##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 Amendment No. 2
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010 ,
 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)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 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
(Class)
    
    28,255,889
Outstanding at May 4, 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 the Companys
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




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##### 



PagePART I  FINANCIAL INFORMATION
    
    
    5Item 1. Restated Financial Statements  Unaudited
    
    
    5a) Consolidated Condensed Balance Sheets as of June 30, 2009 and March 31, 2010
    
    
    5b) Consolidated Condensed Statements of Operations for the quarter and nine
months ended March 31, 2009 and 2010 and for the period from March 24, 1989
(Inception) to March 31, 2010
    
    
    6c) Consolidated Condensed Statements of Cash Flows for the nine months ended
March 31, 2009 and 2010 and for the period from March 24, 1989 (Inception) to
March 31, 2010
    
    
    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 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26EXHIBIT INDEX
    
    
    27GLOSSARY
    
    
    28EX-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,
    
    
    March 31,2009
    
    
    2010(Restated)
    
    
    (Restated)AssetsCURRENT ASSETS:Cash and cash equivalents
    
    $
    17,000
    
    
    $
    17,844Short-term investments
    
    
    
    
    
    
    5,000Receivables, net
    
    
    58
    
    
    
    Inventory
    
    
    1
    
    
    
    Other current assets
    
    
    732
    
    
    
    591Total current assets
    
    
    17,791
    
    
    
    23,435PROPERTY AND EQUIPMENT, NET
    
    
    1,485
    
    
    
    1,134Total assets
    
    $
    19,276
    
    
    $
    24,569Liabilities and Shareholders EquityCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    853
    
    
    $
    1,161Accrued employee benefits
    
    
    355
    
    
    
    358Current portion of long-term debt
    
    
    479
    
    
    
    291Warrant liabilities
    
    
    532
    
    
    
    4,358Total current liabilities
    
    
    2,219
    
    
    
    6,168LONG-TERM DEBT
    
    
    305
    
    
    
    137SHAREHOLDERS EQUITY:Common stock, no par value; shares authorized
 31,250,000 and 62,500,000, respectively;
shares issued and outstanding  20,027,830 and
28,255,889, respectively
    
    
    205,286
    
    
    
    217,589Deficit accumulated during the development stage
    
    
    (188,534
    )
    
    
    (199,325
    )Total shareholders equity
    
    
    16,752
    
    
    
    18,264Total liabilities and shareholders equity
    
    $
    19,276
    
    
    $
    24,569
  5




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##### Table of Contents



(Unaudited)
(In thousands, except per share amounts)
 March 24, 1989Quarter ended
    
    
    Nine months ended
    
    
    (Inception) toMarch 31,
    
    
    March 31,
    
    
    March 31,2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2010(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)REVENUES:Product sales and rentals
    
    $
    58
    
    
    $
    
    
    
    $
    113
    
    
    $
    89
    
    
    $
    1,850Research and development agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,105Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,657Total revenues
    
    
    58
    
    
    
    
    
    
    
    113
    
    
    
    89
    
    
    
    13,612COSTS AND EXPENSES:Cost of product sales and rentals
    
    
    25
    
    
    
    
    
    
    
    47
    
    
    
    34
    
    
    
    796Cost of product sales and rentals 
provision for obsolete and excess inventory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,239Research and development
    
    
    2,785
    
    
    
    2,845
    
    
    
    8,340
    
    
    
    9,039
    
    
    
    157,147Selling, general and administrative
    
    
    1,260
    
    
    
    1,418
    
    
    
    3,909
    
    
    
    3,680
    
    
    
    72,338Total costs and expenses
    
    
    4,070
    
    
    
    4,263
    
    
    
    12,296
    
    
    
    12,753
    
    
    
    232,520LOSS FROM OPERATIONS
    
    
    (4,012
    )
    
    
    (4,263
    )
    
    
    (12,183
    )
    
    
    (12,664
    )
    
    
    (218,908
    )OTHER INCOME (EXPENSE):(Increase) decrease in fair value of warrants
    
    
    481
    
    
    
    1,559
    
    
    
    (61
    )
    
    
    1,823
    
    
    
    9,112Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,249Interest income
    
    
    57
    
    
    
    34
    
    
    
    253
    
    
    
    83
    
    
    
    10,647Interest expense
    
    
    (17
    )
    
    
    (9
    )
    
    
    (58
    )
    
    
    (33
    )
    
    
    (457
    )Other income
    
    
    521
    
    
    
    1,584
    
    
    
    134
    
    
    
    1,873
    
    
    
    20,551NET LOSS
    
    $
    (3,491
    )
    
    $
    (2,679
    )
    
