##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 Amendment No. 1
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009,
 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 0-22025
 AASTROM BIOSCIENCES, INC.
  Michigan
    
    94-3096597(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. employer
identification no.)24 Frank Lloyd Wright Dr. 
P.O. Box 376
Ann Arbor, Michigan
    
    48106(Address of principal executive offices)
    
    (Zip code)
 
  
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  COMMON STOCK, NO PAR VALUE
    
    226,048,759(Class)
    
    Outstanding at February 2, 2010




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##### Table of Contents



Explanatory Note
  Background of Restatement
   (i)
    
    warrants to purchase an aggregate of 300,000 shares of the Companys common
stock, issued in April 2004 at an exercise price of $13.20 per share;(ii)
    
    warrants to purchase an aggregate of 320,248 shares of the Companys common
stock, issued in October 2004 at an exercise price of $13.92 per share;(iii)
    
    warrants to purchase an aggregate of 740,131 shares of the Companys common
stock, issued in October 2007 at an exercise price of $12.72 per share;(iv)
    
    Class A warrants to purchase an aggregate of 4,882,228 shares of the Companys
common stock, issued in January 2010 at an exercise price of $2.97 per share; and(v)
    
    Class B warrants to purchase an aggregate of 3,254,818 shares of common stock,
issued in January 2010 at an exercise price of $2.08 per share.
 Derivatives and Hedging
   2




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##### Table of Contents



Restatement of Other Financial Statements
  Internal Control Considerations
  Items Amended in This Filing
  
    
    Part I  Item 1. Financial Statements;
    
    Part I  Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations; and
    
    Part I  Item 4. Controls and Procedures.
   3




---



##### 



PagePART I  FINANCIAL INFORMATION
    
    
    5Item 1. Restated Financial Statements  Unaudited
    
    
    5a) Consolidated Condensed Balance Sheets as of June 30, 2009 and December 31, 2009
    
    
    5b) Consolidated Condensed Statements of Operations for the quarter and six
months ended December 31, 2008 and 2009 and for the period from March 24, 1989
(Inception) to December 31, 2009
    
    
    6c) Consolidated Condensed Statements of Cash Flows for the six months ended
December 31, 2008 and 2009 and for the period from March 24, 1989 (Inception) to
December 31, 2009
    
    
    7d) Notes to Consolidated Condensed Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II  OTHER INFORMATION
    
    
    25Item 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBIT INDEX
    
    
    35GLOSSARY
    
    
    36EX-31.1EX-31.2EX-32.1
  4




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 
 (Unaudited)
(In thousands, except share amounts)
 June 30,
    
    
    December 31,2009
    
    
    2009(Restated)
    
    (Restated)AssetsCURRENT ASSETS:Cash and cash equivalents
    
    $
    17,000
    
    
    $
    14,739Receivables, net
    
    
    58
    
    
    
    23Inventory
    
    
    1
    
    
    
    Other current assets
    
    
    732
    
    
    
    622Total current assets
    
    
    17,791
    
    
    
    15,384PROPERTY AND EQUIPMENT, NET
    
    
    1,485
    
    
    
    1,240Total assets
    
    $
    19,276
    
    
    $
    16,624Liabilities and Shareholders EquityCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    853
    
    
    $
    1,366Accrued employee benefits
    
    
    355
    
    
    
    352Current portion of long-term debt
    
    
    479
    
    
    
    354Warrant liabilities
    
    
    532
    
    
    
    268Total current liabilities
    
    
    2,219
    
    
    
    2,340LONG-TERM DEBT
    
    
    305
    
    
    
    194SHAREHOLDERS EQUITY:Common stock, no par value; shares authorized 
250,000,000 and 500,000,000, respectively;
shares issued and outstanding  160,222,644 and
173,971,085, respectively
    
    
    205,286
    
    
    
    210,736Deficit accumulated during the development stage
    
    
    (188,534
    )
    
    
    (196,646
    )Total shareholders equity
    
    
    16,752
    
    
    
    14,090Total liabilities and shareholders equity
    
    $
    19,276
    
    
    $
    16,624
  5




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##### Table of Contents



(Unaudited)
(In thousands, except per share amounts)
 March 24, 1989Quarter ended
    
    
    Six months ended
    
    
    (Inception) toDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2009(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)REVENUES:Product sales and rentals
    
    $
    28
    
    
    $
    16
    
    
    $
    55
    
    
    $
    89
    
    
    $
    1,850Research and development agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,105Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,657Total revenues
    
    
    28
    
    
    
    16
    
    
    
    55
    
    
    
    89
    
    
    
    13,612COSTS AND EXPENSES:Cost of product sales and rentals
    
    
    18
    
    
    
