Fibrocell Science (FCSC) 10-Q 2009 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Isolagen, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation) 001-31564
(Commission File Number) 87-0458888
(I.R.S. Employer
Identification No.)

405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of principal executive offices, including zip code)

(484) 713-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for any 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.þ Yeso No

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 registrant was required to submit and post such files.) Yeso 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 definition of “accelerated filer, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero Accelerated filero Non-accelerated filero Smaller reporting companyþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yesþ No

As of May 13, 2009, issuer had 42,820,380 shares of issued and 38,820,380 shares outstanding common stock, par value $0.001.

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 2009 (unaudited) and December 31, 2008 (unaudited)		1
Consolidated Statements of Operations Three months ended March 31, 2009 (unaudited), March 31, 2008 (unaudited) and cumulative period from inception to March 31, 2009 (unaudited)		2
Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Loss From inception to March 31, 2009 (unaudited)		3
Consolidated Statements of Cash Flows Three months ended March 31, 2009 (unaudited) and March 31, 2008 (unaudited) and cumulative period from inception to March 31, 2009 (unaudited)		14
Notes to Unaudited Consolidated Financial Statements		15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3. Quantitative and Qualitative Disclosures About Market Risk		47
Item 4. Controls and Procedures		47
Part II. Other Information
Item 1. Legal Proceedings		47
Item 1A. Risk Factors		47
Item 6. Exhibits		49
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Isolagen, Inc.
(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	768,042		$	2,854,300
Accounts receivable, net		290,220			338,850
Inventory, net		468,851			467,246
Prepaid expenses		527,439			738,652
Other current assets, net of amortization of $3,309,137 and $3,121,828, respectively		437,056			624,365
Current assets of discontinued operations, net		17,036			29,992
Total current assets		2,508,644			5,053,405
Total assets	$	2,508,644		$	5,053,405
Liabilities, Minority Interests and Shareholders’ Deficit
Current liabilities:
Current debt	$	89,704,795		$	90,072,286
Accounts payable		190,695			415,909
Accrued expenses		2,365,294			1,647,713
Deferred revenue		—			7,522
Current liabilities of discontinued operations		202,707			209,458
Total current liabilities		92,463,491			92,352,888
Other long term liabilities of continuing operations		1,143,237			1,171,638
Total liabilities		93,606,728			93,524,526
Commitments and contingencies (see Note 7)
Equity
Isolagen, Inc. shareholders’ deficit:
Preferred stock, $.001 par value; 5,000,000 shares authorized		—			—
Series C junior participating preferred stock, $.001 par value; 10,000 shares authorized		—			—
Common stock, $.001 par value; 100,000,000 shares authorized		41,677			41,639
Additional paid-in capital		131,825,733			131,341,227
Treasury stock, at cost, 4,000,000 shares		(25,974,000	)		(25,974,000	)
Accumulated deficit during development stage		(197,154,915	)		(194,057,337	)
Total Isolagen, Inc. shareholders’ deficit		(91,261,505	)		(88,648,471	)
Noncontrolling interest		163,421			177,350
Total equity deficit		(91,098,084	)		(88,471,121	)
Total liabilities and equity deficit	$	2,508,644		$	5,053,405

The accompanying notes are an integral part of these consolidated financial statements.

1

Isolagen, Inc.
(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

							Cumulative
							Period from
							December 28,
							1995 (date of
	Three Months Ended						inception) to
	March 31,						March 31,
	2009			2008			2009
Revenue
Product sales	$	158,889		$	217,953		$	4,439,263
License fees		—			—			260,000
Total revenue		158,889			217,953			4,699,263
Cost of sales		63,790			170,975			1,918,986
Gross profit		95,099			46,978			2,780,277
Selling, general and administrative expenses		1,199,564			3,944,838			82,577,710
Research and development		1,007,907			2,893,856			55,170,058
Operating loss		(2,112,372	)		(6,791,716	)		(134,967,491	)
Other income (expense)
Interest income		240			86,632			6,989,531
Other income		—			—			322,581
Interest expense		(972,875	)		(974,810	)		(17,530,955	)
Loss from continuing operations before income taxes		(3,085,007	)		(7,679,894	)		(145,186,334	)
Income tax benefit		—			—			190,754
Loss from continuing operations		(3,085,007	)		(7,679,894	)		(144,995,580	)
Loss from discontinued operations, net of tax (see Notes 3 and 5)		(26,500	)		(4,323,613	)		(41,164,734	)
Net loss		(3,111,507	)		(12,003,507	)		(186,160,314	)
Deemed dividend associated with beneficial conversion		—			—			(11,423,824	)
Preferred stock dividends		—			—			(1,589,861	)
Plus: Net loss attributable to noncontrolling interest		13,929			38,585			2,019,084
Net loss attributable to Isolagen, Inc. common shareholders	$	(3,097,578	)	$	(11,964,922	)	$	(197,154,915	)
Per share information:
Loss from continuing operations—basic and diluted	$	(0.08	)	$	(0.20	)	$	(8.52	)
Loss from discontinued operations—basic and diluted		—			(0.12	)		(2.42	)
Loss attributable to noncontrolling interest		—			—			0.12
Deemed dividend associated with beneficial conversion of preferred stock		—			—			(0.67	)
Preferred stock dividends		—			—			(0.09	)
Net loss attributable to common shareholders per common share—basic and diluted	$	(0.08	)	$	(0.32	)	$	(11.58	)
Weighted average number of basic and diluted common shares outstanding		37,663,283			37,639,525			17,018,357

