Total current liabilities 86,452,980 (85,432,212) — 1,020,768 Other long term liabilities of continuing operations 407,078 — — 407,078 Notes payable — 6,000,060(a) — 6,000,060 Deferred tax liability — — 2,500,000(f) 2,500,000 Total liabilities 86,860,058 (79,432,152) 2,500,000 9,927,906 Commitments and contingencies Shareholders’ Equity (Deficit): Predecessor common stock 42,821 (42,821)(c) — — Predecessor additional paid-in capital 142,737,499 (25,931,179)(c) (116,806,320)(g) — Predecessor treasury stock (25,974,000) 25,974,000(c) — — Successor common stock — 11,400(a)(b) — 11,400 Successor additional paid-in capital — 5,460,600(a)(b) (7,688,831)(g) (2,228,231)Accumulated deficit during development stage (202,295,959) 73,960,152(a)(b)(c)(d) 128,335,807(g) — Total shareholders’ equity (deficit) (85,489,639) 79,432,152 3,840,656 (2,216,831) Noncontrolling interest 382,982 — — 382,982 Total equity (deficit) and noncontrolling interests (85,106,657) 79,432,152 3,840,656 (1,833,849)Total liabilities, shareholders’ equity/(deficit) and noncontrollinginterests $1,753,401 $— $6,340,656 $8,094,057 Notes to Plan of Reorganization and fresh-start accounting adjustments (a) This adjustment reflects the discharge of liabilities subject to compromise in accordance with the Plan of Reorganization and theissuance of $6 million in Notes payable and the issuance of 4,080,000 shares of Successor Company common stock in satisfactionof such claims. (b) This adjustment reflects the discharge of prepetition loan and debtor in-possession loan in accordance with the Plan ofReorganization and the issuance of 7,320,000 shares of the Successor Company common stock in satisfaction of such claims. (c) This adjustment reflects the cancellation of the Predecessor Company’s common stock, additional paid-in capital and treasurystock. (d) To reset accumulated deficit to zero for the consolidated subsidiaries included in the Plan of Reorganization. (e) This adjustment reflects the portion of the reorganization value which was attributed to identified intangible assets. (f) To record deferred tax liability as a result of the impact of fresh-start accounting fair value adjustments. (g) To reset Predecessor additional paid-in capital, accumulated deficit to zero and record net fresh-start adjustments. F27Table of ContentsNote 6—Liabilities Subject to Compromise and Reorganization ItemsLiabilities subject to compromise refers to pre-petition obligations that were impacted by the Chapter 11 reorganization process. Forfurther information regarding the discharge of liabilities subject to compromise, see Note 5- “Fresh-Start Accounting in the notes of theseFinancial Statements. As of December 31, 2009, there were no liabilities subject to compromise.The Company incurred certain professional fees and other expenses directly associated with the bankruptcy proceedings. Inaddition, the Company has made adjustments to the carrying value of certain prepetition liabilities. Such costs and adjustments areclassified as “reorganization items, net” and are presented separately in the unaudited consolidated statements of operations. For the yearended December 31, 2009, the following have been incurred: Successor Predecessor Four months ended Eight months ended December 31, 2009 August 31, 2009 Professional fees expense $(13,825) $(533,271)Debt issuance costs related to DIP facility — (295,757)Other debt issuance costs — (280,964)Gain (loss) on discharge of liabilities subject to compromise (58,652) 74,648,976 Total reorganization items, net $(72,477) $73,538,984 The $74.6 million gain from discharge of liabilities subject to compromise is the result of the settlement of 3.5% SubordinatedNotes in exchange for $6.0 million in Notes Payable and 3,960,000 shares of the Successor company, Debtor-in-Possession CreditFacility and Prepetition Secured Loan in exchange for 7,320,000 shares of the Successor Company’s common stock and unsecuredclaims in exchange for 120,000 shares. On the Effective Date, all stock option plans of the Predecessor Company were cancelled.Cash paid for reorganization items during the year ended December 31, 2009 was $0.6 million. Professional fees include financial,legal and valuation services directly associated with the reorganization process.Note 7—Agera Laboratories, Inc.On August 10, 2006, the Predecessor Company acquired 57% of the outstanding common shares of Agera. Agera is a skincarecompany that has proprietary rights to a scientifically-based advanced line of skincare products. Agera markets its product primarily inthe United States and Europe. The results of Agera’s operations and cash flows have been included in the consolidated financialstatements from the date of the acquisition. The assets and liabilities of Agera have been included in the consolidated balance sheets sincethe date of the acquisition.Note 8— Discontinued Operations and Exit CostsIn 2007, the Predecessor Company completed the closure of its United Kingdom operation. As a result of the closure of the UnitedKingdom operation, the operations that the Predecessor Company previously conducted in Switzerland and Australia, which when closedhad been absorbed into the United Kingdom operation, were also classified as discontinued operations in 2007. All assets, liabilities andresults of operations of the United Kingdom, Switzerland and Australian operations are reflected as discontinued operations in theaccompanying consolidated financial statements. All prior period information has been restated to reflect the presentation of discontinuedoperations. F28Table of ContentsThe balance sheet components of discontinued operations as of December 31, 2009 and December 31, 2008 are comprised of lessthan $0.1 million and $0.2 million, respectively, of accrued expenses and other current liabilities.The following sets forth the results of operations of discontinued operations for the four months ended December 31, 2009, eightmonths ended August 31, 2009 and for the year ended December 31, 2008: Successor Predecessor Predecessor Four months Eight months Year ended December 31, August 31, December 31, (in millions) 2009 2009 2008 Net revenue $— $— $— Gross loss — — — Loss on sale of Swiss campus, before foreign currency gain — — (6.3)Operating gain/(loss) — 0.2 (6.7)Foreign exchange gain on substantial liquidation of foreign entity — — 2.1 Other