    2
    
    
    
    22
    
    
    
    34
    
    
    
    796Cost of product sales and rentals 
provision for obsolete and excess inventory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,239Research and development
    
    
    2,829
    
    
    
    3,283
    
    
    
    5,555
    
    
    
    6,194
    
    
    
    154,302Selling, general and administrative
    
    
    1,333
    
    
    
    1,316
    
    
    
    2,649
    
    
    
    2,262
    
    
    
    70,920Total costs and expenses
    
    
    4,180
    
    
    
    4,601
    
    
    
    8,226
    
    
    
    8,490
    
    
    
    228,257LOSS FROM OPERATIONS
    
    
    (4,152
    )
    
    
    (4,585
    )
    
    
    (8,171
    )
    
    
    (8,401
    )
    
    
    (214,645
    )OTHER INCOME (EXPENSE):(Increase) decrease in fair value of warrants
    
    
    (785
    )
    
    
    255
    
    
    
    (542
    )
    
    
    264
    
    
    
    7,553Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,249Interest income
    
    
    69
    
    
    
    21
    
    
    
    196
    
    
    
    49
    
    
    
    10,613Interest expense
    
    
    (20
    )
    
    
    (11
    )
    
    
    (41
    )
    
    
    (24
    )
    
    
    (448
    )Total other income (expense), net
    
    
    (736
    )
    
    
    265
    
    
    
    (387
    )
    
    
    289
    
    
    
    18,967NET LOSS
    
    $
    (4,888
    )
    
    $
    (4,320
    )
    
    $
    (8,558
    )
    
    $
    (8,112
    )
    
    $
    (195,678
    )COMPUTATION OF NET LOSS PER SHARE APPLICABLE TO
COMMON SHARES:NET LOSS
    
    $
    (4,888
    )
    
    $
    (4,320
    )
    
    $
    (8,558
    )
    
    $
    (8,112
    )NET LOSS PER SHARE (Basic and Diluted)
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.05
    )Weighted average number of shares outstanding
(Basic and Diluted)
    
    
    134,575
    
    
    
    173,707
    
    
    
    133,686
    
    
    
    169,570
  6




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##### Table of Contents



(Unaudited)
(In thousands)
 March 24, 1989Six months ended
    
    
    (Inception) toDecember 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009(Restated)
    
    
    (Restated)
    
    
    (Restated)OPERATING ACTIVITIES:Net loss
    
    $
    (8,558
    )
    
    $
    (8,112
    )
    
    $
    (195,678
    )Adjustments to reconcile net loss to net cash used for operating activities:Depreciation and amortization
    
    
    350
    
    
    
    301
    
    
    
    6,301Loss on property held for resale
    
    
    
    
    
    
    
    
    
    
    110Amortization of discounts and premiums on investments
    
    
    (30
    )
    
    
    
    
    
    
    (1,704
    )Stock compensation expense
    
    
    756
    
    
    
    350
    
    
    
    8,739Increase (decrease) in fair value of warrants
    
    
    542
    
    
    
    (264
    )
    
    
    (7,553
    )Inventory write downs and reserves
    
    
    
    
    
    
    
    
    
    
    2,239Stock issued pursuant to license agreement
    
    
    
    
    
    
    
    
    
    
    3,300Provision for losses on accounts receivable
    
    
    
    
    
    
    
    
    
    
    204Changes in assets and liabilities:Receivables
    
    
    (52
    )
    
    
    35
    
    
    
    (272
    )Inventories
    
    
    
    
    
    
    1
    
    
    
    (2,335
    )Other current assets
    
    
    84
    
    
    
    (27
    )
    
    
    (461
    )Accounts payable and accrued expenses
    
    
    178
    
    
    
    513
    
    
    
    1,309Accrued employee benefits
    
    
    (359
    )
    
    
    (3
    )
    
    
    352Net cash used for operating activities
    
    
    (7,089
    )
    
    
    (7,206
    )
    
    
    (185,449
    )INVESTING ACTIVITIES:Organizational costs
    
    
    
    
    
    
    
    
    
    
    (73
    )Purchase of short-term investments
    
    
    
    
    
    
    
    
    
    
    (212,041
    )Maturities of short-term investments
    
    
    6,000
    
    
    
    
    
    
    
    213,745Property and equipment purchases
    
    
    (28
    )
    
    
    (56
    )
    
    
    (5,817
    )Proceeds from sale of property held for resale
    
    
    
    
    
    
    
    
    
    
    400Net cash provided by (used for) investing activities
    
    
    5,972
    
    
    
    (56
    )
    
