##### 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 SEPTEMBER 30, 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
    
    Smaller reporting company  þ(Do not check if a smaller reporting company)
  o þ
  COMMON STOCK, NO PAR VALUE
    
    173,971,085(Class)
    
    Outstanding at November 5, 2009




---



##### 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 the Companys
common stock, issued in January 2010 at an exercise price of $2.08 per share.
 Derivatives and Hedging
   2




---



##### 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 September 30, 2009
    
    
    5b) Consolidated Condensed Statements of Operations for the three months ended
September 30, 2008 and 2009 and for the period from March 24, 1989 (Inception) to
September 30, 2009
    
    
    6c) Consolidated Condensed Statements of Cash Flows for the three months ended
September 30, 2008 and 2009 and for the period from March 24, 1989 (Inception) to
September 30, 2009
    
    
    7d) Notes to Consolidated Condensed Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31PART II  OTHER INFORMATION
    
    
    33Item 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 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




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 
 (Unaudited)
(In thousands, except share amounts)
 June 30,
    
    
    September 30,2009
    
    
    2009(Restated)
    
    
    (Restated)AssetsCURRENT ASSETS:Cash and cash equivalents
    
    $
    17,000
    
    
    $
    17,357Receivables, net
    
    
    58
    
    
    
    519Inventory
    
    
    1
    
    
    
    Other current assets
    
    
    732
    
    
    
    902Total current assets
    
    
    17,791
    
    
    
    18,778PROPERTY AND EQUIPMENT, NET
    
    
    1,485
    
    
    
    1,388Total assets
    
    $
    19,276
    
    
    $
    20,166Liabilities and Shareholders EquityCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    853
    
    
    $
    1,335Accrued employee benefits
    
    
    355
    
    
    
    334Current portion of long-term debt
    
    
    479
    
    
    
    418Warrant liabilities
    
    
    532
    
    
    
    523Total current liabilities
    
    
    2,219
    
    
    
    2,610LONG-TERM DEBT
    
    
    305
    
    
    
    249SHAREHOLDERS EQUITY:Common stock, no par value; shares authorized
 250,000,000; shares issued and outstanding
 160,222,644 and 171,774,132, respectively
    
    
    205,286
    
    
    
    209,633Deficit accumulated during the development stage
    
    
    (188,534
    )
    
    
    (192,326
    )Total shareholders equity
    
    
    16,752
    
    
    
    17,307Total liabilities and shareholders equity
    
    $
    19,276
    
    
    $
    20,166
  5




---



##### Table of Contents



(Unaudited)
(In thousands, except per share amounts)
 March 24, 1989Quarter ended
    
    
    (Inception) toSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2009(Restated)
    
    
    (Restated)
    
    
    (Restated)REVENUES:Product sales and rentals
    
    $
    27
    
    
    $
    73
    
    
    $
    1,834Research and development agreements
    
    
    
    
    
    
    
    
    
    
    2,105Grants
    
    
    
    
    
    
    
    
    
    
    9,657Total revenues
    
    
    27
    
    
    
    73
    
    
    
    13,596COSTS AND EXPENSES:Cost of product sales and rentals
    
    
    4
    
    
    
    32
    
    
    
    794Cost of product sales and rentals  provision for obsolete and excess inventory
    
    
    
    
    
    
    
    
    
    
    2,239Research and development
    
    
    2,726
    
    
    
    2,911
    
    
    
    151,019Selling, general and administrative
    
    
    1,316
    
    
    
    946
    
    
    
    69,604Total costs and expenses
    
    
    4,046
    
    
    
    3,889
    
    
    
    223,656LOSS FROM OPERATIONS
    
    
    (4,019
    )
    
    
    (3,816
    )
    
    
    (210,060
    )OTHER INCOME (EXPENSE):Decrease in fair value of warrants
    
    
    243
    
    
    
    9
    
    
    
    7,298Other income
    
    
    
    
    
    
    
    
    
    
    1,249Interest income
    
    
    127
    
    
    
    28
    
    
    
    10,592Interest expense
    
    
    (21
    )
    
    
    (13
    )
    
    
    (437
    )Total other income, net
    
    
    349
    
    
    
    24
    
    
    
    18,702NET LOSS
    
    $
    (3,670
    )
    
    $
    (3,792
    )
    
    $
    (191,358
    )COMPUTATION OF NET LOSS PER SHARE APPLICABLE TO COMMON SHARES:NET LOSS
    
    $
    (3,670
    )
    
    $
    (3,792
    )NET LOSS PER COMMON SHARE (Basic and Diluted)
    
    $
    (0.03
    )
    
    $
    (0.02
    )Weighted average number of common shares outstanding (Basic and Diluted)
    