income/(loss) — (0.1) 0.1 Income (loss) from discontinued operations $— $0.1 $(4.5)Note 9—Property and EquipmentProperty and equipment is comprised of: Successor Predecessor Year ended Year ended December 31, December 31, 2009 2008 Leasehold improvements $— $3,753,998 Lab equipment — 1,447,218 Computer equipment and software — 1,101,097 Office furniture and fixtures — 18,236 — 6,320,549 Less: Accumulated depreciation and amortization — (3,938,622)Less: Impairment valuation — (2,381,927)Property and equipment, net $— $— The amounts of depreciation and amortization expense for the above property and equipment included in the statement of operationsare as follows: Successor Predecessor Year ended Year ended December 31, December 31, 2009 2008 Depreciation expense related to continuing operations: Selling, general, administrative, research and development expenses $— $1,032,032 In 2008, due to the likelihood of bankruptcy and in connection with the Company’s review for impairment of long-lived assets inaccordance with ASC 360, “Accounting for the Impairment or Disposal of Long-lived Assets,” the Company has recorded a fullimpairment on all of its long-lived assets as of December 31, 2008, and as such, has recorded an impairment charge of $6.7 millionduring the year ended December 31, 2008. $2.4 million of this $6.7 million impairment charge recorded during the year endedDecember 31, 2008 related to property and equipment, as shown in the table above. F29Table of ContentsNote 10—Accrued ExpensesAccrued expenses are comprised of the following: Successor Predecessor December 31, December 31, 2009 2008 Accrued professional fees $147,410 $479,943 Accrued settlement fees — 325,000 Accrued compensation 7,208 17,570 Accrued interest 246,578 525,000 Dividend on preferred stock payable 42,740 — Accrued other 92,919 300,200 Accrued expenses $536,855 $1,647,713 Note 11—DebtAs part of the Plan of Reorganization, the Successor Company was discharged of the Pre-petition Secured Loan, Debtor-in-Possession Credit Facility, related accrued interest and converted the 3.5% Convertible Subordinated Notes into new 12.5% Promissorynotes as defined below. The Successor Company recorded a $74,648,976 gain relating to the extinguishment of debt as a result of thisPlan of Reorganization.The Successor Company’s outstanding long-term debt at December 31, 2009 consists of $6 million of 12.5% UnsecuredPromissory Notes (“New Notes”). The New Notes have the following features: (1) 12.5% interest payable quarterly in cash or, at theSuccessor Company’s option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of the date itwas due; (2) maturing June 1, 2012; (3) at any time prior to the maturity date, the Successor Company may redeem any portion of theoutstanding principal of the New Notes in Cash at 125% of the stated face value of the New Notes. There is a mandatory redemptionfeature that requires the Successor Company to redeem all outstanding new notes if: (1) the Successor Company successfully completes acapital campaign raising in excess of $10 million; or (2) the Successor Company is acquired by, or sell a majority stake to, an outsideparty.Total debt is comprised of the following: Successor Predecessor December 31, December 31, 2009 2008 Convertible Subordinated Notes $— $90,072,286 Total Current Debt — 90,072,286 Promissory Note 6,000,060 — Total debt $6,000,060 $90,072,286 Note 12—Income TaxesFibrocell Science, Inc. and Fibrocell Technologies, Inc. file a consolidated U.S. Federal income tax return. During the third quarter of2006, the Company acquired a 57% interest in Agera (see Note 7). Agera files a separate U.S. Federal income tax return. The Company’sforeign subsidiaries, which comprise loss from discontinued operations, file income tax returns in their respective jurisdictions. Thegeographic source of loss from continuing operations is the United States. F30Table of ContentsThe components of the income tax expense/(benefit) related to continuing operations, are as follows: Successor Predecessor Predecessor Four months Eight months Year ended December 31, August 31, December 31, 2009 2009 2008 U.S. Federal: Current. $— $— $— Deferred — — — U.S. State: Current. — — — Deferred — — — $— $— $— The reconciliation between income taxes/(benefit) at the U.S. federal statutory rate and the amount recorded in the accompanyingconsolidated financial statements is as follows: Successor Predecessor Predecessor Four months Eight months Year ended December 31, August 31, December 31, 2009 2009 2008 Tax/(benefit) at U.S. federal statutory rate $(1,757,838) $23,058,084 $(10,017,185)Increase/(decrease) in domestic valuation allowance 2,303,065 (30,209,991) 11,815,611 State income taxes/(benefit) before valuation allowance, net of federal benefit (357,619) 4,690,990 (1,797,593)Deferred tax impact of reorganization (172,395) 2,261,359 — Other (15,213) 199,558 (833) $— $— $— The components of the Company’s net deferred tax liabilities at December 31, 2009 and 2008 are as follows: Successor Predecessor December 31, December 31, 2009 2008 Deferred tax liabilities: Intangible assets $2,500,000 $— Total deferred tax liabilities $2,500,000 $— Deferred tax assets: Loss carryforwards $32,942,543 $57,112,820 Property and equipment 1,559,631 1,708,838 Accrued expenses and other 1,551,822 2,625,285 Stock compensation 548,078 2,476,915 Total deferred tax assets 36,602,074 63,923,858 Less: valuation allowance (36,602,074) (63,923,858)Total deferred tax assets $— $— Net deferred tax liabilities $2,500,000 $— F31Table of ContentsAs of December 31, 2009, the Company had generated U.S. net operating loss carryforwards of approximately $68.9 millionwhich expire from 2026 to 2029 and net loss carryforwards in certain non-US jurisdictions of approximately $24.9 million. The U.S.net operating loss carryforwards were reduced by approximately $74 million as a result of the Company’s emergence from bankruptcy(see Note 1, Emergence from Voluntary Reorganization Under Chapter 11 Proceedings and Reorganization Plan). The net operatingloss carryforwards are available to reduce future taxable income. However, a, change in ownership, as defined by federal income taxregulations, could significantly limit the Company’s ability to utilize its U.S. net operating loss carryforwards. Additionally, becausefederal tax laws limit the time during