    $
    (12,049
    )
    
    $
    (10,791
    )
    
    $
    (198,357
    )COMPUTATION OF NET LOSS PER SHARE APPLICABLE TO
COMMON SHARES:NET LOSS
    
    $
    (3,491
    )
    
    $
    (2,679
    )
    
    $
    (12,049
    )
    
    $
    (10,791
    )NET LOSS PER SHARE (Basic and Diluted)
    
    $
    (0.19
    )
    
    $
    (0.10
    )
    
    $
    (0.70
    )
    
    $
    (0.47
    )Weighted average number of shares outstanding
(Basic and Diluted)
    
    
    18,327
    
    
    
    26,737
    
    
    
    17,242
    
    
    
    23,016
  6




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##### Table of Contents



(Unaudited)
(In thousands)
 March 24, 1989Nine months ended
    
    
    (Inception) toMarch 31,
    
    
    March 31,2009
    
    
    2010
    
    
    2010(Restated)
    
    
    (Restated)
    
    
    (Restated)OPERATING ACTIVITIES:Net loss
    
    $
    (12,049
    )
    
    $
    (10,791
    )
    
    $
    (198,357
    )Adjustments to reconcile net loss to net cash used for
operating activities: Depreciation and amortization
    
    
    522
    
    
    
    454
    
    
    
    6,454Loss on property held for resale
    
    
    
    
    
    
    
    
    
    
    110Amortization of discounts and premiums on investments
    
    
    (30
    )
    
    
    
    
    
    
    (1,704
    )Stock compensation expense
    
    
    1,129
    
    
    
    426
    
    
    
    8,815Increase (decrease) in fair value of warrants
    
    
    61
    
    
    
    (1,823
    )
    
    
    (9,112
    )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
    
    
    (236
    )
    
    
    58
    
    
    
    (249
    )Inventories
    
    
    
    
    
    
    1
    
    
    
    (2,335
    )Other current assets
    
    
    432
    
    
    
    (66
    )
    
    
    (500
    )Accounts payable and accrued expenses
    
    
    (23
    )
    
    
    308
    
    
    
    1,104Accrued employee benefits
    
    
    (392
    )
    
    
    3
    
    
    
    358Net cash used for operating activities
    
    
    (10,586
    )
    
    
    (11,430
    )
    
    
    (189,673
    )INVESTING ACTIVITIES:Organizational costs
    
    
    
    
    
    
    
    
    
    
    (73
    )Purchase of short-term investments
    
    
    
    
    
    
    (5,000
    )
    
    
    (217,041
    )Maturities of short-term investments
    
    
    6,000
    
    
    
    
    
    
    
    213,745Property and equipment purchases
    
    
    (34
    )
    
    
    (103
    )
    
    
    (5,864
    )Proceeds from sale of property held for resale
    
    
    
    
    
    
    
    
    
    
    400Net cash provided by (used for) investing activities
    
    
    5,966
    
    
    
    (5,103
    )
    
    
    (8,833
    )FINANCING ACTIVITIES:Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    51,647Net proceeds from issuance of common stock and warrants
    
    
    7,343
    
    
    
    17,526
    
    
    
    162,871Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (49
    )Payments received for stock purchase rights
    
    
    
    
    
    
    
    
    
    
    3,500Payments received under shareholder notes
    
    
    
    
    
    
    
    
    
    
    31Restricted cash used as compensating balance
    
    
    192
    
    
    
    207
    
    
    
    (70
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    751Principal payments under long-term obligations
    
    
    (331
    )
    
    
    (356
    )
    
    
    (2,331
    )Net cash provided by financing activities
    
    
    7,204
    
    
    
    17,377
    
    
    
    216,350NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    2,584
    
    
    
    844
    
    
    
    17,844CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    16,492
    
    
    
    17,000
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    19,076
    
    
    $
    17,844
    
    
    $
    17,844
  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
     8




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##### 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




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##### Table of Contents



(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 March 31, 2010Warrant liabilities
    
    $
    
    
    
    $
    4,358
    
    
    $
    4,358Total current liabilities
    
    $
    1,810
    
    
    $
    4,358
    
    
    $
    6,168Common stock
    
    $
    231,059
    
    
    $
    (13,470
    )
    
    $
    217,589Deficit accumulated during the
development stage
    
    $
    (208,437
    )
    
    $
    9,112
    
    
    $
    (199,325
    )Total shareholders equity
    
    $
    22,622
    
    
    $
    (4,358
    )
    
    $
    18,264Consolidated Condensed Statements of OperationsAs PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedFor the quarter ended March 31, 2009:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    481
    
