##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission File Number 0-51110
 VIACELL, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware(State or Other Jurisdiction of
Incorporation or Organization)
    
    04-3244816(I.R.S. Employer Identification No.)245 First Street, Cambridge, MA(Address of Principal Executive Offices)
    
    02142(Zip Code)
 (617) 914-3400
 (Registrants telephone number, including area code)
 
 þ o
 o þ




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##### Table of Contents



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets  June 30, 2005 and
December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations  Three and Six
months ended June 30, 2005 and
June 30, 2004
    
    
    4Condensed Consolidated Statements of Comprehensive Loss 
Three and Six months ended June 30, 2005 and June 30, 2004
    
    
    5Condensed Consolidated Statements of Cash Flows  Six months
ended June 30, 2005 and June 30, 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    47Item 4. Controls and Procedures
    
    
    48PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    48Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 3. Defaults upon Senior Securities
    
    
    51Item 4. Submission of Matters to a Vote of Security Holders
    
    
    51Item 5.Other Information
    
    
    51Item 6. Exhibits
    
    
    51Signatures
    
    
    52EXHIBITSIndex to Exhibits
    
    
    53EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
 -2-




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##### Table of Contents



PART
I  FINANCIAL INFORMATION
 
 ITEM 1.
FINANCIAL STATEMENTS
 ViaCell,
Inc.
 
 Condensed Consolidated
Balance Sheets (unaudited)
 (in thousands)
 June 30, 2005
    
    
    December 31, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,693
    
    
    $
    6,746Short-term investments
    
    
    25,228
    
    
    
    21,339Accounts receivable, net
    
    
    14,194
    
    
    
    10,808Prepaid expenses and other current assets
    
    
    3,766
    
    
    
    4,928Total current assets
    
    
    81,881
    
    
    
    43,821Property and equipment, net
    
    
    8,523
    
    
    
    6,738Goodwill
    
    
    3,621
    
    
    
    3,621Intangible assets, net
    
    
    2,924
    
    
    
    3,025Long-term investments
    
    
    
    
    
    
    500Restricted cash
    
    
    1,944
    
    
    
    1,953Other assets
    
    
    747
    
    
    
    1,433Total assets
    
    $
    99,640
    
    
    $
    61,091LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of long-term debt obligations
    
    $
    1,805
    
    
    $
    1,743Accounts payable
    
    
    1,774
    
    
    
    1,271Accrued expenses
    
    
    8,263
    
    
    
    7,490Notes payable to related party
    
    
    
    
    
    
    15,422Deferred revenue
    
    
    5,153
    
    
    
    3,458Total current liabilities
    
    
    16,995
    
    
    
    29,384Deferred revenue
    
    
    8,455
    
    
    
    6,728Deferred rent
    
    
    3,620
    
    
    
    1,036Contingent purchase price
    
    
    8,155
    
    
    
    8,155Long-term debt obligations, net of current portion
    
    
    712
    
    
    
    1,572Total liabilities
    
    
    37,937
    
    
    
    46,875Redeemable convertible preferred stock, authorized 30,396,809 shares
at December 31, 2004, issued and outstanding 25,628,075 at December 31, 2004
    
    
    
    
    
    
    175,173Commitments and contingencies (Note 7)Stockholders equity (deficit):Convertible preferred stock, $0.01 par value; authorized 5,000,000
and 428,191 shares at June 30, 2005 and December 31, 2004,
respectively; issued and outstanding 182,857 shares at December 31, 2004
    
    
    
    
    
    
    2Common stock, $0.01 par value; authorized 100,000,000 and
80,000,000 shares at June 30, 2005 and December 31, 2004,
respectively; issued and outstanding 37,531,110 and 2,763,961
shares at June 30, 2005 and December 31, 2004, respectively
    
    
    375
    
    
    
    28Additional paid-in capital
    
    
    228,604
    
    
    
    Deferred compensation
    
    
    (1,633
    )
    
    
    (2,530
    )Accumulated other comprehensive income
    
    
    254
    
    
    
    309Accumulated deficit
    
    
    (165,897
    )
    
    
    (158,766
    )Total stockholders equity (deficit)
    
    
    61,703
    
    
    
    (160,957
    )Total liabilities, redeemable convertible preferred stock and
stockholders equity (deficit)
    
    $
    99,640
    
    
    $
    61,091
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ViaCell, Inc.
 