    
    (3,786
    )FINANCING ACTIVITIES:Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    51,647Net proceeds from issuance of common stock and warrants
    
    
    1,042
    
    
    
    5,100
    
    
    
    150,445Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (49
    )Payments received for stock purchase rights
    
    
    
    
    
    
    
    
    
    
    3,500Payments received under shareholder notes
    
    
    
    
    
    
    
    
    
    
    31Restricted cash used as compensating balance
    
    
    127
    
    
    
    137
    
    
    
    (140
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    751Principal payments under long-term obligations
    
    
    (218
    )
    
    
    (236
    )
    
    
    (2,211
    )Net cash provided by financing activities
    
    
    951
    
    
    
    5,001
    
    
    
    203,974NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (166
    )
    
    
    (2,261
    )
    
    
    14,739CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    16,492
    
    
    
    17,000
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    16,326
    
    
    $
    14,739
    
    
    $
    14,739
  7




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##### Table of Contents



AASTROM BIOSCIENCES, INC.
(a clinical development stage company)
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Unaudited)
 1. Organization
    2. Basis of Presentation
    3. Restatement of Consolidated Financial Statements
 Background
  8




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##### Table of Contents



(i)
    
    warrants to purchase an aggregate of 300,000 shares of the Companys common
stock, issued in April 2004 at an exercise price of $13.20 per share;(ii)
    
    warrants to purchase an aggregate of 320,248 shares of the Companys common
stock, issued in October 2004 at an exercise price of $13.92 per share;(iii)
    
    warrants to purchase an aggregate of 740,131 shares of the Companys common
stock, issued in October 2007 at an exercise price of $12.72 per share;(iv)
    
    Class A warrants to purchase an aggregate of 4,882,228 shares of the Companys
common stock, issued in January 2010 at an exercise price of $2.97 per share; and(v)
    
    Class B warrants to purchase an aggregate of 3,254,818 shares of common stock,
issued in January 2010 at an exercise price of $2.08 per share.
 Derivatives and Hedging
  Impact of the Restatement
  (in thousands except per share
amounts)
 Consolidated Condensed Balance SheetsAs PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedAs of June 30, 2009Warrant liabilities
    
    $
    
    
    
    $
    532
    
    
    $
    532Total current liabilities
    
    $
    1,687
    
    
    $
    532
    
    
    $
    2,219Common stock
    
    $
    213,107
    
    
    $
    (7,821
    )
    
    $
    205,286Deficit accumulated during the
development stage
    
    $
    (195,823
    )
    
    $
    7,289
    
    
    $
    (188,534
    )Total shareholders equity
    
    $
    17,284
    
    
    $
    (532
    )
    
    $
    16,752As of December 31, 2009Warrant liabilities
    
    $
    
    
    
    $
    268
    
    
    $
    268Total current liabilities
    
    $
    2,072
    
    
    $
    268
    
    
    $
    2,340Common stock
    
    $
    218,557
    
    
    $
    (7,821
    )
    
    $
    210,736Deficit accumulated during the
development stage
    
    $
    (204,199
    )
    
    $
    7,553
    
    
    $
    (196,646
    )Total shareholders equity
    
    $
    14,358
    
    
    $
    (268
    )
    
    $
    14,090
 9




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##### Table of Contents



Consolidated Condensed Statements of OperationsAs Previously Reported
    
    
    Adjustments
    
    
    As RestatedFor the quarter ended December 31, 2008:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    (785
    )
    
    $
    (785
    )Total other income
    
    $
    49
    
    
    $
    (785
    )
    
    $
    (736
    )Net loss
    
    $
    (4,103
    )
    
    $
    (785
    )
    
    $
    (4,888
    )Net loss per share (basic and diluted)
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )For the six months ended December 31, 2008:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    (542
    )
    
    $
    (542
    )Total other income
    
    $
    155
    
    
    $
    (542
    )
    
    $
    (387
    )Net loss
    
    $
    (8,016
    )
    
    $
    (542
    )
    
    $
    (8,558
    )Net loss per share (basic and diluted)
    
    $
    (0.06
    )
    
    $
    
    
    
    $
    (0.06
    )For the quarter ended December 31, 2009:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    255
    
    
    $
    255Total other income
    
    $
    10
    
    
    $
    255
    
    
    $
    265Net loss
    
    $
    (4,575
    )
    
    $
    255
    
    
    $
    (4,320
    )Net loss per share (basic and diluted)
    
    $
    (0.03
    )
    
    $
    0.01
    
    
    $
    (0.02
    )For the six months ended December 31, 2009:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    264
    
    
    $
    264Total other income
    
    $
    25
    
    
    $
    264
    
    
    $
    289Net loss
    
    $
    (8,376
    )
    