The accompanying notes are an integral part of these consolidated financial statements.

2

Isolagen, Inc.
(A Development Stage Company)

Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss)

																						Accumulated
	Series A				Series B																	Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock				Accumulated Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of				Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount		Income		Stage			(Deficit)
Issuance of common stock for cash on 12/28/95		—	$	—		—	$	—		2,285,291	$	2,285	$	(1,465	)		—	$	—	$	—	$	—		$	820
Issuance of common stock for cash on 11/7/96		—		—		—		—		11,149		11		49,989			—		—		—		—			50,000
Issuance of common stock for cash on 11/29/96		—		—		—		—		2,230		2		9,998			—		—		—		—			10,000
Issuance of common stock for cash on 12/19/96		—		—		—		—		6,690		7		29,993			—		—		—		—			30,000
Issuance of common stock for cash on 12/26/96		—		—		—		—		11,148		11		49,989			—		—		—		—			50,000
Net loss		—		—		—		—		—		—		—			—		—		—		(270,468	)		(270,468	)
Balance, 12/31/96		—	$	—		—	$	—		2,316,508	$	2,316	$	138,504			—	$	—	$	—	$	(270,468	)	$	(129,648	)
Issuance of common stock for cash on 12/27/97		—		—		—		—		21,182		21		94,979			—		—		—		—			95,000
Issuance of common stock for services on 9/1/97		—		—		—		—		11,148		11		36,249			—		—		—		—			36,260
Issuance of common stock for services on 12/28/97		—		—		—		—		287,193		287		9,968			—		—		—		—			10,255
Net loss		—		—		—		—		—		—		—			—		—		—		(52,550	)		(52,550	)
Balance, 12/31/97		—	$	—		—	$	—		2,636,031	$	2,635	$	279,700			—	$	—	$	—	$	(323,018	)	$	(40,683	)

The accompanying notes are an integral part of these consolidated financial statements.

3

																							Accumulated
	Series A				Series B																Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income		Stage			(Deficit)
Issuance of common stock for cash on 8/23/98		—	$	—		—	$	—		4,459	$	4	$	20,063			—	$	—		$	—	$	—		$	20,067
Repurchase of common stock on 9/29/98		—		—		—		—		—		—		—			2,400		(50,280	)		—		—			(50,280	)
Net loss		—		—		—		—		—		—		—			—		—			—		(195,675	)		(195,675	)
Balance, 12/31/98		—	$	—		—	$	—		2,640,490	$	2,639	$	299,763			2,400	$	(50,280	)	$	—	$	(518,693	)	$	(266,571	)
Issuance of common stock for cash on 9/10/99		—		—		—		—		52,506		53		149,947			—		—			—		—			150,000
Net loss		—		—		—		—		—		—		—			—		—			—		(1,306,778	)		(1,306,778	)
Balance, 12/31/99		—	$	—		—	$	—		2,692,996	$	2,692	$	449,710			2,400	$	(50,280	)	$	—	$	(1,825,471	)	$	(1,423,349	)
Issuance of common stock for cash on 1/18/00		—		—		—		—		53,583		54		1,869			—		—			—		—			1,923
Issuance of common stock for services on 3/1/00		—		—		—		—		68,698		69		(44	)		—		—			—		—			25
Issuance of common stock for services on 4/4/00		—		—		—		—		27,768		28		(18	)		—		—			—		—			10
Net loss		—		—		—		—		—		—		—			—		—			—		(807,076	)		(807,076	)
Balance, 12/31/00		—	$	—		—	$	—		2,843,045	$	2,843	$	451,517			2,400	$	(50,280	)	$	—	$	(2,632,547	)	$	(2,228,467	)

The accompanying notes are an integral part of these consolidated financial statements.