    
    132,796
    
    
    
    165,433
  6




---



##### Table of Contents



(Unaudited)
(In thousands)
 March 24, 1989Quarter ended
    
    
    (Inception) toSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2009(Restated)
    
    
    (Restated)
    
    
    (Restated)OPERATING ACTIVITIES:Net loss
    
    $
    (3,670
    )
    
    $
    (3,792
    )
    
    $
    (191,358
    )Adjustments to reconcile net loss to net cash used for operating activities:Depreciation and amortization
    
    
    175
    
    
    
    151
    
    
    
    6,151Loss on property held for resale
    
    
    
    
    
    
    
    
    
    
    110Amortization of discounts and premiums on investments
    
    
    (30
    )
    
    
    
    
    
    
    (1,704
    )Stock compensation expense
    
    
    363
    
    
    
    47
    
    
    
    8,436Decrease in fair value of warrants
    
    
    (243
    )
    
    
    (9
    )
    
    
    (7,298
    )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
    
    
    (48
    )
    
    
    (461
    )
    
    
    (768
    )Inventories
    
    
    
    
    
    
    1
    
    
    
    (2,335
    )Other current assets
    
    
    (61
    )
    
    
    (238
    )
    
    
    (672
    )Accounts payable and accrued expenses
    
    
    43
    
    
    
    482
    
    
    
    1,278Accrued employee benefits
    
    
    (277
    )
    
    
    (21
    )
    
    
    334Net cash used for operating activities
    
    
    (3,748
    )
    
    
    (3,840
    )
    
    
    (182,083
    )INVESTING ACTIVITIES:Organizational costs
    
    
    
    
    
    
    
    
    
    
    (73
    )Purchase of short-term investments
    
    
    
    
    
    
    
    
    
    
    (212,041
    )Maturities of short-term investments
    
    
    6,000
    
    
    
    
    
    
    
    213,745Property and equipment purchases
    
    
    (4
    )
    
    
    (54
    )
    
    
    (5,815
    )Proceeds from sale of property held for resale
    
    
    
    
    
    
    
    
    
    
    400Net cash provided by (used for) investing activities
    
    
    5,996
    
    
    
    (54
    )
    
    
    (3,784
    )FINANCING ACTIVITIES:Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    51,647Net proceeds from issuance of common stock
    
    
    5
    
    
    
    4,300
    
    
    
    149,645Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (49
    )Payments received for stock purchase rights
    
    
    
    
    
    
    
    
    
    
    3,500Payments received under shareholder notes
    
    
    
    
    
    
    
    
    
    
    31Restricted cash used as compensating balance
    
    
    63
    
    
    
    68
    
    
    
    (209
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    751Principal payments under long-term obligations
    
    
    (108
    )
    
    
    (117
    )
    
    
    (2,092
    )Net cash provided by (used for) financing activities
    
    
    (40
    )
    
    
    4,251
    
    
    
    203,224NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    2,208
    
    
    
    357
    
    
    
    17,357CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    16,492
    
    
    
    17,000
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    18,700
    
    
    $
    17,357
    
    
    $
    17,357SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid
    
    $
    21
    
    
    $
    13
    
    
    $
    437
  7




---



##### Table of Contents



AASTROM BIOSCIENCES, INC.
(A clinical development stage company)
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Unaudited)
 1. Organization
    2. Basis of Presentation
    8




---



##### Table of Contents



3. Restatement of Consolidated Financial Statements
 Background
   (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 the Companys
common stock, issued in January 2010 at an exercise price of $2.08 per share.
 Derivatives and Hedging
  Impact of the Restatement
  9




---



##### Table of Contents



(in thousands except per share
amounts)
 Consolidated Condensed Balance SheetsAs
Previoulsy
Reported
    
    
    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 September 30, 2009Warrant liabilities
    
    $
    
    
    
    $
    523
    
    
    $
    523Total current liabilities
    
    $
    2,087
    
    
    $
    523
    
    
    $
    2,610Common stock
    
    $
    217,454
    
    
    $
    (7,821
    )
    
    $
    209,633Deficit accumulated during the
development stage
    
    $
    (199,624
    )
    
    $
    7,298
    
    
    $
    (192,326
    )Total shareholders equity
    
    $
    17,830
    
    
    $
    (523
    )
    
    $
    17,307Consolidated Condensed Statements of OperationsAs Previously
 Reported
    
    
    Adjustments
    
    
    As RestatedFor the quarter ended September 30, 2008:Decrease in fair value
of warrants
    
    $
    
    
    
    $
    243
    
    
    $
    243Total other income
    
    $
    106
    
    
    $
    243
    
    
    $
    349Net loss
    
    $
    (3,913
    )
    