    $
    264
    
    
    $
    (8,112
    )Net loss per share (basic and diluted)
    
    $
    (0.05
    )
    
    $
    
    
    
    $
    (0.05
    )March 24, 1989 (Inception) to December 31,
2009:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    7,553
    
    
    $
    7,553Total other income
    
    $
    11,414
    
    
    $
    7,553
    
    
    $
    18,967Net loss
    
    $
    (203,231
    )
    
    $
    7,553
    
    
    $
    (195,678
    )
 Consolidated Condensed Statements of Cash FlowsAs Previously Reported
    
    
    Adjustments
    
    
    As RestatedFor the six months ended December 31, 2008:Net loss
    
    $
    (8,016
    )
    
    $
    (542
    )
    
    $
    (8,558
    )Increase (decrease) in fair value
of warrants
    
    $
    
    
    
    $
    542
    
    
    $
    542For the six months ended December 31, 2009:Net loss
    
    $
    ( 8,376
    )
    
    $
    264
    
    
    $
    (8,112
    )Increase (decrease) in fair value
of warrants
    
    $
    
    
    
    $
    (264
    )
    
    $
    (264
    )March 24, 1989 (Inception) to December 31, 2009:Net loss
    
    $
    (203,231
    )
    
    $
    7,553
    
    
    $
    (195,678
    )Increase (decrease) in fair value
of warrants
    
    $
    
    
    
    $
    (7,553
    )
    
    $
    (7,553
    )
 10




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##### Table of Contents



4. Fair Value Measurements
  
    
    Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active
markets
    
    Level 2 inputs: Inputs, other than quoted prices included in Level 1 that are observable
either directly or indirectly; and
    
    Level 3 inputs: Unobservable inputs for which there is little or no market data, which
require the reporting entity to develop its own assumptions.
    5. Share-Based Compensation
  Service-Based Options
    Six months ended December 31,2008
    
    
    2009Stock Option Plans:Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    70
    %
    
    
    70.2%  72.8
    %Risk free interest rate
    
    
    3.3
    %
    
    
    2.49%  2.98
    %Estimated forfeiture rate
    
    
    10
    %
    
    
    10
    %Expected life (years)
    
    
    6.6
    
    
    
    5.5  6.25
 11




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##### Table of Contents



Weighted Average
    
    
    AggregateWeighted Average
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at June 30, 2009
    
    
    10,923,059
    
    
    $
    0.97Granted
    
    
    6,542,200
    
    
    $
    0.35Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (2,480,300
    )
    
    $
    1.31Outstanding at December 31, 2009
    
    
    14,984,959
    
    
    $
    0.64
    
    
    
    8.4
    
    
    $
    41,000Exercisable at December 31, 2009
    
    
    4,906,411
    
    
    $
    1.06
    
    
    
    6.5
    
    
    $
    6,000
  Performance-Based Stock Options
    Weighted Average
    
    
    AggregateWeighted Average
    
    
    Remaining
    
    
    IntrinsicOptions
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at June 30, 2009
    
    
    881,334
    
    
    $
    1.47Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (333,333
    )
    
    $
    1.38Outstanding at December 31, 2009
    
    
    548,001
    
    
    $
    1.52
    
    
    
    6.8
    
    
    $
    0
  Restricted Stock Awards
   Weighted AverageGrant DateNon-vested Restricted Shares
    
    Shares
    
    
    Fair ValueNon-vested at June 30, 2009
    
    
    100,150
    
    
    $
    0.74Granted
    
    
    
    
    
    
    Vested
    
    
    (98,725
    )
    
    $
    0.73Forfeited
    
    
    
    
    
    
    Non-vested at December 31, 2009
    
    
    1,425
    
    
    $
    1.38
  12




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##### Table of Contents



6. Shareholders Equity
   7. Stock Purchase Warrants
  (i)
    
    warrants to purchase an aggregate of 300,000 shares of the Companys common stock,
issued on April 5, 2004 in connection with the Companys registered direct offering,
exercisable for a five year period commencing on April 5, 2004 at an exercise price of
$13.20 per share, all of which expired unexercised;(ii)
    
    warrants to purchase an aggregate of 320,248 shares of the Companys common stock,
issued on October 27, 2004 in connection with the Companys registered direct offering,
exercisable from April 28, 2005 through October 27, 2008 at an exercise price of $13.92
per share, 229,855 of which expired unexercised; and(iii)
    
    warrants to purchase an aggregate of 740,131 shares of the Companys common stock,
issued on October 17, 2007 in connection with the Companys registered direct offering,
exercisable from April 18, 2008 through April 17, 2013 at an exercise price of $12.72 per
share.
  October 2007 Warrants
    