4

																							Accumulated
	Series A				Series B																Accumulated		Deficit		Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During		Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development		Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares			Amount		Income		Stage		(Deficit)
Issuance of common stock for services on 7/1/01		—	$	—		—	$	—		156,960	$	157	$	(101	)		—		$	—	$	—	$	—	$	56
Issuance of common stock for services on 7/1/01		—		—		—		—		125,000		125		(80	)		—			—		—		—		45
Issuance of common stock for capitalization of accrued salaries on 8/10/01		—		—		—		—		70,000		70		328,055			—			—		—		—		328,125
Issuance of common stock for conversion of convertible debt on 8/10/01		—		—		—		—		1,750,000		1,750		1,609,596			—			—		—		—		1,611,346
Issuance of common stock for conversion of convertible shareholder notes payable on 8/10/01		—		—		—		—		208,972		209		135,458			—			—		—		—		135,667
Issuance of common stock for bridge financing on 8/10/01		—		—		—		—		300,000		300		(192	)		—			—		—		—		108
Retirement of treasury stock on 8/10/01		—		—		—		—		—		—		(50,280	)		(2,400	)		50,280		—		—		—
Issuance of common stock for net assets of Gemini on 8/10/01		—		—		—		—		3,942,400		3,942		(3,942	)		—			—		—		—		—
Issuance of common stock for net assets of AFH on 8/10/01		—		—		—		—		3,899,547		3,900		(3,900	)		—			—		—		—		—
Issuance of common stock for cash on 8/10/01		—		—		—		—		1,346,669		1,347		2,018,653			—			—		—		—		2,020,000
Transaction and fund raising expenses on 8/10/01		—		—		—		—		—		—		(48,547	)		—			—		—		—		(48,547	)
Issuance of common stock for services on 8/10/01		—		—		—		—		60,000		60		—			—			—		—		—		60
Issuance of common stock for cash on 8/28/01		—		—		—		—		26,667		27		39,973			—			—		—		—		40,000
Issuance of common stock for services on 9/30/01		—		—		—		—		314,370		314		471,241			—			—		—		—		471,555

The accompanying notes are an integral part of these consolidated financial statements.

5

																					Accumulated
	Series A				Series B														Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock				Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In		Number of				Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount		Income		Stage			(Deficit)
Uncompensated contribution of services—3rd quarter		—	$	—		—	$	—		—	$	—	$	55,556		—	$	—	$	—	$	—		$	55,556
Issuance of common stock for services on 11/1/01		—		—		—		—		145,933		146		218,754		—		—		—		—			218,900
Uncompensated contribution of services—4th quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Net loss		—		—		—		—		—		—		—		—		—		—		(1,652,004	)		(1,652,004	)
Balance, 12/31/01		—	$	—		—	$	—		15,189,563	$	15,190	$	5,321,761		—	$	—	$	—	$	(4,284,551	)	$	1,052,400
Uncompensated contribution of services—1st quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for cash on 4/26/02		905,000		905		—		—		—		—		2,817,331		—		—		—		—			2,818,236
Issuance of preferred stock for cash on 5/16/02		890,250		890		—		—		—		—		2,772,239		—		—		—		—	��		2,773,129
Issuance of preferred stock for cash on 5/31/02		795,000		795		—		—		—		—		2,473,380		—		—		—		—			2,474,175
Issuance of preferred stock for cash on 6/28/02		229,642		230		—		—		—		—		712,991		—		—		—		—			713,221
Uncompensated contribution of services—2nd quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for cash on 7/15/02		75,108		75		—		—		—		—		233,886		—		—		—		—			233,961
Issuance of common stock for cash on 8/1/02		—		—		—		—		38,400		38		57,562		—		—		—		—			57,600
Issuance of warrants for services on 9/06/02		—		—		—		—		—		—		103,388		—		—		—		—			103,388
Uncompensated contribution of services—3rd quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Uncompensated contribution of services—4th quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for dividends		143,507		144		—		—		—		—		502,517		—		—		—		(502,661	)		—
Deemed dividend associated with beneficial conversion of preferred stock		—		—		—		—		—		—		10,178,944		—		—		—		(10,178,944	)		—
Comprehensive income:
Net loss		—		—		—		—		—		—		—		—		—		—		(5,433,055	)		(5,433,055	)
Other comprehensive income, foreign currency translation adjustment		—		—		—		—		—		—		—		—		—		13,875		—			13,875
Comprehensive loss		—		—		—		—		—		—		—		—		—		—		—			(5,419,180	)
Balance, 12/31/02		3,038,507	$	3,039		—	$	—		15,227,963	$	15,228	$	25,573,999		—	$	—	$	13,875	$	(20,399,211	)	$	5,206,930

The accompanying notes are an integral part of these consolidated financial statements.

