UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2014~~March 31, 2015

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 001-34375

CYTORI THERAPEUTICS, INC.

(Exact name of Registrant as Specified in Its Charter)

DELAWARE		33-0827593
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3020 CALLAN ROAD, SAN DIEGO, CALIFORNIA		92121
(Address of principal executive offices)		(Zip Code)

~~Registrant’s telephone number, including area code:~~ ~~(858) 458-0900~~

Registrant’s telephone number, including area code: (858) 458-0900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý ☒ Noo ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý ☒ Noo ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Large Accelerated Filero ☐	Accelerated Filer ý ☒	Non-Accelerated Filero ☐	Smaller reporting company o ☐
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso ☐ Noý ☒

As of ~~October 31, 2014,~~April 30, 2015, there were ~~92,449,197~~125,763,616 shares of the registrant’s common stock outstanding.

CYTORI THERAPEUTICS, INC.

INDEX

				Page

PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Condensed Balance Sheets as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 (unaudited)	3

		Consolidated Condensed Statements of Operations and Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013 (unaudited)~~2014(unaudited)	4

		Consolidated Condensed Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~ (unaudited)	5

		Notes to Consolidated Condensed Financial Statements (unaudited)	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1612

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2620

	Item 4.	Controls and Procedures	2721

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	2721
	Item 1A.	Risk Factors	2821
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4022
	Item 3.	Defaults Upon Senior Securities	4022
	Item 4.	Mine Safety Disclosures	4023
	Item 5.	Other Information	4023
	Item 6.	Exhibits	4123

Index

~~PART I.~~

PART I.

FINANCIAL INFORMATION

~~Item 1.~~

Item 1.

Financial Statements

CYTORI THERAPEUTICS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

	As of September 30, 2014			As of December 31, 2013			As of March 31, 2015			As of December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	7,849,000		$	15,506,000		$	13,199,000		$	14,622,000
Accounts receivable, net of reserves of $1,566,000 and of $1,445,000 in 2014 and 2013, respectively		532,000			4,152,000
Accounts receivable, net of reserves of $945,000 and of $1,523,000 in 2015 and 2014, respectively								704,000			1,243,000
Inventories, net		5,020,000			3,694,000			4,614,000			4,829,000
Other current assets		1,245,000			1,225,000			1,344,000			992,000

Total current assets		14,646,000			24,577,000			19,861,000			21,686,000

Property and equipment, net		1,571,000			1,054,000			1,778,000			1,583,000
Restricted cash and cash equivalents		350,000			350,000			350,000			350,000
Other assets		2,291,000			2,812,000			1,785,000			1,763,000
Intangibles, net		9,534,000			9,345,000			9,350,000			9,415,000
Goodwill		3,922,000			3,922,000			3,922,000			3,922,000

Total assets	$	32,314,000		$	42,060,000		$	37,046,000		$	38,719,000

Liabilities and Stockholders’ (Deficit) Equity
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses	$	5,739,000		$	6,077,000		$	5,614,000		$	5,546,000
Current portion of long-term obligations, net of discount		5,477,000			3,191,000			10,000,000			7,363,000
Termination fee obligation		—			400,000
Puregraft divestiture obligation		158,000			547,000
Joint Venture purchase obligation		2,817,000			4,691,000
Warrant liability		287,000			—
Joint venture purchase obligation								3,088,000			3,008,000

Total current liabilities		14,478,000			14,906,000			18,702,000			15,917,000

Deferred revenues		168,000			212,000			118,000			112,000
Warrant liability, long-term								25,237,000			9,793,000
Long-term deferred rent and other		629,000			710,000			507,000			558,000
Long-term obligations, net of discount, less current portion		20,332,000			23,100,000			15,677,000			18,041,000

Total liabilities		35,607,000			38,928,000			60,241,000			44,421,000

Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; -0- shares issued and outstanding in 2014 and 2013		—			—
Common stock, $0.001 par value; 145,000,000 shares authorized; 83,574,164 and 71,305,375 shares issued and outstanding in 2014 and 2013, respectively		83,000			71,000
Stockholders’ deficit:
Series A 3.6% convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 13,500 shares issued; 325 and 5,311 outstanding in 2015 and 2014, respectively								—			—
Common stock, $0.001 par value; 290,000,000 shares authorized; 114,097,357 and 99,348,377 shares issued and outstanding in 2015 and 2014, respectively								114,000			99,000
Additional paid-in capital		328,684,000			303,710,000			336,186,000			331,772,000
Accumulated other comprehensive income		457,000			256,000			736,000			700,000
Accumulated deficit		(332,517,000	)		(300,905,000	)		(360,231,000	)		(338,273,000	)

Total stockholders’ (deficit) equity		(3,293,000	)		3,132,000
Total stockholders’ deficit								(23,195,000	)		(5,702,000	)

Total liabilities and stockholders’ (deficit) equity	$	32,314,000		$	42,060,000
Total liabilities and stockholders’ deficit							$	37,046,000		$	38,719,000

SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Index

CYTORI THERAPEUTICS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014

Product revenues	$	518,000		$	1,616,000		$	2,484,000		$	4,416,000		$	902,000		$	1,031,000

Cost of product revenues		337,000			931,000			1,524,000			2,296,000			598,000			421,000

Gross profit		181,000			685,000			960,000			2,120,000			304,000			610,000

Development revenues:
Development, related party		—			—			—			638,000
Development revenue		—			—			—			1,179,000
Government contracts and other		585,000			1,095,000			1,345,000			2,503,000			1,444,000			403,000
		585,000			1,095,000			1,345,000			4,320,000
Operating expenses:
Research and development		3,140,000			4,123,000			12,106,000			11,992,000			3,963,000			4,292,000
Sales and marketing		1,471,000			1,786,000			5,332,000			6,453,000			839,000			1,928,000
General and administrative		4,179,000			4,332,000			13,121,000			12,225,000			2,499,000			4,340,000
Change in fair value of warrant liability		(134,000	)		—			(134,000	)		(418,000	)
Change in fair value of option liability		—			—			—			(2,250,000	)
Change in fair value of warrants														15,444,000			—

Total operating expenses		8,656,000			10,241,000			30,425,000			28,002,000			22,745,000			10,560,000

Operating loss		(7,890,000	)		(8,461,000	)		(28,120,000	)		(21,562,000	)		(20,997,000	)		(9,547,000	)

Other income (expense):
Loss on asset disposal		(14,000	)		—			(15,000	)		(257,000	)
Gain on Puregraft divestiture		—			4,392,000			—			4,392,000
Gain on previously held equity interest in joint venture		—			—			—			4,892,000
Loss on debt extinguishment		—			—			—			(708,000	)
Interest income		1,000			1,000			4,000			2,000			1,000			2,000
Interest expense		(1,260,000	)		(1,094,000	)		(3,286,000	)		(2,456,000	)		(1,072,000	)		(941,000	)
Other income (expense), net		(222,000	)		(96,000	)		(195,000	)		(392,000	)
Equity loss from investment in joint venture		—			—			—			(48,000	)
Other income, net														110,000			86,000

Total other income (expense)		(1,495,000	)		3,203,000			(3,492,000	)		5,425,000
Total other expense														(961,000	)		(853,000	)

Net loss	$	(9,385,000	)	$	(5,258,000	)	$	(31,612,000	)	$	(16,137,000	)	$	(21,958,000	)	$	(10,400,000	)
Beneficial conversion feature for convertible preferred stock														(661,000	)		—
Net loss allocable to common stock holders													$	(22,619,000	)	$	(10,400,000	)

Basic and diluted net loss per share allocable to common stockholders													$	(0.21	)	$	(0.14	)

Basic and diluted weighted average shares used in calculating net loss per share allocable to common stockholders														106,208,857			74,102,396

Comprehensive loss:
Net loss													$	(21,958,000	)	$	(10,400,000	)
Other comprehensive income (loss) – foreign currency translation adjustments		58,000			(108,000	)		201,000			(142,000	)		36,000			(50,000	)

Net comprehensive loss	$	(9,327,000	)	$	(5,366,000	)	$	(31,411,000	)	$	(16,279,000	)

Basic and diluted net loss per common share	$	(0.12	)	$	(0.08	)	$	(0.41	)	$	(0.24	)

Basic and diluted weighted average common shares		80,430,061			67,248,384			77,091,624			67,147,584
Comprehensive loss													$	(21,922,000	)	$	(10,450,000	)

SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Index

CYTORI THERAPEUTICS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the Nine Months Ended September 30,
2014 2013
Cash flows from operating activities:
Net loss $ (31,612,000 ) $ (16,137,000 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 525,000 1,169,000
Amortization of deferred financing costs and debt discount 961,000 605,000
Joint venture acquisition obligation accretion 362,000 204,000
Provision for doubtful accounts 1,126,000 938,000
Provision for expired enzyme 313,000 —
Change in fair value of warrant liability (134,000 ) (418,000 )
Change in fair value of option liability — (2,250,000 )
Share-based compensation expense 2,566,000 2,723,000
Equity loss from investment in joint venture — 48,000
Loss on asset disposal 15,000 257,000
Gain on previously held equity interest in joint venture — (4,892,000 )
Gain on sale of assets — (4,392,000 )
Loss on debt extinguishment — 708,000
Increases (decreases) in cash caused by changes in operating assets and liabilities:
Accounts receivable 2,505,000 361,000
Inventories (1,158,000 ) (975,000 )
Other current assets (19,000 ) 69,000
Other assets (124,000 ) (117,000 )
Accounts payable and accrued expenses (666,000 ) (1,080,000 )
Deferred revenues, related party — (638,000 )
Deferred revenues 47,000 (1,245,000 )
Long-term deferred rent (81,000 ) (2,000 )

Net cash used in operating activities (25,374,000 ) (25,064,000 )

Cash flows from investing activities:
Purchases of property and equipment (792,000 ) (536,000 )
Expenditures for intellectual property (255,000 ) —
Proceeds from Puregraft divestiture — 5,000,000
License agreement termination fee (400,000 ) (600,000 )
Cash acquired in purchase of joint venture — 5,000

Net cash (used in) provided by investing activities (1,447,000 ) 3,869,000

Cash flows from financing activities:
Principal payments on long-term obligations (1,303,000 ) (22,292,000 )
Proceeds from long-term obligations — 27,000,000
Debt issuance costs and loan fees — (1,744,000 )
Joint venture purchase payments (2,236,000 ) (141,000 )
Proceeds from exercise of employee stock options and warrants 4,066,000 147,000
Proceeds from sale of common stock 19,075,000 3,001,000
Costs from sale of common stock (425,000 ) (184,000 )

Net cash provided by financing activities 19,177,000 5,787,000

Effect of exchange rate changes on cash and cash equivalents (13,000 ) (104,000 )

Net decrease in cash and cash equivalents (7,657,000 ) (15,512,000 )

Cash and cash equivalents at beginning of period 15,506,000 25,717,000

Cash and cash equivalents at end of period $ 7,849,000 $ 10,205,000

Supplemental disclosure of cash flows information:
Cash paid during period for:
Interest $ 1,972,000 $ 1,592,000

Supplemental schedule of non-cash investing and financing activities:
Fair value of warrants allocated to (from) additional paid-in capital (296,000 ) 949,000
Fair value of intangible assets acquired — 9,394,000
Fair value of tangible assets acquired — 260,000
Joint venture purchase obligation — 4,709,000
Fair value of previously held equity interest at acquisition date — 4,928,000

	For the Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(21,958,000	)	$	(10,400,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		213,000			160,000
Amortization of deferred financing costs and debt discount		257,000			281,000
Joint venture acquisition obligation accretion		203,000			—
Provision for doubtful accounts		—			465,000
Change in fair value of warrants		15,444,000			—
Stock-based compensation expense		459,000			687,000
Increases (decreases) in cash caused by changes in operating assets and liabilities:
Accounts receivable		546,000			49,000
Inventories		100,000			(551,000	)
Other current assets		(470,000	)		(172,000	)
Other assets		68,000			379,000
Accounts payable and accrued expenses		138,000			351,000
Deferred revenues		21,000			(165,000	)
Long-term deferred rent		(51,000	)		(46,000	)

Net cash used in operating activities		(5,030,000	)		(8,962,000	)

Cash flows from investing activities:
Purchases of property and equipment		(187,000	)		(287,000	)
Expenditures for intellectual property		—			(155,000	)
License agreement termination fee		—			(200,000	)

Net cash used in investing activities		(187,000	)		(642,000	)

Cash flows from financing activities:
Joint venture purchase payments		(123,000	)		(2,138,000	)
Proceeds from exercise of employee stock options and warrants		—			33,000
Proceeds from sale of common stock, net		3,974,000			9,000,000
Dividends paid on preferred stock		(72,000	)		—

Net cash provided by financing activities		3,779,000			6,895,000

Effect of exchange rate changes on cash and cash equivalents		15,000			3,000

Net decrease in cash and cash equivalents		(1,423,000	)		(2,706,000	)

Cash and cash equivalents at beginning of period		14,622,000			15,506,000

Cash and cash equivalents at end of period	$	13,199,000		$	12,800,000

Supplemental disclosure of cash flows information:
Cash paid during period for:
Interest	$	612,000	$	659,000

Supplemental schedule of non-cash investing and financing activities:
Conversion of preferred stock into common stock		10,000		—
Declared dividend related to preferred stock		3,000		—

SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Index

CYTORI THERAPEUTICS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

~~September 30, 2014~~March 31, 2015

(UNAUDITED)

1.	Basis of Presentation

Our accompanying unaudited consolidated condensed financial statements as of ~~September 30, 2014~~March 31, 2015 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~ have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. Our consolidated condensed balance sheet at ~~September 30, 2014~~March 31, 2015 has been derived from the audited financial statements at December 31, ~~2013,~~2014, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of Cytori Therapeutics, Inc., and our subsidiaries (the “Company”) have been included. Operating results for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2014.~~2015. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes therein included in our annual report on Form 10-K for the year ended December 31, ~~2013.~~2014.

2.	Use of Estimates

The preparation of Consolidated Condensed Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Our most significant estimates and critical accounting policies involve recognizing revenue, valuing warrants, determining the assumptions used in measuring share-based compensation expense, measuring accretion expense related to our acquisition of the ~~joint~~Joint venture, and valuing allowances for doubtful accounts and inventories.

Actual results could differ from these estimates. Management’s estimates and assumptions are reviewed regularly, and the effects of revisions are reflected in the Consolidated Condensed Financial Statements in the periods they are determined to be necessary.

3.	Capital Availability

~~We have had,~~Pursuant to the recently announced securities transaction and ~~we will likely continue to have, an ongoing need to raise additional cash from~~related equity issuance, as well as anticipated gross profits and potential outside sources of capital, the Company believes it has sufficient cash to fund ~~our future operations.~~

We believe our plans to raise additional cash from outside sources coupled with our cost reduction initiatives recently implemented and, if necessary, further cost containment efforts are sufficient to allow us to continue operations ~~for~~through at least the next ~~twelve months. This~~18 months, which includes minimum liquidity requirements of the Loan and Security Agreement, ~~entered into on June 28, 2013 (as amended,~~ ~~the “Loan Agreement”)~~, ~~with Oxford Finance LLC and Silicon Valley Bank (the “Lenders”)~~which requires ~~the Company to make principal and interest payments of $1.0 million per month beginning in April 2015 and~~us to maintain at least three months of cash on hand to avoid an event of default under the Loan Agreement. Our financing plans include pursuing additional cash through strategic corporate partnerships and future sales of equity, as well as our gross profits. While we have an established history of raising capital through these platforms, and we are currently involved in negotiations with multiple parties, there is no guarantee that adequate funds will be available when needed from additional debt or equity financing, development and commercialization partnerships, increased results of operations, or from other sources, or on terms acceptable to us. If our efforts to obtain sufficient additional funds are not successful, we would be required to delay, scale back, or eliminate some or all of our research or product development, manufacturing operations, administrative operations, including our employee base, and clinical or regulatory activities, which could negatively affect our ability to achieve certain corporate goals.

~~Index~~

hand. The Company continues to seek additional capital through product revenues, strategic transactions, including extension opportunities under the awarded U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority (“BARDA”) contract, and from other financing alternatives.

Refer to note 12 for a discussion on our May 2015 financing.

4.	Transactions with Olympus Corporation

~~In 2005, we entered into a joint venture and other related agreements (the “Joint Venture Agreements”) with Olympus.~~ The ~~Joint Venture was owned equally by~~Company’s obligation to Olympus, ~~and us. We had previously accounted~~ for ~~our interests in~~ the ~~Joint Venture using the equity method~~purchase of ~~accounting, since we could not exert significant influence over the Joint Venture’s operations.~~

~~On May 8, 2013, Cytori and Olympus agreed to terminate the Olympus-Cytori Joint Venture (The “Termination Agreement”), and Cytori acquired the remaining 50% equity~~our interest in the Joint ~~Venture from Olympus. The termination of the relationship and purchase of Olympus’ equity shares of the Joint Venture allows Cytori~~venture, has yet to regain full control of the manufacturing rights for the Celution® system. The purpose of the acquisition is to gain more flexibility on the manufacturing process and associated costs, enable higher margins, and speed the transition to the critical next-generation systems. In connection with the Termination Agreement, the assets acquired, liabilities assumed, and the Company’s previously held equity interest were recorded at fair value. For valuation purposes Cytori determined the acquisition date (the date on which Cytori effectively gained full control of the equity interest previously held by Olympus) to be May 27, 2013. The remeasurement of the previously held equity interest at the acquisition date resulted in a net gain of $4,892,000 that was recorded in the accompanying Consolidated Condensed Statements of Operations.

As consideration for the Termination Agreement, Cytori can choose from alternative payment options as defined in the Termination Agreement. The payment options call for a minimum of $4,500,000 up to a maximum of $16,000,000 to be paid by Cytori to Olympus in installments over periods ranging from one year to six years depending on the option selected by the Company. Installment payments will be calculated quarterly based on 5% of Cytori’s gross sales receipts for all products sold. If Cytori received an aggregate $35,000,000 in cash through strategic or financing arrangements during the first year of the Termination Agreement, Cytori would have paid $4,500,000 upon request of Olympus as full and complete consideration under the Agreement.

The fair value of the Joint Venture, including the identified intangible assets acquired, consideration transferred, and Cytori’s previously held equity interest, was estimated from a market participant perspective, using valuation techniques based on the income approach for measuring fair value. Specifically, an excess earnings methodology was employed using primarily Level 3 fair value inputs. The intangible assets acquired consisted primarily of contractual license rights that had previously enabled the Joint Venture to conduct development and manufacturing activities pertaining to certain aspects of Cytori’s Celution® technology. The useful life of the identifiable intangible assets was estimated based on the assumed future economic benefit expected to be received from the assets. Inputs used in the valuation included various market participant assumptions in order to project potential future cash flows, discounted at a rate commensurate with the risk involved.

Useful Life
(in years)

Estimated
Fair Value

Intangible assets:
Developed technology 7 $ 9,394,000

~~The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):~~

Estimated
Fair Value

Current assets $ 236
Property and equipment 260
Intangible assets 9,394
Total assets acquired 9,890

Accrued and other current liabilities (33 )

Total fair value of the Joint Venture $ 9,857

~~Index~~

~~Acquisition-related transaction costs are not included as components of consideration transferred but have been accounted for as expenses in the period in which the costs are incurred.~~

Revenues and earnings from the Joint Venture were limited to royalties from sales of certain Cytori products, therefore, subsequent to the date of acquisition there was no revenue or earnings from the Joint Venture included in our consolidated results. Had the acquisition occurred on January 1, 2013, consolidated revenue would not have been affected, but our consolidated net loss would have been reduced by $48,000, the amount of our year-to-date equity loss from investment in Joint Venture.

