##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended: March 31, 2011
 Commission File Number: 0-19871
 STEMCELLS, INC.
  DELAWARE
    
    94-3078125(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
identification No)
 
  
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Page NumberPART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II. OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security-Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    33EX-31.1EX-31.2EX-32.1EX-32.2
  NOTE REGARDING REFERENCES TO US AND OUR COMMON STOCK
  2




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##### Table of Contents



PART I-FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 
 
 March 31, 2011
    
    
    December 31, 2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,066,185
    
    
    $
    19,707,821Marketable securities, current
    
    
    8,556,966
    
    
    
    190,804Trade receivables
    
    
    82,650
    
    
    
    118,890Other receivables
    
    
    224,936
    
    
    
    151,144Prepaid assets
    
    
    619,463
    
    
    
    610,980Other
assets, current
    
    
    389,039
    
    
    
    389,039Total current assets
    
    
    22,939,239
    
    
    
    21,168,678Property, plant and equipment, net
    
    
    2,401,423
    
    
    
    2,626,821Other
assets, non-current
    
    
    1,930,544
    
    
    
    1,931,871Goodwill
    
    
    1,957,325
    
    
    
    1,877,315Other intangible assets, net
    
    
    3,018,275
    
    
    
    2,996,888Total assets
    
    $
    32,246,806
    
    
    $
    30,601,573LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,158,187
    
    
    $
    1,098,962Accrued expenses and other current liabilities
    
    
    1,586,184
    
    
    
    2,828,168Accrued wind-down expenses, current
    
    
    1,356,729
    
    
    
    1,310,571Deferred revenue, current
    
    
    34,260
    
    
    
    45,885Capital lease obligation, current
    
    
    69,494
    
    
    
    67,847Deferred rent, current
    
    
    604
    
    
    
    Bonds payable, current
    
    
    180,000
    
    
    
    176,250Total current liabilities
    
    
    4,385,458
    
    
    
    5,527,683Capital lease obligation, non-current
    
    
    
    
    
    
    17,979Bonds payable, non-current
    
    
    476,250
    
    
    
    522,500Fair value of warrant liability
    
    
    4,888,973
    
    
    
    6,671,929Deposits and other long-term liabilities
    
    
    291,807
    
    
    
    276,439Accrued wind-down expenses, non-current
    
    
    1,650,598
    
    
    
    1,989,800Deferred rent, non-current
    
    
    397,923
    
    
    
    1,227Deferred revenue, non-current
    
    
    109,181
    
    
    
    113,387Total liabilities
    
    
    12,200,190
    
    
    
    15,120,944Commitments and contingencies (Note 7)Stockholders equity:Common stock, $0.01 par value; 250,000,000
shares authorized; issued and outstanding
137,743,512 at March 31, 2011 and 127,312,870
at December 31, 2010
    
    
    1,377,434
    
    
    
    1,273,128Additional paid-in capital
    
    
    335,391,550
    
    
    
    325,359,265Accumulated deficit
    
    
    (317,018,721
    )
    
    
    (311,271,486
    )Accumulated other comprehensive income
    
    
    296,353
    
    
    
    119,722Total stockholders equity
    
    
    20,046,616
    
    
    
    15,480,629Total liabilities and stockholders equity
    
    $
    32,246,806
    
    
    $
    30,601,573
  3




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Three months endedMarch 31,2011
    
    
    2010Revenue:Revenue from licensing agreements and grants
    
    $
    72,092
    
    
    $
    113,849Revenue from product sales
    
    
    149,375
    
    
    
    116,424Total revenue
    
    
    221,467
    
    
    
    230,273Cost of product sales
    
    
    54,524
    
    
    
    43,762Gross profit
    
    
    166,943
    
    
    
    186,511Operating expenses:Research and development
    
    
    5,525,677
    
    
    
    5,037,514Selling, general and administrative
    
    
    2,075,729
    
    
    
    2,584,742Wind-down expenses
    
    
    75,137
    
    
    
    165,335Total operating expenses
    
    
    7,676,543
    
    
    
    7,787,591Loss from operations
    
    
    (7,509,600
    )
    
    
    (7,601,080
    )Other income (expense):Change in fair value of warrant liability
    
    
    1,782,955
    
    
    
    1,516,349Interest income
    
    
    1,372
    
    
    
