##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 Commission File Number 0-51110
 VIACELL, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    04-3244816(State or Other Jurisdiction of Incorporation or 
Organization)
    
    (I.R.S. Employer Identification No.)245 First Street, Cambridge, MA
    
    02142(Address of Principal Executive Offices)
    
    (Zip Code)
 (617) 914-3400
 (Registrants telephone number, including area code)
  þ o
  o o þ
  o þ




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##### Table of Contents



ViaCell, Inc.
Quarterly Report on Form 10-Q
For the Fiscal Quarter Ended September 30, 2006
 NOTE ABOUT REFERENCES TO VIACELL
  NOTE ABOUT TRADEMARKS
 ® ® SM
 NOTE ABOUT FORWARD-LOOKING STATEMENTS
  2




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets  September 30, 2006 and December 31, 2005
    
    
    4Condensed Consolidated Statements of Operations  Three and nine months ended September 30, 2006 and September 30, 2005
    
    
    5Condensed Consolidated Statements of Comprehensive Loss  Three and nine months ended September 30, 2006 and September 30, 2005
    
    
    6Condensed Consolidated Statements of Cash Flows  Nine months ended September 30, 2006 and September 30, 2005
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42Signatures
    
    
    43EX-31.1 Certification of CEO Section 302EX-31.2 Certification of CFO Section 302EX-32.1 Certification of CEO Section 906EX-32.2 Certification of CFO Section 906
  3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 
 ViaCell, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,977
    
    
    $
    33,138Short-term investments
    
    
    29,139
    
    
    
    27,406Accounts receivable, less allowances of $1,522 and
$1,111 at September 30, 2006 and December 31, 2005,
respectively
    
    
    12,631
    
    
    
    13,736Prepaid expenses and other current assets
    
    
    2,699
    
    
    
    2,679Restricted cash
    
    
    
    
    
    
    162Total current assets
    
    
    67,446
    
    
    
    77,121Property and equipment, net
    
    
    8,507
    
    
    
    8,702Goodwill
    
    
    3,621
    
    
    
    3,621Intangible assets, net
    
    
    2,672
    
    
    
    2,823Restricted cash
    
    
    1,946
    
    
    
    1,932Other assets
    
    
    31
    
    
    
    31Total assets
    
    $
    84,223
    
    
    $
    94,230LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt obligations
    
    $
    209
    
    
    $
    1,543Accounts payable
    
    
    716
    
    
    
    1,141Accrued expenses
    
    
    9,429
    
    
    
    7,706Deferred revenue
    
    
    7,234
    
    
    
    5,785Total current liabilities
    
    
    17,588
    
    
    
    16,175Deferred revenue
    
    
    13,504
    
    
    
    9,930Deferred rent
    
    
    3,338
    
    
    
    3,876Contingent purchase price
    
    
    8,155
    
    
    
    8,155Long-term debt obligations, net of current portion
    
    
    40
    
    
    
    84Total liabilities
    
    
    42,625
    
    
    
    38,220Commitments and contingencies (Note 4)Stockholders equity:Preferred stock, $0.01 par value; authorized 5,000,000
shares at September 30, 2006 and December 31, 2005
    
    
    
    
    
    
    Common stock, $0.01 par value; authorized 100,000,000
shares at September 30, 2006 and December 31, 2005;
issued and outstanding 38,379,919 and 38,117,725 shares
at September 30, 2006 and December 31, 2005, respectively
    
    
    384
    
    
    
    381Additional paid  in capital
    
    
    230,922
    
    
    
    229,955Deferred compensation
    
    
    
    
    
    
    (1,087
    )Accumulated deficit
    
    
    (189,895
    )
    
    
    (173,443
    )Accumulated other comprehensive income
    
    
    187
    
    
    
    204Total stockholders equity
    
    
    41,598
    
    
    
    56,010Total liabilities and stockholders equity
    
    $
    84,223
    
    
    $
    94,230
  4




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ViaCell, Inc.
Condensed Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Processing and storage revenues
    
    $
    14,466
    
    
    $
    11,555
    
    
    $
    39,765
    
    
    $
    32,718Grant revenues
    
    
    201
    
    
    
    135
    
    
    
    521
    
    
    
    495Total revenues
    
    
    14,667
    
    
    
    11,690
    
    
    
    40,286
    
    
    
    33,213Operating expenses:Cost of processing and storage revenues
    
    
    2,893
    
    
    