which the net operating loss carryforwards may be applied against future taxes, if the Companyfails to generate taxable income prior to the expiration dates it may not be able to fully utilize the net operating loss carryforwards to reducefuture income taxes. As the Company has had cumulative losses and there is no assurance of future taxable income, valuation allowanceshave been recorded to fully offset the deferred tax asset at December 31, 2009 and 2008. The valuation allowance decreased by $27.3million during 2009, due primarily to the impact from the Company’s reorganization described above and the current year net loss, andincreased by $9.1 million during 2008, due primarily to the Company’s net loss in that period.Note 13—Commitments and ContingenciesLegal ProceedingsIn connection with certain federal securities and derivative litigations of Isolagen previously described in the Predecessor Company’spublic reports, Mr. Jeffrey Tomz, who formerly served as Isolagen’s Chief Financial Officer, demanded reimbursement of his costs ofdefense, and reimbursement for the costs of responding to a Securities and Exchange Commission investigation of his alleged insidertrading in Isolagen stock. In connection with the reorganized company’s exit from bankruptcy, Mr. Tomz’ claim was treated as a generalunsecured claim and was awarded its pro rata share of the common stock issued to the general unsecured creditors.Employment AgreementsOn February 1, 2010, the Company entered into an employment agreement with Mr. Pernock pursuant to which Mr. Pernock agreedto serve as Chief Executive Officer of the Company for an initial term ending February 1, 2013, which may be renewed for an additionalone-year term by mutual agreement. The agreement provides for an annual salary of $450,000. Mr. Pernock is entitled to receive anannual bonus each year, payable subsequent to the issuance of the Company’s final audited financial statements, but in no case laterthan 120 days after the end of its most recently completed fiscal year. The final determination on the amount of the annual bonus will bemade by the Board of Directors (or the Compensation Committee of the Board of Directors, if such committee has been formed), based oncriteria established by the Board of Directors (or the Compensation Committee of the Board of Directors, if such committee has beenformed). The targeted amount of the annual bonus shall be 60% of Mr. Pernock’s base salary, although the actual bonus may be higheror lower.Under the agreement, Mr. Pernock was granted a ten-year option to purchase 1,650,000 shares at an exercise price per share equal tothe closing price of the Company’s common stock on the date of execution of the agreement, or February 1, 2010. The options vest asfollows: (i) 250,000 shares upon execution of the agreement; (ii) 100,000 shares upon the closing of a strategic partnership or licensingdeal with a major partner that enables the Company to significantly improve and/or accelerate its capabilities in such areas as research,production, marketing and/or sales and enable the Company to reach or exceed its major business milestones within the Company’sstrategic and operational plans, provided Mr. Pernock is the CEO on the closing date of such partnership or licensing deal (thedetermination of whether any partnership or licensing deal meets the foregoing criteria will be made in good faith by the Board upon theclosing of such partnership or licensing deal); and (iii) 1,300,000 shares in equal 1/36th installments (or 36,111 shares per installment)monthly over a three-year period, provided Executive is the CEO on each vesting date. The vesting of all options set forth above shallaccelerate upon a “change in control” as defined in the agreement, provided Mr. Pernock is employed by the Company within 60 daysprior to the date of such change in control. F32Table of ContentsIf Mr. Pernock’s employment is terminated at the Company’s election at any time, for reasons other than death, disability, cause (asdefined in the agreement) or a voluntary resignation, or by Mr. Pernock for good reason (as defined in the agreement), Mr. Pernock shallbe entitled to receive severance payments equal to twelve months of Mr. Pernock’s base salary and of the premiums associated withcontinuation of Mr. Pernock’s benefits pursuant to COBRA to the extent that he is eligible for them following the termination of hisemployment; provided that if anytime within eighteen months after a change in control either (i) Mr. Pernock is terminated, at theCompany’s election at any time, for reasons other than death, disability, cause or voluntary resignation, or (ii) Mr. Pernock terminates theagreement for good reason, Mr. Pernock shall be entitled to receive severance payments equal to: (1) two years of Mr. Pernock’s basesalary, (2) Mr. Pernock’s most recent annual bonus payment, and (3) the premiums associated with continuation of Mr. Pernock’sbenefits pursuant to COBRA to the extent that he is eligible for them following the termination of his employment for a period of one yearafter termination. All severance payments shall be made in a lump sum within ten business days of Mr. Pernock’s execution and deliveryof a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents,successors and assigns in a form acceptable to the Company. If severance payments are being made, Mr. Pernock has agreed not tocompete with the Company until twelve months after the termination of his employment.Mr. Daly is entitled to receive an annual bonus, payable each year subsequent to the issuance of final audited financial statements,but in no case later than 120 days after the end of our most recently completed fiscal year. The final determination on the amount of theannual bonus will be made by the Compensation Committee of the Board of Directors, based primarily on criteria mutually agreed uponwith Mr. Daly. The targeted amount of the annual bonus shall be 50% of Mr. Daly’s base salary. Mr, Daly’s annual based salary is$300,000. The actual annual bonus for any given period may be higher or lower than 50%. For any fiscal year in which Mr. Daly isemployed for less than the full year (other than for 2009), he shall receive a bonus which is prorated based on the number of full monthsin the year which are worked. Mr. Daly is entitled to a bonus of $50,000 if we are able to