The Company calculated the fair value of the purchase consideration on the acquisition date to be $4,928,000. This was determined using a weighted probability assessment of the payment options available to Cytori. Present value risk-adjusted discount rates applied to the purchase consideration ranged from 9.75% to 12.75%. The fair value calculation of the purchase consideration resulted in a discount of $1,072,000, which will be amortized to interest expense over a weighted average expected term of 1.8 years. On a quarterly basis, the Company will reassess the probabilities of the various payment options and expected term. Changes in the expected term and the remaining discount amount as a result of the reassessment will be recognized prospectively as an adjustment to interest expense. Upon final settlement of the purchase obligation, any difference between the amount paid and the carrying amount of the purchase obligation will be recorded as a gain or loss on extinguishment of the liability. As a result of this reassessment as of March 31, 2014 the Company believed it would settle the obligation for a total of $4.5 million (less any installment payments already made), which would have resulted in a gain of $0.6 million upon settlement.

~~As of May 8, 2014, the Company’s obligation to Olympus had not been~~ settled, and accordingly, the obligation ~~increased by $1.5 million under an alternative payment option. This option~~ calls for $6.0 million in total payments to be made by May 8, 2015. Since we have made payments totaling ~~$2.7~~$2.8 million through ~~September 30, 2014~~March 31, 2015, our remaining payment obligation under this option is now ~~$3.3~~$3.2 million.

As a result of our quarterly reassessment, we have recorded additional interest expense of ~~$217,000 and $362,000~~$0.2 million during the three ~~and nine~~ months ended ~~September 30, 2014, respectively,~~March 31, 2015, and have a remaining unrecognized future discount amount of approximately ~~$506,000~~$0.1 million as of March 31, 2015.

Index

On April 30, 2015, the Company entered into Amendment One to Joint Venture Termination Agreement (the “Amendment”) with Olympus Corporation (“Olympus”) to that certain Joint Venture Termination Agreement, dated May 8, 2013, by and between Cytori Therapeutics, Inc. and Olympus (the “Agreement”) in order to extend our payment obligations under the Agreement.

Under the Agreement, we are required to pay Olympus a total purchase price of $6 million within two years of the date of the Agreement. The Amendment amends the payment terms to extend the period for payment of the remaining balance of the $6 million, or $3.2 million, with the balance of the purchase price bearing an interest rate of 6% per annum. Pursuant to the Amendment, we paid $1 million on May 8, 2015 and are required to pay $0.5 million of principal on or prior to September 30, ~~2014.~~2015, $0.5 million of principal on or prior to December 31, 2015, $0.5 million of principal on or prior to March 31, 2016, and the remaining $0.7 million of principal and accrued interest on or prior to May 8, 2016. We may prepay the remaining principal and accrued interest at any time without penalty.

In accordance with the terms of the Agreement, if we fail to pay the full balance of any installment payment, we will be required to pay Olympus the extended purchase price of a total of $16 million on or prior to March 1, 2020, with any principal payments previously paid applied towards the extended purchase price.

5.	~~Partnership Agreement with Lorem Vascular~~

On October 29, 2013, we entered into a partnership with Lorem Vascular Pty. Ltd (“Lorem Vascular”), to commercialize Cytori Cell Therapy for the cardiovascular, renal and diabetes markets, in China, Hong Kong, Malaysia, Singapore, and Australia (the “License/Supply Agreement”), and a Common Stock Purchase Agreement. On January 30, 2014 we entered into the Amended and Restated License/Supply Agreement with Lorem Vascular (the “Restated Agreement”) which restated the License/Supply Agreement in its entirety and expanded the licensed field to all uses excepting alopecia (hair loss). Under the Restated Agreement, Lorem Vascular committed to pay up to $500 million in license fees in the form of revenue milestones. In addition, Lorem is required to pay us 30% of their gross profits in China, Hong Kong and Malaysia for the term of the agreement. In addition, Lorem Vascular has agreed to purchase the Cytori Celution® System and consumables under the Restated Agreement. Pursuant to the related Common Stock Purchase Agreement, Cytori sold Lorem Vascular 8 million shares of Cytori common stock at $3.00 per share for a total of $24 million. The Equity purchased was closed in two installments, the first half in November 2013, and the second half in January 2014.

In addition, Lorem Vascular had initially committed to purchase approximately $7 million in Celution® devices and consumables, with an approximately $2 million order already completed in 2013, and an approximately $5 million order to be placed following regulatory approval in China. Lorem and Cytori have implemented a regulatory plan for China and anticipate approval in 2014.

6.	~~Long-term Debt~~

On June 28, 2013 we entered into the Loan Agreement with the Lenders, pursuant to which the Lenders funded an aggregate principal amount of $27.0 million (Term Loans), subject to the terms and conditions set forth in the loan agreement. The Term Loans accrue interest at a fixed rate of 9.75% per annum. Pursuant to the Loan Agreement, we are required to make interest only payments through July 1, 2014 and thereafter we are required to make payments of principal and accrued interest in equal monthly installments sufficient to amortize the Term Loans through July 1, 2017, the maturity date. All unpaid principal and interest with respect to the Term Loans is due and payable in full on July 1, 2017. At maturity of the Term Loans, or earlier repayment in full following voluntary prepayment or upon acceleration, the Company is required to make a final payment fee in an aggregate amount equal to $1,620,000. In connection with the Term Loans, on June 28, 2013, we issued to the Lenders warrants to purchase up to an aggregate of 596,553 shares of our common stock at an exercise price of $2.26 per share. These warrants are immediately exercisable and will expire on June 28, 2020.

~~Index~~

In connection with the funding of the Loan Agreement, we prepaid all outstanding amounts under the prior loan agreement, at which time the Company’s obligations under the prior loan agreement immediately terminated. The Company paid to the prior agent and the prior lenders approximately $18,866,000, consisting of the then outstanding principal balance due of approximately $17,325,000, accrued but unpaid interest of approximately $119,000, a final payment fee (net of fees waived or refunded by the Lenders under the new loan agreement) of approximately $1,078,000, a prepayment fee (net of fees waived or refunded by the Lenders under the new loan agreement) of approximately $312,000 and other customary lender fees and expenses.

~~The net proceeds of the Term Loan, after payment of lender fees and expenses and prepaying all the outstanding amounts relating to the prior loan agreement, were approximately $7.8 million.~~

For the continuing Lenders, we accounted for this amendment as a debt modification. Accordingly, related fees of $1,942,000 were recorded as debt discount, and along with the unamortized debt discount will be amortized as an adjustment of interest expense using the effective interest method. For one existing lender that did not participate in the Term Loan, the payoff of their loan was accounted for as debt extinguishment. Accordingly, a loss on debt extinguishment of $708,000 was recorded, which includes that lender’s portion of unamortized fees and discounts along with prepayment and final payment fees.

We allocated the aggregate proceeds of the Term Loan between the warrants and the debt obligations based on their relative fair values. The fair value of the warrants issued to the Lenders was calculated utilizing the Black-Scholes option pricing model. We are amortizing the resulting additional discount of $949,000 to interest expense over the term of the loan using the effective interest method. The overall effective interest rate for the Term Loan is 13.92%. The Term Loan is collateralized by the tangible assets of the company, including a security interest in substantially all of its existing and after-acquired assets.

On September 19, 2014, we entered into a Letter Agreement with the Lenders waiving financial covenant compliance pursuant to the Loan Agreement through October 31, 2014. The Loan Agreement requires the Company to maintain certain minimum cash balances at all times during the term of the Loan Agreement. In exchange for the above waiver, the Company agreed to re-price all 596,553 outstanding warrants issued by the Company to Oxford Finance LLC and Silicon Valley Bank pursuant to the Loan Agreement, with an exercise price per share equal to the lower of (i) the closing price per share of the Company’s common stock on September 30, 2014, or (ii) the average closing price per share of the Company’s common stock for October 1, 2 and 3, 2014. Following the authoritative accounting guidance, warrants with variable exercise price features are accounted for as liabilities, with changes in the fair value included in operating expenses. The Company estimated the fair value of the warrants immediately before and after modification using an option pricing model to reclassify its fair value from additional paid-in capital to warrant liability and re-measured the warrant liability at September 30, 2014 with the change in fair value of $134,000 accounted for as operating expenses.

The following key assumptions were used by the Company to estimate the fair value of the warrant liability. Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that corresponded to the expected term of the warrants. We believe this method produced an estimate that was representative of our expectations of future volatility over the expected term of these warrants. The expected life was based on the remaining contractual term of the warrants. The risk-free interest rate was the interest rate for treasury constant maturity instruments published by the Federal Reserve Board that was closest to the expected term of the warrants.

~~On September 29, 2014 we entered into a 2~~^nd Amendment to the Loan Agreement with the Lenders in which we were provided a conditional waiver of principal payments subject to meeting certain capital raise requirements, which we achieved in October. The waiver of principal payments continues through April 1, 2015 and we are then required to make payments of principal and accrued interest in equal monthly installments sufficient to amortize the Term Loans through the maturity date.

7.	Revenue Recognition

~~Product Sales~~

We recognize revenue from product sales when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. For customers that have not developed a sufficient payment history with us or for whom a letter of credit is not in place at the time of the transaction, we defer revenues until collectability is reasonably assured.

~~Index~~

For all sales, we use a binding purchase order or a signed agreement as evidence of an arrangement. Revenue for these product sales is recognized upon delivery to the customer, as all risks and rewards of ownership have been substantively transferred to the customer at that point. For sales to customers who arrange for and manage the shipping process, we recognize revenue upon shipment from our facilities. Shipping and handling costs that are billed to our customers are classified as revenue. The customer’s obligation to pay and the payment terms are set at the time of delivery and are not dependent on the subsequent use or resale of our products. For sales where all revenue recognition criteria are not met, revenue is deferred and related inventory remains on our books.

For sales that include multiple deliverables, such as sales of our StemSource® Cell Bank (cell bank), we account for products or services (deliverables) separately rather than as a combined unit. Stem cell banks typically consist of a complex array of equipment, proprietary knowledge, license rights, and services, including one or more StemSource® devices, a cryogenic freezer, measuring and monitoring equipment, and a database patient tracking system. In addition, we typically provide consulting, installation, and training services. Web hosting, technical support and maintenance services are generally provided for a period of up to one year subsequent to the date of sale. FASB authoritative guidance requires an evaluation of these deliverables to determine the appropriate “units of accounting” for purposes of revenue recognition. Each cell bank is customized to provide the best solution for the customer. Depending on customers’ needs, all or a combination of the following units of accounting will apply to cell bank transactions:

~~initial consulting services;~~

~~license rights and standard operating procedures;~~

~~equipment and supplies;~~

~~installation services;~~

~~training services;~~

~~database hosting services;~~

~~technical support services; and~~

~~maintenance services.~~

FASB authoritative guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence (“VSOE”); (b) third-party evidence (“TPE”); or (c) management estimates. This guidance requires arrangement consideration to be allocated at the inception of the arrangement to all deliverables using the relative selling price method. For our cell bank sales, we establish relative selling prices for all deliverables based on vendor-specific quotes for comparable services when available. In the absence of VSOE, we use competitors’ products or services considered largely interchangeable with our own or management’s best estimate. Revenue allocated to each unit of accounting is calculated and recognized based on the relative selling price of each deliverable. Future services such as web hosting and ongoing maintenance are deferred and recognized into income as the services are provided, generally over one year following the installation of the equipment.

Concentration of Significant Customers

~~Five distributors~~One distributor and one direct customer comprised ~~62%~~50% of our revenue recognized for the ~~nine~~three months ended ~~September 30, 2014.~~March 31, 2015. One direct customer and two distributors accounted for ~~84%~~71% of total outstanding accounts receivable as of ~~September 30, 2014.~~March 31, 2015.

Three ~~direct customers~~distributors comprised ~~39%~~68% of our revenue recognized for the ~~nine~~three months ended ~~September 30, 2013. Three direct customers~~March 31, 2014. Two distributors accounted for ~~54%~~70% of total outstanding accounts receivable as of ~~September 30, 2013.~~March 31, 2014.

Product revenues, classified by geographic location, are as follows:

	Nine months ended										Three months ended

	September 30, 2014					September 30, 2013					March 31, 2015					March 31, 2014
	Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total

North America	$	614,000		25	%	$	822,000		19	%	$	136,000		15	%	$	175,000		17	%
Japan		1,323,000		53	%		1,892,000		43	%		605,000		67	%		644,000		62	%
Europe		427,000		17	%		865,000		19	%		89,000		10	%		212,000		21	%
Other countries		120,000		5	%		837,000		19	%		72,000		8	%		—		—
Total product revenues	$	2,484,000		100	%	$	4,416,000		100	%	$	902,000		100	%	$	1,031,000		100	%

~~Index~~

Research and Development

We earn revenue for performing tasks under research and development agreements with ~~both commercial enterprises, such as Olympus and Senko, and~~ governmental agencies like the BARDA. ~~Revenue earned under development agreements with commercial enterprises is classified as development revenues.~~ Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with government contracts are recorded as government contract and other within development revenues. Government contract revenue is recorded at the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in our statements of operations.

~~In the third quarter of 2012, we were awarded a contract to develop a new countermeasure~~We recognized $1.4 million in BARDA revenue for thermal burns valued at up to $106 million with BARDA. The initial base period includes $4.7 million over two years and covers preclinical research and continued development of Cytori’s Celution® system to improve cell processing. The additional contract options, if fully executed, cover clinical development through FDA approval under a device-based PMA regulatory pathway. In August 2014, BARDA exercised Option 1 of the contract for Cytori to perform research, development, regulatory, clinical and other tasks required for initiation of a pilot clinical trial of the Celution System in thermal burn injury for a total cost-plus fixed fee of up to $12.1 million, amendments to the Statement of Work, and reorganization of the contract options. This is a cost reimbursement contract and related government contract revenue was recorded at the gross amount of reimbursement starting in the fourth quarter of 2012.

We received funds from Olympus and Olympus-Cytori, Inc. during 2005 and 2006. We recorded upfront fees totaling $28,311,000 as deferred revenues, related party. In exchange for these proceeds, we agreed to (a) provide Olympus-Cytori, Inc. an exclusive and perpetual license to our Celution® System device technology and certain related intellectual property, and (b) provide future development contributions related to commercializing the Celution® System platform. The license and development services were not separable and as a result the recognition of this deferred amount as revenue required achievement of service related milestones, under a proportional performance methodology. Revenue was recognized as the above mentioned R&D milestones were completed. Of the amounts received and deferred, we recognized the last remaining development revenue of $638,000 during the three months ended March 31, ~~2013~~2015, as ~~a result of~~compared to $0.4 million for the United States Court of Appeals upholding the FDA’s previous determination that our cell processing devices were not substantially equivalent to the cited predicate devices. The recognition of revenue associated with this event reflects the completion of our efforts expended to use commercially reasonable efforts to obtain device regulatory approvals in the United States as it pertains to the 510(k) pathway. As of September 30, 2014, there are no deferred amounts under this contract.

~~Refer to note 14 for discussion about our arrangement with Senko.~~three months ended March 31, 2014.

8.6.	Inventories

Inventories are carried at the lower of cost or market, determined on the first-in, first-out (FIFO) method.

Inventories consisted of the following:

	September 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014

Raw materials	$	1,506,000	$	1,315,000	$	1,733,000	$	1,715,000
Work in process		917,000		232,000		1,361,000		1,301,000
Finished goods		2,597,000		2,147,000		1,520,000		1,813,000
	$	5,020,000	$	3,694,000	$	4,614,000	$	4,829,000

Index

9.	~~Equity Incentive Plan~~

During the third quarter of 2014, we adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which provides our employees, directors and consultants the opportunity to purchase our common stock in the form of options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, cash-based awards other stock-based awards, and deferred compensation awards. The 2014 Plan initially provides for issuance of 3,975,000 shares of our common stock. As of September 30, 2014, there are 3,717,500 securities remaining and available for future issuances under the 2014 Plan, which is exclusive of securities to be issued upon an exercise of outstanding options, warrants, and rights.

~~10.~~7.

Loss per Share

Basic per share data is computed by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted per share data is computed by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding as calculated using the treasury stock method. Potential common shares were related entirely to outstanding but unexercised options and warrants for all periods presented.

~~Index~~

We have excluded all potentially dilutive securities, including unvested performance-based restricted stock, from the calculation of diluted loss per share attributable to common stockholders for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ as their inclusion would be antidilutive. Potentially dilutive common shares excluded from the calculations of diluted loss per share were ~~18,748,777~~40.1 million for the three months ended March 31, 2015 and ~~nine month periods ended September 30, 2014 and 17,212,805~~17.1 million for the three ~~and nine month periods~~months ended ~~September 30, 2013.~~March 31, 2014.

~~11.~~

~~Accumulated Other Comprehensive Loss~~

During the first quarter of 2013, we determined that the functional currency of our Japanese subsidiary changed from the U.S. Dollar to the Japanese Yen due to significant changes in economic facts and circumstances of our Japan subsidiary. As a result of this change, a portion of the foreign exchange gain or loss will be classified as foreign currency translation adjustments within other comprehensive income or loss. Our comprehensive loss includes net loss and foreign currency translation adjustments. See the unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the effect of foreign currency translation adjustments.

~~12.~~8.

Commitments and Contingencies

We have entered into agreements with various research organizations for pre-clinical and clinical development studies, which have provisions for cancellation. Under the terms of these agreements, the vendors provide a variety of services including conducting research, recruiting and enrolling patients, monitoring studies and data analysis. Payments under these agreements typically include fees for services and reimbursement of expenses. The timing of payments due under these agreements is estimated based on current study in progress. As of ~~September 30, 2014,~~March 31, 2015, we have clinical research study obligations of ~~$6,358,000~~$5.4 million ($~~4,785,000~~3.7 million of which are expected to be complete within a year). Should the timing of the clinical trials change, the timing of the payment of these obligations would also change.

We have entered into several lease agreements for our headquarters office location as well as international office locations. As of ~~September 30, 2014,~~March 31, 2015, we have remaining lease obligations of $~~6,919,000~~5.7 million ($~~2,197,000~~2.2 million of which are expected to be completed within a year).

We have amended a supply agreement that contains a minimum purchase requirement. Pursuant to the amendment, as of March 31, 2015, we have a minimum purchase obligation of $1 million, all of which is expected to be completed within a year.

We are subject to various claims and contingencies related to legal proceedings. Due to their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental actions. Management assesses the probability of loss for such contingencies and accrues a liability and/or discloses the relevant circumstances, as appropriate. Management believes that any liability to us that may arise as a result of currently pending legal proceedings will not have a material adverse effect on our financial condition, liquidity, or results of operations as a whole.

Refer to note ~~6 for a discussion of our commitments and contingencies related to our long-term obligations.~~

~~Refer to note~~ 4 for a discussion of our commitments and contingencies related to our transactions with Olympus.

~~Refer to note 14 for a discussion of our commitments and contingencies related to our arrangements with Senko.~~

~~13.~~

~~Sale and Exclusive License/Supply Agreement with Bimini Technologies LLC~~

On July 30, 2013, we entered into a Sale and Exclusive License/Supply Agreement with Bimini Technologies LLC (“Bimini”), pursuant to which we sold to Bimini substantially all of the assets (other than certain retained rights and licenses) of our Puregraft® product line, a series of standalone fat transplantation products that were developed to improve the predictability of outcomes for autologous fat grafting and aesthetic body contouring. The aggregate value of the consideration paid by Bimini at the execution of the agreement was $5.0 million.

In connection with the sale, Bimini granted to the Company an exclusive, perpetual, royalty bearing license to market and sell the Puregraft products for use in combination with adipose derived regenerative cells, and non-exclusive rights for use in connection with the Company’s licensed cell and tissue banks. The Company will supply Puregraft products to Bimini on an interim basis until the Company transfers the manufacturing of the Puregraft products to Bimini. After the transfer, Bimini will supply the Puregraft products to the Company.