 Condensed Consolidated
Statements of Operations
 (in thousands, except
per share data)
 (unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Processing and storage revenues
    
    $
    11,188
    
    
    $
    9,263
    
    
    $
    21,163
    
    
    $
    17,846Grant and contract revenues
    
    
    195
    
    
    
    413
    
    
    
    360
    
    
    
    849Total revenues
    
    
    11,383
    
    
    
    9,676
    
    
    
    21,523
    
    
    
    18,695Operating expenses:Cost of processing and storage revenues:Direct costs
    
    
    2,023
    
    
    
    1,856
    
    
    
    3,971
    
    
    
    3,674Royalty expense
    
    
    
    
    
    
    (3,784
    )
    
    
    
    
    
    
    (3,258
    )Total cost of processing and storage revenues
    
    
    2,023
    
    
    
    (1,928
    )
    
    
    3,971
    
    
    
    416Research and development
    
    
    3,026
    
    
    
    3,889
    
    
    
    6,602
    
    
    
    7,875Sales and marketing
    
    
    6,034
    
    
    
    4,776
    
    
    
    11,525
    
    
    
    10,430General and administrative
    
    
    3,367
    
    
    
    4,022
    
    
    
    6,131
    
    
    
    7,390Stock-based compensation(1)
    
    
    358
    
    
    
    1,005
    
    
    
    794
    
    
    
    1,869Restructuring
    
    
    90
    
    
    
    
    
    
    
    211
    
    
    
    Total operating expenses
    
    
    14,898
    
    
    
    11,764
    
    
    
    29,234
    
    
    
    27,980Loss from operations
    
    
    (3,515
    )
    
    
    (2,088
    )
    
    
    (7,711
    )
    
    
    (9,285
    )Interest income (expense):Interest income
    
    
    458
    
    
    
    117
    
    
    
    773
    
    
    
    263Interest expense
    
    
    (38
    )
    
    
    (364
    )
    
    
    (193
    )
    
    
    (758
    )Total interest income (expense), net
    
    
    420
    
    
    
    (247
    )
    
    
    580
    
    
    
    (495
    )Net loss
    
    
    (3,095
    )
    
    
    (2,335
    )
    
    
    (7,131
    )
    
    
    (9,780
    )Accretion on redeemable convertible preferred stock
    
    
    
    
    
    
    3,316
    
    
    
    987
    
    
    
    6,630Net loss attributable to common stockholders
    
    $
    (3,095
    )
    
    $
    (5,651
    )
    
    $
    (8,118
    )
    
    $
    (16,410
    )Net loss attributable to common stockholders per share:Net loss per common share, basic and diluted
    
    $
    (0.08
    )
    
    $
    (2.10
    )
    
    $
    (0.24
    )
    
    $
    (6.12
    )Weighted average shares used in basic and diluted
net loss per share computation
    
    
    37,525,892
    
    
    
    2,696,317
    
    
    
    33,260,595
    
    
    
    2,681,134
 
 (1)
    
    Allocation of stock-based compensation expense is as follows: Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Cost of processing and storage revenues
    
    $
    5
    
    
    $
    9
    
    
    $
    10
    
    
    $
    17Research and development
    
    
    90
    
    
    
    169
    
    
    
    160
    
    
    
    495Sales and marketing
    
    
    42
    
    
    
    45
    
    
    
    120
    
    
    
    149General and administrative
    
    
    221
    
    
    
    782
    
    
    
    504
    
    
    
    1,208Total stock-based compensation expense
    
    $
    358
    
    
    $
    1,005
    
    
    $
    794
    
    
    $
    1,869
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ViaCell, Inc.
 
 Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (3,095
    )
    
    $
    (2,335
    )
    
    $
    (7,131
    )
    
    $
    (9,780
    )Foreign currency translation adjustment
    
    
    (13
    )
    
    
    (40
    )
    
    
    (55
    )
    
    
    (196
    )Comprehensive loss
    
    $
    (3,108
    )
    
    $
    (2,375
    )
    
    $
    (7,186
    )
    
    $
    (9,976
    )
  -5-




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ViaCell, Inc.
 