complete a capital raise or series of capital raisesin excess of $6.0 million, provided Mr. Daly is our chief operating officer at such time. Mr. Daly is entitled to a bonus of $50,000 if ourBLA is approved by the FDA, provided Mr. Daly is our chief operating officer at such time.Consulting AgreementsEffective upon our exit from bankruptcy on September 3, 2009, we entered into a consultant agreement, pursuant to whichDr. Langer agreed to provide consulting services to us, including serving as a scientific advisor. The agreement has a one year term,provided that either party may terminate the agreement on 30 days notice. The agreement provides Dr. Langer annual compensation of$50,000.In October 2009, we entered into two consulting agreements with two individuals. We issued the two consultants options to purchase200,000 shares and 150,000 shares, respectively. The options have an expiration date five years from the date of issuance and an exerciseprice of $0.75 per share.In December 2009, we entered into a consulting agreement with one individual and issued the consultant options to purchase 100,000shares. The options have an expiration date five years from the date of issuance and an exercise price of $1.25 per share. F33Table of ContentsLeasesThe Company has entered into a lease for office, warehouse and laboratory facilities in Exton, Pennsylvania under a third partynon-cancelable operating lease through 2013. Future minimum lease commitments at December 31, 2009 are as follows: Year Ending December 31, 2010 $1,177,570 2011 1,177,570 2012 1,177,570 2013 294,393 Total $3,827,103 For the years ended December 31, 2009 and 2008, rental expense totaled $1.4 million and $1.5 million, respectively, (whichincludes rent expense related to discontinued operations of $0.1 million for the year ended December 31, 2008).In April 2005, the Company entered into a non-cancelable three year operating lease for approximately 86,500 square feet in Exton,Pennsylvania. This facility houses members of the senior management team, quality and manufacturing personnel, and the corporatefinance department. The Company began constructing a production line in a portion of this facility in anticipation of eventual FDAapproval. The facility was completed during September 2005. This production line is expected to be utilized for the production of clinicalsupplies. During 2007, the Company extended the lease through March 31, 2013. Lease expense is recognized on a straight-line basisthrough March 31, 2013. The Exton, Pennsylvania minimum lease payments are included in the future minimum lease commitmentstable above through March 31, 2013.Note 14-EquityRedeemable Preferred StockOn October 13, 2009, Successor Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certainaccredited investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers in the aggregate: (i) 3,250 sharesof Series A Convertible Preferred Stock, with a par value of $0.001 per share and a stated value of $1,000 per share (“Series APreferred”), (ii) Class A warrants to purchase 501,543 shares of Company common stock (“Common Stock”) at an exercise price of$1.62 per share (the “Class A Warrants”); and (iii) Class B warrants to purchase 416,667 shares of Company common stock at anexercise price of $1.95 per share (the “Class B Warrants”) (the Class A Warrants and Class B Warrants, the “Warrants”).The aggregate purchase price paid by the Purchasers for the Series A Preferred and the Warrants was $3,250,000 (representing$1,000 for each share of Series A Preferred together with a Class A Warrant and Class B Warrant). The Company intends to use theproceeds for working capital purposes.Dividends; Rank; LiquidationHolders of the Series A Preferred are entitled to receive cumulative dividends at the rate per share (as a percentage of the stated valueper share) of 6% per annum (subject to increase in certain circumstances), payable quarterly in arrears on January 15, April 15, July 15and October 15, beginning on April 15, 2010. The dividends are payable in cash, or at our option, in duly authorized, validly issued,fully paid and non-assessable shares of common stock equal to 110% of the cash dividend amount payable on the dividend paymentdate, or a combination thereof; provided that we may not pay the dividends in shares of common stock unless we meet certain conditionsdescribed in the Certificate of Designation, including that the resale of the shares has been registered under the Securities Act. If we paythe dividend in shares of common stock, the common stock will be valued for such purpose at 80% of the average of the volume weightedaverage price for the 10 consecutive trading days ending on the trading day that is immediately prior to the dividend payment date. F34Table of ContentsThe Series A Preferred ranks senior to all shares of common stock.Upon our liquidation, dissolution or winding-up, whether voluntary or involuntary, the holders of the Series A Preferred shall beentitled to receive out of our assets, whether capital or surplus, an amount equal to the stated value of the common stock, plus anyaccrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the Certificate ofDesignation, for each share of Series A Preferred before any distribution or payment shall be made to the holders of any junior securities,and if our assets are insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series APreferred shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such sharesif all amounts payable thereon were paid in full.Conversion; Conversion Price; Forced Conversion; Optional RedemptionEach share of Series A Preferred is convertible into a number of shares of common stock equal to (1) the stated value of the share($1,000), divided by (2) $1.30, subject to adjustment as discussed below. We refer to this price as the Conversion Price.With certain exceptions, if, at any time while the Series A Preferred is outstanding, we sell or grant any option to purchase or sell orgrant 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, then theConversion Price will be reduced to equal the lower price (“down-round” provision). The Conversion Price is also subject to proportionaladjustment in the event of any stock split, stock dividend, reclassification or similar event with respect to the common stock.Commencing six months from the date of the agreement