    
    $
    481Total other income
    
    $
    40
    
    
    $
    481
    
    
    $
    521Net loss
    
    $
    (3,972
    )
    
    $
    481
    
    
    $
    (3,491
    )Net loss per share (basic and diluted)
    
    $
    (0.22
    )
    
    $
    0.03
    
    
    $
    (0.19
    )For the nine months ended March 31, 2009:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    (61
    )
    
    $
    (61
    )Total other income
    
    $
    195
    
    
    $
    (61
    )
    
    $
    134Net loss
    
    $
    (11,988
    )
    
    $
    (61
    )
    
    $
    (12,049
    )Net loss per share (basic and diluted)
    
    $
    (0.70
    )
    
    $
    
    
    
    $
    (0.70
    )For the quarter ended March 31, 2010:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    1,559
    
    
    $
    1,559Total other income
    
    $
    25
    
    
    $
    1,559
    
    
    $
    1,584Net loss
    
    $
    (4,238
    )
    
    $
    1,559
    
    
    $
    (2,679
    )Net loss per share (basic and diluted)
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.10
    )For the nine months ended March 31, 2010:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    1,823
    
    
    $
    1,823Total other income
    
    $
    50
    
    
    $
    1,823
    
    
    $
    1,873Net loss
    
    $
    (12,614
    )
    
    $
    1,823
    
    
    $
    (10,791
    )Net loss per share (basic and diluted)
    
    $
    (0.55
    )
    
    $
    0.08
    
    
    $
    (0.47
    )March 24, 1989 (Inception) to March 31, 2010:(Increase) decrease in fair value
of warrants
    
    $
    
    
    
    $
    9,112
    
    
    $
    9,112Total other income
    
    $
    11,439
    
    
    $
    9,112
    
    
    $
    20,551Net loss
    
    $
    (207,469
    )
    
    $
    9,112
    
    
    $
    (198,357
    )Consolidated Condensed Statements of Cash FlowsAs PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedFor the nine months ended March 31, 2009:Net loss
    
    $
    (11,988
    )
    
    $
    (61
    )
    
    $
    (12,049
    )Increase (decrease) in fair value
of warrants
    
    $
    
    
    
    $
    61
    
    
    $
    61For the nine months ended March 31, 2010:Net loss
    
    $
    (12,614
    )
    
    $
    1,823
    
    
    $
    (10,791
    )Increase (decrease) in fair value
of warrants
    
    $
    
    
    
    $
    (1,823
    )
    
    $
    (1,823
    )March 24, 1989 (Inception) to March 31, 2010:Net loss
    
    $
    (207,469
    )
    
    $
    9,112
    
    
    $
    (198,357
    )Increase (decrease) in fair value
of warrants
    
    $
    
    
    
    $
    (9,112
    )
    
    $
    (9,112
    )
 10




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##### Table of Contents



4. Share-Based Compensation
  Service-Based Options
    Nine months endedMarch 31,2009
    
    
    2010Stock Option Plans:Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    73
    %
    
    
    70.2% - 72.8
    %Risk free interest rate
    
    
    2.1
    %
    
    
    2.49% - 3.09
    %Estimated forfeiture rate
    
    
    10
    %
    
    
    10
    %Expected life (years)
    
    
    6.6
    
    
    
    5.5 - 6.25
  Weighted AverageWeighted Average
    
    
    Remaining
    
    
    Aggregate IntrinsicOptions
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at June 30, 2009
    
    
    1,365,353
    
    
    $
    7.76Granted
    
    
    1,268,525
    
    
    $
    2.33Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (355,931
    )
    
    $
    9.58Outstanding at March 31, 2010
    
    
    2,277,947
    
    
    $
    4.45
    
    
    
    8.4
    
    
    $
    58,000Exercisable at March 31, 2010
    
    
    715,046
    
    
    $
    7.88
    
    
    
    6.5
    
    
    $
    
  11




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##### Table of Contents



Performance-Based Stock Options
    Weighted AverageWeighted Average
    
    
    Remaining
    
    
    Aggregate IntrinsicOptions
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at June 30, 2009
    
    
    110,162
    
    
    $
    11.76Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (49,999
    )
    
    $
    11.24Outstanding at December 31, 2009
    
    
    60,163
    
    
    $
    12.19
    
    
    
    6.6
    
    
    $
    0
  Restricted Stock Awards
   Weighted AverageNon-vested Restricted Shares
    
    Shares
    
    
    Grant Date Fair ValueNon-vested at June 30, 2009
    
    
    12,515
    
    
    $
    5.92Granted
    
    
    
    
    
    
    Vested
    
    
    (12,359
    )
    