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Six
Months Ended June 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (7,131
    )
    
    $
    (9,780
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    991
    
    
    
    1,333Stock-based compensation
    
    
    794
    
    
    
    1,869Reserve for bad debt
    
    
    188
    
    
    
    Non-cash interest expense on related party note payable
    
    
    87
    
    
    
    560Loss on disposal of property and equipment
    
    
    17
    
    
    
    69Other
    
    
    11
    
    
    
    16Changes in assets and liabilities:Accounts receivable
    
    
    (3,390
    )
    
    
    (1,602
    )Prepaid expenses and other current assets
    
    
    1,448
    
    
    
    (1,499
    )Accounts payable
    
    
    510
    
    
    
    (2,244
    )Accrued expenses
    
    
    335
    
    
    
    (3,032
    )Deferred revenue
    
    
    3,421
    
    
    
    2,741Deferred rent
    
    
    3,172
    
    
    
    75Net cash provided by (used in) operating activities
    
    
    453
    
    
    
    (11,494
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,721
    )
    
    
    (1,132
    )Proceeds from maturities of investments
    
    
    14,346
    
    
    
    8,978Purchase of investments
    
    
    (17,734
    )
    
    
    (26,272
    )Changes in other assets
    
    
    210
    
    
    
    197Net cash used in investing activities
    
    
    (5,899
    )
    
    
    (18,229
    )Cash flows from financing activities:Proceeds from exercise of stock options and warrants
    
    
    630
    
    
    
    61Proceeds from issuance of common stock, net
    
    
    53,249
    
    
    
    Decrease in restricted cash
    
    
    
    
    
    
    420Repayments on long-term debt obligations
    
    
    (822
    )
    
    
    (768
    )Repayment of notes payable to related party
    
    
    (15,510
    )
    
    
    Payments of capital lease obligations
    
    
    (45
    )
    
    
    (34
    )Net cash provided by (used in) financing activities
    
    
    37,502
    
    
    
    (321
    )Effect of change in exchange rates on cash
    
    
    (109
    )
    
    
    (150
    )Net increase (decrease) in cash and cash equivalents
    
    
    31,947
    
    
    
    (30,194
    )Cash and cash equivalents, beginning of period
    
    
    6,746
    
    
    
    39,008Cash and cash equivalents, end of period
    
    $
    38,693
    
    
    $
    8,814Supplemental disclosures of cash flow information and
non cash transactionsInterest paid
    
    $
    204
    
    
    $
    179
  -6-




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ViaCell, Inc.
 
 Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Organization and Nature of Business
     2. Summary of Significant Accounting Policies
 Basis of Presentation
  -7-




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Use of Estimates
  Redeemable Convertible Preferred Stock
  Stock-Based Compensation
 Accounting for Stock Issued to Employees, , Accounting for Stock-Based
Compensation Accounting for Stock-Based CompensationTransition and Disclosurean
amendment of FASB Statement No. 123.
 Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services,
    -8-




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Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders
as reported
    
    $
    (3,095
    )
    
    $
    (5,651
    )
    
    $
    (8,118
    )
    
    $
    (16,410
    )Add: employee stock-based compensation
expense included in reported net loss
    
    
    358
    
    
    
    800
    
    
    
    792
    
    
    
    1,587Deduct: total employee stock-based
compensation expense determined under
fair value based method for all awards
    
    
    (1,144
    )
    
    
    (1,377
    )
    
    
    (2,222
    )
    
    
    (2,697
    )Pro forma net loss attributable to
common stockholders
    
    $
    (3,881
    )
    
    $
    (6,228
    )
    
    $
    (9,548
    )
    
    $
    (17,520
    )Basic and diluted net loss per shareAs reported
    
    $
    (0.08
    )
    
    $
    (2.10
    )
    
    $
    (0.24
    )
    
    $
    (6.12
    )Pro forma
    
    $
    (0.10
    )
    
    $
    (2.31
    )
    
    $
    (0.29
    )
    
    $
    (6.53
    )
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    3.61
    %
    
    
    2.86
    %
    
    
    3.61
    %
    
    
    2.86
    %Expected life
    
    5 years
    
    5 years
    
    5 years
    
    5 yearsExpected volatility
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Segment Information
   June 30,
    