    2,169
    
    
    
    7,757
    
    
    
    6,151Research and development
    
    
    3,570
    
    
    
    3,312
    
    
    
    10,696
    
    
    
    10,073Sales and marketing
    
    
    9,901
    
    
    
    6,304
    
    
    
    27,818
    
    
    
    17,949General and administrative
    
    
    4,474
    
    
    
    3,787
    
    
    
    14,124
    
    
    
    10,422Restructuring
    
    
    (890
    )
    
    
    94
    
    
    
    (1,070
    )
    
    
    305Total operating expenses
    
    
    19,948
    
    
    
    15,666
    
    
    
    59,325
    
    
    
    44,900Loss from operations
    
    
    (5,281
    )
    
    
    (3,976
    )
    
    
    (19,039
    )
    
    
    (11,687
    )Interest income (expense):Interest income
    
    
    827
    
    
    
    531
    
    
    
    2,354
    
    
    
    1,305Interest expense
    
    
    (8
    )
    
    
    (113
    )
    
    
    (50
    )
    
    
    (306
    )Total interest income, net
    
    
    819
    
    
    
    418
    
    
    
    2,304
    
    
    
    999Loss from operations before cumulative effect of
change in accounting principle
    
    
    (4,462
    )
    
    
    (3,558
    )
    
    
    (16,735
    )
    
    
    (10,688
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    283
    
    
    
    Net loss
    
    
    (4,462
    )
    
    
    (3,558
    )
    
    
    (16,452
    )
    
    
    (10,688
    )Accretion on redeemable convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (987
    )Net loss attributable to common stockholders
    
    $
    (4,462
    )
    
    $
    (3,558
    )
    
    $
    (16,452
    )
    
    $
    (11,675
    )Net loss per share:Basic and diluted net loss per share before
cumulative effect of change in accounting
principle
    
    $
    (0.12
    )
    
    $
    (0.09
    )
    
    $
    (0.44
    )
    
    $
    (0.33
    )Basic and diluted net loss per common share
    
    $
    (0.12
    )
    
    $
    (0.09
    )
    
    $
    (0.43
    )
    
    $
    (0.33
    )Weighted average shares used in basic and diluted
net loss per share computation
    
    
    38,377
    
    
    
    37,772
    
    
    
    38,345
    
    
    
    34,877
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ViaCell, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(amounts in thousands)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (4,462
    )
    
    $
    (3,558
    )
    
    $
    (16,452
    )
    
    $
    (10,688
    )Foreign currency translation adjustment
    
    
    (28
    )
    
    
    (46
    )
    
    
    (17
    )
    
    
    (101
    )Comprehensive loss
    
    $
    (4,490
    )
    
    $
    (3,604
    )
    
    $
    (16,469
    )
    
    $
    (10,789
    )
  6




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ViaCell, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (16,452
    )
    
    $
    (10,688
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,687
    
    
    
    1,508Cumulative effect of change in accounting principle
    
    
    (283
    )
    
    
    Stock-based compensation
    
    
    2,285
    
    
    
    1,818Reserve for bad debt
    
    
    1,090
    
    
    
    372Non-cash interest expense on related party notes
    
    
    
    
    
    
    87Loss on disposal of property and equipment
    
    
    45
    
    
    
    17Tenant improvement allowance
    
    
    60
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    18
    
    
    
    (4,525
    )Prepaid expenses and other current assets
    
    
    (424
    )
    
    
    2,504Accounts payable
    
    
    (449
    )
    
    
    (642
    )Accrued expenses
    
    
    1,887
    
    
    
    352Deferred revenue
    
    
    5,024
    
    
    
    4,812Deferred rent
    
    
    (854
    )
    
    
    3,394Net cash used in operating activities
    
    
    (6,366
    )
    
    
    (991
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,405
    )
    
    
    (3,608
    )Proceeds from the sale of equipment
    
    
    25
    
    
    
    Proceeds from maturities of investments
    
    
    37,482
    
    
    
    29,036Purchase of investments
    
    
    (39,214
    )
    
    
    (29,160
    )Decrease in restricted cash
    
    
    158
    
    
    
    Net cash used in investing activities
    
    
    (2,954
    )
    
    
    (3,732
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    57
    
    
    
    1,093Net proceeds from sale of common stock in initial public offering, net of offering costs
    
    
    
    
    
    
    53,249Proceeds from refund of security deposit
    
    
    443
    
    
    