pursuant to which we issued the Series A Preferred, if the volume weightedaverage price for each of any 20 consecutive trading days exceeds 200% of the then effective Conversion Price and various other equityconditions are satisfied (including that the resale of the shares underlying the Series A Preferred has been registered under the SecuritiesAct), upon 30 days notice, the Series A Preferred plus all accrued and unpaid dividends will automatically convert into shares ofcommon stock.Commencing two years from the date of the agreement pursuant to which we issued the Series A Preferred, upon 30 days notice andprovided various other equity conditions are satisfied (including that the resale of the shares underlying the Series A Preferred has beenregistered under the Securities Act), we may redeem some or all of the then outstanding Series A Preferred for cash in an amount equal tothe 150% of the stated value of the Series A Preferred.VotingThe holders of the Series A Preferred have no voting rights except with respect to specified matters affecting the rights of the Series APreferred.Negative CovenantsAs long as any shares of Series A Preferred are outstanding, we may not, directly or indirectly: (a) amend our charter documents inany manner that materially and adversely affects any rights of the holders of the Series A Preferred; (b) pay cash dividends ordistributions on our junior securities (including the common stock); or (c) enter into any transaction with any affiliate of ours whichwould be required to be disclosed in any public filing, unless such transaction is made on an arm’s-length basis and expressly approvedby a majority of our disinterested directors.Triggering EventsIn the event of a Triggering Event (as defined in the Certificate of Designation and described below), any holder of Series A Preferredmay require us to redeem all of its Series A Preferred, at a redemption price equal to the greater of (a) 130% of the stated value and (b) theproduct of (i) the volume weighted average price on the trading day immediately preceding the date of the Triggering Event and (ii) thestated value divided by the then Conversion Price, plus all accrued but unpaid dividends thereon and all liquidated damages and othercosts, expenses or amounts due in respect of the Series A Preferred. Triggering Events include, among other things, bankruptcy relatedevents, change of control transactions (as defined in the Certificate of Designation), and various types of failures to perform under, andbreaches of, the transaction documents. F35Table of ContentsSince the Successor’s common stock was not trading on October 13, 2009, the market value of the Successor Company’s commonstock was determined by the exit financing transaction on September 9, 2009 which was $0.75 per common share. The preferred stockhas been classified within the mezzanine section between liabilities and equity in its consolidated balance sheets because any holder ofSeries A Preferred may require the Successor Company to redeem all of its Series A Preferred in the event of a “triggering event” (asdefined in the Certificate of Designation) which is outside of the control of the Successor Company. The Successor Company recordedaccrued dividends at a rate of 6% per annum on the Series A Preferred stock of $42,740 for the four months ended December 31, 2009.Viriathus Capital LLC and John Carris Investments LLC were co-placement agents for the Transaction, and received cashcompensation of $325,000 and warrants to purchase 250,000 shares of Common Stock at an exercise price of $1.30 per share.Registration RightsIn connection with the Series A Preferred purchase agreement, the Successor Company entered into a Registration Rights Agreementswith the purchasers of the Series A Preferred, which requires us to register the resale of the 110% of the shares of common stockunderlying the Series A Preferred, the shares of common stock underlying the Class A warrants, Class B warrants and placement agentwarrant, and all shares of common stock issuable as dividends on the Series A Preferred assuming all dividend payments are made inshares of common stock and the Series A Preferred is held for at least 3 years. The Successor Company filed a Form S-1 registrationstatement with the SEC on November 27, 2009. The Registration Statement was effective on February 12, 2010.Note 15-WarrantsSeries A and B WarrantsAs disclosed above in Note 14 , in connection with the preferred stock transaction, the Successor Company issued Class Awarrants to purchase 501,543 shares of Common Stock at an exercise price of $1.62 per share Class A Warrants; and Class BWarrants to purchase 416,667 shares of Company common stock at an exercise price of $1.95 per share. The warrants were exercisableimmediately after grant and expire five years thereafter. With certain exceptions, if, at any time while the warrants are outstanding, theSuccessor Company sells or grants any option to purchase or sells or grants any right to reprice, any common stock or common stockequivalents at an effective price per share that is lower than the then exercise price of the relevant warrant, then the relevant warrants, thenthe exercise price of such warrants will be reduced to equal the lower price (“down-round” provision). As a result of the “down-round”price protection, the warrants are liability-classified and they are re-measured on the Company’s reporting dates. The value of the Class Aand B Warrants was computed using the Black-Scholes option pricing model. The Company recorded the issuance of the Class A and BWarrants at their approximate fair market value of $0.3 million.Placement Agent WarrantsAs disclosed above in Note 14, the Successor Company issued Placement Agent Warrants to purchase an aggregate of 250,000shares of the Company’s common stock to the Company’s placement agents in connection with their roles in the Offering. The placementwarrants are also subject to “the down-round” price protection, the warrants are liability-classified and they are re-measured on theCompany’s reporting dates. F36Table of ContentsThe Successor Company recorded the issuance of the Placement Agent Warrants at their approximate fair market value ofapproximately $0.1 million. The warrants were exercisable immediately after grant and expire five years thereafter. The fair market of thewarrants