    
    December 31,2005
    
    
    2004Long-lived tangible assetsUnited States
    
    $
    8,213
    
    
    $
    6,310Germany
    
    
    
    
    
    
    88Singapore
    
    
    310
    
    
    
    340Total long-lived tangible assets
    
    $
    8,523
    
    
    $
    6,738
 -9-




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Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenuesUnited States
    
    $
    11,188
    
    
    $
    9,311
    
    
    $
    21,201
    
    
    $
    18,024Germany
    
    
    
    
    
    
    292
    
    
    
    (41
    )
    
    
    543Singapore
    
    
    195
    
    
    
    73
    
    
    
    363
    
    
    
    128Total Revenues
    
    $
    11,383
    
    
    $
    9,676
    
    
    $
    21,523
    
    
    $
    18,695
 Net Loss Per Common Share
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic and diluted net loss per share:Net loss attributable to common stockholders
    
    $
    (3,095
    )
    
    $
    (5,651
    )
    
    $
    (8,118
    )
    
    $
    (16,410
    )Weighted average number of common
shares outstanding
    
    
    37,526
    
    
    
    2,696
    
    
    
    33,261
    
    
    
    2,681Basic and diluted net loss per share
    
    $
    (0.08
    )
    
    $
    (2.10
    )
    
    $
    (0.24
    )
    
    $
    (6.12
    )
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Options
    
    
    4,143
    
    
    
    4,848
    
    
    
    3,869
    
    
    
    4,766Warrants
    
    
    3,600
    
    
    
    1,410
    
    
    
    3,604
    
    
    
    1,429Convertible preferred stock
    
    
    
    
    
    
    25,811
    
    
    
    
    
    
    
    25,811
 Recent Accounting Pronouncements
 - Share-Based Payment
 -10-




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conditional asset retirement obligation Accounting for
Asset Retirement Obligations,
 3. Property and Equipment
  June 30,
    
    
    December 31,2005
    
    
    2004Software
    
    $
    2,709
    
    
    $
    2,700Laboratory equipment
    
    
    4,674
    
    
    
    4,675Office and computer equipment
    
    
    2,317
    
    
    
    1,867Leasehold improvements
    
    
    3,129
    
    
    
    3,129Furniture and fixtures
    
    
    719
    
    
    
    717Construction in progress
    
    
    2,572
    
    
    
    380Property and equipment, gross
    
    
    16,120
    
    
    
    13,468Less: accumulated depreciation
    
    
    (7,597
    )
    
    
    (6,730
    )Property and equipment, net
    
    $
    8,523
    
    
    $
    6,738
   4. Intangible Assets
   -11-




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June 30,
    
    
    December 31,2005
    
    
    2004Intangible assets:Trademark
    
    $
    4,400
    
    
    $
    4,400Less: accumulated amortization
    
    
    (1,476
    )
    
    
    (1,375
    )Intangible assets, net
    
    $
    2,924
    
    
    $
    3,025
  5. Accrued Expenses
  June 30,
    
    
    December 31,2005
    
    
    2004Payroll and payroll related
    
    $
    1,213
    
    
    $
    1,016Management incentive
    
    
    553
    
    
    
    723Professional fees
    
    
    1,647
    
    
    
    2,027Accrued marketing
    
    
    1,290
    
    
    
    912Accrued restructuring
    
    
    698
    
    
    
    907Other
    
    
    2,862
    
    
    
    1,905$
    8,263
    
    
    $
    7,490
 6. Long-Term Debt Obligations
  June 30,
    
    
    December 31,2005
    
    
    2004Debt facility loans
    
    $
    2,324
    
    
    $
    3,136Related party note payable
    
    
    
    
    
    
    15,422Capital lease obligations
    
    
    193
    
    
    
    179Total long-term debt obligations
    
    
    2,517
    
    
    
    18,737Less: current portion
    
    
    (1,805
    )
    
    
    (17,165
    )Total long-term debt obligations, net of current portion
    
    $
    712
    
    
    $
    1,572
 Notes Payable to Related Party
  -12-




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7. Commitments and Contingencies
 Agreements
     -13-




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Litigation
   
  -14-




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-15-




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8. Redeemable Convertible Preferred Stock, Convertible Preferred Stock, and Stockholders Deficit
   Balance December 31, 2004
    