~~Index~~

Pursuant to the sale agreement, the Company has also granted to Bimini the global, exclusive, perpetual, irrevocable royalty bearing license to purchase from Cytori, use and sell the Celution® System products for Alopecia (hair loss). Cytori will supply Celution devices and consumable sets to Bimini, and Bimini will be responsible for all costs associated with commercial development in the Alopecia market.

The agreement includes certain obligations to be performed by the Company on the behalf of Bimini, which includes transferring the manufacturing of Puregraft products to an agreed upon third party on or before December 31, 2014 and training. The Company recorded a gain on the Puregraft divestiture of $4.5 million in 2013, and has a remaining obligation of approximately $158,000 in future transfer and training obligations, as of September 30, 2014. Bimini is obligated to make certain additional milestone payments to the Company (in an aggregate amount of up to $10.0 million), contingent upon the achievement of certain milestones relating to Bimini’s gross profits from sales of the Puregraft products.

~~14.~~

~~Thin Film Japan Distribution Agreement~~

In 2004, the Company entered into a Distribution Agreement with Senko. Under this agreement, we granted to Senko an exclusive license to sell and distribute certain Thin Film products in Japan and are responsible for the completion of the initial regulatory application to the Ministry of Health, Labor and Welfare (MHLW) and commercialization of the Thin Film product line in Japan. The Distribution Agreement with Senko was to commence upon “commercialization.” Essentially, commercialization occurs when one or more Thin Film product registrations are completed with the MHLW. At the inception of this arrangement, we received a $1,500,000 license fee which was recorded as deferred revenues in 2004. Half of the license fee was refundable if the parties agree commercialization is not achievable and a proportional amount was refundable if we terminate the arrangement, other than for material breach by Senko, before three years post-commercialization. We have also received $1,250,000 in milestone payments from Senko.

In February 2013, we entered into a mutual termination and release agreement with Senko, whereby the Distribution Agreement and all Senko rights, licenses and privileges granted under the Distribution Agreement terminated and reverted to the Company. As a result of this Termination Agreement, we were obligated to pay Senko $1,200,000 in six quarterly installment payments of $200,000 each through May 2014 (all of which has been paid). At the time of the Termination Agreement, we had a balance of $2,379,000 in deferred revenues on our balance sheet relating to the payments received from Senko in the past pursuant to the Distribution Agreement. At the time of the Termination Agreement we accrued $1,200,000 of the termination fee, and recognized the remaining $1,179,000 in development revenues which reflects the Company’s efforts towards commercialization under the agreement. As of September 30, 2014, we have no remaining termination fee obligation.

~~15.~~9.

Fair Value Measurements

Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. We follow a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:

· Level 1: Quoted prices in active markets for identical assets or liabilities.

· Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

· Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.

Index

The following table provides a summary of the recognized assets and liabilities that we measure at fair value on a recurring basis:

	Balance as of		Basis of Fair Value Measurements						Balance as of March 31, 2015		Basis of Fair Value Measurements
	September 30, 2014		Level 1		Level 2		Level 3		Balance as of March 31, 2015		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	3,644,000	$	3,644,000	$	—	$	—	$	6,144,000	$	6,144,000	$	—	$	—

Liabilities:
Warrant liability	$	287,000	$	—	$	—	$	287,000	$	25,237,000	$	—	$	—	$	25,237,000

	Balance as of		Basis of Fair Value Measurements						Balance as of December 31, 2014		Basis of Fair Value Measurements
	December 31, 2013		Level 1		Level 2		Level 3		Balance as of December 31, 2014		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	4,644,000	$	4,644,000	$	—	$	—	$	8,144,000	$	8,144,000	$	—	$	—
Liabilities:
Warrant liability									$	9,793,000	$	—	$	—	$	9,793,000

~~Index~~

We use quoted market prices to determine the fair value of our cash equivalents, which consist of money market funds that are classified in Level 1 ofin the fair value hierarchy.

~~Refer to note 6~~Warrants with exercise price reset features (down-round protection) are accounted for ~~discussion about determining~~as liabilities, with changes in the fair value ~~of our warrant liability.~~

~~Common stock purchase warrants issued~~included in ~~connection with our Letter Agreement with~~net loss for the Lenders do not trade in an active securities market, and as such, we estimated the fair value of these warrants using the option pricing model (see note 6). Some of the significant inputs are observable in active markets, such as common stock market price, volatility, and risk free rate.respective periods. Because some of the inputs to our valuation model are either not observable ~~quoted prices~~ or are not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as Level 3 in the fair value hierarchy.

Our stock price can be volatile and there could be material fluctuations in the value of warrants in the future periods.

The following table summarizes the change in our Level 3 warrant liability value:

Warrant liability	Three months ended September 30, 2014			Nine months ended September 30, 2014			Three months ended March 31, 2015

Beginning balance	$	—		$	—		$	9,793,000
Fair value of warrants allocated from additional paid in capital		421,000			421,000
Decrease in fair value recognized in operating expenses		(134,000	)		(134,000	)
Change in fair value								15,444,000
Ending balance	$	287,000		$	287,000		$	25,237,000

The main driver for the change in the fair value of warrants was 141% increase in our stock price at March 31, 2015, as compared to the stock price at December 31, 2014.

~~16.~~10.

Fair Value

Financial Instruments

We disclose fair value information about all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. The disclosures of estimated fair value of financial instruments at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, accrued expenses and other liabilities approximate fair value due to the short-term nature of these instruments.

We utilize quoted market prices to estimate the fair value of our fixed rate debt, when available. If quoted market prices are not available, we calculate the fair value of our fixed rate debt based on a currently available market rate assuming the loans are outstanding through maturity and considering the collateral. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar terms to the debt.

At ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, the aggregate fair value and the carrying value of the Company’s fixed rate long-term debt were as follows:

September 30, 2014 December 31, 2013

Fair Value Carrying Value Fair Value Carrying Value

Fixed rate long-term debt $ 25,328,000 $ 25,775,000 $ 26,207,000 $ 26,241,000

	March 31, 2015				December 31, 2014

	Fair Value		Carrying Value		Fair Value		Carrying Value

Fixed rate long-term debt	$	25,466,000	$	25,630,000	$	25,206,000	$	25,373,000

Index

Carrying value is net of debt discount of ~~$1,631,000~~$1.2 million and ~~$2,379,000~~$1.5 million as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively.

The fair value of debt is classified as Level 3 in the fair value hierarchy as some of the inputs to our valuation model are either not observable quoted prices or are not derived principally from or corroborated by observable market data by correlation or other means.

~~Index~~

~~17.~~11.

Stockholders’ Equity

~~Common~~Preferred Stock

~~In December 2012, we entered into an underwriting agreement with Lazard Capital Markets, LLC (underwriter), relating to the issuance and sale of 7,020,000~~We have authorized 5 million shares of ~~our common~~$0.001 par value preferred stock. ~~The price~~Our Board of Directors is authorized to the public in this offering was $2.85 per share and the underwriter purchased the shares from us at a price of $2.69 per share. The transaction was completed on December 19, 2012 raising approximately $20,007,000 in gross proceeds before deducting underwriting discounts and commissions and other offering expenses payable by us. Underdesignate the terms and conditions of any preferred stock we issue without further action by the ~~underwriting agreement, we granted the underwriter an option, exercisable for 30 days, to purchase up to an additional 1,053,000 shares.~~

~~In January 2013, the underwriter exercised this option~~common stockholders. There were 13,500 shares of Series A 3.6% Convertible Preferred Stock issued at March 31, 2015 and December 31, 2014 and 325 and 5,311 shares outstanding as ~~a result we sold an additional 1,053,000 shares raising approximately $3,001,000 in gross proceeds before deducting underwriting discounts~~of March 31, 2015 and ~~commissions and other offering expenses payable by us.~~December 31, 2014, respectively.

In October 2013, we entered into a Common Stock Purchase Agreement with Lorem Vascular for the purchase of 8,000,000 shares at $3.00 per share. The transaction occurred in two separate closings of 4,000,000 shares each. The first closing occurred in November 2013, and the second closing occurred in January 2014. As of December 31, 2013, we received $15,000,000 of the gross proceeds, $12,000,000 for the first closing and $3,000,000 towards the second closing. The balance of $9,000,000 in gross proceeds required to complete the second closing was received in January 2014.

In May 2014, we and 47 holders of warrants to purchase a total of 3,156,238 shares of the Company’s common stock, $0.001 par value per share, issued in a private offering in May 2009, agreed to extend the expiration date of the warrants from May 14, 2014 to May 14, 2015 and increase the exercise price of the warrants from $2.62 per share to $3.50 per share pursuant to an Amendment to Warrant to Purchase Common Stock. One holder of warrants did not agree to the Amendment, and their warrants, covering 38,500 shares of Common Stock, expired unexercised on May 14, 2014 in accordance with the original terms.

In May 2014, we entered into subscription agreements with certain institutional investors pursuant to which we sold a total of 4,048,584 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a purchase price of $2.47 per unit, in a registered direct offering. Each warrant will have an exercise price of $3.00 per share, will be exercisable immediately after issuance and will expire five years from the date of issuance. The transaction was completed on June 4, 2014 raising approximately $10,000,000 in gross proceeds before deducting any offering expenses or fees payable by us. Under the terms of our Placement Agent Agreement, we granted WBB Securities, LLC warrants to purchase 202,429 shares of common stock. The placement agent warrants will have the same terms as the warrants issued to the purchasers in the offering, except that such warrants will have an exercise price of $3.09.

In September 2014, the Company and 13 holders of warrants dated June 4, 2014 to purchase a total of 4,032,389 shares of the Company’s common stock, $0.001 par value per share, agreed to amend the warrants in order to reduce the exercise price from $3.00 per share to $1.00 per share and change the expiration date from June 4, 2019 to September 10, 2014 pursuant to an amendment to warrant to purchase common stock. The Company received proceeds of approximately $4,000,000 from exercise of the Warrants. In addition, pursuant to the terms of the amendment, upon each holder’s exercise of all shares for cash prior to the amended expiration date, the Company issued a new warrant for the same number of shares to holder. The additional warrants have an exercise price of $2.00 per share, and are exercisable on the date that is six months and one day from the date of issuance and expire five years from the date of issuance.

~~Related Party Transactions~~

During the nine months ended September 30, 2013, we incurred approximately $46,000 in royalty costs in connection with our sales of our Celution® 800/CRS System products to the European and Asia-Pacific reconstructive surgery market, pursuant to our License and Royalty Agreement and the Amended License/Commercial Agreement with the Olympus-Cytori, Inc. joint venture. There were no comparable royalty costs during the nine months ended September 30, 2014.

~~Additionally, refer to note 4 for a discussion of related party transactions with Olympus.~~

~~18.~~

~~Subsequent Events~~

~~On October 8,~~ 2014, we entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company sold a total of 13,500 units for a purchase price of $1,000 per unit, with each unit consisting of one share of the Company’s Series A 3.6% ~~convertible preferred stock,~~Convertible Preferred Stock, which are convertible into shares of the Company’s common stock ~~par value of $0.001 per share,~~ with a conversion price of $0.52, and warrants to purchase up to a number of shares of common stock equal to 100% of the conversion shares under the shares of preferred stock, in a registered direct offering. Each warrant has an exercise price of $0.5771 per share, is exercisable six months after the date of issuance and expires five years from the date on which it is initially exercisable. The preferred stock and the warrants were immediately separable and were issued separately. As of April 30, 2015, all remaining outstanding Series A 3.6% Convertible Preferred Stock were converted into shares of common stock. As of April 30, 2015, 8.5 million of the October 2014 warrants have been exercised at $0.5771 per share for gross proceeds of $4.9 million.

We recorded a dividend of $1.2 million for the year ended December 31, 2014, related to a beneficial conversion feature included in the issuance of our Series A 3.6% Convertible Preferred Stock. The fair value of the common stock into which the Series A 3.6% Convertible Preferred Stock was convertible on the date of issuance exceeded the proceeds allocated to the preferred stock, resulting in the beneficial conversion feature that we recognized as a dividend to the preferred shareholders and, accordingly, an adjustment to net loss to arrive at net loss allocable to common shareholders. Certain shares of Series A 3.6% Convertible Preferred Stock were not convertible until shareholder approval, which occurred in January 2015. As a result, additional dividends for the beneficial conversion feature of $0.7 million were recorded during the quarter ended March 31, 2015.

In connection with the 3.6% Convertible Preferred Stock outstanding at December 31, 2014, we ~~have converted 4,615 units~~declared a cash dividend of $0.07 million. The cash dividend was paid in January 2015.

Common Stock

In May 2014, the Company entered into ~~8,875,000~~a sales agreement with Cowen and Company, LLC, relating to shares of our common ~~stock.~~stock, $0.001 par value per share. Pursuant to this agreement, during the quarter ended March 31, 2015, Cowen sold a total of 3.4 million shares of our common stock, raising approximately $4.2 million in gross proceeds (before deductions for fees and offering costs), through an “at the market offering.”

In September 2014, the Company and 13 holders of warrants dated June 4, 2014 to purchase a total of 4 million shares of the Company’s common stock agreed to amend the warrants in order to reduce the exercise price from $3.00 per share to $1.00 per share and change the expiration date from June 4, 2019 to September 10, 2014. The Company received proceeds of approximately $4 million from the exercise of the warrants. In addition, pursuant to the terms of the amendment, upon each holder’s exercise of all shares for cash prior to the amended expiration date, the Company issued additional warrants for the same number of common shares to the holders. The additional warrants have an exercise price of $2.00 per share, and are exercisable on the date that is six months and one day from the date of issuance and expire five years from the date of issuance. For those investors participating in the October 2014 issuance of Series A 3.6% Convertible Preferred Stock, we agreed to reduce the exercise price of 3.4 million warrants from $2.00 per share to $0.5771 per share, conditioned upon shareholder approval which was obtained in January 2015. As of March 31, 2015, there was a cashless exercise of 3.2 million warrants. As of April 30, 2015, the remaining 0.2 million warrants were exercised for proceeds of $0.1 million.

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12.	Subsequent Events

In April 2015, the Company’s exclusive licensee, Lorem Vascular Pte. Ltd., was granted regulatory clearance for the Cytori Celution® System by the State Food and Drug Administration of the People’s Republic of China (the “CFDA”). The CFDA clearance triggered certain purchasing obligations for Lorem Vascular, for Cytori Celution Devices and Cytori Celution Consumable Sets. Pursuant to the agreement, Lorem Vascular has submitted their initial purchase order upon receiving CFDA clearance.

On May 5, 2015, we entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company agreed to sell up to $25 million of units for a purchase price of $0.77 per unit, with each unit consisting of one share of the its common stock and one warrant to purchase one share of its common stock, in a registered direct offering. Each warrant will have an initial exercise price of $1.02 per share, will be exercisable six months after the date of issuance and expires five years from the date it becomes exercisable. The offering will have two separate closings, the first closing of $19.4 million took place on May 8, 2015 and the second close is subject to shareholder vote, which is anticipated to take place in August 2015.

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Item 2 .

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes the following sections:

Overview that discusses our operating results and some of the trends that affect our business.

Results of Operations that includes a more detailed discussion of our revenue and expenses.

Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our financial position and our financial commitments.

Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Significant Estimates that we believe are important to understanding the assumptions and judgments underlying our financial statements.

You should read this MD&A in conjunction with the financial statements and related notes in Item 1 and our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2013.~~2014.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain statements that may be deemed ~~"forward-looking statements"~~“forward-looking statements” within the meaning of U.S. securities laws. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate and similar expressions or future conditional verbs such as will, should, would, could or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

These statements include, without limitation, statements about our anticipated expenditures, including those related to clinical research studies and general and administrative expenses; the potential size of the market for our products, future development and/or expansion of our products and therapies in our ~~markets;~~markets, our ability to generate product revenues or effectively manage our gross profit margins; our ability to obtain regulatory clearance; expectations as to our future performance; the “Liquidity and Capital Resources” section of this report, including our potential need for additional financing and the ~~anticipated amount~~availability thereof; our ability to continue as a going concern; our ability to repay or refinance some or all of our outstanding indebtedness and ~~availability thereof;~~our ability to raise capital in the future; and the potential enhancement of our cash position through development, marketing, and licensing arrangements. Our actual results will likely differ, perhaps materially, from those anticipated in these forward-looking statements as a result of various factors, including: our need and ability to raise additional cash, our joint ventures, risks associated with laws or regulatory requirements applicable to us, market conditions, product performance, potential litigation, and competition within the regenerative medicine field, to name a few. The forward-looking statements included in this report are subject to a number of additional material risks and uncertainties, including but not limited to the risks described under the ~~heading "Risk Factors"~~“Risk Factors” in Item 1A of Part III below, which we encourage you to read carefully.

We encourage you to read the risks described under “Risk Factors” carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements.

This Quarterly report on Form 10-Q refers to trademarks such as Cytori Cell Therapy, Celution and StemSource. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ^® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.

Overview

We develop cellular therapeutics uniquely formulated and optimized for specific diseases and medical conditions. Our lead therapeutics are ~~a medical company dedicated to the development of novel treatments and devices~~currently targeted for ~~a range of disorders using cells as a key part~~impaired hand function in scleroderma, osteoarthritis of the therapy. We are presently focused on developing our primary product, Cytori Cell Therapy, for patients with cardiovascular disease, orthopedic disorders, complications of immunologic disease, urinary incontinenceknee, and deep thermal burns combined with radiation ~~injury. We are actively investigating broadening the use of our technology platform into other areas as well, through internal research or that of our partners.~~

Cytori Cell Therapy is a proprietary formulation of stem and regenerative cells derived from a patient's own adipose (fat) tissue (ADRCs). Adipose tissue is a rich and accessible source of stem and other regenerative cells. To access these cells from a patient at the time of a surgical procedure, we have designed and developed a sophisticated tissue processing system, the Celution® System, which automates the complex process of digesting fat tissue, releasing the ADRCs, and concentrating them into an optimized and proprietary formulation in a sterile environment. The system is comprised of a central device and single-use, per-procedure consumable cartridges. The business model is based on the sale of the device and generating recurring revenue from the cartridges that are utilized in each procedure.

exposure.

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Our cellular therapeutics are collectively known by the trademarked name, Cytori Cell Therapy^TM, and consist of a heterogeneous population of specialized cells including stem cells that are involved in response to injury, repair and healing. These cells are extracted from an adult patient’s own adipose (fat) tissue using our fully automated, enzymatic, sterile Celution^® System devices and consumable sets at the place where the patient is receiving their care (i.e. there is no off-site processing or manufacturing). Cytori Cell Therapy can either be administered to the patient the same day or banked for future use. An independent published study has demonstrated that our proprietary process results in higher nucleated cell viability, less residual enzyme activity, less processing time, and improved economics in terms of cell progenitor output compared to other semi-automated and automated processes available.

Our goal is to bring Cytori Cell Therapy to market first for the treatment of impaired hand function in scleroderma and osteoarthritis of the knee, through Cytori-sponsored clinical development efforts. We received Investigational Device Exemption (IDE) approval from the U.S. Food and Drug Administration (FDA) in late 2014 and in early 2015 initiated the osteoarthritis study. We anticipate initiation of the scleroderma study in mid-2015. In addition, we are developing a treatment for thermal burns combined with radiation injury under a contract from the Biomedical Advanced Research Development Authority (BARDA), a division of the U.S. Department of Health and Human Services. We are also exploring other development opportunities in a variety of other conditions.

In addition to our targeted therapeutic development, we have ~~continue~~continued to ~~upgrade and sell our Celution®~~commercialize the Celution^® System under select medical device approvals, clearances and registrations to research customers developing new therapeutic applications for Cytori Cell Therapy in Europe, Japan, and other regions. The ~~sales enhance the body~~sale of ~~clinical feasibility data using our technology that could lead to new indications~~systems, consumables and ~~intellectual property, contribute to near term marginal profit~~ancillary products in advance of specific regulatory claims and reimbursement contributes a margin that partially offset our operating expenses and ~~provide~~will continue to play a role in fostering familiarity within the ~~basis~~medical community with our technology. These sales have also facilitated the discovery of new applications for ~~further partnerships~~Cytori Cell Therapy by customers conducting investigator-initiated and ~~commercial experience that should facilitate future product revenue growth.~~ funded research.