    June 30, 2009
    
    
    December 30, 2009Closing stock price
    
    $
    3.36
    
    
    $
    2.48Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    70.8
    %
    
    
    73.9
    %Risk free interest rate
    
    
    1.6
    %
    
    
    1.7
    %Expected life (years)
    
    
    3.75
    
    
    
    3.25
 (in thousands)
 Warrant LiabilitiesBalance at June 30, 2009
    
    $
    532Decrease in fair value
    
    
    (264
    )Balance at December 31, 2009
    
    $
    268
 8. Net Loss Per Common Share
  9. Recent Accounting Pronouncements
  13




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Fair Value Measurements
 10. Subsequent Events
   (in thousands, except per share amounts:
 Quarter Ended December 31,
    
    
    Six Months Ended December 31,2008
    
    
    2009
    
    
    2008
    
    
    2009(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Net loss
    
    $
    (4,888
    )
    
    $
    (4,320
    )
    
    $
    (8,558
    )
    
    $
    (8,112
    )Proforma net loss per share (Basic and Diluted)
    
    $
    (0.29
    )
    
    $
    (0.20
    )
    
    $
    (0.51
    )
    
    $
    (0.38
    )Proforma weighted average number of shares
outstanding (Basic and Diluted)
    
    
    16,821
    
    
    
    21,713
    
    
    
    16,710
    
    
    
    21,196
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Restatement
   Overview of Aastrom
   Cardiac Regeneration and Cardiac Repair Cells (CRCs)
    Vascular Regeneration and Vascular Repair Cells (VRCs)
  The TRC Technology Platform
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
    
    autologous,which helps to ensure the cells are not rejected by patients immune system
allowing the cells to engraft, differentiate and integrate into functional tissues and organs
to produce a long-term repair;
 
    
    expanded,resulting in significantly higher concentrations of stem and progenitor cells
than occur naturally; and,
 
    
    a mixed population of cells,which includes most of the cell types found in natural bone
marrow and are required for tissue regeneration.
     Clinical Development
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Clinical Trials Summary
 Cardiac Regeneration
 Dilated Cardiomyopathy  Background
   Dilated Cardiomyopathy  Surgical Trial
    17




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Dilated Cardiomyopathy  Catheter Trial
   Vascular Tissue Regeneration
 Critical Limb Ischemia  Background
  in vitro
  Critical Limb Ischemia Trial
  18




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Additional Activity
    Results of Operations
      19




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Liquidity and Capital Resources
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Forward-looking statements
    
    
    potential strategic collaborations with others;
    
    future capital needs;
    
    adequacy of existing capital to support operations for a specified time;
    
    the rate and degree of progress on our product development and marketing plans;
    
    the rate of regulatory approval to proceed with clinical trial programs and the success
achieved in clinical trials;
    
    the requirements for marketing authorization from regulatory bodies in the U.S., E.U. and
other countries;
    
    the liquidity and market volatility of our equity securities;
    
    regulatory and manufacturing requirements and uncertainties;
    
    technological developments by competitors;
    
    anticipation of future losses;
    
    replacement of manufacturing sources;
    
    commercialization plans; and
    
    revenue expectations and operating results.
  22




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Material Weakness
  Restatement of Consolidated Financial Statements
  23




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Remediation Plan
   Changes in Internal Control Over Financial Reporting
  24




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Our operations and financial results are subject to various risks and uncertainties, including
those described below, that could adversely affect our business, financial condition, results of
operations, cash flows, and trading price of our common stock. The risks and uncertainties
described below are not the only ones we face. There may be additional risks and uncertainties that
are not known to us or that we do not consider to be material at this time. If the events described
in these risks occur, our business, financial condition, and results of operations would likely
suffer.
 Our past losses and expected future losses cast doubt on our ability to operate profitably.
   Our stock may be delisted from NASDAQ, which could affect its market price and liquidity.
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
    
    We may be eligible for quotation on FINRAs Over-the-Counter Bulletin Board (OTCBB) if a
market maker makes an application to register and quote our common stock in accordance with
SEC Rule 15c2-11, and such application, Form 211, is cleared. Only a market maker is able to
file Form 211.
    