    $
    175,173Issuance of Shares
    
    
    Accretion to Redemption Value
    
    
    987Conversion to Common Stock
    
    
    (176,160
    )Balance June 30, 2005
    
    $
    
   -16-




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##### Table of Contents



Preferred Stock
  9. Warrants
  10. Restructuring
    -17-




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December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 30,(In Thousands)
    
    2004
    
    
    Additions
    
    
    Writedowns
    
    
    Adjustments
    
    
    Payments
    
    
    2005Severance related
    
    $
    421
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (421
    )
    
    $
    Contractual terminations
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    Facility related
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    255
    
    
    
    (38
    )
    
    
    698$
    907
    
    
    $
    
    
    
    $
    
    
    
    $
    255
    
    
    $
    (464
    )
    
    $
    698
 11. Subsequent Event
  
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
  Overview
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
    
    developing our Selective Amplification and other stem cell therapy technologies;
    
    expanding our ViaCell Reproductive Health business in the United States;
    
    expanding our pipeline of novel stem cell and other product candidates through internal
development, and the acquisition or licensing of third party technologies;
    
    expanding and strengthening our intellectual property position through internal
programs, third party licenses, and acquisitions;
    
    recruiting management, research, clinical, and sales and marketing personnel; and
    
    forming alliances with larger, more experienced biotechnology and pharmaceutical
companies, including Amgen.
  
    
    the increasing costs of conducting clinical trials for our lead hematopoietic stem cell
product candidate, CB001;
    
    the increasing costs associated with preclinical and clinical studies for our other
stem cell therapy product candidates; and
    
    the increasing costs associated with the development of Viacyte, our oocyte
cryopreservation product candidate.
 
    
    the working capital costs associated with anticipated growth of our ViaCell
Reproductive Health business within the United States;
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Revenues
   Operating Expenses
    -20-




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Results of Operations
 Three and Six Months Ended June 30, 2005 and 2004 (table amounts in thousands)
 Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeRevenuesProcessing revenues
    
    $
    9,349
    
    
    $
    8,193
    
    
    
    14
    %
    
    $
    17,668
    
    
    $
    15,754
    
    
    
    12
    %Storage revenues
    
    
    1,839
    
    
    
    1,070
    
    
    
    72
    %
    
    
    3,495
    
    
    
    2,092
    
    
    
    67
    %Processing and storage revenues
    
    
    11,188
    
    
    
    9,263
    
    
    
    21
    %
    
    
    21,163
    
    
    
    17,846
    
    
    
    19
    %Grant and contract revenues
    
    
    195
    
    
    
    413
    
    
    
    (53
    %)
    
    
    360
    
    
    
    849
    
    
    
    (58
    %)Total revenues
    
    $
    11,383
    
    
    $
    9,676
    
    
    
    18
    %
    
    $
    21,523
    
    
    $
    18,695
    
    
    
    15
    %
   Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeCost of processing and storage revenuesDirect costs
    
    $
    2,023
    
    
    $
    1,856
    
    
    
    9
    %
    
    $
    3,971
    
    
    $
    3,674
    
    
    
    8
    %Royalty expense
    
    
    
    
    
    
    (3,784
    )
    
    
    (100
    %)
    
    
    
    
    
    
    (3,258
    )
    
    
    (100
    %)Total cost of processing and storage revenues
    
    $
    2,023
    
    
    $
    (1,928
    )
    
    
    (205
    %)
    
    $
    3,971
    
    
    $
    416
    
    
    
    855
    %
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Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeResearch and developmentClinical development
    
    $
    2,219
    
    
    $
    1,983
    
    
    
    12
    %
    
    $
    4,764
    
    
    $
    4,047
    
    
    
    18
    %Pre-clinical programs
    
    
    70
    
    
    
    978
    
    
    
    (93
    %)
    
    
    401
    
    
    
    1,999
    
    
    
    (80
    %)Basic research
    
    
    596
    
    
    
    729
    
    
    
    (18
    %)
    
    
    1,197
    
    
    
    1,437
    
    
    
    (17
    %)Other research and development
    
    
    141
    
    
    
    199
    
    
    
    (29
    %)
    
    
    240
    
    
    
    392
    
    
    
    (39
    %)Total research and development
    
    $
    3,026
    
    
    $
    3,889
    
    
    