Development Pipeline

The primary therapeutic areas currently in the development pipeline are scleroderma, orthopedics, cardiovascular disease, specifically heart failure due to ischemic heart disease, and the treatment of thermal ~~burns, and orthopedics and sports medicine indications.~~burns.

Scleroderma

In January 2015, the FDA granted unrestricted IDE approval for a pivotal clinical trial, named the “STAR” trial, to evaluate Cytori Cell Therapy as a potential treatment for impaired hand function in scleroderma, a rare autoimmune disease affecting approximately 50,000 patients in the U.S.~~, we are conducting our ATHENA and ATHENA II trials, both prospective,~~ The STAR trial is a 48-week, randomized, double blind, placebo-controlled ~~multi-center trials designed~~pivotal clinical trial of 80 patients in the U.S. The trial evaluates the safety and efficacy of a single administration of Cytori Cell Therapy (ECCS-50) in scleroderma patients affecting the hands and fingers. The STAR trial plans to ~~enroll~~use the Cochin Hand Function Scale (CHFS), a validated measure of hand function, as the primary endpoint measured at six months after a single administration of ECCS-50 or placebo. Patients in the placebo group will be eligible for crossover to the active arm of the trial after all patients have completed 48 weeks of follow up. In February 2015, the FDA approved our request to increase the number of investigational sites from 12 to up to ~~45 patients per~~20. The increased number of sites is anticipated to broaden the geographic coverage of the trial ~~with ischemic heart disease at~~and facilitate trial enrollment. The trial is expected to initiate in mid-2015.

The STAR trial is predicated on a ~~lower~~completed investigator-initiated pilot phase I/II trial performed in France termed SCLERADEC-I. The trial received partial support from Cytori. The results were published in the Annals of the Rheumatic Diseases in May 2014 and ~~higher cell dose, respectively. The trials will evaluate several endpoints, including peak oxygen consumption (VO~~₂ ~~max). Additional endpoints include perfusion defect, left ventricle end-systolic and diastolic volume and ejection fraction~~demonstrate approximately a 50 percent improvement at six months across four important and validated endpoints used to assess the clinical status in patients with scleroderma with impaired hand function. Patients perceived their health status to be improved as shown by a 45.2% and 42.4% decrease of the Scleroderma Health Assessment Questionnaire (SHAQ) at month 2 (p=0•001) and at month 6 (p=0•001) respectively. A 47% and 56% decrease of the CHFS at month 2 and month 6 in comparison to baseline was observed (p<0•001 for both). Grip strength increased at month 6 with a mean improvement of +4.8±6.4 kg for the dominant hand (p=0.033) and +4.0±3.5 kg for the non-dominant hand (p=0.002). Similarly, an increase in pinch strength at month 6 was noted with a mean improvement of +1.0±1.1 kg for the dominant hand (p=0.009) and +0.8±1.2 kg for the non-dominant hand (p=0.050). Among subjects having at least one digital ulcer (DU) at inclusion, total number of DU decreased, from 15 DUs at baseline, 10 at month 2 and 7 at month 6. The average reduction of the Raynaud’s Condition Score from baseline was 53.7% at month 2 (p<0.001) and 67.5% at month 6 (p<0.001). Hand pain showed a significant decrease of 63.6% at month 2 (p=0.001) and 70% at month 6 (p<0.001). A preliminary assessment for 12 month follow-up data has been reviewed by Cytori, and Cytori management believes such data reflects no reports of adverse events or safety concerns, average values for CHFS, RCS, and SHAQ score that are statistically consistent with those at the 6 month follow up visit and, while the average hand pain at 12 months ~~NYHA functional class,~~was lower than that at baseline (reflecting overall symptom improvement over baseline), there was an approximately 50% reduction in the average therapeutic benefit on hand pain from six to twelve months.

Index

In 2014, Dr.’s Guy Magalon and ~~health-related quality of life. In August 2014, we announced that enrollment~~Brigette Granel from the Assistance Publique des Hôpitaux de Marseille submitted a study for review for a follow-up pivotal/phase III randomized, double-blind, placebo controlled trial in ~~both ATHENA trials had been place on hold based on~~France, to be co-sponsored by Cytori, called SCLERADEC II. Patients will be followed for 6 months post-procedure. The trial was approved by the French government in April 2015.

Scleroderma is a ~~safety review of reported cerebrovascular events. As a result, it will not be possible to complete enrollment~~chronic autoimmune disorder associated with fibrosis of the ~~ATHENA trial by year end 2014~~skin, destructive changes in blood vessels and multiple organ systems as ~~previously anticipated.~~the result of a generalized overproduction of collagen. Scleroderma affects women four times more frequently than men and is typically detected between the ages of 30 and 50. More than 90 percent of scleroderma patients have hand involvement that is typically progressive and can result in chronic pain, blood flow changes and severe dysfunction. The ~~symptoms, which occurred in three patients, appear~~limited available treatments for scleroderma may provide some benefit but do little to ~~be related in part to~~modify disease progression or substantially improve symptoms. Treatment options are directed at protecting the ~~medical co-morbidities in the treated population~~hands from injury and the complex nature of the procedures involved in the trial. On October 2014, the FDA communicated approval to open enrollment based on Cytori's submission of additional data, both clinical and preclinical,detrimental environmental conditions as well as ~~proposed protocol amendments. The Company's management~~the use of vasodilators. When the disease is advanced, immunosuppressive and the board of directors have evaluated the impact of delays in enrollment on the long-term objectives on having an approved medical device with an indication for heart failure. We have also considered the progress of our next generation cell processing system, which wouldother medications may be ~~available for clinical studies in~~used but are often accompanied by intolerable side effects.

Osteoarthritis

In the later part of ~~2015 and~~2014, we received approval by the importance of incorporating the newer system into any further potential cardiovascular studies. Therefore, Cytori will end enrollment of the ATHENA trials at current enrollment level, which will permit an evaluation of 6 month follow-up data during the first quarter of 2015. Further trials in the cardiac therapeutic area will be based on examination of the ATHENA data along with previous clinicalFDA to begin a U.S. IDE pilot (phase IIa/b) trial ~~data in chronic myocardial ischemia (PRECISE clinical trial).~~

ADVANCE is a European clinical trial for acute myocardial infarction (heart attack) sponsored by Cytori. Enrollment in the trial was discontinued on September 30, 2013 prior to the original target enrollment in order to focus our internal and financial resources on the U.S. ATHENA trial. All evidence to date from the ADVANCE trial supports the current, known safety profile for Cytori Cell Therapy; the interpretation of efficacy data is limited due to the relatively small number of subjects enrolled. In addition, we have completed two European pilot trials (PRECISE and APOLLO) investigating Cytori Cell Therapy for cardiovascular disease. The PRECISE trial studied patients with chronic myocardial ischemia. Long term follow up data from the PRECISE trial was published in the American Heart Journal in April 2014 supporting the safety profile, feasibility and indications of a favorable benefit to risk profile. Results from the APOLLO trial for acute heart attack demonstrated the safety and feasibility of Cytori Cell Therapy in ~~this population but the size~~patients with osteoarthritis of the ~~pilot~~knee. The trial, ~~was not sufficient~~called ACT-OA, is a 90 patient, randomized, double-blind, placebo control study involving two dose escalations of Cytori Cell Therapy, a low dose and a high dose, and will be conducted over 48 weeks. The randomization is 1:1:1 between the control, low and high dose groups. Enrollment on this trial began in February 2015 and as of May 10, 2015, there were 38 patients enrolled into this trial.

Osteoarthritis is a disease of the entire joint involving the cartilage, joint lining, ligaments, and underlying bone. The breakdown of tissue leads to ~~comment definitively on efficacy.~~pain, joint stiffness and reduced function. It is the most common form of arthritis and affects an estimated 13.9% of US adults over the age of 25, and 33.6% of adults over the age of 65. Current treatments include physical therapy, non-steroidal anti-inflammatory medications, viscosupplement injections, and total knee replacement. A substantial medical need exists as present medications have limited efficacy and joint replacement is a relatively definitive treatment for those with the most advanced disease.

~~In addition to our cardiovascular disease therapeutic pipeline,~~ Cutaneous and Soft Tissue Thermal and Radiation Injuries

Cytori Cell Therapy is also ~~developing its cell therapy platform~~being developed for the treatment of thermal burns combined with radiation ~~injury, sports medicine and orthopedics.~~injury. In the third quarter of 2012, we were awarded a contract to develop a new countermeasure for thermal burns valued at up to $106 million with the U.S. Department of Health and Human ~~Service's~~Service’s Biomedical Advanced Research and Development Authority (BARDA)~~, including a~~. The initial base period ofincluded $4.7 million over two years and ~~three~~covered preclinical research and continued development of Cytori’s Celution^® System to improve cell processing. The additional contract ~~options.~~ options, if fully executed, could cover our clinical development through FDA approval under a device-based pre-market approved application (PMA) regulatory pathway.

The cost-plus-fixed-fee contract is valued at up to $106 million, with a guaranteed two-year base period of approximately $4.7 million. We submitted reports to BARDA in late 2013 detailing the completion of the objectives in the initial contract. An In-Process Review Meeting in the first half of 2014 confirmed completion of the proof of concept phase.

In August and December, 2014, BARDA ~~exercised Option 1~~awarded Cytori contract options of ~~the contract~~$14 million. The options allow for ~~Cytori to perform~~continuation of research, ~~development,~~ regulatory, clinical, and other ~~tasks~~activities required for ~~initiation~~approval and completion of a pilot clinical trial using Cytori Cell Therapy for the treatment of thermal burns combined with radiation injury. The award for conducting the pilot trial, approximately $8 million, would follow FDA approval of the ~~Celution System~~trial protocol and associated documentation. Once the data from pilot trial is analyzed, the final phase would include research, regulatory, and clinical activities necessary to achieve regulatory clearances to optimize a treatment for combined injury involving thermal burn and radiation exposure. A pivotal clinical trial of the use of the Cytori Cell Therapy for thermal burn injury would be the primary basis of an FDA approval. The total award is intended to support all clinical, preclinical, regulatory, and technology development activities needed to complete the FDA approval process for use in thermal burn injury ~~for~~under a device-based PMA regulatory pathway.

Other Clinical Indications

Cardiovascular disease remains a target therapeutic application of Cytori Cell Therapy. The ATHENA and ATHENA II trial programs sought to evaluate the costs plus fixed fee of up to $12.1 million, BARDA and Cytori also amended to the Statement of Work, and reorganized of the contract options. We expect the majority of the work to Option 1 be completed by the first half of 2015.

~~In October 2014, we received FDA approval to conduct a phase II~~ safety and feasibility ~~study evaluating the effect~~ of Cytori Cell Therapy in patients with ~~osteoarthritis~~heart failure due to ischemic heart disease. In 2014, we truncated enrollment at 31 patients in the U.S. ATHENA trials as a result of delays associated with reviews of safety data. While the ~~knee~~trials received FDA approval to ~~be called~~proceed, we elected to discontinue further enrollment in order to examine 6 and 12 month data in 2015 and with the ~~ACT-OA trial. Based on our internal~~ analysis, ofstrategically examine whether further investments in the ~~clinical and commercial chances of success, we have decided that osteoarthritis will be our primary orthopedic~~cardiac program are warranted at this time.

Another therapeutic target ~~indication and we have decided to close our trial on acute hamstring tears know as RECOVER as it did not meet our internal evaluation criteria to proceed. Other therapeutic targets~~ under evaluation ~~include~~by us is stress urinary incontinence in men following ~~radical prostatectomy and hand dysfunction due to scleroderma. Both areas~~removal of ~~evaluation are~~the prostate gland (radical prostatectomy), which is based on positive data reported in a peer reviewed ~~journals.~~

journal resulting from the use of adipose-derived regenerative cells processed by our Celution System. A study is currently being planned by Dr.’s Magalon and Granel in Japan and anticipated to begin this year. This study will receive substantial support from Japan’s Ministry of Health, Labour and Welfare (MHLW).

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Recent Developments

Regulatory Clearance

In April 2015, one of our exclusive licensees, Lorem Vascular Pty. Ltd, was granted regulatory clearance for the Cytori Celution^® System by the State Food and Drug Administration of the People’s Republic of China (CFDA). This regulatory clearance officially makes our Celution System available in the largest healthcare market in the world and triggers a 2015 product purchase order for the Company from Lorem Vascular.

Orphan Designation

In April 2015, the European Commission, acting on the positive recommendation from the European Medicines Agency Committee for Orphan Medicinal Products, has designated our ECCS-50 cellular therapeutic as an orphan medicinal product for the treatment of scleroderma. This designation marks the first autologous adipose derived cell therapy for scleroderma granted orphan status in the European Union.

Results of Operations

Product revenues

Product revenues consisted of revenues primarily from our Celution® System, related consumables and StemSource® Cell Banks.

The following table summarizes the components for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

For the three months
ended September 30,

For the nine months
ended September 30,

2014 2013 2014 2013

Product revenues - third party
$ 518,000 $ 1,616,000 $ 2,484,000 $ 4,416,000

	For the three months ended March 31,

	2015		2014

Product revenues - third party	$	902,000	$	1,031,000

We experienced a decrease in product revenue during ~~three and nine months~~the quarter ended ~~September 30, 2014~~March 31, 2015 as compared to the same ~~periods~~period in ~~2013,~~2014, primarily due ~~principally~~ to ~~timing~~decreased revenue in Europe of ~~revenue recognition for new customers~~$0.1 million due to fewer device and consumables sales related to ~~the anticipated timing associated with larger system related sales. Revenue deferred~~changes in the ~~three and nine months ended September 30, 2014 was $1,214,000 and $1,229,000, respectively. There were no comparable revenues deferrals in the three and nine months ended September 30, 2013.~~regulatory environment.

The future: We expect to continue to generate product revenues from ~~a mix~~the sale of Celution® Systems, related consumables and StemSource® ~~System and consumables sales.~~Cell Banks. We will sell ~~the~~these products to a diverse group of ~~customers~~researchers and clinicians in ~~Europe,~~EMEA, Japan, Asia Pacific, and ~~the U.S.,~~Americas, who may apply the products towards reconstructive surgery, soft tissue repair, research, aesthetics, and cell and tissue banking as approved in each country. Additionally, as a result of Class I Device Clearance for Celution® and a number of our other products in Japan and regulatory clearance from the CFDA, we anticipate ~~to sell~~selling these products to researchers at academic hospitals seeking to perform investigator-initiated and funded studies using Cytori’s Cell Therapy. As a result of sale of our Puregraft® product line discussed in note 13 of the consolidated condensed financial statements, we do not expect significant revenues from that product line in the foreseeable future.

Index

Cost of product revenues

Cost of product revenues relate primarily to Celution® System products and StemSource® Cell Banks and includes material, manufacturing labor, and overhead costs. The following table summarizes the components of our cost of revenues for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended March 31,

	2014			2013			2014			2013			2015			2014

Cost of product revenues	$	315,000		$	911,000		$	1,464,000		$	2,234,000		$	579,000		$	402,000
Share-based compensation		22,000			20,000			60,000			62,000			19,000			19,000
Total cost of product revenues	$	337,000		$	931,000		$	1,524,000		$	2,296,000		$	598,000		$	421,000
Total cost of product revenues as % of product revenues		65.1	%		57.6	%		61.4	%		52.0	%		66	%		41	%

Cost of product revenues as a percentage of product revenues ~~were 65.1% and 61.4%~~was 66% for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~57.6% and 52.0%~~41% for the three ~~and nine~~ months ended ~~September 30, 2013,~~March 31, 2014, respectively. Fluctuation in this percentage is to be expected due to the product mix, distributor and direct sales mix, geographic mix and allocation of overhead.

The future: We expect to continue to see variation in our gross profit margin as the product mix, distributor and direct sales mix and geographic mix comprising revenues ~~fluctuates.~~fluctuate.

~~Index~~

Development revenues

~~The following table summarizes the components of our development revenues for the three and nine months ended September 30, 2014 and 2013:~~

For the three months
ended September 30,

For the nine months
ended September 30,

2014 2013 2014 2013

Development (Olympus) $ — $ — $ — $ 638,000
Development (Senko) — — — 1,179,000
Government contract (BARDA) 585,000 1,113,000 1,345,000 2,503,000
Other — (18,000 ) — —
Total development revenues $ 585,000 $ 1,095,000 $ 1,345,000 $ 4,320,000

In the third quarter of 2012, we were awarded a contract to develop a new countermeasure for thermal burns valued at up to $106 million with BARDA. The initial base period includes $4.7 million over two years and covers preclinical research and continued development of Cytori’s Celution® system to improve cell processing. The additional contract options, if fully executed, could cover clinical development through FDA approval under a device-based PMA regulatory pathway. This is a cost reimbursement contract and related Under our government contract revenue was recorded at the gross amount of reimbursement starting in the fourth quarter of 2012. To receive funds under this arrangement, we are required to (i) demonstrate that we incurred “qualifying expenses,” as defined in the contract agreement between BARDA and us, (ii) maintain a system of controls, whereby we can accurately track and report all expenditures related solely to develop a new countermeasure for thermal burns, and (iii) file appropriate forms and follow appropriate protocols established by BARDA. In August 2014, we executed a contract option with BARDA, to fund the continued investigation and development of Cytori Cell Therapy for use in thermal burn injuries. The current extension is valued at approximately $12.1 million. Upon IDE approval by the FDA, BARDA anticipates funding to cover costs associated with execution of the clinical trial, currently estimated at approximately $8.3 million, bringing the combined value to up to $20.4 million. During the three months and nine months ended September 30, 2014, we ~~incurred $545,000 and $1,250,000 in qualified expenditures. We~~ recognized a total of ~~$585,000 and $1,345,000~~$1.4 million in revenues for the three ~~and nine~~ months ended ~~September 30, 2014, respectively,~~March 31, 2015, which included allowable fees as well as cost reimbursements. During the three months ~~and nine months~~ ended ~~September 30, 2013,~~March 31, 2015, we incurred ~~$1,035,000 and $2,328,000~~$1.3 million in qualified expenditures. We recognized a total of ~~$1,113,000 and $2,503,000~~$0.4 million in revenues for the three ~~and nine~~ months ended ~~September 30, 2013, respectively,~~March 31, 2014, which also included allowable fees as well as cost reimbursements. The decrease in revenues for the three and nine months ended September 30, 2014 as to the same period in 2013 is primarily due to the closing of the base period in August of 2014 and outsourced animal studies were largely completed in the second half of 2013 and the first half of 2014.

We recognize deferred revenues, related party, as development revenue when certain performance obligations are met (i.e., using a proportional performance approach). Of the amounts received and deferred, we recognized the remaining development revenue of $638,000 duringDuring the three months ended March 31, ~~2013~~2014, we incurred $0.3 million in qualified expenditures. The increase in revenues for the three months ended March 31, 2015 as ~~a result~~compared to the same period in 2014 is primarily due to the commencing of the United States Court of Appeals upholding the FDA’s previous determination that our cell processing devices were not substantially equivalent to the cited predicate devices. The recognition of revenue associated with this event reflects the completion of our efforts expended to use commercially reasonable efforts to obtain device regulatory approvalsnew contract option awarded in ~~the United States as it pertains to the 510(k) pathway.~~

~~In February 2013, we entered into a mutual termination~~August 2014 and release agreement with Senko, whereby the Distribution Agreement and all Senko rights, licenses and privileges granted under the Distribution Agreement terminated and reverted to the Company. As a result of this Termination Agreement, we were obligated to pay Senko $1,200,000amended in ~~six quarterly installment payments of $200,000 each through May~~December 2014. At the time of the Termination Agreement, we had a balance of $2,379,000 in deferred revenues on our balance sheet relating to the payments received from Senko in the past pursuant to the Distribution Agreement. At the time of the Termination Agreement, we accrued $1,200,000 of the termination fee, and recognized the remaining $1,179,000 in development revenues which reflects the Company’s efforts towards commercialization under the agreement.