    $
    5.86Forfeited
    
    
    
    
    
    
    Non-vested at March 31, 2010
    
    
    156
    
    
    $
    10.53
  5. 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.
 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;
 (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;
 (iv)
    
    Class A warrants to purchase an aggregate of 4,882,228 shares of the Companys common
stock, issued on January 21, 2010 in connection with the Companys registered public
offering, exercisable for a five year period commencing on July 21, 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
on January 21, 2010 in connection with the Companys registered public offering,
exercisable at any time from January 21, 2010 through July 21, 2010 at an exercise price
of $2.08 per share.
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October 2007 Warrants
    
    June 30, 2009
    
    
    March 31, 2010Closing stock price
    
    $
    3.36
    
    
    $
    1.65Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    70.8
    %
    
    
    77.0
    %Risk free interest rate
    
    
    1.6
    %
    
    
    1.6
    %Expected life (years)
    
    
    3.75
    
    
    
    3.00
 January 2010 Class A Warrants
    
    January 21, 2010
    
    
    March 31, 2010Closing stock price
    
    $
    1.84
    
    
    $
    1.65Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    73.8
    %
    
    
    71.0
    %Risk free interest rate
    
    
    2.4
    %
    
    
    2.6
    %Expected life (years)
    
    
    5.50
    
    
    
    5.25
 January 2010 Class B Warrants
    
    January 21, 2010
    
    
    March 31, 2010Closing stock price
    
    $
    1.84
    
    
    $
    1.65Expected dividend rate
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    62.0
    %
    
    
    69.6
    %Risk free interest rate
    
    
    0.3
    %
    
    
    0.4
    %Expected life (years)
    
    
    0.50
    
    
    
    0.25
 (in thousands)
 Warrant LiabilitiesBalance at June 30, 2009
    
    $
    532Warrants issued
    
    
    5,649Decrease in fair value
    
    
    (1,823
    )Balance at March 31, 2010
    
    $
    4,358
 8. Net Loss Per Common Share
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Restatement
   Overview of Aastrom
   Cardiac Regeneration
    Vascular Regeneration
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The TRC Technology Platform
   
    
    autologous,which means we start with the patients own cells, which are accepted by the
patients immune system allowing the cells to differentiate and integrate into existing
functional tissues and organs, and provide long-term engraftment and repair;
    
    expanded,resulting in significantly higher concentrations of stem and progenitor cells than
occur naturally, especially for older patients; and,
    
    a mixed population of cells,which includes all of the most important cell types required for
tissue regeneration and found in natural bone marrow and are required for tissue regeneration.
     16




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Clinical Development
    Clinical Trials Summary
 Cardiac Regeneration
 Dilated Cardiomyopathy  Background
   Dilated Cardiomyopathy  Surgical Trial
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Dilated Cardiomyopathy  Catheter Trial
   Vascular Tissue Regeneration
 Critical Limb Ischemia  Background
  in vitro
  18




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Critical Limb Ischemia Trial
  >
  Results of Operations
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Liquidity and Capital Resources
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Off-Balance Sheet Arrangements
  Forward-Looking Statements
    
    
    potential strategic collaborations with others;
    
    future capital needs and expected cash flows;
    
    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;
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
    
    enrollment in and results of our 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;
    
    the continued listing of our securities on the NASDAQ Capital Market;
    
    regulatory and manufacturing requirements and uncertainties;
    
    technological developments by competitors;
    
    anticipation of future losses;
    
    replacement of manufacturing sources;
    
    our products and commercialization plans; and
    
    revenue expectations and operating results.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Material Weakness
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Restatement of Consolidated Financial Statements
  Remediation Plan
   Changes in Internal Control Over Financial Reporting
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 6. Exhibits
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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) 26




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EXHIBIT INDEX
 Exhibit Number
    
    Description4.1
    
    Class A Warrant Agreement, dated as of January 21, 2010, by and between the Registrant and
Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed with the SEC on January 27, 2010)4.2
    
    Class B Warrant Agreement dated as of January 21, 2010, by and between the Registrant and
Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed with the SEC on January 27, 2010)10.1
    
    Underwriting Agreement, dated as of January 15, 2010, and between the Registrant and Oppenheimer &
Co. Inc. (incorporated herein by reference to Exhibit 1.1 to the Companys Current Report on Form
8-K filed with the SEC on January 15, 2010)31.1
    
    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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith)
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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 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.
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TERM
    
    DEFINITIONIRB  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.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.
In culture, these undifferentiated cells possess the ability
to divide for indefinite periods in culture and may give rise
to highly specialized cells.
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TERM
    
    DEFINITIONTRC  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)
 31