granted to the co-placement agents, based on the Black-Scholes valuation model, is estimated to be $0.33 per warrant. The valueof the warrants granted was offset against the proceeds received from the sale of the Series A Preferred Stock.The Successor Company recognizes these warrants as a liability at the fair value on each reporting date. The Company measuredthe fair value of these warrants as of December 31, 2009, and recorded warrant expense of $319,084 resulting from the increase in theliability associated with the fair value of the warrants for the year ended December 31, 2009. The Successor Company has accounted forthe Series A and B warrants and the placement warrants as a liability due to the “down-round” price protection provision. The Companycomputed the value of the warrants using the Black-Scholes method.The fair market value of the warrants was computed using the Black-Scholes option-pricing model with the following keyassumptions as of the dates indicated: December 31, October 13, 2009 2009 Expected life (years) 4.8 years 5 yearsInterest rate 2.7% 2.3%Dividend yield — —Volatility 66% 66%The fair value of the warrants will continue to be classified as a liability until such time as the warrants are exercised, expire or anamendment of the warrant agreements renders these warrants to be no longer classified as a liability. The estimated fair value of ourwarrant liability, at December 31, 2009, was $635,276.Note 16—Equity-based CompensationTotal stock-based compensation expense recognized using the straight-line attribution method in the consolidated statement ofoperations is as follows: Successor Predecessor Predecessor Four months Eight months Twelve months December 31, August 31, December 31, 2009 2009 2008 Stock option compensation expense for employees and directors $326,838 $581,707 $1,945,082 Restricted stock expense 168,000 — — Equity awards for nonemployees issued for services 386,380 1,746 187,515 Total stock-based compensation expense $881,218 $583,453 $2,132,597 Successor CompanyOur board of directors adopted the 2009 Equity Incentive Plan (the “Plan”) effective September 3, 2009. The Plan is intended tofurther align the interests of the Successor Company and its stockholders with its employees, including its officers, non-employeedirectors, consultants and advisors by providing incentives for such persons to exert maximum efforts for the success of the SuccessorCompany. The Plan allows for the issuance of up to 4,000,000 shares of the Successor Company’s common stock. The types of awardsthat may be granted under the Plan include options (both nonqualified stock options and incentive stock options), stock appreciationrights, stock awards, stock units, and other stock-based awards. Notwithstanding the foregoing, to the extent the Successor Company isunable to obtain shareholder approval of the Plan within one year of the effective date, any incentive stock options issued pursuant to thePlan shall automatically be considered nonqualified stock options, and to the extent a holder of an incentive stock option exercises his orher incentive stock option prior to such shareholder approval date, such exercised option shall automatically be considered to have been anonqualified stock option. The term of each award is determined by the Board at the time each award is granted, provided that the termsof options may not exceed ten years. F37Table of ContentsAs part of the emergence from Chapter 11, the Successor Company granted stock options to directors and non-employees forservices in September 2009. In addition, restricted stock was issued to the chief executive officer which is subject to a two-year vestingschedule whereby 50% vested immediately on September 3, 2009, 25% shall vest on the first anniversary, and 25% shall vest on thesecond anniversary. The Successor Company issued additional stock options in the fourth quarter of 2009 to the chief executive officer,employees and non-employees for services.During the period September 2009 through December 2009, the weighted average fair market value using the Black-Scholes option-pricing model of the options granted was $0.33 for this period. The fair market value of the stock options at the date of grant wasestimated using the Black-Scholes option-pricing model with the following weighted average assumptions: Four Months Ended December 31, 2009Expected life (years) 2.7 yearsInterest rate 1.4%Dividend yield —Volatility 67%There were no stock options exercised during the period September 2009 through December 2009.A summary of option activity for the four months ended December 31, 2009 is as follows: Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Options Shares Price Term Value Outstanding at September 1, 2009 — $0.00 Four months ended December 31, 2009: Granted 2,807,000 0.77 Exercised — — Forfeited — — Outstanding at December 31, 2009 2,807,000 $0.77 4.67 $0.38 Options exercisable at December 31, 2009 2,130,000 $0.76 4.67 $0.39 F38Table of ContentsThe following table summarizes the Successor Company’s non-vested stock options since September 1, 2009: Non-vested Options Weighted- Number of Average Fair Shares Value Non-vested at September 1, 2009 — $— Granted 2,807,000 — Vested (2,130,000) — Forfeited — — Non-vested at December 31, 2009 677,000 $0.36 The total fair value of shares vested during the four months ended December 31, 2009 was $0.7 million. As of December 31, 2009,there was $0.2 million of total unrecognized compensation cost, related to non-vested stock options which vest over time. That cost isexpected to be recognized over a weighted-average period of 1 year. As of December 31, 2009, there was $83,000 of total unrecognizedcompensation expense related to performance-based, non-vested employee and consultant stock options. That cost will be recognized whenthe performance criteria within the respective performance-based option grants become probable of achievement.Restricted stockThe following table summarizes the Successor’s restricted stock activity for the four months ended December 31, 2009: Non-vested Options Weighted- Number of Average Fair Shares Value Non-vested at September 1, 2009 — $— Granted 600,000 0.48 Vested (300,000) 0.48 Forfeited — — Non-vested at December 31, 2009 300,000 $0.48 As of December 31, 2009, there was $0.1 million of total unrecognized compensation cost