    If we do not qualify for quotation on the OTCBB, we could apply to other unregulated
markets.
  We may not be able to raise the required capital to conduct our operations and develop and
commercialize our products.
    
    
    continued scientific progress in our research, clinical and development programs;
    
    costs and timing of conducting clinical trials and seeking regulatory approvals;
    
    competing technological and market developments;
    
    our ability to establish additional collaborative relationships;
    
    the effect of commercialization activities and facility expansions, if and as required;
and
    
    complementary business acquisition or development opportunities.
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Substantial future sales of our common stock in the public market may depress our stock price.
  The exercise of our outstanding options and warrants will dilute shareholders and could decrease
our stock price.
  There is no public market for the Class A warrants or Class B warrants in the public offering
underwritten by Oppenheimer & Co. Inc.
  If we cannot attract and retain key personnel, our business will suffer.
   Failure to obtain and maintain required regulatory approvals would severely limit our ability to
sell our products.
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Any changes in the governmental regulatory classifications of our products could prevent, limit or
delay our ability to market or develop our products.
     Our inability to complete our product development activities successfully would severely limit our
ability to operate or finance operations.
  We must successfully complete our clinical trials to be able to market certain of our products.
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Failure of third parties to manufacture component parts or provide limited source supplies, or the
imposition of additional regulation, would impair our new product development and our sales
activities.
   Manufacturing our cell products in centralized facilities may increase the risk that we will not
have adequate quantities of our cell products for clinical programs.
  Even if we obtain regulatory approvals to sell our products, lack of commercial acceptance could
impair our business.
  The market for our products will be heavily dependent on third party reimbursement policies.
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Use of animal-derived materials could harm our product development and commercialization efforts.
  Given our limited internal manufacturing, sales, marketing and distribution capabilities, we need
to develop increased internal capability or collaborative relationships to manufacture, sell,
market and distribute our products.
  The issuance of additional common stock for funding has the potential for substantial dilution.
  Our stock price has been volatile and future sales of substantial numbers of our shares could have an adverse affect on the market price of our shares.
  
    
    clinical trial results
    
    the amount of our cash resources and our ability to obtain additional funding
    
    announcements of research activities, business developments, technological innovations or
new products by us or our competitors
    
    entering into or terminating strategic relationships
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
    
    changes in government regulation
    
    disputes concerning patents or proprietary rights
    
    changes in our revenues or expense levels
    
    public concern regarding the safety, efficacy or other aspects of the products or
methodologies we are developing
    
    news or reports from other stem cell, cell therapy or regenerative medicine companies
    
    reports by securities analysts
    
    status of the investment markets
    
    concerns related to management transitions
    
    delisting from the NASDAQ Capital Market
  If we do not keep pace with our competitors and with technological and market changes, our products
will become obsolete and our business may suffer.
   If our patents and proprietary rights do not provide substantial protection, then our business and
competitive position will suffer.
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Intellectual property litigation could harm our business.
  The government maintains certain rights in technology that we develop using government grant money
and we may lose the revenues from such technology if we do not commercialize and utilize the
technology pursuant to established government guidelines.
  Potential product liability claims could affect our earnings and financial condition.
  Our corporate documents and Michigan law contain provisions that may make it more difficult for us
to be acquired.
  We are required to evaluate our internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could have a negative
market reaction.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Annual Meeting of Shareholders of the Company was held on December 14, 2009.(b)
    
    At the 2009 Annual Meeting of Shareholders, votes were cast on matters submitted to
the shareholders, as follows: Proposal 1: As a result of shareholder approval of Proposal
1, the election of six directors to serve for one-year terms expiring at the 2010 Annual
Meeting of Shareholders or until his successor shall have been elected and qualified.
 NOMINEE
    
    FOR
    
    WITHHELDGeorge W. Dunbar
    
    
    118,262,910
    
    
    
    15,960,579Timothy M. Mayleben
    
    
    120,867,252
    
    
    
    13,356,237Alan L. Rubino
    
    
    118,456,071
    
    
    
    15,767,418Nelson M. Sims
    
    
    120,984,833
    
    
    
    13,238,656Harold C. Urschel, Jr.
    
    
    121,419,197
    
    
    
    12,804,292Robert L. Zerbe
    
    
    119,262,585
    
    
    
    14,960,904
  FOR
    
    AGAINST
    
    ABSTAIN89,418,787
    
    42,742,896
    
    2,061,806
  FOR
    
    AGAINST
    
    ABSTAIN90,845,921
    
    41,609,387
    
    1,768,181
  FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES18,825,885
    
    10,645,704
    
    1,519,788
    
    103,232,112
  FOR
    
    AGAINST
    
    ABSTAIN123,351,860
    
    5,358,848
    
    5,512,780
 
 Item 5. Other Information
  
 Item 6. Exhibits
  33




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SIGNATURES
   AASTROM BIOSCIENCES, INC./s/ Timothy M. MaylebenTimothy M. MaylebenPresident and Chief Executive Officer
(Principal Executive Officer)/s/ Scott C. DurbinScott C. DurbinChief Financial Officer
(Principal Financial and Accounting Officer) 34