    594Interest expense
    
    
    (20,207
    )
    
    
    (25,500
    )Other expense
    
    
    (1,755
    )
    
    
    (14,438
    )Total other
income, net
    
    
    1,762,365
    
    
    
    1,477,005Net loss
    
    $
    (5,747,235
    )
    
    $
    (6,124,075
    )Basic and diluted net loss per share
    
    $
    (0.04
    )
    
    $
    (0.05
    )Shares used to compute basic and diluted loss per share
    
    
    136,799,125
    
    
    
    118,959,136
  4




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Three months endedMarch 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (5,747,235
    )
    
    $
    (6,124,075
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    305,041
    
    
    
    418,307Stock-based compensation
    
    
    934,464
    
    
    
    1,018,972Gain on disposal of fixed assets
    
    
    (31
    )
    
    
    Change in fair value of warrant liability
    
    
    (1,782,955
    )
    
    
    (1,516,349
    )Changes in operating assets and liabilities:Other receivables
    
    
    (71,021
    )
    
    
    300,765Trade receivables
    
    
    41,473
    
    
    
    41,568Prepaid and other current assets
    
    
    (5,766
    )
    
    
    (138,508
    )Other assets, non-current
    
    
    3,012
    
    
    
    (17,588
    )Accounts payable and accrued expenses
    
    
    (1,183,647
    )
    
    
    (1,614,964
    )Accrued wind-down expenses
    
    
    (293,044
    )
    
    
    (201,175
    )Deferred revenue
    
    
    (15,921
    )
    
    
    74,198Deferred rent
    
    
    397,300
    
    
    
    (49,437
    )Net cash used in operating activities
    
    
    (7,418,330
    )
    
    
    (7,808,286
    )Cash flows from investing activities:Purchase of marketable securities
    
    
    (8,382,861
    )
    
    
    Purchases of property, plant and equipment
    
    
    (16,637
    )
    
    
    (78,871
    )Proceeds from sale of property, plant and equipment
    
    
    35,427
    
    
    
    Net cash used in investing activities
    
    
    (8,364,071
    )
    
    
    (78,871
    )Cash flows from financing activities:Proceeds from issuance of common stock, net of issuance costs
    
    
    9,399,003
    
    
    
    1,044,907Proceeds from the exercise of stock options
    
    
    880
    
    
    
    636Payments related to net share issuance of stock based awards
    
    
    (197,757
    )
    
    
    (360,793
    )Repayment of capital lease obligations
    
    
    (16,333
    )
    
    
    (19,713
    )Repayment of bonds payable
    
    
    (42,500
    )
    
    
    (38,750
    )Net cash provided by financing activities
    
    
    9,143,293
    
    
    
    626,287Decrease in cash and cash equivalents
    
    
    (6,639,108
    )
    
    
    (7,260,870
    )Effects of foreign exchange rate changes on cash
    
    
    (2,528
    )
    
    
    (20,120
    )Cash and cash equivalents, beginning of period
    
    
    19,707,821
    
    
    
    38,617,977Cash and cash equivalents, end of period
    
    $
    13,066,185
    
    
    $
    31,336,987Supplemental disclosure of cash flow information:Interest paid
    
    $
    20,207
    
    
    $
    25,500
  5




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Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2011 and 2010
 Note 1. Summary of Significant Accounting Policies
 Nature of Business
    Principles of Consolidation
  Use of Estimates
   
    
    the grant date fair value of stock-based awards recognized as compensation expense
(see Note 5, Stock-Based Compensation);
 
    
    accrued wind-down expenses (see Note 6, Wind-Down Expenses);
 
    
    the fair value of warrants recorded as a liability (see Note 8, Warrant
Liability); and
 
    
    the fair value of goodwill and other intangible assets (see Note 4, Goodwill and
Other Intangible Assets).
 6




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Financial Instruments
 Cash and Cash Equivalents
  Marketable Securities
   Trade and Other Receivables
  Warrant Liability
  Goodwill and Other Intangible Assets
  7




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Revenue Recognition
  Stock-Based Compensation
   Net Loss per Share
   Three months ended March 31,2011
    
    2010Net loss
    
    $
    (5,747,235
    )
    
    $
    (6,124,075
    )Weighted average shares outstanding
used to compute basic and diluted
net loss per share
    