    $
    243
    
    
    $
    (3,670
    )Net loss per share (basic and diluted)
    
    $
    (0.03
    )
    
    $
    
    
    
    $
    (0.03
    )For the quarter ended September 30, 2009:Decrease in  fair value
of warrants
    
    $
    
    
    
    $
    9
    
    
    $
    9Total other income
    
    $
    15
    
    
    $
    9
    
    
    $
    24Net loss
    
    $
    (3,801
    )
    
    $
    9
    
    
    $
    (3,792
    )Net loss per share (basic and diluted)
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    (0.02
    )March 24, 1989 (Inception) to September 30,
2009:Decrease in  fair value
of warrants
    
    $
    
    
    
    $
    7,298
    
    
    $
    7,298Total other income
    
    $
    11,404
    
    
    $
    7,298
    
    
    $
    18,702Net loss
    
    $
    (198,656
    )
    
    $
    7,298
    
    
    $
    (191,358
    )Consolidated Condensed Statements of Cash FlowsAs Previously
 Reported
    
    
    Adjustments
    
    
    As RestatedFor the quarter ended September 30, 2008:Net loss
    
    $
    (3,913
    )
    
    $
    243
    
    
    $
    (3,670
    )Decrease in fair value
of warrants
    
    $
    
    
    
    $
    (243
    )
    
    $
    (243
    )For the quarter ended September 30, 2009:Net loss
    
    $
    (3,801
    )
    
    $
    9
    
    
    $
    (3,792
    )Decrease in  fair value
of warrants
    
    $
    
    
    
    $
    (9
    )
    
    $
    (9
    )March 24, 1989 (Inception) to September 30,
2009:Net loss
    
    $
    (198,656
    )
    
    $
    7,298
    
    
    $
    (191,358
    )Decrease in  fair value
of warrants
    
    $
    
    
    
    $
    (7,298
    )
    
    $
    (7,298
    )
 10




---



##### 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. Shareholders Equity
    6. 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.
 11




---



##### Table of Contents



October 2007 Warrants
    
    June 30, 2009
    
    
    September 30, 2009Closing stock price
    
    $
    3.36
    
    
    $
    3.44Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    70.8
    %
    
    
    71.8
    %Risk free interest rate
    
    
    1.6
    %
    
    
    1.5
    %Expected life (years)
    
    
    3.75
    
    
    
    3.50
 (in thousands)
 Warrant LiabilitiesBalance at June 30, 2009
    
    $
    532Decrease in fair value
    
    
    (9
    )Balance at September 30, 2009
    
    $
    523
 7. Net Loss Per Common Share
  8. Recent Accounting Pronouncements
  Fair Value Measurements
 9. Subsequent Events
     12




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Restatement
   Overview of Aastrom
 (a medical area that focuses on developing therapies
that regenerate damaged or diseased tissues or organs) (cells collected from a patient and returned to
that same patient)
 
    
    Cardiac regeneration  Cardiac Repair Cells (CRCs):
 
    
    Dilated cardiomyopathy (DCM  a severe condition associated with chronic heart
failure):
 
    
    FDA has granted Orphan Drug Designation to CRCs for use in treatment of DCM
    
    U.S.: Phase II IMPACT-DCM surgical clinical trial
 
    
    Surgical clinical trial began treating patients in November 2008
    
    To date, 29 patients enrolled in trial
    
    Five clinical sites are open for patient enrollment (Methodist DeBakey
Heart &Vascular Center, Houston, TX, Baylor University Medical Center, Dallas, TX,
The University of Utah School of Medicine, Salt Lake City, UT, Cleveland Clinic
Heart & Vascular Institute, Cleveland, OH, and Emory University Hospital Midtown,
Atlanta, GA)
    
    All 40 patients expected to be enrolled by December 31, 2009 and will be
followed for 1 year
    
    Expected to report clinical trial interim data during 1st quarter of
calendar year 2010
    
    Report of preliminary interim data expected once all patients have
completed 6 month follow-up visits
 
    
    U.S.: Phase II cardiac catheter clinical trial
 
    
    Designed to explore a catheter-based approach for the delivery of CRCs to
treat DCM patients
    
    Expected to initiate clinical site training during 4th quarter of
calendar year 2009
 
    
    Vascular regeneration  Vascular Repair Cells (VRCs):
 13




---



##### Table of Contents




    
    Critical limb ischemia (CLI  the most severe form of peripheral arterial disease):
 
    
    U.S.: Phase IIb RESTORE-CLI clinical trial
 
    
    To date, 76 patients enrolled in trial
    
    Unblind clinical data for planned interim analysis expected to occur
during the 4th quarter of calendar year 2009
    