related to non-vested restricted stock thatis expected to be recognized over a weighted-average period of 1.67 years.Predecessor CompanyPrior to the Effective Date, the Predecessor Company maintained stock-based incentive compensation plans for employees anddirectors of the Company. On the Effective Date, the following stock option plans were terminated (and any and all awards granted undersuch plans were terminated and will no longer be of any force or effect): (1) the 2001 Stock Option and Appreciation Rights Plan, (2) the2003 Stock Option and Appreciation Rights Plan, (3) the 2005 Stock Option and Appreciation Rights Plan. As a result of the cancellationof the stock options, the Predecessor Company recorded additional stock compensation expense of $0.3 million for the unrecognizedstock compensation expense. F39Table of ContentsNote 17—Segment Information and Geographical informationThe Successor Company has two reportable segments: Fibrocell Therapy and Agera. The Fibrocell Therapy segment specializes inthe development and commercialization of autologous cellular therapies for soft tissue regeneration. The Agera segment maintainsproprietary rights to a scientifically-based advanced line of skincare products. There is no intersegment revenue. The following tableprovides operating financial information for the continuing operations of the Successor Company’s two reportable segments: Segment Successor Successor Four Months Ended December 31, 2009 Fibrocell Therapy Agera Consolidated Total operating revenue $— $329,941 $329,941 Segment loss from continuing operations $(5,026,024) $3,631 $(5,022,393) Supplemental information related to continuing operations Depreciation and amortization expense $— $— $— Total assets, including assets from discontinued operations as ofDecember 31, 2009 8,092,816 631,393 8,724,209 Property and equipment, net — — — Intangible assets, net 6,340,656 — 6,340,656 Segment Predecessor Predecessor Eight Months Ended August 31, 2009 Isolagen Therapy Agera Consolidated Total operating revenue $— $538,620 $538,620 Segment income from continuing operations $65,498,934 $381,306 $65,880,240 An intercompany receivable as of December 31, 2009, of $1.0 million, due from the Agera segment to the Fibrocell Therapysegment, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge toAgera by Fibrocell Technologies, Inc., as well as Agera working capital needs provided by Fibrocell Technologies, Inc., and has beenexcluded from total assets of the Fibrocell Therapy segment in the above table. There is no intersegment revenue. Total assets on theconsolidated balance sheet at December 31, 2009 are approximately $8.7 million, which includes assets of discontinued operations ofless than $0.1 million. Segment Predecessor Predecessor Year Ended December 31, 2008 Isolagen Therapy Agera Consolidated Total operating revenue $— $1,104,885 $1,104,885 Segment loss from continuing operations $(24,334,980) $(4,285,549) $(28,620,529) Supplemental information related to continuing operations Depreciation and amortization expense $1,050,024 $326,839 $1,376,863 Total assets, including assets from discontinued operations as ofDecember 31, 2008 4,019,714 1,033,691 5,053,405 Property and equipment, net — — — Intangible assets, net — — — F40Table of ContentsAn intercompany receivable of $1.0 million, due from the Agera segment to the Isolagen Therapy segment as of December 31, 2008,is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera byIsolagen, as well as Agera working capital needs provided by Isolagen, and has been excluded from total assets of the Isolagen Therapysegment in the above table. Total assets on the consolidated balance sheet at December 31, 2008 are approximately $5.1 million, whichincludes assets of continuing operations of $5.1 million and assets of discontinued operations of less than $0.1 million.Geographical information concerning the Successor Company’s operations and assets is as follows: Revenue Revenue Successor Predecessor Four months ended Eight months ended Year ended December 31, 2009 August 31, 2009 December 31, 2008 United States $68,526 $187,289 $312,139 United Kingdom 251,615 308,244 712,105 Other 9,800 43,087 80,641 $329,941 $538,620 $1,104,885 During the four months ended December 31, 2009, revenue from one foreign customer and one domestic customer represented 79%and 15% of consolidated revenue, respectively. During the eight months ended August 31, 2009, revenue from one foreign customer andone domestic customer represented 57% and 23% of consolidated revenue, respectively. During 2008, revenue from one foreign customerand one domestic customer represented 64% and 20% of consolidated revenue, respectively.As of December 31, 2009 and December 31, 2008, one foreign customer represented 87% and 94%, respectively, of accountsreceivable, net.Note 18—Subsequent EventsSubsequent events have been evaluated by the Successor Company through March 31, 2010, which is the date the financialstatements were available to be issued.On February 1, 2010, the Company entered into an employment agreement with Mr. Pernock pursuant to which Mr. Pernock agreedto serve as Chief Executive Officer of the Company for an initial term ending February 1, 2013, which may be renewed for an additionalone-year term by mutual agreement. The agreement provides for an annual salary of $450,000. Mr. Pernock is entitled to receive anannual bonus each year, payable subsequent to the issuance of the Company’s final audited financial statements, but in no case laterthan 120 days after the end of its most recently completed fiscal year. The final determination on the amount of the annual bonus will bemade by the Board of Directors (or the Compensation Committee of the Board of Directors, if such committee has been formed), based oncriteria established by the Board of Directors (or the Compensation Committee of the Board of Directors, if such committee has beenformed). The targeted amount of the annual bonus shall be 60% of Mr. Pernock’s base salary, although the actual bonus may be higheror lower. F41Table of ContentsUnder the agreement, Mr. Pernock was granted a ten-year option to purchase 1,650,000 shares at an exercise price per share equal tothe closing price of the Company’s common stock on the date of execution of the agreement, or February 1, 2010. The options vest asfollows: (i) 