    203Repayments on credit facilities
    
    
    (1,333
    )
    
    
    (1,244
    )Repayment of notes payable to related party, including accrued interest
    
    
    
    
    
    
    (15,510
    )Payments on capital lease principal
    
    
    (50
    )
    
    
    (64
    )Net cash (used in) provided by financing activities
    
    
    (883
    )
    
    
    37,727Effect of change in exchange rates on cash
    
    
    42
    
    
    
    (227
    )Net increase (decrease) in cash and cash equivalents
    
    
    (10,161
    )
    
    
    32,777Cash and cash equivalents, beginning of period
    
    
    33,138
    
    
    
    6,746Cash and cash equivalents, end of period
    
    $
    22,977
    
    
    $
    39,523
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##### Table of Contents



ViaCell, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Organization and Nature of Business
     2. Summary of Significant Accounting Policies
 Basis of Presentation
  8




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Use of Estimates
  Stock-Based Compensation
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2006Cost of processing and storage revenues
    
    $
    17
    
    
    $
    49Research and development
    
    
    85
    
    
    
    325Sales and marketing
    
    
    73
    
    
    
    200General and administrative
    
    
    579
    
    
    
    1,711Total stock-based compensation expense
    
    $
    754
    
    
    $
    2,285
   9




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,In thousands except per share data
    
    2005
    
    
    2005Net loss attributable to common stockholders as reported
    
    $
    (3,558
    )
    
    $
    (11,675
    )Add: employee stock-based compensation expense included in reported net loss
    
    
    1,024
    
    
    
    1,818Deduct: total employee stock-based compensation expense determined under
fair value based method for all awards
    
    
    (1,298
    )
    
    
    (3,520
    )Pro forma net loss attributable to common stockholders
    
    $
    (3,832
    )
    
    $
    (13,377
    )Basic and diluted net loss per share as reported
    
    $
    (0.09
    )
    
    $
    (0.33
    )Pro forma basic and diluted net loss per share
    
    $
    (0.10
    )
    
    $
    (0.38
    )
    Three Months ended
    
    Nine Months ended
    
    Three Months ended
    
    Nine Months endedSeptember 30, 2006
    
    September 30, 2005Option life
    
    4.57 years
    
    4.57 years
    
    5 years
    
    5 YearsRisk-free interest rate
    
    
    5.00
    %
    
    
    4.66
    %
    
    
    4.18
    %
    
    
    3.90
    %Stock volatility
    
    
    68
    %
    
    
    65
    %
    
    
    100
    %
    
    
    100
    %Dividend rate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
   Nine Months Ended September 30, 2006
    
    
    Nine Months Ended September 30, 2005Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding, December 31
    
    
    3,930,694
    
    
    $
    2.77
    
    
    
    4,455,538
    
    
    $
    2.28Granted
    
    
    589,875
    
    
    
    4.96
    
    
    
    402,200
    
    
    
    7.37Exercised
    
    
    (53,901
    )
    
    
    1.06
    
    
    
    (611,233
    )
    
    
    1.80Canceled
    
    
    (165,956
    )
    
    
    5.18
    
    
    
    (235,384
    )
    
    
    4.52Outstanding, September 30
    
    
    4,300,712
    
    
    $
    3.00
    
    
    
    4,011,121
    
    
    $
    2.74Exercisable, September 30
    
    
    2,374,204
    
    
    
    
    
    
    
    1,925,841Weighted average fair value of options granted
    
    
    
    
    
    $
    2.81
    
    
    
    
    
    
    $
    4.96
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##### Table of Contents



Options Outstanding at September 30, 2006
    
    Options Exercisable at September 30, 2006Weighted AverageRemaining
    
    Weighted Average
    
    
    
    
    
    Weighted AverageExercise Price
    
    Number of Shares
    
    Contractual Life
    
    Exercise Price
    
    Number of Shares
    
    Exercise Price$0.30
    
    
    1,380,043
    
    
    
    3.63
    
    
    $
    0.30
    
    
    
    1,080,043
    
    
    $
    0.300.75
    
    
    32,200
    
    
    
    4.36
    
    
    
    0.75
    
    
    
    32,200
    
    
    
    0.750.95
    
    
    116,986
    
    
    
    4.59
    
    
    
    0.95
    
    
    
    116,986
    
    
    
    0.952.00
    
    
    726,075
    
    
    
    5.22
    
    
    
    2.00
    
    
    