    Expected to report interim clinical data during 1st quarter of calendar
year 2010
   
    
    autologouswhich helps to ensure the product is not immuno-rejected by the patient and
has the potential to engraft, differentiate and integrate long-term into functional tissues
and organs,
    
    expandedwhich allows for higher numbers of stem and progenitor cells than would be
obtainable with a product harvested directly from a patient and then returned to the patient
without a culturing step, and
    
    composed of a mixed population of cellswhich includes all constituents of the original
bone marrow and ensures that if multiple cell types are needed to regenerate the target
tissue or a specific cell type is required, the product can directly address the need.
       14




---



##### Table of Contents



Clinical Development
    Clinical Trials Summary
 Cardiac Regeneration
 Dilated Cardiomyopathy  Surgical
  15




---



##### Table of Contents



Dilated Cardiomyopathy  Catheter
  Dilated Cardiomyopathy  Background
   Vascular Tissue Regeneration
 Critical Limb Ischemia
 in vitro
 16




---



##### Table of Contents



Bone Regeneration
 Maxillofacial
    Osteonecrosis of the Femoral Head
  17




---



##### Table of Contents



Other Bone
    Additional Activity
   18




---



##### Table of Contents



Results of Operations
          19




---



##### Table of Contents



Liquidity and Capital Resources
     20




---



##### Table of Contents



21




---



##### Table of Contents



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.
    
    
    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.
  22




---



##### Table of Contents



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;
    
    complementary business acquisition or development opportunities; and
    
    an increase in our shares of authorized common stock.
      23




---



##### Table of Contents



The sale of our common stock to Fusion Capital may cause dilution and the sale of the shares of
common stock acquired by Fusion Capital could cause the price of our common stock to decline.
  If we cannot attract and retain key personnel, then our business will suffer.
   Failure to obtain and maintain required regulatory approvals would severely limit our ability to
sell our products.
   Any changes in the governmental regulatory classifications of our products could prevent, limit or
delay our ability to market or develop our products.
  24




---



##### Table of Contents



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.
    25




---



##### Table of Contents



Failure of third parties to manufacture or supply certain components, equipment, disposable devices
and other materials used our cell manufacturing process, would impair our TRC-based cell product
development.
   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.
   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.
  26




---



##### Table of Contents



The market for our products will be heavily dependent on third party reimbursement policies.
  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.
  27




---



##### Table of Contents



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
    
    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.
   28




---



##### Table of Contents



If our patents and proprietary rights do not provide substantial protection, then our business and
competitive position will suffer.
  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.
  29




---



##### Table of Contents



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.
  Forward-looking statements
   
    
    potential strategic collaborations with others
    
    future capital needs
    
    adequacy of existing capital to support operations for a specified time
    
    product development and marketing plan
    
    clinical trial plans and anticipated results
    
    anticipation of future losses
    
    replacement of manufacturing sources
    
    commercialization plans
    
    revenue expectations and operating results
 30




---



##### Table of Contents



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
  31




---



##### Table of Contents



Remediation Plan
   Changes in Internal Control Over Financial Reporting
  32




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ltem 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  33




---



##### Table of Contents



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




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 35




---



##### Table of Contents



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 someone other than the patient receiving treatment. (Aastrom does NOT use
allogeneic cells)ATMP  Advanced Therapy Medicinal Product
    
    New medical 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)BRC  Bone Repair Cell
    
    Aastroms proprietary Tissue Repair Cells for bone indications. (Also see TRC  Tissue
Repair Cell)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 lower 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 expansion of the patients
heart reduces the pumping 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 EU the best-possible 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 EU
legislation relating to medicinal products. EMEA is similar in
function to the US FDA (see FDA below).
 36




---



##### Table of Contents



TERM
    
    DEFINITIONEU  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 & 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.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 the 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 dilated cardiomyopathy clinical trial.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 environmentIND  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.
 37




---



##### Table of Contents



TERM
    
    DEFINITIONLVEF  Left Ventricular Ejection Fraction
    
    The fraction of blood pumped out of the left ventricle with
each heart beat.Non-union Fractures
    
    Broken bones that have failed to unite and healON  Osteonecrosis
    
    A progressive bone disease characterized by death of bony
tissue due to insufficient blood flow within the bone.ON-CORE
    
    Aastroms U.S. Phase III osteonecrosis of the femoral head
clinical trialOpen-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.Osteoblast
    
    A bone forming cellPhase 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
moderate 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 a period of
time during and after the conclusion of a
clinical trial.Randomized Clinical Trial
    
    A clinical trial in which the participants are
assigned randomly to different treatment
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.Stem 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.
 38




---



##### Table of Contents



TERM
    
    DEFINITIONIn 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 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