    (22
    %)
    
    $
    6,602
    
    
    $
    7,875
    
    
    
    (16
    %)
  Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeSales and marketing
    
    $
    6,034
    
    
    $
    4,776
    
    
    
    26
    %
    
    
    11,525
    
    
    $
    10,430
    
    
    
    10
    %
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Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeGeneral and administrative
    
    $
    3,367
    
    
    $
    4,022
    
    
    
    (16
    %)
    
    $
    6,131
    
    
    $
    7,390
    
    
    
    (17
    %)
  Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeStock-based compensation
    
    $
    358
    
    
    $
    1,005
    
    
    
    (64
    %)
    
    $
    794
    
    
    $
    1,869
    
    
    
    (58
    %)
    Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeRestructuring
    
    $
    90
    
    
    $
    
    
    
    
    100
    %
    
    $
    211
    
    
    $
    
    
    
    
    100
    %
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Three Months Ended
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    June 30,2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeInterest income (expense)Interest income
    
    $
    458
    
    
    $
    117
    
    
    
    292
    %
    
    $
    773
    
    
    $
    263
    
    
    
    194
    %Interest expense
    
    
    (38
    )
    
    
    (364
    )
    
    
    (90
    %)
    
    
    (193
    )
    
    
    (758
    )
    
    
    (75
    %)Total interest income
(expense), net
    
    $
    420
    
    
    $
    (247
    )
    
    
    
    
    
    $
    580
    
    
    $
    (495
    )
  Liquidity and Capital Resources
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Six Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    Change(000s)
    
    2005
    
    
    2004
    
    
    2004 to 2005Net cash provided by (used in) operating activities
    
    $
    453
    
    
    $
    (11,494
    )
    
    $
    11,947Net cash used in investing activities
    
    
    (5,899
    )
    
    
    (18,229
    )
    
    
    12,330Net cash provided by (used in) financing activities
    
    
    37,502
    
    
    
    (321
    )
    
    
    37,823Cash & cash equivalents, end of period
    
    $
    38,693
    
    
    $
    8,814
    
    
    $
    29,879
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Off-Balance Sheet Transactions
  Other Arrangements
    Legal Proceedings
   -27-




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Critical Accounting Policies and Estimates
  Risk Factors that May Affect Results
 Our cellular therapy product candidates are at an early stage of development, and if we are
not able to successfully develop and commercialize them, we may not generate sufficient
revenues to continue our business operations.
  -29-




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
    
    properly engraft into the recipients body in the desired manner;
    
    provide the intended therapeutic benefits; or
    
    achieve benefits that are better or equal to existing therapies.
   We may not be able to sustain our current level of revenues or our recent growth rates.
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We expect to continue to incur operating losses and may never become profitable.
    
 -31-




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We may not be able to raise additional funds necessary to fund our operations.
   
    
    the level of cash flows from our umbilical cord blood preservation activities;
    
    the scope and results of our research and development programs;
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
    
    the scope and results of our clinical trials, particularly those involving
CB001, which is currently in a Phase I trial and Viacyte;
    
    the timing of and the costs involved in obtaining regulatory approvals, 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 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 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.
  If the potential of stem cell therapy to treat serious diseases is not realized, the value
of our Selective Amplification technology and our development programs could be
significantly reduced.
  -33-




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We cannot market and sell CB001 or our other product candidates in the United States or in
other countries if we fail to obtain the necessary regulatory approvals or licensure.
      -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.
 -35-




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
    
    a statement that our media supplier will need to conduct a clinical study that
produces pregnancy and birth rates data to support the application; and
    
    a request that various additional information be submitted, including
stability, toxicity testing, biocompatibility and labeling information.
   
    
    a statement that our media supplier had not demonstrated substantial
equivalence of the media to a predicate device and therefore the FDA did not clear the
media for commercial use.
    
    a statement that our media supplier could submit a new 510(k) when additional
data supporting substantial equivalence of the media to a predicate device are
available. The Company believes data from a new clinical trial could a support
substantial equivalence determination and a new 510(k) submission.
    
    a statement that, at present, the media has been classified as a class III
device and that in order to commercially market the device in the U.S. an approved PMA
would be required.
    