    
    136,799,125
    
    
    
    118,959,136Basic and diluted net loss per share
    
    $
    (0.04
    )
    
    $
    (0.05
    )
  2011
    
    2010Options
    
    
    10,505,290
    
    
    
    9,830,870Restricted stock units
    
    
    4,279,305
    
    
    
    1,777,151Warrants
    
    
    14,344,828
    
    
    
    14,344,828Total
    
    
    29,129,173
    
    
    
    25,952,849
 Comprehensive Loss
  8




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Three months ended March 31,2011
    
    
    2010Net loss
    
    $
    (5,747,235
    )
    
    $
    (6,124,075
    )Net change in unrealized
gains and losses on
marketable securities
    
    
    (16,699
    )
    
    
    (40,265
    )Net change in unrealized
gains and losses on foreign
currency translations
    
    
    193,330
    
    
    
    (310,218
    )Comprehensive loss
    
    $
    (5,570,604
    )
    
    $
    (6,474,558
    )
 Recent Accounting Pronouncements
   Note 2. Financial Instruments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueMarch 31, 2011Cash
    
    $
    392,335
    
    
    $
    
    
    
    $
    
    
    
    $
    392,335Cash equivalents
    
    
    12,673,850
    
    
    
    
    
    
    
    
    
    
    
    12,673,850Marketable debt securities, current
    
    
    8,382,861
    
    
    
    
    
    
    
    (4,166
    )
    
    
    8,378,695Marketable equity securities, current
    
    
    74,456
    
    
    
    103,815
    
    
    
    
    
    
    
    178,271Total cash, cash equivalents, and marketable securities
    
    $
    21,523,502
    
    
    $
    103,815
    
    
    $
    (4,166
    )
    
    $
    21,623,151December 31, 2010Cash
    
    $
    1,001,868
    
    
    $
    
    
    
    $
    
    
    
    $
    1,001,868Cash equivalents
    
    
    18,705,953
    
    
    
    
    
    
    
    
    
    
    
    18,705,953Marketable equity securities, current
    
    
    74,456
    
    
    
    116,348
    
    
    
    
    
    
    
    190,804Total cash, cash equivalents, and marketable securities
    
    $
    19,782,277
    
    
    $
    116,348
    
    
    $
    
    
    
    $
    19,898,625
 9




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Note 3. Fair Value Measurement
       10




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Fair Value Measurementat Reporting Date UsingQuoted Prices
    
    
    Significantin Active Markets
    
    
    OtherFor
    
    
    Observable
    
    
    As ofIdentical Assets
    
    
    Inputs
    
    
    March 31,(Level 1)
    
    
    (Level 2)
    
    
    2011Financial assetsCash equivalents:Money market funds
    
    $
    12,673,850
    
    
    $
    
    
    
    $
    12,673,850Marketable securities:Debt and equity
securities
    
    
    8,556,966
    
    
    
    
    
    
    
    8,556,966Total financial assets
    
    $
    21,230,816
    
    
    
    
    
    
    $
    21,230,816Financial liabilitiesBond payable
    
    $
    
    
    
    $
    656,250
    
    
    $
    656,250Warrant liability
    
    
    
    
    
    
    4,888,973
    
    
    
    4,888,973Total financial liabilities
    
    $
    
    
    
    $
    5,545,223
    
    
    $
    5,545,223
 Note 4. Goodwill and Other Intangible Assets
   Estimated life ofAllocated purchase
    
    
    intangible assetsPrice
    
    
    in yearsNet tangible assets
    
    $
    36,000Intangible assets:Customer relationships and developed technology
    
    
    1,310,000
    
    
    
    6 to 9In-process research and development
    
    
    1,340,000
    
    
    
    13 to 19Trade name
    
    
    310,000
    
    
    
    15Goodwill
    
    
    2,139,000
    
    
    
    N/ATotal
    
    $
    5,135,000
   11




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Balance as of December 31, 2010
    
    $
    1,877,315Foreign currency translation
    
    
    80,010Balance as of March 31, 2011
    
    $
    1,957,325
  Net CarryingOther Intangible Asset Class
    
    AmountCustomer relationships and developed technology
    
    $
    1,085,812In-process research and development
    
    
    1,294,290Trade name
    
    
    299,373Patents
    
    
    338,800Total other intangible assets
    
    $
    3,018,275
   For the year ending December 31:2011
    
    $
    365,2132012
    
    $
    365,2132013
    
    $
    365,2132014
    
    $
    365,2132015
    
    $
    365,213 Note 5. Stock-Based Compensation
   Three months endedMarch 31,2011
    