    200,075
    
    
    
    2.004.00
    
    
    55,775
    
    
    
    6.73
    
    
    
    4.00
    
    
    
    40,775
    
    
    
    4.004.04
    
    
    67,250
    
    
    
    9.80
    
    
    
    4.04
    
    
    
    1,014
    
    
    
    4.045.00
    
    
    1,118,316
    
    
    
    7.11
    
    
    
    5.00
    
    
    
    683,933
    
    
    
    5.005.03
    
    
    264,187
    
    
    
    9.64
    
    
    
    5.03
    
    
    
    53,949
    
    
    
    5.035.21
    
    
    217,255
    
    
    
    9.42
    
    
    
    5.21
    
    
    
    29,677
    
    
    
    5.215.31
    
    
    137,233
    
    
    
    8.98
    
    
    
    5.31
    
    
    
    34,479
    
    
    
    5.315.62
    
    
    9,750
    
    
    
    9.19
    
    
    
    5.62
    
    
    
    2,044
    
    
    
    5.627.25
    
    
    25,000
    
    
    
    8.57
    
    
    
    7.25
    
    
    
    9,375
    
    
    
    7.258.17
    
    
    94,392
    
    
    
    8.26
    
    
    
    8.17
    
    
    
    65,437
    
    
    
    8.179.00
    
    
    7,000
    
    
    
    8.36
    
    
    
    9.00
    
    
    
    1,750
    
    
    
    9.0010.89
    
    
    40,000
    
    
    
    8.78
    
    
    
    10.89
    
    
    
    20,000
    
    
    
    10.8911.10
    
    
    9,250
    
    
    
    8.78
    
    
    
    11.10
    
    
    
    2,467
    
    
    
    11.104,300,712
    
    
    
    6.02
    
    
    $
    3.00
    
    
    
    2,374,204
    
    
    $
    2.50
  Net Loss Per Common Share
   Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005Basic and diluted net loss per shareNet loss attributable to common stockholders
    
    $
    (4,462
    )
    
    $
    (3,558
    )
    
    $
    (16,452
    )
    
    $
    (11,675
    )Weighted average number of common shares outstanding
    
    
    38,377
    
    
    
    37,772
    
    
    
    38,345
    
    
    
    34,877Basic and diluted net loss per share
    
    $
    (0.12
    )
    
    $
    (0.09
    )
    
    $
    (0.43
    )
    
    $
    (0.33
    )
 11




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##### Table of Contents



Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005Options
    
    
    4,270
    
    
    
    3,895
    
    
    
    4,049
    
    
    
    3,778Warrants
    
    
    1,443
    
    
    
    3,409
    
    
    
    1,597
    
    
    
    3,549
 3. Accrued Expenses
  September 30,
    
    
    December 31,2006
    
    
    2005Payroll and payroll related
    
    $
    1,637
    
    
    $
    1,541Management incentive
    
    
    831
    
    
    
    881Professional fees
    
    
    2,345
    
    
    
    1,206Accrued marketing
    
    
    2,073
    
    
    
    1,260Accrued restructuring (Note 5)
    
    
    65
    
    
    
    632Deferred rent, current
    
    
    408
    
    
    
    619Accrued taxes
    
    
    366
    
    
    
    537Other
    
    
    1,704
    
    
    
    1,030Accrued expenses
    
    $
    9,429
    
    
    $
    7,706
 4. Commitments and Contingencies
 Agreements
   12




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Litigation
   13




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5. Restructuring
  14




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##### Table of Contents



Balance, December 31, 2005
    
    $
    632Payments
    
    
    (567
    )Balance, September 30, 2006
    
    $
    65
 6. Recent Accounting Pronouncements
   15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
   Revenues
  16




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Operating Expenses
   17




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18




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##### Table of Contents



Results of Operations
 Three and Nine Months Ended September 30, 2006 and 2005 (table amounts in thousands)
 Three Months Ended
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeProcessing revenues
    
    $
    11,714
    
    
    $
    9,549
    
    
    
    23
    %
    
    $
    32,146
    
    
    $
    27,217
    
    
    
    18
    %Storage revenues
    
    
    2,752
    
    
    
    2,006
    
    
    
    37
    %
    
    
    7,619
    
    
    
    5,501
    
    
    
    39
    %Total processing
and storage revenues
    
    
    14,466
    
    
    
    11,555
    
    
    
    25
    %
    
    
    39,765
    
    
    
    32,718
    
    
    