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EXHIBIT INDEX
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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GLOSSARY
 TERM
    
    DEFINITIONAdult Stem Cell
    
    A cell present in adults that can generate a limited range of cell types as well as renew
itself.Adverse Event
    
    Any adverse change in health or side-effect that occurs in a person participating in a
clinical trial, from the time they consent to joining the trial until a pre-specified period
of time after their treatment has been completed.AEMPS  Agencia Española de Medicamentos y
Productos Sanitarios
    
    Spanish Drug AgencyAllogeneic
    
    Originating from a human donor other than the patient receiving treatment (Aastrom does NOT
use allogeneic cells).ATMP  Advanced Therapy Medicinal Product
    
    New medicinal products in the European Union based on genes (gene therapy), cells (cell
therapy) and tissues (tissue engineering).Autologous
    
    Originating from the patient receiving treatment. (Aastrom uses only autologous cells)BLA  Biologics License Application
    
    An application containing product safety, efficacy and manufacturing information required by
the FDA to market biologics products in the U.S (equivalent to NDA)CBER  Center for Biologics Evaluation and Research
    
    Branch of the FDA that regulates biological products for disease prevention and treatment
that are inherently more complex than chemically synthesized pharmaceuticals.CLI  Critical Limb Ischemia
    
    A vascular disease characterized by insufficient blood flow in the extremities that causes
severe pain, tissue loss or both.Controlled Clinical Trial
    
    A clinical study that compares patients receiving a specific treatment to patients receiving
an alternate treatment for the condition of interest. The alternate treatment may be another
active treatment, standard of care for the condition and/or a placebo (inactive) treatment.CRC  Cardiac Repair Cell
    
    Aastroms proprietary Tissue Repair Cells for cardiac indications. (Also see TRC  Tissue
Repair Cell)DCM  Dilated Cardiomyopathy
    
    A chronic cardiac disease where dilation of the patients heart reduces its function to a
point that the normal circulation of blood cannot be maintained.Double-Blind Clinical Trial
    
    Clinical trials in which neither the patient nor the physician know if the patient received
the experimental treatment or a control/placebo.EMEA  European Medicines Agency
    
    European Union body responsible for coordinating the existing scientific resources put at its
disposal by Member States for the evaluation, supervision and pharmacovigilance of medicinal
products. The Agency provides the Member States and the institutions of the E.U. scientific
advice on any question relating to the evaluation of the quality, safety and efficacy of
medicinal products for human or veterinary use referred to it in accordance with the
provisions of E.U. legislation relating to medicinal products. EMEA is similar in function to
the US FDA (see FDA below).
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TERM
    
    DEFINITIONE.U.  European Union
    
    The economic and political union of 27 member states, located primarily in Europe, for which
the EMEA holds the medical regulatory power.Ex vivo
    
    Outside the bodyFDA  Food and Drug Administration
    
    The U.S. FDA ensures that medicines, medical devices, and radiation-emitting consumer
products are safe and effective. Authorized by Congress to enforce the Federal Food, Drug,
and Cosmetic Act and several other public health laws, the agency monitors the manufacture,
import, transport, storage, and sale of $1 trillion worth of goods annually.GCP  Good Clinical Practice
    
    GCP is an international ethical and scientific quality standard for designing, conducting,
recording and reporting trials that involve the participation of human subjects. Compliance
with this standard provides public assurance that the rights, safety and well-being of trial
subjects are protected, consistent with the principles that have their origin in the
Declaration of Helsinki, and that the clinical trial data are credible.GMP  Good Manufacturing Practice
    
    GMP regulations require that manufacturers, processors, and packagers of drugs, medical
devices, some food, and blood take proactive steps to ensure that their products are safe,
pure, and effective. GMP regulations require a quality approach to manufacturing, enabling
companies to minimize or eliminate instances of contamination, mix-ups, and errors.GTP  Good Tissue Practice
    
    GTP regulations help ensure that donors of human cellular and tissue-based products are free
of communicable diseases and that the cells and tissues are not contaminated during
manufacturing and maintain their integrity and function. Key elements of the proposed rule
are: Establishment of a quality program, which would evaluate all aspects of the firms
operations, to ensure compliance with GTP; Maintenance of an adequate organizational
structure and sufficient personnel; Establishment of standard operating procedures for all
significant steps in manufacturing; Maintenance of facilities, equipment and the environment;
Control and validation of manufacturing processes; Provisions for adequate and appropriate
storage; Record keeping and management; Maintenance of a complaint file; Procedures for
tracking the product from donor to recipient, and from recipient to donor.Hematopoietic Stem Cells
    