    
    2010Research and development expense
    
    $
    438,042
    
    
    $
    546,608Selling, general and administrative expense
    
    
    496,422
    
    
    
    472,364Total employee stock-based compensation expense and effect on net loss
    
    $
    934,464
    
    
    $
    1,018,972Effect on basic and diluted net loss per share
    
    $
    (0.01
    )
    
    $
    (0.01
    )
  Stock Options
 12




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Weighted-averageNumber of options
    
    exercise price ($)Balance at December 31, 2010
    
    
    10,982,415
    
    
    
    2.02Granted
    
    
    
    
    
    
    Exercised
    
    
    (3,519
    )
    
    
    0.25Cancelled
    
    
    (473,607
    )
    
    
    2.71Outstanding options at March 31, 2011
    
    
    10,505,289
    
    
    
    2.00
  Weighted-averageWeighted-average
    
    grantNumber of options
    
    exercise price ($)
    
    date fair value ($)Unvested options at December 31, 2010
    
    
    3,365,161
    
    
    
    1.30
    
    
    
    1.03Granted
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    (311,696
    )
    
    
    1.71
    
    
    
    1.36Cancelled
    
    
    (24,457
    )
    
    
    1.27
    
    
    
    0.93Unvested options at March 31, 2011
    
    
    3,029,008
    
    
    
    1.25
    
    
    
    1.00
  Restricted Stock Units
   Weighted-average grantNumber of RSUs
    
    date fair value ($)Unvested restricted stock units at December 31, 2010
    
    
    4,665,055
    
    
    
    1.23Granted
    
    
    290,000
    
    
    
    0.95Vested and converted to common shares
    
    
    (595,750
    )
    
    
    1.27Cancelled
    
    
    (80,000
    )
    
    
    1.50Balance unvested at March 31, 2011 (1)
    
    
    4,279,305
    
    
    
    1.20
 
 (1)
    
    55,000 of these restricted stock units vest and convert into shares of our common stock after
one year from the date of grant. 2,050,000 of these restricted stock units vest and convert
into shares of our common stock over a three year period from the date of grant: one-third of
the award will vest on each grant date anniversary following the grant. 2,069,305 of these
restricted stock units vest and convert into shares of our common stock over a four year
period from the date of grant: one-fourth of the award will vest on each grant date
anniversary following the grant. 105,000 of these restricted stock units will vest and convert
into shares of our common stock subject to attainment of certain performance criteria and will
be forfeited if not met. Stock Appreciation Rights
   13




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Number of SARsOutstanding at December 31, 2010
    
    
    1,354,088Granted
    
    
    Exercised
    
    
    Forfeited and expired
    
    
    Outstanding SARs at March 31, 2011
    
    
    1,354,088SARs exercisable at March 31, 2011
    
    
    1,354,088
   Note 6. Wind-Down Expenses
 Rhode Island
   January 1 to
    
    
    January 1 toMarch 31,
    
    
    December 31,2011
    
    
    2010Accrued wind-down reserve at beginning of period
    
    $
    2,644,000
    
    
    $
    3,572,000Less actual expenses recorded against estimated
reserve during the period
    
    
    (317,000
    )
    
    
    (1,219,000
    )Additional expense recorded to revise estimated
reserve at period-end
    
    
    75,000
    
    
    
    291,000Revised reserve at period-end
    
    
    2,402,000
    
    
    
    2,644,000Add deferred rent at period-end
    
    
    605,000
    
    
    
    656,000Total accrued wind-down expenses at period-end
(current and non-current)
    
    $
    3,007,000
    
    
    $
    3,300,000Accrued wind-down expenses, current
    
    $
    1,356,000
    
    
    $
    1,311,000Accrued wind-down expenses, non-current
    
    
    1,651,000
    
    
    
    1,989,000Total accrued wind-down expenses
    
    $
    3,007,000
    
    
    $
    3,300,000
 Australia
  14




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Note 7. Commitments and Contingencies
 Leases
 Capital Leases
  Operating Leases
  Operating Leases  California
    15