    22
    %Grant revenues
    
    
    201
    
    
    
    135
    
    
    
    49
    %
    
    
    521
    
    
    
    495
    
    
    
    5
    %Total revenues
    
    $
    14,667
    
    
    $
    11,690
    
    
    
    25
    %
    
    $
    40,286
    
    
    $
    33,213
    
    
    
    21
    %
    Three Months Ended September 30,
    
    
    
    
    
    Nine Months Ended September 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeCost of
processing and
storage revenues
    
    $
    2,893
    
    
    $
    2,169
    
    
    
    33
    %
    
    $
    7,757
    
    
    $
    6,151
    
    
    
    26
    %
  19




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##### Table of Contents



Three Months Ended September 30,
    
    
    
    
    
    Nine Months Ended September 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeResearch and development
    
    $
    3,570
    
    
    $
    3,312
    
    
    
    8
    %
    
    $
    10,696
    
    
    $
    10,073
    
    
    
    6
    %
  Three Months Ended September 30,
    
    
    
    
    
    Nine Months Ended Sept 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeSales and marketing
    
    $
    9,901
    
    
    $
    6,304
    
    
    
    57
    %
    
    $
    27,818
    
    
    $
    17,949
    
    
    
    55
    %
  Three Months Ended September 30,
    
    
    
    
    
    Nine Months Ended September 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeGeneral and administrative
    
    $
    4,474
    
    
    $
    3,787
    
    
    
    18
    %
    
    $
    14,124
    
    
    $
    10,422
    
    
    
    36
    %
   20




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##### Table of Contents



Three Months Ended September 30,
    
    
    
    
    
    Nine Months Ended September 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeRestructuring
    
    $
    (890
    )
    
    $
    94
    
    
    
    (1,047
    )%
    
    $
    (1,070
    )
    
    $
    305
    
    
    
    (451
    )%
    Three Months Ended September 30,
    
    
    
    
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeInterest income
    
    $
    827
    
    
    $
    531
    
    
    
    56
    %
    
    $
    2,354
    
    
    $
    1,305
    
    
    
    80
    %Interest expense
    
    
    (8
    )
    
    
    (113
    )
    
    
    (93
    )%
    
    
    (50
    )
    
    
    (306
    )
    
    
    (84
    )%Total interest income, net
    
    $
    819
    
    
    $
    418
    
    
    
    96
    %
    
    $
    2,304
    
    
    $
    999
    
    
    
    131
    %
   Liquidity and Capital Resources
  21




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Nine Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2006
    
    2005
    
    $ ChangeNet cash used in operating activities
    
    $
    (6.4
    )
    
    $
    (1.0
    )
    
    $
    (5.4
    )Net cash used in investing activities
    
    
    (3.0
    )
    
    
    (3.7
    )
    
    
    0.7Net cash provided by (used in) financing activities
    
    
    (0.9
    )
    
    
    37.7
    
    
    
    (38.6
    )Cash and cash equivalents, end of period
    
    $
    23.0
    
    
    $
    39.5
    
    
    $
    (16.5
    )
    22




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Commitments and Contingencies
 Agreements
   Legal Proceedings
   23




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Critical Accounting Estimates
  24




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Accounting for Stock-Based Compensation
   Recent Accounting Pronouncements
    25




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Investment Risk
  Foreign Exchange Risk
  Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   26




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PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
 NOTE ABOUT FORWARD-LOOKING STATEMENTS
  We expect to continue to incur operating losses and may never become profitable.
  We may not be able to sustain our current level of revenues or our recent growth rates.
  27




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If we do not prevail in the PharmaStem litigation, we may be prevented from selling our
ViaCord service offering, or may have to incur significant expenses.
       28




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If we are not able to successfully develop and commercialize new products, our future
prospects may be limited.
   
    
    properly engraft into the recipients body in the desired manner;
    
    provide the intended therapeutic benefits; or
    
    achieve benefits or a safety profile that is acceptable and better or equal to existing therapies.
   29




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We may not be able to successfully develop our ViaCyte oocyte cryopreservation product
candidate.
  We may not be able to raise additional funds necessary to fund our operations.
  30