The future: In August 2014, BARDA exercised Option 1 of the contract, as amended in December 2014, for ~~Cytori~~us to perform research, ~~development,~~ regulatory, clinical and other tasks required for initiation of a pilot clinical trial of the ~~Celution System~~Cytori Cell Therapy (DCCT-10) in thermal burn injury, amendments to the Statement of Work, and reorganization of the contract options for a total fixed fee of up to ~~$12.1~~$14 million. We expect ~~the majority~~approximately half of the work associated with Option 1, as amended, to be completed by the end of 2015.

Research and development expenses

Research and development expenses include costs associated with the design, development, testing and enhancement of our products, regulatory fees, the purchase of laboratory supplies, pre-clinical studies and clinical studies.

~~Index~~

The following table summarizes the components of our research and development expenses for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

	For the three months ended March 31,

	2015		2014

Research and development	$	3,835,000	$	4,170,000
Share-based compensation		128,000		122,000
Total research and development expenses	$	3,963,000	$	4,292,000

For the three months
ended September 30,

For the nine months
ended September 30,

2014 2013 2014 2013

Research and development $ 2,977,000 $ 3,968,000 $ 11,677,000 $ 11,540,000
Share-based compensation 163,000 155,000 429,000 452,000
Total research and development expenses $ 3,140,000 $ 4,123,000 $ 12,106,000 $ 11,992,000

Research and development expenses relate to the development of a technology platform that involves using adipose tissue as a source of autologous regenerative cells for therapeutic applications as well as the continued development efforts related to our Celution® System.

Index

The decrease in research and development expenses of $0.3 million for the three months ended ~~September 30, 2014~~March 31, 2015 as compared to the same period in ~~2013~~2014, is due to a decrease of ~~$100,000 and $350,000~~approximately $0.3 million in non-BARDA labor costs, a decrease of $0.2 million in professional services and ~~supplies~~a decrease of $0.1 million in travel and entertainment, all consistent with the shift in focus from cardiac to scleroderma and osteoarthritis indications, which are lower risk and lower cost clinical programs; offset by an increase of $0.3 million in expenses ~~respectively,~~ related to the completion of the base period of the BARDA contract, research and clinical costs of $266,000, and $326,000 in depreciation costs related to accelerated depreciation of equipment in 2013 due to our joint venture termination. The increase in research and development expenses for the nine months ended September 30, 2014 as compared to the same period in 2013 is due to an increase in professional services partially offset by a decrease in other supplies, and depreciation costs.BARDA.

The future: We expect research and development expenditures to ~~modestly~~ increase from current levels as we enroll and conduct two clinical trials in 2015; STAR, a trial for treatment of impaired hand function in scleroderma, and ACT-OA, a trial for the ~~balance~~potential treatment for osteoarthritis of ~~2014 as~~the knee. In addition, we ~~continue our clinical trial activities,~~expect increased expenditures due to our development work under our amended Option 1 of the BARDA ~~contract, and as we seek additional regulatory clearances and potentially seek to initiate additional strategies for meaningful clinical data acquisition during 2014.~~contract.

Sales and marketing expenses

Sales and marketing expenses include costs of sales and marketing personnel, tradeshows, physician training, and promotional activities and materials. The following table summarizes the components of our sales and marketing expenses for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

	For the three months ended September 30,				For the nine months ended September 30,
									For the three months ended March 31,
	2014		2013		2014		2013
									2015		2014

Sales and marketing	$	1,342,000	$	1,625,000	$	4,937,000	$	5,910,000	$	810,000	$	1,813,000
Share-based compensation		129,000		161,000		395,000		543,000		29,000		115,000
Total sales and marketing expenses	$	1,471,000	$	1,786,000	$	5,332,000	$	6,453,000	$	839,000	$	1,928,000

The decrease in sales and marketing expense during the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 as compared to the same ~~periods~~period in ~~2013~~2014 is mainly attributed to the decrease in salary and related benefits expense (excluding share-based compensation) of ~~$261,000 and $635,000, respectively and~~$0.5 million due to reduction in headcount, decrease in professional services of ~~$50,000~~$0.2 million and ~~$224,000 respectively.~~a decrease in travel and entertainment of $0.2 million, consistent with our cost curtailment efforts implemented throughout 2014.

The future: ~~Based on recent cost curtailment initiatives implemented in the third quarter of 2014, we~~We expect sales and marketing expenditures to ~~decrease modestly~~stabilize or slightly increase in ~~the remainder of 2014.~~2015, if revenues increase.

~~Index~~

General and administrative expenses

General and administrative expenses include costs for administrative personnel, legal and other professional expenses, and general corporate expenses. The following table summarizes the general and administrative expenses for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

	For the three months ended September 30,				For the nine months ended September 30,				For the three months ended March 31,

	2014		2013		2014		2013		2015		2014

General and administrative	$	3,375,000	$	3,783,000	$	11,439,000	$	10,559,000	$	2,216,000	$	3,909,000
Share-based compensation		804,000		549,000		1,682,000		1,666,000		283,000		431,000
Total general and administrative expenses	$	4,179,000	$	4,332,000	$	13,121,000	$	12,225,000	$	2,499,000	$	4,340,000

The decrease in general and administrative expenses during the three months ended ~~September 30, 2014~~March 31, 2015 as compared to the same period in ~~2013~~2014 is mainly attributed to a decrease in salary and related benefits expense of $0.4 million (excluding share-based compensation) due to reduction in headcount, a decrease in professional services of $0.7 million, travel and entertainment expense and advertising and promotion expense of $0.1 million, consistent with our cost curtailment efforts implemented in 2014; and a decrease in non-cash accounts receivable charges of ~~$459,000 related to past-due accounts~~ For the nine months ended September 30, 2014, as compared to the same period in 2013, expenses increased primarily due to an increase in professional services of $978,000 (consisting mainly of consulting expenses related to business development efforts and legal services expense related to regulatory and corporate affairs) and non-cash accounts receivable charges of $189,000 from past-due accounts. This was partially offset by a decrease in salary and related benefits expense of $184,000 (excluding share-based compensation) and travel and entertainment expense of $124,000.$0.6 million.

The future: We expect general and administrative ~~expenses~~expenditures to remain ~~relatively stable through the remainder of 2014.~~consistent at current levels throughout 2015.

Share-based compensation expenses

Stock-based compensation expenses include charges related to options and restricted stock awards issued to employees, directors and non-employees along with charges related to the employee stock purchases under the Employee Stock Purchase Plan (ESPP). We measure stock-based compensation expense based on the grant-date fair value of any awards granted to our employees. Such expense is recognized over the period of time that employees provide service to us and earn all rights to the awards.

Index

The following table summarizes the components of our share-based compensation expenses for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

	For the three months ended September 30,				For the nine months ended September 30,
									For the three months ended March 31,
	2014		2013		2014		2013
									2015		2014

Cost of product revenues	$	22,000	$	20,000	$	60,000	$	62,000	$	19,000	$	19,000
Research and development-related		163,000		155,000		429,000		452,000		128,000		122,000
Sales and marketing-related		129,000		161,000		395,000		543,000		29,000		115,000
General and administrative-related		804,000		549,000		1,682,000		1,666,000		283,000		431,000
Total share-based compensation	$	1,118,000	$	885,000	$	2,566,000	$	2,723,000	$	459,000	$	687,000

The ~~increase~~decrease in share-based compensation expenses for the three months ended ~~September 30, 2014~~March 31, 2015 as compared to the same period in ~~2013~~2014 is primarily related to ~~the modification of stock options~~a lower annual grant caused by reductions in headcount and due to ~~accelerated vesting. For~~ the ~~nine months ended September 30, 2014~~decline in the stock price during the first quarter in 2015 as compared to the same period in ~~2013 expenses decreased due to~~2014, and its corresponding impact into the ~~decrease in our stock prices.~~share-based compensation.

The future: We expect to continue to grant options and stock awards (which will result in an expense) to our employees, directors, and, as appropriate, to non-employee service providers. In addition, previously-granted options will continue to vest in accordance with their original terms. As of ~~September 30, 2014~~March 31, 2015, the total compensation cost related to non-vested stock options and stock awards not yet recognized for all our plans is approximately ~~$5,854,000,~~$3.6 million, which is expected to be recognized as a result of vesting under service conditions over a weighted average period of ~~1.86~~1.74 years.

~~Index~~

Change in fair value of warrant liability

The following is a table summarizing the change in fair value of our warrant liability for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

For the three months
ended September 30,
For the nine months
ended September 30,

2014 2013 2014 2013

Change in fair value of warrant liability $ (134,000 ) $ — $ (134,000 ) $ (418,000 )

	For the three months ended March 31,

	2015		2014

Change in fair value of warrants	$	15,444,000	$	—

The change in fair value of our warrant liability associated with the warrants issued in connection with the issuance of Series A 3.6% Convertible Preferred Stock financing in October 2014, for the three ~~and nine~~ months ended ~~September 30, 2014,~~March 31, 2015, is due to ~~warrants re-priced~~a 141% increase in ~~connection with~~ our ~~loan agreement. For~~stock price at March 31, 2015, as compared to the ~~nine months ended September 30, 2013, the balance relates to warrants issued in 2008 in connection with a private placement that expired in August 2013.~~stock price at December 31, 2014.

The future: Future changes in the fair value of the ~~warrant liability~~warrants will be recognized in earnings until such time as the warrants ~~exercise price becomes fixed, or warrants~~ are exercised or expire.

~~Change~~ Our stock price can be volatile and there could be material fluctuations in ~~fair value of option liability~~

~~The following is a table summarizing the change in fair value of our put option liability for the three and nine months ended September 30, 2014 and 2013:~~

For the three months ended
September 30,

For the nine months ended
September 30,

2014 2013 2014 2013

Change in fair value of put option liability $ — $ — $ — $ (2,250,000 )

~~Changes in fair value of our put option liability are due to changes in assumptions used in estimating~~ the value of ~~the Put, such as bankruptcy threshold for Cytori, fair value of the Olympus-Cytori, Inc. Joint Venture, volatility and others.~~

~~The future:~~ ~~The Put was cancelled as a result of the Joint Venture termination and we will not recognize any changes in fair value of this put option liability~~warrants in the ~~future.~~future periods.

~~Loss on asset disposal~~

~~The following table summarizes our loss on asset disposal for the three and nine months ended September 30, 2014 and 2013:~~

For the three months ended
September 30,

For the nine months ended
September 30,

2014 2013 2014 2013
Loss on asset disposal $ (14,000 ) $ — $ (15,000 ) $ (257,000 )

The loss on asset disposal during the quarter ended September 30, 2014 is related to lease hold improvements disposed of due to a corporate office relocation in Japan. During the quarter ended June 30, 2013, we identified certain Celution® One equipment that was initially purchased from the Joint Venture for use in our clinical studies. However, this equipment was manufactured with a configuration that can no longer be used in our studies. The related net book value of $257,000 was recorded as loss on asset disposal.

~~Index~~

Financing items

The following table summarizes interest income, interest expense, and other income and expense for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

	For the three months ended March 31,

	2015			2014

Interest income	$	1,000		$	2,000
Interest expense		(1,072,000	)		(941,000	)
Other income, net		110,000			86,000
Total	$	(961,000	)	$	(853,000	)

For the three months ended
September 30,

For the nine months ended
September 30,

2014 2013 2014 2013

Loss on debt extinguishment $ — $ — $ — $ (708,000 )
Interest income 1,000 1,000 4,000 2,000
Interest expense (1,260,000 ) (1,094,000 ) (3,286,000 ) (2,456,000 )
Other income (expense),net (222,000 ) (96,000 ) (195,000 ) (392,000 )
Total $ (1,481,000 ) $ (1,189,000 ) $ (3,477,000 ) $ (3,554,000 )

In connection with the Loan and Security Agreement entered into on June 28, 2013 (the “Loan Agreement”) with Oxford Finance LLC and Silicon Valley Bank (the “Lenders”), a loss on debt extinguishment was recorded that relates to the payoff of the prior loan obligation. See Notes to Consolidated Condensed Financial Statements for further information.

Interest expense increased for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 as compared to the same periods in ~~2013,~~2014, due to cash interest and non-cash amortization of debt and warrant costs related to our $27.0 million term loan and increased accretion expense related to our ~~joint~~Joint venture liability.

Index

The changes in other income, ~~(expense)~~net during the three months ended ~~September 30, 2014~~March 31, 2015 as compared to the same period in ~~2013~~2014 resulted primarily from changes in foreign currency exchange rates.

The future: ~~Interest income earned in 2014 will be dependent on our levels of funds available for investment as well as general economic conditions.~~ Subject to our future financing activities, we expect interest expense in ~~2014~~2015 to ~~increase slightly~~decrease as we ~~continue to pay interest~~start paying the principal on ~~the~~our $27.0 million ~~term loan that was~~ amended ~~in June 2013~~Term Loan and ~~re-measuring~~record reduced accretion expense related to our ~~acquisition of the joint venture.~~

~~Gain on divestiture of Puregraft Product line~~

On July 30, 2013, we entered into a Sale and Exclusive License/Supply Agreement with Bimini Technologies LLC (“Bimini”), pursuant to which we sold to Bimini substantially all of the assets (other than certain retained rights and licenses) of our Puregraft product line, a series of standalone fat transplantation products that were developed to improve the predictability of outcomes for autologous fat grafting and aesthetic body contouring. The aggregate value of the consideration paid by Bimini at the execution of the agreement was $5.0 million.

The agreement includes certain obligations to be performed by the Company on the behalf of Bimini, which includes transferring the manufacturing of Puregraft products to an agreed upon third party on or before December 31, 2014 and training. The Company recorded a gain on the Puregraft divestiture of $4.5 million in 2013, and has a remaining obligation of approximately $158,000 in future transfer and training obligations. Bimini is obligated to make certain additional milestone payments to the Company (in an aggregate amount of up to $10.0 million), contingent upon the achievement of certain milestones relating to Bimini’s gross profits from sales of the Puregraft products.

~~Gain on previously held equity interest and equity loss from investment in Joint Venture~~

The following table summarizes our gain on the previously held equity interest and the equity loss from investment in our joint venture with Olympus for the three and nine months ended September 30, 2014 and 2013:

For the three months ended
September 30,

For the nine months ended
September 30,

2014 2013 2014 2013
Gain on previously held equity interest $ — $ — $ — $ 4,892,000
Equity loss in investment — — — (48,000 )
Total $ — $ — $ — $ (4,844,000 )

~~Gain on previously held equity interest represents the effect of re-measuring our equity interest in connection with the May~~ 2013 acquisition of the ~~remaining interest in the Olympus-Cytori~~ Joint ~~Venture. See Notes to the Consolidated Condensed Financial Statements for discussion of our Joint Venture Termination Agreement.~~venture.

The equity losses relate entirely to our previously existing 50% equity interest in the Joint Venture, which prior to the termination of the Joint Venture, was accounted for using the equity method of accounting.

~~Index~~

Liquidity and Capital Resources

Short-term and long-term liquidity

The following is a summary of our key liquidity measures at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:

	As of September 30,		As of December 31,
	2014		2013		As of March 31, 2015		As of December 31, 2014

Cash and cash equivalents	$	7,849,000	$	15,506,000	$	13,199,000	$	14,622,000

Current assets	$	14,646,000	$	24,577,000	$	19,861,000	$	21,686,000
Current liabilities		14,478,000		14,906,000		18,702,000		15,917,000
Working capital	$	168,000	$	9,671,000	$	1,159,000	$	5,769,000

We incurred net losses of ~~$9,385,000 and $31,612,000~~$22 million for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~$5,258,000 and $16,137,000~~$10.4 million for the three ~~and nine~~ months ended ~~September 30, 2013,~~March 31, 2014, respectively. We have an accumulated deficit of ~~$332,517,000~~$360 million as of ~~September 30, 2014.~~March 31, 2015. Additionally, we have used net cash of ~~$25,374,000~~$5 million and ~~$25,064,000~~$9 million to fund our operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. To date, these operating losses have been funded primarily from outside sources of invested capital and gross profits. As of March 31, 2015, we had cash and cash equivalents of approximately $13.2 million. From March 31, 2015 and through May 1, 2015, we sold 2,401,292 shares of our common stock under the ATM, receiving net proceeds of approximately $3.2 million in connection with these sales and certain of our outstanding warrants were exercised on a cash basis for a total of 8,639,965 shares of common stock resulting in approximately $5.0 million in proceeds from the exercise of warrants. Giving effect to these issuances, we have received approximately $8.2 million in proceeds from the sale of securities since March 31, 2015, in addition to our cash and cash equivalents at March 31, 2015. On ~~October 8, 2014,~~May 5, 2015, we entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company ~~raised net proceeds of approximately $12,500,000 through the sale~~agreed to sell up to $25 million of units, with each unit consisting of ~~Series A 3.6% convertible preferred~~its common stock and ~~warrants~~one warrant to purchase one share of its common stock. The offering will have two separate closings, the first closing of $19.4 million took place on May 8, 2015 and the second close is subject to shareholder vote, which is anticipated to take place in August 2015.

~~We believe our plans~~Pursuant to ~~raise additional cash from~~the recently announced securities transaction and related equity issuance, as well as anticipated gross profits and potential outside sources ~~coupled with our cost reduction initiatives recently implemented and, if necessary, further cost containment efforts are~~of capital, we believe we have sufficient cash to ~~allow us to continue~~fund operations ~~for~~through at least the next ~~twelve months. This~~18 months, which includes minimum liquidity requirements of the Loan and Security Agreement, ~~as amended,~~ which requires ~~the Company to make principal and interest payments of $1.0 million per month beginning in April 2015 and~~us to maintain at least three months of cash on hand to avoid an event of default under the loan agreement. Our financing plans include pursuing additional cash through strategic corporate partnerships and future sales of equity, as well as our gross profits. While we have an established history of raising capital through these platforms, and we are currently involved in negotiations with multiple parties, there is no guarantee that adequate funds will be available when needed from additional debt or equity financing, development and commercialization partnerships, increased results of operations, or from other sources, or on terms acceptable to us. If our efforts to obtain sufficient additional funds are not successful, we would be required to delay, scale back, or eliminate some or all of our research or product development, manufacturing operations, administrative operations, including our employee base, and clinical or regulatory activities, which could negatively affect our ability to achieve certain corporate goals.

hand. The Company continues to seek additional capital through product revenues, strategic transactions, including extension opportunities under the awarded ~~BARDA~~U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority (“BARDA”) contract, and from other financing alternatives.

Refer to note 12 above for a discussion on our May 2015 financing.

The following table summarizes our contractual obligations and other commitments at ~~September 30, 2014,~~March 31, 2015, and the effect such obligations could have on our liquidity and cash flow in future periods:

	Payments due by period										Payments due by period
Contractual Obligations	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years		Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years

Long-term obligations	$	27,353,000	$	5,581,000	$	21,772,000	$	—	$	—	$	26,858,000	$	10,065,000	$	16,793,000	$	—	$	—
Interest commitment on long-term obligations		4,286,000		2,351,000		1,935,000		—		—		3,058,000		2,002,000		1,056,000		—		—
Operating lease obligations		6,919,000		2,197,000		4,518,000		204,000		—		5,744,000		2,194,000		3,537,000		13,000		—
Puregraft divestiture obligation		158,000		158,000		—		—		—
Joint Venture purchase obligation*		2,817,000		2,817,000		—		—		—
Minimum purchase obligation												1,022,000		1,022,000		—		—		—
Joint venture purchase obligation												3,088,000		2,318,000		770,000		—		—
Clinical research study obligations		6,358,000		4,785,000		1,391,000		182,000		—		5,452,000		3,722,000		1,730,000		—		—
Total	$	47,891,000	$	17,889,000	$	29,616,000	$	386,000	$	—	$	45,222,000	$	21,323,000	$	23,886,000	$	13,000	$	—

* The Company has various payment options which could result in the acceleration or deferral of the Joint Venture purchase obligation. See Notes to the Consolidated Condensed Financial Statements for discussion of our acquisition of Olympus’ interest in the Joint Venture.