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Operating Leases Rhode Island
  Operating Leases  United Kingdom
   Contingencies
   16




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Note 8. Warrant Liability
    To CalculateFair Value of WarrantLiability atMarch 31, 2011
    
    December 31, 2010Expected life (years)
    
    
    3.1
    
    
    
    3.4Risk-free interest rate
    
    
    1.2
    %
    
    
    1.2
    %Expected volatility
    
    
    83.5
    %
    
    
    83.6
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
 At March 31,
    
    At December 31,
    
    Change in Fair Value2011
    
    2010
    
    of Warrant LiabilityFair value of warrant liability
    
    $
    3,150,413
    
    
    $
    4,408,449
    
    
    $
    (1,258,035
    )
  17




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To CalculateFair Value of Warrant Liability atMarch 31,
    
    December 31,2011
    
    2010Expected life (years)
    
    
    4.1
    
    
    
    4.3Risk-free interest rate
    
    
    1.7
    %
    
    
    1.6
    %Expected volatility
    
    
    78.4
    %
    
    
    77.5
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
 At March 31,
    
    At December 31,
    
    Change in Fair Value2011
    
    2010
    
    of Warrant LiabilityFair value of warrant liability
    
    $
    1,738,560
    
    
    $
    2,263,480
    
    
    $
    (524,920
    )
 Note 9. Common Stock
  Note 10. Subsequent Events
  18




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 The Company
 ®
 19




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in vitro
    20




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Significant Events
        Critical Accounting Policies and the Use of Estimates
  21




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Stock-Based Compensation
   Wind-down expenses Rhode Island
    22




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Wind-down expenses Australia
  Business Combinations
  Warrant Liability
  Results of Operations
  23




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Revenue and Cost of Product Sales
  Three months ended, March 31
    
    
    Change in 2011 versus 20102011
    
    
    2010
    
    
    $
    
    
    %Revenue:Licensing agreements and grants
    
    $
    72,092
    
    
    $
    113,849
    
    
    $
    (41,757
    )
    
    
    (37
    )%Product sales
    
    
    149,375
    
    
    
    116,424
    
    
    
    32,951
    
    
    
    28
    %Total revenue
    
    
    221,467
    
    
    
    230,273
    
    
    
    (8,806
    )
    
    
    (4
    )%Cost of product sales
    
    
    54,524
    
    
    
    43,762
    
    
    
    (10,762
    )
    
    
    25
    %Gross Profit
    
    $
    166,943
    
    
    $
    186,511
    
    
    $
    (19,568
    )
    
    
    (10
    )%
  First quarter ended March 31, 2011 versus first quarter ended March 31, 2010.
 Operating Expenses
  Three months ended, March 31
    
    
    Change in 2011 versus 20102011
    
    
    2010
    
    
    $
    
    
    %Operating expenses:Research & development
    
    $
    5,525,677
    
    
    $
    5,037,514
    
    
    $
    488,163
    
    
    
    10
    %Selling, general & administrative
    
    
    2,075,729
    
    
    
    2,584,742
    
    
    
    (509,013
    )
    
    
    (20
    )%Wind-down expenses
    
    
    75,137
    
    
    
    165,335
    
    
    
    (90,198
    )
    
    
    (55
    )%Total operating expenses
    
    $
    7,676,543
    
    
    $
    7,787,591
    
    
    $
    (111,048
    )
    
    
    (1
    )%
 Research and Development Expenses
   24




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##### Table of Contents



First quarter ended March 31, 2011 versus first quarter ended March 31, 2010.
 Selling, General and Administrative Expenses
   First quarter ended March 31, 2011 versus first quarter ended March 31, 2010
 Wind-down Expenses
 Three months ended,March 312011
    
    2010Wind-down
expenses
    
    $
    75,137
    
    
    $
    165,335
 Rhode Island
  25




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##### Table of Contents



Australia
  Other Income (Expense)
  Three months ended,
    
    
    Change in 2011 versusMarch 31
    
    
    20102011
    
    
    2010
    
    
    $
    
    
    %Other income (expense):Change in fair value of warrant liability
    
    $
    1,782,955
    
    
    $
    1,516,349
    
    
    $
    266,606
    
    
    
    18
    %Interest income
    
    
    1,372
    
    
    