    Stem cells that give rise to all blood cell types including
myeloid (monocytes and macrophages, neutrophils, basophils,
eosinophils, erythrocytes, megakaryocytes/platelets, dendritic
cells), and lymphoid lineages (T-cells, B-cells, NK-cells).IMPACT-DCM
    
    Aastroms U.S. Phase II surgical clinical trial evaluating the
use of CRCs in the treatment of dilated cardiomyopathy.IMPD  Investigational Medicinal Product Dossier
    
    An IMPD is now required to accompany an application to perform
clinical trials in any European Member State. It provides a
summary of information on the quality of the product being
evaluated in a clinical trial planned to occur in a European
Member State, including reference products and placebos. It
also provides data from non-clinical studies and available
previous clinical experience with the use of the
investigational medicinal product.In vitro
    
    In a laboratory dish or test tube; in an artificial environment
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TERM
    
    DEFINITIONIND  Investigational New Drug
    
    An application submitted to the FDA for a new drug or biologic
that, if allowed, will be used in a clinical trial.IRB  Institutional Review Board
    
    A committee designated to formally approve, monitor, and
review biomedical research at an institution involving humans.
Institutional Review Boards aim to protect the rights and
welfare of the research subjects. For Aastrom-sponsored
clinical trials, IRB approval must be obtained at each
individual clinical site in order for patient recruitment and
treatment to commence at that site.LVEF  Left Ventricular Ejection Fraction
    
    The fraction of blood pumped out of the left ventricle with
each heart beat.Open-label Clinical Trial
    
    A trial in which both the treating physician and the patient
know whether they are receiving the experimental treatment or
control treatment.Orphan Drug Designation
    
    Orphan drug refers to a drug or biologic that is intended
for use in the treatment of a rare disease or condition.
Orphan drug designation from the U.S. Food and Drug
Association (FDA) qualifies the sponsor to receive certain
benefits from the Government in exchange for developing the
drug for a rare disease or condition. The drug must then go
through the FDA marketing approval process like any other drug
or biologic which evaluates for safety and efficacy. Usually a
sponsor receives a quicker review time and lower application
fees for an orphan product.Phase I Clinical Trial
    
    A Phase I trial represents an initial study in a small group
of patients to test for safety and other relevant factorsPhase II Clinical Trial
    
    A Phase II trial represents a study in a small number of
patients to assess the safety and efficacy of a productPhase IIb Clinical Trial
    
    A Phase IIb trial is a moderately-sized Phase II study that is
more specifically designed assess the efficacy of a product
than a Phase IIa trialPhase III Clinical Trial
    
    Phase III studies are initiated to establish safety and
efficacy in an expanded patient population at multiple
clinical study sites and are generally larger than trials in
earlier phases of development.Progenitor Cells
    
    A parent cell that gives rise to a distinct cell lineage by
a series of cell divisions.Prospective Clinical Trial
    
    A clinical trial in which participants are identified and then
followed for the duration of the clinical trial.Randomized Clinical Trial
    
    A clinical trial in which the participants are assigned
randomly to treatment and control groups.Somatic Cell
    
    Any of the cells responsible for forming the body of an
organism such as internal organs, bones, skin, connective
tissues and blood.SPP  Single-Pass Perfusion
    
    SPP is Aastroms proprietary technology that controls gas and
cell culture media exchange to enable the replication of
early-stage stem and progenitor cells while preventing their
differentiation into mature cells.Standard of care treatment
    
    The treatment normally prescribed in medical practice for a
particular illness, injury or procedure.
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TERM
    
    DEFINITIONStem Cell
    
    Unspecialized (undifferentiated) cells that retain the ability
to divide throughout a lifetime and give rise to more
specialized (differentiated) cells which take the place of
cells that die or are lost. In culture, these undifferentiated
cells possess the ability to divide for indefinite periods in
culture and may give rise to highly specialized cells.TRC  Tissue Repair Cell
    
    Aastroms cell manufacturing process begins with the
collection of a small aspirate (approximately 50 ml) of bone
marrow from the patients hip in an outpatient procedure. The
sample of bone marrow is shipped to a manufacturing facility,
and transferred into Aastroms cell manufacturing system. In
this fully automated, sterile process, the stem and progenitor
cell populations present in the bone marrow are greatly
expanded to yield cellular products based on Aastroms Tissue
Repair Cell (TRC) technology. The finished TRC-based product
is shipped back to the physician who administers it to the
original patient as an autologous cell therapy.VRC  Vascular Repair Cell
    
    Aastroms proprietary Tissue Repair Cells for Vascular
indications. (Also see TRC  Tissue Repair Cell)
 39