~~Index~~

Cash (used in) provided by operating, investing, and financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~ is summarized as follows:

	For the nine months ended September 30,						For the three months ended March 31,
	2014			2013			2015			2014

Net cash used in operating activities	$	(25,374,000	)	$	(25,064,000	)	$	(5,030,000	)	$	(8,962,000	)
Net cash provided by (used in) investing activities		(1,447,000	)		3,869,000
Net cash used in investing activities								(187,000	)		(642,000	)
Net cash provided by financing activities		19,177,000			5,787,000			3,779,000			6,895,000
Effect of exchange rate changes on cash and cash equivalents		(13,000	)		(104,000	)		15,000			3,000
Net decrease in cash and cash equivalents		(7,657,000	)		(15,512,000	)	$	(1,423,000	)	$	(2,706,000	)

Index

Operating activities

~~Operating~~Net cash used in operating activities, ~~inclusive of research and development, sales and marketing, and general and administrative efforts, offset in part by product sales, generated an operating loss of $28,120,000~~ for the ~~nine months~~quarter ended ~~September 30, 2014. The~~March 31, 2015 was $5.0 million, approximately 4.0 million lower than the same period in 2014, primarily due to the $3.4 million decrease in operating ~~cash impact of this~~net loss, ~~was $25,374,000, after adjusting~~adjusted for ~~the~~ non-cash ~~share-based compensation and other adjustments for material non-cash activities,~~items, such as ~~depreciation, amortization, change in~~ fair value of ~~warrant~~warrants and our overall working capital improvement of $0.5 million due to decreased payments related to accounts payable, accrued liabilities and ~~changes in working capital due to timing of payment of liabilities.~~inventories, and increased collections on outstanding accounts receivable.

Operating activities, inclusive of research and development, sales and marketing, and general and administrative efforts, offset in part by product sales, generated an operating loss of $21,562,000 for the nine months ended September 30, 2013. The operating cash impact of this loss was $25,064,000, after adjusting for the recognition of non-cash development revenues of $1,817,000, non-cash share-based compensation and other adjustments for material non-cash activities, such as depreciation, amortization, change in fair value of option and warrant liabilities, and changes in working capital due to timing of product shipments (accounts receivable) and payment of liabilities.

Investing activities

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 resulted from cash outflows for ~~payment of a license termination fee of $400,000, expenditures for intellectual property of $255,000 and for~~ purchases of ~~property and~~tooling equipment of ~~$792,000.~~

~~Net cash used in investing activities for~~$0.2 million, related to the nine months ended September 30, 2013 resulted from cash outflows for payment of a license termination fee of $600,000 and purchases of property and equipment $536,000. Cash inflow of $5,000,000 is from the saledevelopment of our ~~Puregraft product line.~~next generation Celution device. The cash outflow was $0.4 million lower than the same period in 2014 due to the culmination of our license fee obligation and due to expense reduction efforts implemented throughout 2014.

Financing Activities

The net cash provided by financing activities for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 related primarily to a sale of common stock through an “at the market offering”. In March 2015, Cowen and ~~exercise~~Company sold 3.4 million shares of ~~warrants. In September 2014, 4,032,389 warrants were exercised and the Company received proceeds of approximately $4,066,000. In May 2014, we sold 4,048,584 units, consisting of one share of~~our common stock, ~~and one warrant to purchase one share of common stock, for~~raising approximately ~~$10,000,000~~$4.2 million in gross proceeds, net of $4 million. The cash inflow from financing activities was approximately $3 million lower than the same period in ~~connection with a registered direct offering~~2014, primarily due to ~~certain institutional investors. We received $9,000,000~~the fact that there was $4.8 million more in ~~January~~capital raised during the quarter ended March 31, 2014 ~~pursuant~~as compared to ~~our Common Stock Purchase Agreement with Lorem Vascular that was executed~~the same period in ~~October of 2013, partially~~2015, offset by ~~principal~~a reduction of $2 million in purchase price payments ~~of $1,303,000 primarily relating~~ to ~~our $27.0 million loan and $2,236,000 payment towards our Joint Venture purchase obligation.~~

The net cash provided by financing activities for the nine months ended September 30, 2013 related primarily to a sale of 1,053,000 shares for approximately $3,001,000 in gross proceeds in connection with the underwriter exercising the option to purchase additional shares relating to our December 2012 public offering partially offset by principal payments of $22,292,000 primarily relating to our $25.0 million loan. In June 2013, we entered into the Loan Agreement with the Lenders pursuant to which the Lenders funded aggregate principal amount of $27,000,000 offset by $1,744,000 debt issuance costs and loan fees. Also, during the nine months ended September 30, 2013, we paid $141,000 payment towards our Joint Venture purchase obligation.Olympus.

Critical Accounting Policies and Significant Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues and expenses, and that affect our recognition and disclosure of contingent assets and liabilities.

While our estimates are based on assumptions we consider reasonable at the time they were made, our actual results may differ from our estimates, perhaps significantly. If results differ materially from our estimates, we will make adjustments to our financial statements prospectively as we become aware of the necessity for an adjustment.

~~Index~~

We believe it is important for you to understand our most critical accounting policies. Our critical accounting policies and estimates remain consistent with those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2013.~~2014.

Recent Accounting Pronouncements

~~The following new accounting standards have been issued, but not adopted by the Company as of September 30, 2014:~~

In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) jointly issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The effective date of ASU 2014-09 is for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting ASU 2014-09.

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The effective date of ASU 2014-15 is for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting ASU 2014-15.None

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to fluctuations in interest rates and in foreign currency exchange rates. There have been no material changes in our market risks during the quarter ended ~~September 30, 2014.~~March 31, 2015.

Interest Rate Exposure

We are not subject to market risk due to fluctuations in interest rates on our long-term obligations as they bear a fixed rate of interest. Our exposure relates primarily to short-term investments, including funds classified as cash equivalents. As of ~~September 30, 2014,~~March 31, 2015, all excess funds were invested in money market funds and other highly liquid investments, therefore our interest rate exposure is not considered to be material.

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Foreign Currency Exchange Rate Exposure

Our exposure to market risk due to fluctuations in foreign currency exchange rates relates primarily to our activities in Europe and Japan. Transaction gains or losses resulting from cash balances and revenues have not been significant in the past and we are not currently engaged in any hedging activity in the Euro, the Yen or other currencies. Based on our cash balances and revenues derived from markets other than the United States for the three months ended ~~September 30, 2014,~~March 31, 2015, a hypothetical 10% adverse change in the Euro or Yen against the U.S. Dollar would not result in a material foreign currency exchange loss. Consequently, we do not expect that reductions in the value of such sales denominated in foreign currencies resulting from even a sudden or significant fluctuation in foreign exchange rates would have a direct material impact on our financial position, results of operations or cash flows.

Notwithstanding the foregoing, the indirect effect of fluctuations in interest rates and foreign currency exchange rates could have a material adverse effect on our business, financial condition and results of operations. For example, foreign currency exchange rate fluctuations may affect international demand for our products. In addition, interest rate fluctuations may affect our customers’ buying patterns. Furthermore, interest rate and currency exchange rate fluctuations may broadly influence the United States and foreign economies resulting in a material adverse effect on our business, financial condition and results of operations.

~~Index~~

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or furnished pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

Changes in Internal Control over Financial Reporting

As described in Item 9A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, we identified a material weakness in our internal control over financial reporting related to the recognition and measurement of revenue in accordance with U.S. generally accepted accounting principles. Specifically, our controls did not operate effectively to aggregate and communicate information necessary to (i) verify that the collection of accounts receivable was reasonably assured and (ii) evaluate whether contractual provisions were satisfied in order to recognize revenue. As discussed in the Form 10-K, we implemented a remediation plan to improve our systems of disclosure controls and procedures and internal control over financial reporting. This remediation plan includes (i) reevaluating our processes for the recognition of revenue at our Japan subsidiary, (ii) relocating to our Japan subsidiary a qualified individual with appropriate experience to assist with our review of revenue arrangements in accordance with U.S. generally accepted accounting principles and to help facilitate better communication with our Japan subsidiary, and (iii) enhancing our assessment of collectability over our customers to ensure that adequate evidence of collectability is obtained prior to the recognition of revenue. We expect that our remediation efforts, including design, implementation and testing will continue throughout fiscal year 2014. The material weakness will not be considered remediated until our controls are operational for a period of time, tested, and management concludes that these controls are operating effectively.

~~Other than as described above, there~~There have been no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2014~~March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~PART II. OTHER INFORMATION~~

PART II.

OTHER INFORMATION

Item 1.1.

Legal Proceedings

From time to time, we have been involved in routine litigation incidental to the conduct of our business. As of ~~September 30, 2014,~~March 31, 2015, we were not a party to any material legal proceeding. ~~See Notes to the Consolidated Condensed Financial Statements included elsewhere herein for a discussion of our loss contingencies.~~

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Item 1A.

Risk Factors

Our business is subject to various risks, including those described in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which we strongly encourage you to review with all other information contained or incorporated by reference in this report before you decide to invest in our common stock. In ~~analyzing our company, you should consider carefully~~addition to those risk factors, we identified the following risk factors together with all of the other information included in this quarterly report on Form 10-Q, including our unaudited Consolidated Condensed Financial Statements and the related notes and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”. If any of the risks described below occur, our business, operating results, and financial condition could be adversely affected and the value of our common stock could decline.

~~We have marked with an asterisk (*) those risks described below that reflect~~ new risks or substantive changes from the risks described ~~under Part I, Item 1A “Risk Factors” included~~in our Annual Report on Form 10-K. If any of the risks described in our Annual Report on Form 10-K ~~for~~or discussed below actually occurs, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the ~~year ended December 31, 2013.~~trading price of our common stock could decline, and you may lose all or part of your investment.

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New or Updated Risks Related to Our Business

Our independent registered public accounting firm has issued a “going concern” opinion.

Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We plan to continue to provide for our capital requirements by issuing additional equity and/or debt. No assurance can be given that additional capital will be available when required or on terms acceptable to us. We also cannot give assurance that we will achieve sufficient revenues in the future to achieve profitability and cash flow positive operations. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our business plan or to generate positive operating results. Our independent registered public accounting firm has indicated that these matters, among others, raise substantial doubt about our ability to continue as a going concern.

We will need to raise more cash in the future

We have almost always had negative cash flows from operations. Our business will continue to result in a substantial requirement for research and development expenses for several years, during which we may not be able to bring in sufficient cash and/or revenues to offset these expenses. We have had, and we will continue to have, an ongoing need to raise additional cash from outside sources to continue funding our operations to profitability. We do not currently believe that our cash balance and the revenues from our operations will be sufficient to fund the development and marketing efforts required to reach profitability without raising additional capital from accessible sources of financing in the very near future.

Pursuant to the recently announced securities transaction and related equity purchase, as well as anticipated gross profits and potential outside sources of capital, we believe we have ~~been placing, and will continue to place, significant effort into raising additional capital that will provide adequate capital resources to allow us to continue~~sufficient cash to fund ~~our future operations. Based on our cash and cash equivalents on hand of approximately $17,500,000~~operations through at ~~October 31, 2014 and our~~least the next 18 months, which includes minimum liquidity requirements of the Loan and Security Agreement, ~~that require~~which requires us ~~to make principal and interest payments of $1,003,000 per month beginning in April 2014 and our obligation~~ to maintain at least three months of cash on hand, we must raise additional capital on or before March 2015 to avoid an event of default in April 2014, unless we are otherwise unable to restructure our Loan Agreement as amended. If we are unable to raise additional capital as planned, we will not have sufficient cash on hand to avoid an event of default under the Loan Agreement, which, absent a waiver or modification of the loan terms, would allow the lender to cause the loan amount of approximately $27,368,000 to be immediately due and payable. Our financing plans include pursuing additional cash through strategic corporate partnerships and engaging in future sales of equity, as well as obtaining a modification of the terms of the Loan Agreement. While we have an established history of raising capital through these platforms, and we are currently involved in negotiations with multiple parties, there is no guarantee that adequate funds will be available when needed from additional debt or equity financing, development and commercialization partnerships or from other sources, or on terms acceptable to us. There is also no guarantee that our lender would agree to a modification of the Loan Agreement, or on terms that are acceptable to us. If our efforts to obtain sufficient additional funds are not successful, in addition to the lender’s ability to cause the loan amount to be immediately due and payable, we would also be required to delay, scale back, or eliminate some or all of our research or product development, manufacturing operations, administrative operations, including our employee base, and clinical or regulatory activities, which could negatively affect our ability to achieve certain corporate goals.

*~~Our level of indebtedness, and covenant restrictions under such indebtedness, could adversely affect our operations and liquidity~~*

On June 28, 2013 we entered into the Loan Agreement with Oxford Finance LLC and Silicon Valley Bank (together, the “Lenders”), pursuant to which the Lenders funded an aggregate principal amount of $27.0 million (“Term Loan”), subject to the terms and conditions set forth in the loan agreement. The Term Loan accrues interest at a fixed rate of 9.75% per annum. Pursuant to the Loan Agreement, we were required to make interest only payments through July 1, 2014. On September 19, 2014, we received a waiver of compliance of the Loan Agreement through October 31, 2014. On September 29, 2014 we entered into a 2^nd Amendment to the Loan Agreement with the Lenders pursuant to the amended Loan Agreement, we were provided a conditional waiver of principal payments subject to meeting certain capital raise requirements, which we achieved in October. The waiver of principal payments continues from November 1, 2014 through April 1, 2015 and thereafter we are required to make payments of principal and accrued interest in equal monthly installments (of approximately$1,000,000) sufficient to amortize the Term Loans through the maturity date.

~~Our indebtedness could adversely affect our operations and liquidity, by, among other things:~~

causing us to use a larger portion of our cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital and capital expenditures and other business activities;

~~making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; and~~

~~Index~~

~~limiting our ability to borrow additional monies in the future to fund working capital, capital expenditures and other general corporate purposes.~~

The Loan Agreement requires us to maintain at least three months of cash on hand and includes certain reporting and other covenants, that, among other things, restrict our ability to: (i) dispose of assets, (ii) change the business we conduct, (iii) make acquisitions, (iv) engage in mergers or consolidations, (v) incur additional indebtedness, (vi) create liens on assets, (vii) maintain any collateral account, (viii) pay dividends, (ix) make investments, loans or advances, (x) engage in certain transactions with affiliates, and (xi) prepay certain other indebtedness or amend other financing arrangements. If we fail to comply with any of these covenants or restrictions, such failure may result in an event of default, which if not cured or waived, could result in the lenders accelerating the maturity of our indebtedness. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and such acceleration would adversely affect our business and financial condition.

In addition, the indebtedness under our Loan Agreement is secured by a security interest in substantially all of our existing and after-acquired assets, including our intellectual property assets, and therefore, if we are unable to repay such indebtedness, the Lenders could foreclose on these assets, which would adversely affect our ability to operate our business.

~~We could be delisted from NASDAQ, which could seriously harm the liquidity of our stock and our ability to raise capital~~

On October 30 2014 we received a letter (the “Notice”) from the Listing Qualifications staff of The NASDAQ Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the our common stock for the last 30 consecutive business days, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until April 28, 2015, in which to regain compliance. In order to regain compliance with the minimum bid price requirement, the closing bid price of the our common stock must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period. In the event we do not regain compliance within this 180-day period, we may be eligible to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Global Market, with the exception of the bid price requirement, if we provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that we will not be able to cure the deficiency, or if we are then otherwise not eligible, Nasdaq will provide us notice that our common stock will be subject to delisting.

There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements, or that we will be eligible for listing on any comparable trading market. The effects of losing the Nasdaq listing could materially harm our ability to raise additional capital.

We may not be able to obtain shareholder approval or refinance our outstanding debt principal as required by our ~~October 10, 2014 financing which would make us subject to severe redemption rights and other penalties~~May 5, 2015 financing.

On ~~October 8, 2014,~~May 5, 2015, we entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company agreed to sell ~~a total~~an aggregate of ~~13,500~~up to $25 million of units, ~~for a purchase price of $1,000 per unit,~~ with each unit consisting of one share of common stock and one warrant to purchase one share in two closings. At the ~~Company’s Series A 3.6% convertible preferred stock, which shall be convertible into~~initial closing, we issued and sold units in an amount such that the shares of ~~the Company’s~~ common stock ~~par value~~included in the Units equals up to 19.99% of ~~$0.001 per share, with a conversion price~~our issued and outstanding common stock on the Initial Closing date of ~~$0.52.~~ the agreement.

We ~~also~~ agreed to seek ~~shareholder~~ approval ~~for~~from our stockholders as may be required by the ~~sale~~applicable rules and regulations of the Nasdaq Stock Market, including the issuance of all of the shares of common stock ~~exceeding 19.9%~~included in the units (including such shares of common stock issuable upon exercise of the warrants) in excess of 19.99% of our ~~then~~issued and outstanding ~~shares and~~common stock on the initial closing date. We refer to ~~amend our certificate of incorporation increasing our authorized shares. If we fail to receive~~ this approval ~~by April 2015,~~as the ~~holders~~“Stockholder Approval.” Subject to receipt of such stockholder approval and the satisfaction of certain other conditions, including a refinancing of our ~~preferred shares have redemption rights~~outstanding debt under our Loan Agreement, we expect to complete a second closing within 5 business days of receipt of such Stockholder Approval, in which ~~would cause our annual preferred dividend rate~~we expect to ~~be raised~~sell up to ~~18% per year, or we could be subject to substantial additional dilution~~$5.6 million of units consisting of one share of our common stock and one warrant to purchase one share of common stock. ~~Either~~Depending on the price of ~~these events could cause significant harm to~~ our ~~financial position.~~

~~Continued turmoil~~common stock in the ~~economy could harm our business~~

~~Negative trends~~five trading days prior to the second closing, at the second closing we will sell and issue units in ~~the general economy, including trends resulting from~~ an ~~actual or perceived recession, tightening credit markets, increased cost of commodities, including oil, actual or threatened military action by the United States and threats of terrorist attacks~~amount up to 15 million units but in ~~the United States and abroad, could cause~~any event not less than 7.3 million units. We intend to use a reduction of investment in and available funding for companies in certain industries, including ours and our customers. Our ability to raise capital has been and may in the future be adversely affected by downturns in current credit conditions, financial markets and the global economy.

~~We have never been profitable on an operational basis and expect significant operating losses for the next few years~~

We have incurred net operating losses in each year since we started business. As our focus on the Celution® System platform and development of therapeutic applications for its cellular output has increased, losses have resulted primarily from expenses associated with research and development activities and general and administrative expenses. While we work continuously to implement cost reduction measures where possible, we nonetheless expect to continue operating in a loss position on a consolidated basis and that recurring operating expenses will be at high levels for the next several years, in order to perform clinical trials, additional pre-clinical research, product development, and marketing. As a result of our historic losses, we have been, and are likely to continue to be, reliant on raising outside capital to fund our operations.