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
    
    the level of cash flows from sales of our ViaCord service
offering;
    
    the scope and results of our research and development programs;
    
    the clinical pathway for each of our product candidates, including the
number, size, scope and cost of clinical trials required to establish safety
and efficacy;
    
    the results of litigation;
    
    the timing of and the costs involved in obtaining regulatory approvals for
our product candidates, which could be more lengthy or complex than
obtaining approval for a new conventional drug given the FDAs relatively
little experience with cellular-based therapeutics;
    
    the costs of research and development work focused on developing clinical
and commercial scale processes for manufacturing cellular products and the
costs of building and operating our manufacturing facilities, both in the
near-term to support our clinical activities, and also in anticipation of
growing our commercialization activities;
    
    funds spent in connection with acquisitions of related technologies or
businesses, including contingent payments that may be made in connection
with our acquisition of Kourion Therapeutics;
    
    the costs associated with expanding our portfolio of product candidates
through licensing, collaborations or acquisitions;
    
    the costs of increasing or expanding our ViaCord sales and marketing efforts;
    
    the costs of maintaining, expanding and protecting our intellectual property
portfolio, including litigation costs and liabilities; and
    
    our ability to establish and maintain collaborative arrangements and obtain
milestones, royalties and other payments from collaborators.
  We depend on patents and other proprietary rights that may fail to protect our business.
  31




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32




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Third parties may own or control patents or patent applications that are infringed by our
technologies or product candidates.
     33




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Our success will depend in part on establishing and maintaining effective strategic
partnerships and collaborations.
  The Government of Singapore may seek to recover grant funds received by the Company if we do
not agree to extend the term of the current grant.
  34




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Our cell preservation activities are subject to regulations that may impose significant costs
and restrictions on us.
 Cord blood preservation.
   Oocyte cryopreservation.
 We have only limited experience manufacturing cell therapy product candidates, and we may not
be able to manufacture our product candidates in quantities sufficient for clinical studies or for
commercial scale.
  35




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We are dependent on our
existing suppliers and establishing relationships with certain other
suppliers to successfully commercialize our ViaCord service offering, for
certain components of our product candidates and to manufacture and supply ViaCyte.
The loss of such suppliers or our inability to establish such
relationships may inhibit our ability to commercialize ViaCord, delay development
or limit our ability to manufacture our stem cell therapy products or our ViaCyte product
candidate.
     36




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If our cord blood processing and storage facility or our clinical manufacturing facilities are
damaged or destroyed, our business, programs and prospects could be negatively affected.
    Our competitors may have greater resources or capabilities or better technologies than we
have, or may succeed in developing better products or develop products more quickly than we do, and
we may not be successful in competing with them.
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Due to the nature of our cell preservation activities, harm to our reputation could have a
significant negative impact on our financial condition, and damage to or loss of our customers
property held in our custody could potentially result in significant legal liability.
   The manufacture and sale of products may expose us to product liability claims for which we
could have substantial liability.
  38




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If we are not able to recruit and retain qualified management and other personnel, we may fail
in developing our technologies and product candidates.
   We may face difficulties in managing and maintaining the growth of our business.
    If we acquire other businesses or technologies the transactions may be dilutive and we may be
unable to integrate them successfully with our business, our financial performance could suffer.
  39




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The successful commercialization of our potential cell therapy products will depend on
patients and physicians obtaining reimbursement for use of these product candidates from third
party payers.
    We face potential liability related to the privacy of health information we obtain from
research collaborators or from providers who enroll patients and collect cord blood or human
oocytes.
   40




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Ethical and other concerns surrounding the use of stem cell therapy may negatively affect
regulatory approval or public perception of our products and product candidates, thereby reducing
demand for our products and product candidates.
  Our business involves the use of hazardous materials that could expose us to environmental and
other liability.
  Volatility of Our Stock Price
  
    
    material public announcements;
    
    the data, positive or negative, generated from the development of our product candidates;
    
    setbacks or delays in any of our development programs;
    
    the outcome of material litigation;
    
    the financial results achieved by our cord blood preservation business;
    
    the impact of competition;
    
    unusual or unexpectedly high expenses;
    
    developments related to patents and other proprietary rights;
    
    market trends affecting stock prices in our industry; and
    
    economic or other external factors.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Sales of Unregistered Securities
  Use of Proceeds from Registered Securities
     
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
  42




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SIGNATURES
  VIACELL, INC.November 14, 2006
    /s/ Marc D. BeerMarc D. BeerChief Executive Officer(Principal Executive Officer)November 14, 2006
    /s/ Stephen G. DanceStephen G. DanceChief Financial Officer(Principal Financial Officer) 43




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Exhibit Index
 31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 44