    a statement that any clinical investigation preformed using the media in the
U.S. will require an investigation device exemption (IDE).
     We depend on patents and other proprietary rights that may fail to protect our business.
  -36-




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CB001 and our other cellular product candidates represent new forms of therapy or products
that the marketplace may not accept.
  
    
    the number and relative efficacy of products that compete with our product;
 -37-




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
    
    our ability to supply a sufficient amount of our product to meet demand;
    
    our ability to build and maintain, or access through third parties, a capable sales
force;
    
    our ability to successfully fund launch costs; and
    
    our ability to obtain insurance coverage and reimbursement for our cellular therapy
products.
 Our success will depend in part on establishing and maintaining effective strategic
partnerships and collaborations.
  Third parties may own or control patents or patent applications that are infringed by our
technologies or product candidates.
  -38-




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We may be involved in lawsuits to protect or enforce our patents or the patents of our
collaborators or licensors, which could be expensive and time consuming.
   -39-




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In order to commercialize CB001 or other product candidates using our Selective
Amplification technology, we may need to obtain additional license rights to third party
patents, which may not be available to us on reasonable terms, or at all.
  The successful commercialization of CB001, or any of our other potential cell therapy
products, will depend on obtaining reimbursement for use of this product from third party
payers.
   -40-




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We have only limited experience manufacturing cell therapy product candidates in connection
with our preclinical and clinical work to date, and we may not be able to manufacture our
product candidates in quantities sufficient for later stage clinical studies or for
commercial scale.
  We are dependent on our existing suppliers and establishing relationships with certain other
suppliers for certain components of our product candidates. The loss of such suppliers or
our inability to establish such relationships may delay development or limit our ability to
manufacture our stem cell therapy products.
  -41-




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Material for clinical studies and future cellular products must be manufactured using
components made to a certain standard, and we may have difficulty finding sources of these
components made to this standard.
  If our cord blood processing and storage facility or our clinical manufacturing facilities
are damaged or destroyed, our business and prospects would be negatively affected.
    If we are not able to recruit and retain qualified management and scientific personnel, we
may fail in developing our technologies and product candidates.
  -42-




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We may face difficulties in managing and maintaining the growth of our business.
   If we acquire other businesses or technologies and are unable to integrate them successfully
with our business, our financial performance could suffer.
  -43-




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We may be liable for reimbursement of funds received from the German
grant authorities.
  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.
 .
 -44-




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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.
   -45-




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The manufacture and sale of stem cell products may expose us to product liability claims for
which we could have substantial liability.
  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.
   Ethical and other concerns surrounding the use of stem cell therapy may negatively affect
regulatory approval or public perception of our products, thereby reducing demand for our
products.
  -46-




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Our business involves the use of hazardous materials that could expose us to environmental
and other liability.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Investment Risk
  Foreign Exchange Risk
  -47-




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Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 PharmaStem Litigation
   -48-




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-49-




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Worth Litigation
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Changes in Securities
  Use of Proceeds from Registered Securities
    
    
    approximately $15,510,000 to pay off all outstanding principal and interest on
promissory notes held by funds affiliated with MPM Asset Management LLC, the manager of
which served on the Companys board of directors until June 9, 2005;
 -50-




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
    
    approximately $7,000,000 toward working capital and property and equipment,
including our clinical trials for CB001 and preclinical research and development
activities relating to our product candidates; and
    
    approximately $30,790,000 in temporary investments.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominee
    

Total
Vote FOR
    
    

Total
Vote WITHHELDBarbara Bierer
    
    
    27,209,710
    
    
    
    72,197Denise Pollard-Knight
    
    
    27,048,560
    
    
    
    233,347James Tullis
    
    
    27,229,441
    
    
    
    52,466
  
 ITEM 5. OTHER INFORMATION
 Executive Management Equity Awards
  
 ITEM
6. EXHIBITS
  -51-




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SIGNATURES
  VIACELL, INC.Date: August 15, 2005
    /s/ MARC D. BEERMarc D. BeerChief Executive Officer(Principal Executive Officer) Date: August 15, 2005
    /s/ STEPHEN G. DANCEStephen G. DanceChief Financial Officer(Principal Financial Officer) -52-




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EXHIBIT INDEX
 No.
    
    Item31.1
    
    Chief Executive Officer Certification Pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Chief Financial Officer Certification Pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 -53-