~~Index~~

~~Our business strategy is high-risk~~

~~We are focusing our resources and efforts primarily on development~~portion of the Celution® System family of products and the therapeutic applications of its cellular output, which requires extensive cash needs for research, development, and commercialization activities. This is a high-risk strategy because there is no assuranceproceeds to refinance our existing debt to provide that our ~~future products will ever become commercially viable (commercial risk), that we will prevent other companies from depriving us of market share and profit margins by selling products based on~~outstanding debt under our inventions and developments (legal risk), that we will successfully manage a company in a new area of business (regenerative medicine) and on a different scale than we have operated in the past (operational risk),Loan Agreement does not exceed $18.0 million, however there are no assurances that we will be able to ~~achieve the desired therapeutic results using stem and regenerative cells (scientific risk),~~refinancing on acceptable terms, or that our cash resources will be adequate to develop our products until we become profitable, if ever (financial risk). We are using our cash in one of the riskiest industries in the economy (strategic risk). This may make our stock an unsuitable investment for many investors.

~~The development and manufacture of current and future generation Celution® System devices is important to us~~

~~We must continue to develop and manufacture both the current and future generation Celution®~~^® System devices. If we are not successful in further development of the current and future generation Celution® System devices, we may not be able to compete successfully in the marketplace (technology risk), and if we experience disruptions and/or delays in our production of these devices as required by the marketplace, our operations and commercialization efforts (clinical, regulatory and/or commercial sales) we would be harmed (manufacturing risk).

Although we have significant experience in manufacturing the current Celution® System platform and its consumables at a commercial level, there can be no guarantee that we will be able to successfully develop and manufacture future generation Celution® Systems in a manner that is cost-effective or commercially viable, or that development and manufacturing capabilities might not take much longer than currently anticipated to be ready for the market.

Although we have been manufacturing the Celution® 800 System and the StemSource® 900-based Cell Bank since 2008, we cannot assure that we will be able to manufacture sufficient numbers of such products to meet future demand, or that we will be able to overcome unforeseen manufacturing difficulties for this sophisticated equipment.

~~We have a limited operating history; operating results and stock price can be volatile like many life science companies~~

Our prospects must be evaluated in light of the risks and difficulties frequently encountered by emerging companies and particularly by such companies in rapidly evolving and technologically advanced biotech and medical device fields. From time to time, we have tried to update our investors’ expectations as to our operating results by periodically announcing financial guidance. However, we have in the past been forced to revise or withdraw such guidance due to lack of visibility and predictability of product demand. Our stock price has a history of significant volatility, which may harm our ability to raise additional capital and may cause an investment in Cytori to be unsuitable for some investors.

~~We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls~~

Our budgeted expense levels are based in part on our expectations concerning future revenues from sales as well our assessment of the future investments needed to expand our commercial organization and support research and development activities. We may be unable to reduce our expenditures in a timely manner to compensate for any unexpected events or a shortfall in revenue. Accordingly, a shortfall in demand for our products or other unexpected events could have an immediate and material impact on our business and financial condition.

~~We are vulnerable to competition and technological change, and also to physicians’ inertia~~

We compete with many domestic and foreign companies in developing our technology and products, including biotechnology, medical device, and pharmaceutical companies. Many current and potential competitors have substantially greater financial, technological, research and development, marketing, and personnel resources. There is no assurance that our competitors will not succeed in developing alternative products that are more effective, easier to use, or more economical than those which we have developed or are in the process of developing, or that would render our products obsolete and non-competitive. In general, we may not be able to prevent others from developing and marketing competitive products similar to ours or which perform similar functions.

~~Index~~

Competitors may have greater experience in developing therapies or devices, conducting clinical trials, obtaining regulatory clearances or approvals, manufacturing and commercialization. It is possible that competitors may obtain patent protection, approval, or clearance from the FDA or achieve commercialization earlier than we can, any of which could have a substantial negative effect on our business.

We compete against cell-based therapies derived from alternate sources, such as bone marrow, umbilical cord blood and potentially embryos. Doctors historically are slow to adopt new technologies like ours, regardless of the perceived merits, when older technologies continue to be supported by established providers. Overcoming such inertia often requires very significant marketing expenditures or definitive product performance and/or pricing superiority.

We expect physicians’ inertia and skepticism to also be a significant barrier as we attempt to gain market penetration with our future products. We believe we will continue to need to finance lengthy time-consuming clinical studies to provide evidence of the medical benefit of our products and resulting therapies in order to overcome this inertia and skepticism particularly in reconstructive surgery, cell preservation, the cardiovascular area and many other indications.

~~Many potential applications of our technology are pre-commercialization, which subjects us to development and marketing risks~~

We are in a relatively early stage of the path to commercialization with many of our products. We believe that our long-term viability and growth will depend in large part on our ability to develop commercial quality cell processing devices and useful procedure-specific consumables, and to establish the safety and efficacy of our therapies through clinical trials and studies. With our Celution® System platform, we are pursuing new approaches for therapies for cardiovascular disease, burns, soft tissue defects, reconstructive surgery, preservation of stem and regenerative cells for potential future use, and other conditions. There is no assurance that our development programs will be successfully completed or that required regulatory clearances or approvals will be obtained on a timely ~~basis, if at all.~~

There is no proven path for commercializing the Celution® System platform in a way to earn a durable profit commensurate with the medical benefit. Although we began to commercialize our reconstructive surgery products in Europe and certain Asian markets, and our cell banking products in Japan, Europe, and certain Asian markets in 2008, additional market opportunities for many of our products and/or services may not materialize for a number of years.

Successful development and market acceptance of our products is subject to developmental risks, including failure of inventive imagination, ineffectiveness, lack of safety, unreliability, failure to receive necessary regulatory clearances or approvals, high commercial cost, preclusion or obsolescence resulting from third parties’ proprietary rights or superior or equivalent products, competition from copycat products, and general economic conditions affecting purchasing patterns. There is no assurance that we or our partners will successfully develop and commercialize our products, or that our competitors will not develop competing technologies that are less expensive or superior. Failure to successfully develop and market our products would have a substantial negative effect on our results of operations and financial condition.

If any party to a key collaboration partnership fails to perform material obligations under our agreements, or any other collaboration agreement, or if such agreements are terminated for any reason, our business could significantly suffer

We have entered into collaboration agreements under which we may receive future payments in the form of milestone payments, maintenance fees and royalties. We are dependent on our collaborators to commercialize our products in certain countries in order for us to realize any financial benefits from these collaborations. Our collaborators may not devote the attention and resources to such efforts to be successful. In addition, in the event that a party fails to perform under a key collaboration agreement, or if a key collaboration agreement is terminated, the reduction in anticipated revenues could delay or suspend our product commercialization in certain countries. Specifically, the termination of a key collaboration agreement by one of our collaborators could materially impact our ability to enter into additional collaboration agreements with new collaborators on favorable terms.

If we or our collaborators fail to comply with regulatory requirements applicable to promotion, sale and manufacturing of approved products, regulatory agencies may take action against us or them, which could significantly harm our business

Any approved products, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for these products, are subject to continual requirements and review by the FDA, state and foreign regulatory bodies. Regulatory authorities subject a marketed product, its manufacturer and the manufacturing facilities to continual review and periodic inspections. We, our collaborators and our respective contractors, suppliers and vendors, will be subject to ongoing regulatory requirements, including complying with regulations and laws regarding advertising, promotion and sales of products, required submissions of safety and other post-market information and reports, registration requirements, cGMP regulations (including requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation), and the requirements regarding the distribution of samples to physicians and recordkeeping requirements. Regulatory agencies may change existing requirements or adopt new requirements or policies. We, our collaborators and our respective contractors, suppliers and vendors, may be slow to adapt or may not be able to adapt to these changes or new requirements.

~~Index~~

~~Failure to comply with regulatory requirements may result in any of the following:~~

~~restrictions on our products or manufacturing processes;~~

~~warning letters;~~

~~withdrawal of the products from the market;~~

~~voluntary or mandatory recall;~~

~~fines;~~

~~suspension or withdrawal of regulatory approvals;~~

~~suspension or termination of any of our ongoing clinical trials;~~

~~refusal to permit the import or export of our products;~~

~~refusal to approve pending applications or supplements to approved applications that we submit;~~

~~product seizure;~~

~~injunctions; or~~

~~imposition of civil or criminal penalties.~~

~~We must rely on the performance of Lorem Vascular for the commercialization of our products in China, Hong Kong, Singapore, Malaysia and Australia~~

Lorem Vascular is the exclusive licensee for our products in China, Hong Kong, Singapore, Malaysia and Australia, and while we will be strongly supportive to their efforts, they are responsible for obtaining regulatory approvals, market development and sales in these countries. Lorem Vascular is also a new company and as such will be required to develop the expertise, personnel and relationships in each of these countries required to successfully market and sell our products. We cannot guarantee that Lorem Vascular will make the investments required to be successful in these countries. We cannot guarantee that the necessary regulatory approvals can be obtained, and we cannot guarantee that our products will be successful in these markets even if advantageous market regulatory approvals are obtained.

~~Market acceptance of new technology such as ours can be difficult to obtain~~

New and emerging cell therapy and cell banking technologies, such as those provided by the Celution® System family of products, may have difficulty or encounter significant delays in obtaining market acceptance in some or all countries around the world due to the novelty of our cell therapy and cell banking technologies. Therefore, the market adoption of our cell therapy and cell banking technologies may be slow and lengthy with no assurances that significant market adoption will be successful. The lack of market adoption or reduced or minimal market adoption of our cell therapy and cell banking technologies may have a significant impact on our ability to successfully sell our product(s) in a country or region.

~~Future clinical trial results may differ significantly from our expectations~~

While we have proceeded incrementally with our clinical trials in an effort to gauge the risks of proceeding with larger and more expensive trials, such as in our PRECISE chronic ischemic trial in Europe, and our ATHENA I and ATHENA II feasibility trial in heart failure due to ischemic heart disease, we cannot guarantee that we will not experience negative results in larger and much more expensive clinical trials than we have conducted to date. Poor results, unanticipated events or other complications in our clinical trials could result in substantial delays in commercialization, substantial negative effects on the perception of our products, and substantial additional costs. These risks are increased by our reliance on third parties in the performance of many of the clinical trial functions, including the clinical investigators, hospitals, and other third party service providers.

Our product candidates may not receive regulatory approvals or their development may be delayed for a variety of reasons, including unsuccessful clinical trials, regulatory requirements or safety concerns

Clinical testing of our products is a long, expensive and uncertain process, and the failure or delay of a clinical trial can occur at any stage. Even if initial results of preclinical and nonclinical studies or clinical trial results are promising, we may obtain different results in subsequent trials or studies that fail to show the desired levels of safety and efficacy, or we may not obtain applicable regulatory approval for a variety of other reasons. Clinical trials for any of our products could be unsuccessful, which would delay or prohibit regulatory approval and commercialization of the product. In the United States and other jurisdictions, regulatory approval can be delayed, limited or not granted for many reasons, including, among others:

~~clinical results may not meet prescribed endpoints for the studies or otherwise provide sufficient data to support the efficacy of our products;~~

~~clinical and nonclinical test results may reveal side effects, adverse events or unexpected safety issues associated with the use of our products;~~

~~regulatory review may not find a product safe or effective enough to merit either continued testing or final approval;~~

~~regulatory review may not find that the data from preclinical testing and clinical trials justifies approval;~~

~~regulatory authorities may require that we change our studies or conduct additional studies which may significantly delay or make continued pursuit of approval commercially unattractive;~~

~~Index~~

~~a regulatory agency may reject our trial data or disagree with our interpretations of either clinical trial data or applicable regulations;~~

~~the cost of clinical trials required for product approval may be greater than what we originally anticipate, and we may decide to not pursue regulatory approval for such a product;~~

a regulatory agency may identify problems or other deficiencies in our existing manufacturing processes or facilities, or the existing processes or facilities of our collaborators, our contract manufacturers or our raw material suppliers;

a regulatory agency may change its formal or informal approval requirements and policies, act contrary to previous guidance, adopt new regulations or raise new issues or concerns late in the approval process; or

a product candidate may be approved only for indications that are narrow or under conditions that place the product at a competitive disadvantage, which may limit the sales and marketing activities for such products or otherwise adversely impact the commercial potential of a product.

If a product is not approved in a timely fashion on commercially viable terms, or if development of any product is terminated due to difficulties or delays encountered in the regulatory approval process, it could have a material adverse impact on our business, and we will become more dependent on the development of other proprietary products and/or our ability to successfully acquire other products and technologies. There can be no assurances that any product will receive regulatory approval in a timely manner, or at all.

Certain products will be marketed, and perhaps manufactured, in foreign countries. The process of obtaining regulatory approvals in foreign countries is subject to delay and failure for the reasons set forth above, as well as for reasons that vary from jurisdiction to jurisdiction. The approval process varies among countries and jurisdictions and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. Foreign regulatory agencies may not provide approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.

~~We may not be able to protect our proprietary rights~~

Our success depends in part on whether we can maintain our existing patents, obtain additional patents, maintain trade secret protection, and operate without infringing on the proprietary rights of third parties.

There can be no assurance that any of our pending patent applications will be approved or that we will develop additional proprietary products that are patentable. There is also no assurance that any patents issued to us will not become the subject of a re-examination, will provide us with competitive advantages, will not be challenged by any third parties, or that the patents of others will not prevent the commercialization of products incorporating our technology. Furthermore, there can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents.

Our commercial success will also depend, in part, on our ability to avoid infringing on patents issued by others. If we were judicially determined to be infringing on any third-party patent, we could be required to pay damages, alter our products or processes, obtain licenses, or cease certain activities. If we are required in the future to obtain any licenses from third parties for some of our products, there can be no guarantee that we would be able to do so on commercially favorable terms, if at all. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone else of a patent on a technology we are actively using.

Litigation, which would result in substantial costs to us and diversion of effort on our part, may be necessary to enforce or confirm the ownership of any patents issued or licensed to us, or to determine the scope and validity of third-party proprietary rights. If our competitors claim technology also claimed by us and prepare and file patent applications in the United States, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office or a foreign patent office to determine priority of invention, which could result in substantial costs to and diversion of effort, even if the eventual outcome is favorable to us. Any such litigation or interference proceeding, regardless of outcome, could be expensive and time-consuming.

Successful challenges to our patents through oppositions, reexamination proceedings or interference proceedings could result in a loss of patent rights in the relevant jurisdiction. If we are unsuccessful in actions we bring against the patents of other parties and it is determined that we infringe the patents of third-parties, we may be subject to litigation, or otherwise prevented from commercializing potential products in the relevant jurisdiction, or may be required to obtain licenses to those patents or develop or obtain alternative technologies, any of which could harm our business. Furthermore, if such challenges to our patent rights are not resolved in our favor, we could be delayed or prevented from entering into new collaborations or from commercializing certain products, which could adversely affect our business and results of operations.

On September 16, 2011, President Obama signed into law major patent law reform known as the Leahy-Smith America Invents Act (AIA). Among other things the AIA implements a first inventor to file standard for patent approval, changes the legal standards for patentability under section 102 of the statute, and creates a post grant review system. As a result of the added uncertainty of interpretation of the AIA and the uncertainty of patent law in general, we cannot predict with certainty how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court. Changes to the patent law under the AIA also may provoke third parties to assert claims against us or result in our intellectual property being narrowed in scope or declared to be invalid or unenforceable.

~~Index~~

Competitors or third parties may infringe our patents. We may be required to file patent infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or that the third party’s technology does not in fact infringe upon our patents. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not issuing. Litigation may fail and, even if successful, may result in substantial costs and be a distraction to our management. We may not be able to prevent misappropriation of our proprietary rights, particularly in countries outside the U.S. where patent rights may be more difficult to enforce. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

In addition to patents, which alone may not be able to protect the fundamentals of our business, we also rely on unpatented trade secrets and proprietary technological expertise. Some of our intended future cell-related therapeutic products may fit into this category. We rely, in part, on confidentiality agreements with our partners, employees, advisors, vendors, and consultants to protect our trade secrets and proprietary technological expertise. There can be no guarantee that these agreements will not be breached, or that we will have adequate remedies for any breach, or that our unpatented trade secrets and proprietary technological expertise will not otherwise become known or be independently discovered by competitors.

Failure to obtain or maintain patent protection, or protect trade secrets, for any reason (or third-party claims against our patents, trade secrets, or proprietary rights, or our involvement in disputes over our patents, trade secrets, or proprietary rights, including involvement in litigation), could have a substantial negative effect on our results of operations and financial condition.

~~We may not be able to protect our intellectual property in countries outside the United States~~

Intellectual property law outside the United States is uncertain and in many countries is currently undergoing review and revisions. The laws of some countries do not protect our patent and other intellectual property rights to the same extent as United States laws. This is particularly relevant to us as most of our current commercial product sales and clinical trials are outside of the United States. Third parties may attempt to oppose the issuance of patents to us in foreign countries by initiating opposition proceedings. Opposition proceedings against any of our patent filings in a foreign country could have an adverse effect on our corresponding patents that are issued or pending in the United States. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or our competitors’ patents that have been issued in countries other than the U.S. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations and financial condition. We currently have pending patent applications in Europe, Australia, Japan, Canada, China, Korea, and Brazil, among other countries.

~~We and our medical devices are subject to FDA regulation~~

As medical devices, the Celution® System family of products, and components of the Stemsource® cell banks, must receive regulatory clearances or approvals from the FDA and, in many instances, from non-U.S. and state governments prior to their sale. The Celution® System family of products is subject to stringent government regulation in the United States by the FDA under the Federal Food, Drug and Cosmetic Act. The FDA regulates the design/development process, clinical testing, manufacture, safety, labeling, sale, distribution, and promotion of medical devices and drugs. Included among these regulations are pre-market clearance and pre-market approval requirements, design control requirements, and the Quality System Regulations/Good Manufacturing Practices. Other statutory and regulatory requirements govern, among other things, establishment registration and inspection, medical device listing, prohibitions against misbranding and adulteration, labeling and post-market reporting.

The regulatory process can be lengthy, expensive, and uncertain. Before any new medical device may be introduced to the U.S. market, the manufacturer generally must obtain FDA clearance or approval through either the 510(k) pre-market notification process or the lengthier pre-market approval application, or PMA, process. It generally takes from three to 12 months from submission to obtain 510(k) pre-market clearance, although it may take longer. Approval of a PMA could take four or more years from the time the process is initiated. The 510(k) and PMA processes can be expensive, uncertain, and lengthy, and there is no guarantee of ultimate clearance or approval. Our Celution®products under development today and in the foreseeable future will be subject to the lengthier PMA process. Securing FDA clearances and approvals may require the submission of extensive clinical data and supporting information to the FDA, and there can be no guarantee of ultimate clearance or approval. Failure to comply with applicable requirements can result in application integrity proceedings, fines, recalls or seizures of products, injunctions, civil penalties, total or partial suspensions of production, withdrawals of existing product approvals or clearances, refusals to approve or clear new applications or notifications, and criminal prosecution.

Medical devices are also subject to post-market reporting requirements for deaths or serious injuries when the device may have caused or contributed to the death or serious injury, and for certain device malfunctions that would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. If safety or effectiveness problems occur after the product reaches the market, the FDA may take steps to prevent or limit further marketing of the product. Additionally, the FDA actively enforces regulations prohibiting marketing and promotion of devices for indications or uses that have not been cleared or approved by the FDA.

~~Index~~

There can be no guarantee that we will be able to obtain the necessary 510(k) clearances or PMA approvals to market and manufacture our other products in the United States for their intended use on a timely basis, if at all. Delays in receipt of or failure to receive such clearances or approvals, the loss of previously received clearances or approvals, or failure to comply with existing or future regulatory requirements could have a substantial negative effect on our results of operations and financial condition.

~~To sell in international markets, we will be subject to regulation in foreign countries~~

In cooperation with our distribution partners, we intend to market our current and future products both domestically and in many foreign markets. A number of risks are inherent in international transactions. In order for us to market our products in Europe, Canada, Japan and certain other non-U.S. jurisdictions, we need to obtain and maintain required regulatory approvals or clearances and must comply with extensive regulations regarding safety, manufacturing processes and quality. These regulations, including the requirements for approvals or clearances to market, may differ from the FDA regulatory scheme. International sales also may be limited or disrupted by political instability, price controls, trade restrictions and changes in tariffs. Additionally, fluctuations in currency exchange rates may adversely affect demand for our products by increasing the price of our products in the currency of the countries in which the products are sold.