    594
    
    
    
    778
    
    
    
    131
    %Interest expense
    
    
    (20,207
    )
    
    
    (25,500
    )
    
    
    5,293
    
    
    
    (21
    )%Other expense, net
    
    
    (1,755
    )
    
    
    (14,438
    )
    
    
    12,683
    
    
    
    (88
    )%Total other income
    
    $
    1,762,365
    
    
    $
    1,477,005
    
    
    $
    285,360
    
    
    
    19
    %
 Change in Fair Value of Warrant Liability
  Interest Income
  Interest Expense
  Other income (expense), net
 26




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##### Table of Contents



Liquidity and Capital Resources
  March 31,
    
    December 31,
    
    Change2011
    
    2010
    
    $
    
    %Cash and cash equivalents
    
    $
    13,066,185
    
    
    $
    19,707,821
    
    
    $
    (6,641,636
    )
    
    
    (33
    )%
  Three months ended March 31,
    
    Change in 2011 versus 20102011
    
    2010
    
    $
    
    %Net cash used in operating activities
    
    $
    (7,418,330
    )
    
    $
    (7,808,286
    )
    
    $
    389,956
    
    
    
    (5
    )%Net cash used in investing activities
    
    $
    (8,364,071
    )
    
    $
    (78,871
    )
    
    $
    (8,285,200
    )
    
    
    **Net cash provided by financing activities
    
    $
    9,143,293
    
    
    $
    626,287
    
    
    $
    8,517,006
    
    
    
    **
 Net Cash Used in Operating Activities
  Net Cash Used in Investing Activities
  Net Cash Provided by Financing Activities
    
 **
    
    Not meaningful 27




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##### Table of Contents



Commitments
  Off-Balance Sheet Arrangements
  Operating Leases
  Operating Leases California
  28




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##### Table of Contents



Operating Leases Rhode Island
   Operating Leases  United Kingdom
   Contractual Obligations
  29




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##### Table of Contents



Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payable inObligations
    
    
    Payable in (April to
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2016at March
    
    
    December)
    
    
    Payable in
    
    
    Payable in
    
    
    Payable in
    
    
    Payable in
    
    
    and31, 2011
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    BeyondOperating lease
payments(1)
    
    $
    19,007,956
    
    
    $
    2,244,339
    
    
    $
    2,561,875
    
    
    $
    1,936,422
    
    
    $
    1,255,600
    
    
    $
    1,307,200
    
    
    $
    9,702,520Capital lease (equipment)
    
    
    73,373
    
    
    
    55,044
    
    
    
    18,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonds Payable (principal
& interest)(2)
    
    
    796,740
    
    
    
    181,629
    
    
    
    240,666
    
    
    
    237,593
    
    
    
    136,852
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    19,878,069
    
    
    $
    2,481,012
    
    
    $
    2,820,870
    
    
    $
    2,174,015
    
    
    $
    1,392,452
    
    
    $
    1,307,200
    
    
    $
    9,702,520
 
 (1)
    
    Operating lease payments exclude space-sharing and sub-lease income (see Off-Balance Sheet
Arrangements  Operating Leases above for further information), but include rent payments
for our Rhode Island facility that are included as part of our Accrued wind-down expenses in
our condensed consolidated financial statements. See Note 6, Wind-down expenses and Note 7,
Commitments and Contingencies in the notes to condensed consolidated financial statements of
Part I, Item 1 of this Form 10-Q for further information.(2)
    
    See Note 7, Commitments and Contingencies in the notes to condensed consolidated financial
statements of Part I, Item 1 of this Form 10-Q for further information.    Recent Accounting Pronouncements
   
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 30




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
   
 PART II-OTHER INFORMATION
 
     31




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##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 Exhibit 31.1
    
    Certification of Martin McGlynn under Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certification of Rodney K. B. Young under Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of Martin McGlynn Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification of Rodney K. B. Young Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32




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##### Table of Contents



STEMCELLS, INC.
(name of Registrant)May 10, 2011
    /s/ Rodney K. B. YoungRodney K. B. YoungChief Financial Officer 33




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##### Table of Contents



Exhibit 31.1
    
    Certification of Martin McGlynn under Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certification of Rodney K. B. Young under Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of Martin McGlynn Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification of Rodney K. B. Young Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 34