250,000 shares upon execution of the agreement; (ii) 100,000 shares upon the closing of a strategic partnership or licensingdeal with a major partner that enables the Company to significantly improve and/or accelerate its capabilities in such areas as research,production, marketing and/or sales and enable the Company to reach or exceed its major business milestones within the Company’sstrategic and operational plans, provided Mr. Pernock is the CEO on the closing date of such partnership or licensing deal (thedetermination of whether any partnership or licensing deal meets the foregoing criteria will be made in good faith by the Board upon theclosing of such partnership or licensing deal); and (iii) 1,300,000 shares in equal 1/36th installments (or 36,111 shares per installment)monthly over a three-year period, provided Executive is the CEO on each vesting date. The vesting of all options set forth above shallaccelerate upon a “change in control” as defined in the agreement, provided Mr. Pernock is employed by the Company within 60 daysprior to the date of such change in control.If Mr. Pernock’s employment is terminated at the Company’s election at any time, for reasons other than death, disability, cause (asdefined in the agreement) or a voluntary resignation, or by Mr. Pernock for good reason (as defined in the agreement), Mr. Pernock shallbe entitled to receive severance payments equal to twelve months of Mr. Pernock’s base salary and of the premiums associated withcontinuation of Mr. Pernock’s benefits pursuant to COBRA to the extent that he is eligible for them following the termination of hisemployment; provided that if anytime within eighteen months after a change in control either (i) Mr. Pernock is terminated, at theCompany’s election at any time, for reasons other than death, disability, cause or voluntary resignation, or (ii) Mr. Pernock terminates theagreement for good reason, Mr. Pernock shall be entitled to receive severance payments equal to: (1) two years of Mr. Pernock’s basesalary, (2) Mr. Pernock’s most recent annual bonus payment, and (3) the premiums associated with continuation of Mr. Pernock’sbenefits pursuant to COBRA to the extent that he is eligible for them following the termination of his employment for a period of one yearafter termination. All severance payments shall be made in a lump sum within ten business days of Mr. Pernock’s execution and deliveryof a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents,successors and assigns in a form acceptable to the Company. If severance payments are being made, Mr. Pernock has agreed not tocompete with the Company until twelve months after the termination of his employment.On March 2, 2010, the Company entered into a Securities Purchase Agreement with certain accredited investors, pursuant to whichthe Company agreed to sell to the purchasers in the aggregate 5,076,667 shares of Company common stock at a purchase price of $0.75per share. Each purchaser will also receive a warrant to purchase the same number of shares of common stock acquired in the offering atan exercise price of $0.98 per share. The aggregate purchase price to be paid by the purchasers at closing for the common stock and thewarrants will be $3,807,500. The financing is subject to customary closing conditions. None of the shares to be issued to the investorsnor the shares underlying the warrants to be issued to the investors or the placement agents will be or have been registered under theSecurities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemptionfrom registration requirements. Viriathus Capital LLC and John Carris Investments LLC were co-placement agents for the transaction. F42Exhibit 31.1OFFICER’S CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, David Pernock, Chief Executive Officer of Fibrocell Science, Inc., certify that:1. I have reviewed this Annual Report on Form 10-K of Fibrocell Science, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made not misleading with respect to the periodcovered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Dated: March 31, 2010 By: /s/ David PernockDavid Pernock Chief Executive Officer Exhibit 31.2OFFICER’S CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Declan Daly, Chief Financial Officer of Fibrocell Science, Inc., certify that:1. I have reviewed this Annual Report on Form 10-K of Fibrocell Science, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made not misleading with respect to the periodcovered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Dated: March 31, 2010 By: /s/ Declan DalyDeclan Daly Chief Financial Officer Exhibit 32.1CERTIFICATION PURSUANT TO SECTION 1350 OFCHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODEFor purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, DavidPernock, Chief Executive Officer of Fibrocell Science, Inc. (the “Company”), hereby certifies that: i. the Annual Report on Form 10-K of the Company for the year ended December 31, 2009, as filed with the Securities andExchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Commission Act of 1934; and ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company.Dated: March 31, 2010 By: /s/ David PernockDavid Pernock Chief Executive Officer Fibrocell Science, Inc. A signed original of this written statement required by Section 906 has been provided to Fibrocell Science, Inc. and will be retainedby Fibrocell Science, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32.2CERTIFICATION PURSUANT TO SECTION 1350 OFCHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODEFor purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned,Declan Daly, Chief Financial Officer of Fibrocell Science, Inc. (the “Company”), hereby certifies that: i. the Annual Report on Form 10-K of the Company for the year ended December 31, 2009, as filed with the Securities andExchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Commission Act of 1934; and ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company.Dated: March 31, 2010 By: /s/ Declan DalyDeclan Daly Chief Financial Officer Fibrocell Science, Inc. A signed original of this written statement required by Section 906 has been provided to Fibrocell Science, Inc. and will be retainedby Fibrocell Science, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 

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