There can be no assurance that we will obtain regulatory approvals or clearances in all of the countries where we intend to market our products, or that we will not incur significant costs in obtaining or maintaining foreign regulatory approvals or clearances, or that we will be able to successfully commercialize current or future products in various foreign markets. Delays in receipt of approvals or clearances to market our products in foreign countries, failure to receive such approvals or clearances or the future loss of previously received approvals or clearances could have a substantial negative effect on our results of operations and financial condition.

~~Changing, new and/or emerging government regulations may adversely affect us~~

Government regulations can change without notice. Given the fact that Cytori operates in various international markets, our access to such markets could change with little to no warning due to a change in government regulations that suddenly up-regulate our product(s) and create greater regulatory burden for our cell therapy and cell banking technology products.

Due to the fact that there are new and emerging cell therapy and cell banking regulations that have recently been drafted and/or implemented in various countries around the world, the application and subsequent implementation of these new and emerging regulations have little to no precedence. Therefore, the level of complexity and stringency is not known and may vary from country to country, creating greater uncertainty for the international regulatory process.

Anticipated or unanticipated changes in the way or manner in which the FDA regulates products or classes/groups of products can delay, further burden, or alleviate regulatory pathways that were once available to other products. There are no guarantees that such changes in FDA’s approach to the regulatory process will not deleteriously affect some or all of our products or product applications.

~~We may have difficulty obtaining health insurance reimbursement for our products~~

New and emerging cell therapy and cell banking technologies, such as those provided by the Celution® System family of products, may have difficulty or encounter significant delays in obtaining health care reimbursement in some or all countries around the world due to the novelty of our cell therapy and cell banking technology and subsequent lack of existing reimbursement schemes/pathways. Therefore, the creation of new reimbursement pathways may be complex and lengthy with no assurances that such reimbursements will be successful. The lack of health insurance reimbursement or reduced or minimal reimbursement pricing may have a significant impact on our ability to successfully sell our cell therapy and cell banking technology product(s) into a county or region, which would negatively impact our operating results.

~~Our concentration of sales in Japan may have negative effects on our business in the event of any crisis in that region~~

We have operations in a number of regions around the world, including the United States, Japan, and Europe. Our global operations may be subject to risks that may limit our ability to operate our business. We sell our products globally, which exposes us to a number of risks that can arise from international trade transactions, local business practices and cultural considerations, including:

~~political unrest, terrorism and economic or financial instability;~~

~~unexpected changes and uncertainty in regulatory requirements and systems related;~~

~~nationalization programs that may be implemented by foreign governments;~~

~~Index~~

~~import-export regulations;~~

~~difficulties in enforcing agreements and collecting receivables;~~

~~difficulties in ensuring compliance with the laws and regulations of multiple jurisdictions;~~

~~changes in labor practices, including wage inflation, labor unrest and unionization policies;~~

~~longer payment cycles by international customers;~~

~~currency exchange fluctuations;~~

~~disruptions of service from utilities or telecommunications providers, including electricity shortages;~~

~~difficulties in staffing foreign branches and subsidiaries and in managing an expatriate workforce, and differing employment practices and labor issues; and~~

~~potentially adverse tax consequences.~~

We also face risks associated with currency exchange and convertibility, inflation and repatriation of earnings as a result of our foreign operations. We are also vulnerable to appreciation or depreciation of foreign currencies against the U.S. dollar. Although we have significant operations in Asia, a substantial portion of transactions are denominated in U.S. dollars. As appreciation against the U.S. dollar increases, it will result in an increase in the cost of our business expenses abroad. Conversely, downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products less price competitive than local solutions. From time to time, we may engage in currency hedging activities, but such activities may not be able to limit the risks of currency fluctuations.

~~Our revenue, results of operations, and cash flows may suffer upon the loss of a significant customer or a significant reduction in the amount of product ordered by any such customer~~

Our largest customer accounted for 26% of our revenue during the year ended December 31, 2013. Loss of this significant customer or a significant reduction in the amount of product ordered by this customer could adversely affect our revenue, results of operations, and cash flows.

~~We must maintain quality assurance certification and manufacturing approvals~~

The manufacture of our products is, and the manufacture of any future cell-related therapeutic products would be, subject to periodic inspection by regulatory authorities and distribution partners. The manufacture of devices and products for human use is subject to regulation and inspection from time to time by the FDA for compliance with the FDA’s Quality System Regulation, or QSR, requirements, as well as equivalent requirements and inspections by state and non-U.S. regulatory authorities. There can be no guarantee that the FDA or other authorities will not, during the course of an inspection of existing or new facilities, identify what they consider to be deficiencies in our compliance with QSRs or other requirements and request, or seek remedial action.

Failure to comply with such regulations or a potential delay in attaining compliance may adversely affect our manufacturing activities and could result in, among other things, injunctions, civil penalties, FDA refusal to grant pre-market approvals or clearances of future or pending product submissions, fines, recalls or seizures of products, total or partial suspensions of production, and criminal prosecution. There can be no assurance after such occurrences that we will be able to obtain additional necessary regulatory approvals or clearances on a timely basis, if at all. Delays in receipt of or failure to receive such approvals or clearances, or the loss of previously received approvals or clearances could have a substantial negative effect on our results of operations and financial condition.

~~The termination or suspension of the BARDA contract could delay and/or adversely affect our business and our ability to further develop our Celution® System~~

Cytori was awarded the contract with BARDA in September 2012 with the aim to develop a new countermeasure for a combined injury involving thermal burn and radiation exposure which would be useful following a mass-casualty event. The cost-plus-fixed-fee contract was valued at up to $106 million, with a guaranteed base period of approximately $4.7 million which included preclinical research and the acceleration of Cytori’s ongoing development of the Celution® cell processing System (the Celution® System).

On August 13, 2014, BARDA and Cytori amended the contract exercising Option 1 to perform research, development, regulatory, clinical and other tasks required for initiation of a pilot clinical trial of the Celution System in thermal burn injury, amended the Statement of Work and reorganized the contract options. The total cost plus fixed fee for the performance of Option 1 is up to approximately $12.1 million. The revised Option 2 consists of execution of the pilot clinical study, regulatory, and other tasks for a cost plus fixed fee of up to $8.3 million. The revised Option 3 consists of clinical, regulatory, and other tasks for completion of a pivotal clinical trial leading to FDA approval for use of the Celution System in thermal burn injury, for a cost plus fixed fee of up to $45.5 million. The revised Option 4 consists of R&D, clinical, regulatory and other tasks required to develop and obtain FDA clearance for other characteristics suitable for use in thermal burn injury following a mass casualty event, for a cost plus fixed fee of up to $23.4 million.

~~Index~~

BARDA may suspend or terminate this contract should we fail to achieve key objectives or milestones, or fail to comply with the operating procedures and processes approved by BARDA and its audit agency, the Defense Contract Audit Agency. There can be no assurance that we will be able to comply with BARDA’s operating procedures and processes, achieve the necessary clinical milestones, or whether we will be able to successfully develop our Celution® System under the contract. If the BARDA contract were terminated or suspended, our business could be adversely affected.

The BARDA contract has certain contracting requirements that allow the U.S. Government to unilaterally control its contracts. If the U.S. Government suspends, cancels, or otherwise terminates our contract with them, we could experience significant revenue shortfalls, and our financial condition and business may be adversely affected

Contracts with U.S. Government agencies typically contain termination provisions unfavorable to the other party, and are subject to audit and modification by the U.S. government at its sole discretion, which will subject us to additional risks. These risks include the ability of the U.S. Government to unilaterally:

~~audit or object to our contract-related costs and fees, and require us to reimburse all such costs and fees;~~

~~suspend or prevent us for a set period of time from receiving new contracts or extending our existing contracts based on violations or suspected violations of laws or regulations;~~

~~cancel, terminate or suspend our contracts based on violations or suspected violations of laws or regulations;~~

~~terminate our contracts if in the Government’s best interest, including if funds become unavailable to the applicable governmental agency;~~

~~reduce the scope and value of our contracts; and~~

~~change certain terms and conditions in our contracts.~~

BARDA is able to terminate its contracts with us, either for its best interests or if we default by failing to perform in accordance with or to achieve the milestones set forth in the contract schedules and terms. Termination-for-convenience provisions generally enable us to recover only our costs incurred or committed and settlement expenses on the work completed prior to termination. Changes to, or an unexpected termination of this contract could result in significant revenue shortfalls. If revenue shortfalls occur and are not offset by corresponding reductions in expenses, our business could be adversely affected. We cannot anticipate if, when or to what extent BARDA might revise, alter or terminate its contract with us in the future.

Under our contract with BARDA, our operations, and those of our contractors, are subject to audit by the U.S. Government, a negative outcome to which could adversely affect our financial conditions and business operations

U.S. government agencies, such as the Department of Health and Human Services, or DHHS, and the Defense Contract Audit Agency, or the DCAA, routinely audit and investigate government contractors and recipients of federal grants. These agencies evaluate a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards.

The DHHS and the DCAA also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a contract will not be reimbursed, while such costs already reimbursed must generally be repaid. If an audit identifies improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including, but not limited to:

~~termination of contracts;~~

~~forfeiture of profits;~~

~~suspension of payments;~~

~~fines; and~~

~~suspension or prohibition from conducting business with the United States government.~~

*Material weakness in our internal control over financial reporting*

We have identified a material weakness in our internal control over financial reporting as of December 31, 2013, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting.

~~Index~~

Our management concluded that our internal control over financial reporting was ineffective as of December 31, 2013 because a material weakness existed in our internal control over financial reporting related to related to the recognition and measurement of revenue in accordance with U.S. generally accepted accounting principles. Specifically, our controls did not operate effectively to aggregate and communicate information necessary to (i) verify that the collection of accounts receivable was reasonably assured and (ii) evaluate whether contractual provisions were satisfied in order to recognize revenue. See Part I, Item 4—Controls and Procedures.

In order to remediate the material weakness in our internal control over financial reporting, we implemented a remediation plan to improve our systems of disclosure controls and procedures and internal control over financial reporting. This remediation plan includes (i) reevaluating our processes for the recognition of revenue at our Japan subsidiary, (ii) relocating to our Japan subsidiary a qualified individual with appropriate experience to assist with our review of revenue arrangements in accordance with U.S. generally accepted accounting principles and to help facilitate better communication with our Japan subsidiary, and (iii) enhancing our assessment of collectability over our customers to ensure that adequate evidence of collectability is obtained prior to the recognition of revenue. We expect that our remediation efforts, including design, implementation and testing will continue throughout fiscal year 2014. The material weakness will not be considered remediated until our controls are operational for a period of time, tested, and management concludes that these controls are operating effectively.

basis. If we are unable to ~~effectively remediate this material weakness in a timely manner,~~obtain the Stockholder Approval or refinance our outstanding debt under our Loan Agreement, or if ~~we identify one or more additional material weaknesses in~~any of the ~~future, investors could lose confidence in~~other closing conditions to the ~~accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common stock.~~

~~We depend on a few key officers~~

Our performance is substantially dependent on the performance of our executive officers and other key scientific and sales staff, including Marc H. Hedrick, MD, our President and Chief Executive Officer. We rely upon them for strategic business decisions and guidance. We believe that our future success in developing marketable products and achieving a competitive position will depend in large part upon whether we can attract and retain additional qualified management and scientific personnel. Competition for such personnel is intense, and there can be no assurance thatsecond closing are not satisfied, we will not be able to ~~continue~~sell up to ~~attract~~$5.6 million of units we will offer and ~~retain such personnel. The loss of~~ the ~~services of one or more of our executive officers or key scientific staff, or the inability~~proceeds to ~~attract and retain additional personnel and develop expertise as needed could have a substantial negative effect on our results of operations and financial condition.~~

~~We may not have enough product liability insurance~~

~~The testing, manufacturing, marketing, and sale of our regenerative cell products involve an inherent risk that product liability claims~~us from this offering will be asserted against us, our distribution partners, or licensees. There can be no guarantee that our clinical trial and commercial product liability insurance is adequate or will continue to be available in sufficient amounts or at an acceptable cost, if at all. A product liability claim, product recall, or other claim, as well as any claims for uninsured liabilities or in excess of insured liabilities, could have a substantial negative effect on our results of operations and financial condition. Also, well-publicized claims could cause our stock to fall sharply, even before the merits of the claims are decided by a court.reduced accordingly.

~~Risks Related to Ownership of our Common Stock~~

~~The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation~~

The market price of our common stock may be subject to significant fluctuations. Among the factors that may cause the market price of our common stock to fluctuate are the risks described in this “Risk Factors” section and other factors, including:

~~fluctuations in our operating results or the operating results of our competitors;~~

~~changes in estimates of our financial results or recommendations by securities analysts;~~

~~variance in our financial performance from the expectations of securities analysts;~~

~~changes in the estimates of the future size and growth rate of our markets;~~

~~changes in accounting principles or changes in interpretations of existing principles, which could affect our financial results;~~

~~conditions and trends in the markets we serve;~~

~~changes in general economic, industry and market conditions;~~

~~success of competitive products and services;~~

~~changes in market valuations or earnings of our competitors;~~

~~announcements of significant new products, contracts, acquisitions or strategic alliances by us or our competitors;~~

~~the timing and outcome of regulatory reviews and approvals of our products;~~

~~the commencement or outcome of litigation involving our company, our general industry or both;~~

~~changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;~~

~~Index~~

~~actual or expected sales of our common stock by the holders of our common stock; and~~

~~the trading volume of our common stock.~~

In addition, the stock market in general, the NASDAQ Global Market and the market for cell therapy development companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, our financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our financial condition and results of operations.

~~Future sales of our common stock may depress our share price~~

As of September 30, 2014, we had 83,574,164 shares of our common stock outstanding. Sales of a number of shares of common stock in the public market, or the expectation of such sales, could cause the market price of our common stock to decline. Since that date we have sold preferred shares that are exercisable for 25,961,541 shares of common stock and we issued warrants exercisable for an additional 25,961,541 shares of common stock. We may also sell additional common stock in subsequent public offerings, which may adversely affect the market price of our common stock.

We have granted demand registration rights for the resale of certain shares of our common stock to each of Olympus Corporation, Astellas Pharma Inc. and Green Hospital Supply, Inc. pursuant to common stock purchase agreements previously entered into with each of these stockholders. An aggregate of 5,528,571 shares of our common stock are subject to these demand registration rights. If we receive a written request from any of these stockholders to file a registration statement under the Securities Act covering its shares of unregistered common stock, we are required to use reasonable efforts to prepare and file with the SEC within 30 business days of such request a registration statement covering the resale of the shares for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act.

~~Our charter documents contain anti-takeover provisions~~

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws could discourage, delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable. These provisions could also prevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors. Stockholders who wish to participate in these transactions may not have the opportunity to do so. These provisions:

~~authorize our Board of Directors to issue without stockholder approval up to 5,000,000 shares of preferred stock, the rights of which will be determined at the discretion of the Board of Directors;~~

~~require that stockholder actions must be effected at a duly called stockholder meeting and cannot be taken by written consent;~~

~~establish advance notice requirements for stockholder nominations to our Board of Directors or for stockholder proposals that can be acted on at stockholder meetings; and~~

~~limit who may call stockholder meetings.~~

We are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed period of time.

~~We pay no dividends in connection with our common stock~~

~~We have never paid cash dividends in the past, and currently do not intend to pay any cash dividends in connection with our common stock in the foreseeable future. Furthermore, our~~ ~~Loan Agreement with the Lenders currently prohibits our issuance of cash dividends.~~ ~~This could make an investment in our company inappropriate for some investors, and may serve to narrow our potential sources of additional capital.~~

If securities and/or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.

~~Index~~

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

None

Index

Item 4.

Mine Safety Disclosures

None

Item 5.

Other Information

None

~~Index~~

~~Item 6.~~

Item 6.

Exhibits

Refer to the Exhibit Index immediately following the signature page, which is incorporated herein by reference.

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Exhibit No.~~			~~Description~~CYTORI THERAPEUTICS, INC.

~~4.1~~	By:	/s/ Marc H. Hedrick
Dated: May 11, 2015		Marc H. Hedrick
		President & Chief Executive Officer

	By:	/s/ Tiago Girao
Dated: May 11, 2015		Tiago Girao
		VP of Finance and Chief Financial Officer

Index

Exhibits Index

Exhibit No.	Description


3.1	Composite Certificate of Incorporation (incorporated by reference to our Annual Report on Form 10-K filed with the Commission on March 16, 2015)

3.2	Amended and Restated Bylaws of Cytori Therapeutics, Inc. (incorporated by reference to our Quarterly Report on Form 10-Q filed with the Commission on August 14, 2003)

3.3	Amendment to ~~Warrant to Purchase Common Stock~~Amended and Restated Bylaws of Cytori Therapeutics, Inc. (incorporated by reference to our Current Report on Form 8-K filed with the Commission on ~~September 8,~~May 6, 2014).

~~4.2~~ 10.1		~~Form of Warrant~~Amendment One to the Securities Purchase ~~Common Stock (incorporated by reference to our Current Report on Form 8-K filed with the Commission on September 8, 2014).~~

~~10.99~~		~~Contract HHSO100201200008C Amendment No. 1~~Agreement, dated ~~August 13, 2014, by and~~March 16, 2015, between the Company and the U.S. Department of Health and Human Services Biomedical Advanced Research and Development Authority (incorporated by reference to our Current Report on Form 8-K filed with the Commission on August 19, 2014)certain institutional investors (filed herewith).

~~10.100~~		~~Offer Letter dated August 11, 2014, containing compensation terms for Mr. Tiago Girao, VP of Finance and Chief Financial Officer.~~

~~10.101~~		~~Letter Agreement dated September 19, 2014, by and among the Company, Oxford Finance LLC and Silicon Valley Bank.~~

~~10.102~~		~~Second Amendment to Loan and Security Agreement dated September 29, 2014, by and among the Company, Oxford Finance LLC and Silicon Valley Bank.~~

~~10.103~~		~~Confidential Separation Agreement and General Release of all claims dated October 2, 2014, by and among the Company, and Clyde Shores.~~

31.1		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1*		Certifications Pursuant to 18 U.S.C. Section 1350/ Securities Exchange Act Rule 13a-14(b), as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (filed herewith).

101.INS	XBRL Instance Document

~~101.INS~~ 101.SCH		XBRL ~~Instance~~Schema Document

~~101.SCH~~ 101.CAL		XBRL ~~Schema~~Calculation Linkbase Document

~~101.CAL~~ 101.LAB		XBRL ~~Calculation~~Label Linkbase Document

~~101.LAB~~ 101.PRE		~~XBRL Label Linkbase Document~~

~~101.PRE~~		XBRL Presentation Linkbase Document

* These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350 and are not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

~~Index~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

	~~CYTORI THERAPEUTICS, INC.~~

	~~By:~~	~~/s/ Marc H. Hedrick~~
~~Dated: November 6, 2014~~		~~Marc. H. Hedrick~~
		~~President & Chief Executive Officer~~

	~~By:~~	~~/s/ Tiago Girao~~
~~Dated: November 6, 2014~~		~~Tiago Girao~~
		~~VP of Finance and Chief Financial Officer~~

	Useful Life (in years)		Estimated Fair Value
Intangible assets:
Developed technology		7	$	9,394,000

	Estimated Fair Value
Current assets	$	236
Property and equipment		260
Intangible assets		9,394
Total assets acquired		9,890

Accrued and other current liabilities		(33	)

Total fair value of the Joint Venture	$	9,857