6

																												Accumulated
	Series A						Series B																			Accumulated		Deficit			Total
	Preferred Stock						Preferred Stock						Common Stock						Additional			Treasury Stock				Other		During			Shareholders’
	Number of						Number of						Number of						Paid-In			Number of				Comprehensive		Development			Equity
	Shares			Amount			Shares			Amount			Shares			Amount			Capital			Shares		Amount		Income		Stage			(Deficit)
Issuance of common stock for cash on 1/7/03		—		$	—			—		$	—			61,600		$	62		$	92,338			—	$	—	$	—	$	—		$	92,400
Issuance of common stock for patent pending acquisition on 3/31/03		—			—			—			—			100,000			100			539,900			—		—		—		—			540,000
Cancellation of common stock on 3/31/03		—			—			—			—			(79,382	)		(79	)		(119,380	)		—		—		—		—			(119,459	)
Uncompensated contribution of services—1st quarter		—			—			—			—			—			—			100,000			—		—		—		—			100,000
Issuance of preferred stock for cash on 5/9/03		—			—			110,250			110			—			—			2,773,218			—		—		—		—			2,773,328
Issuance of preferred stock for cash on 5/16/03		—			—			45,500			46			—			—			1,145,704			—		—		—		—			1,145,750
Conversion of preferred stock into common stock—2nd qtr		(70,954	)		(72	)		—			—			147,062			147			40,626			—		—		—		—			40,701
Conversion of warrants into common stock—2nd qtr		—			—			—			—			114,598			114			(114	)		—		—		—		—			—
Uncompensated contribution of services—2nd quarter		—			—			—			—			—			—			100,000			—		—		—		—			100,000
Issuance of preferred stock dividends		—			—			—			—			—			—			—			—		—		—		(1,087,200	)		(1,087,200	)
Deemed dividend associated with beneficial conversion of preferred stock		—			—			—			—			—			—			1,244,880			—		—		—		(1,244,880	)		—
Issuance of common stock for cash—3rd qtr		—			—			—			—			202,500			202			309,798			—		—		—		—			310,000
Issuance of common stock for cash on 8/27/03		—			—			—			—			3,359,331			3,359			18,452,202			—		—		—		—			18,455,561
Conversion of preferred stock into common stock—3rd qtr		(2,967,553	)		(2,967	)		(155,750	)		(156	)		7,188,793			7,189			(82,875	)		—		—		—		—			(78,809	)
Conversion of warrants into common stock—3rd qtr		—			—			—			—			212,834			213			(213	)		—		—		—		—			—
Compensation expense on warrants issued to non-employees		—			—			—			—			—			—			412,812			—		—		—		—			412,812
Issuance of common stock for cash—4th qtr		—			—			—			—			136,500			137			279,363			—		—		—		—			279,500
Conversion of warrants into common stock—4th qtr		—			—			—			—			393			—			—			—		—		—		—			—
Comprehensive income:
Net loss		—			—			—			—			—			—			—			—		—		—		(11,268,294	)		(11,268,294	)
Other comprehensive income, foreign currency translation adjustment		—			—			—			—			—			—			—			—		—		360,505		—			360,505
Comprehensive loss		—			—			—			—			—			—			—			—		—		—		—			(10,907,789	)
Balance, 12/31/03		—		$	—			—		$	—			26,672,192		$	26,672		$	50,862,258			—	$	—	$	374,380	$	(33,999,585	)	$	17,263,725

The accompanying notes are an integral part of these consolidated financial statements.

7

																							Accumulated
	Series A				Series B																Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During			Shareholders’
	Number				Number of				Number of				Paid-In			Number of					Comprehensive		Development			Equity
	of Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income		Stage			(Deficit)
Conversion of warrants into common stock—1st qtr		—	$	—		—	$	—		78,526	$	79	$	(79	)		—	$	—		$	—	$	—		$	—
Issuance of common stock for cash in connection with exercise of stock options—1st qtr		—		—		—		—		15,000		15		94,985			—		—			—		—			95,000
Issuance of common stock for cash in connection with exercise of warrants—1st qtr		—		—		—		—		4,000		4		7,716			—		—			—		—			7,720
Compensation expense on options and warrants issued to non-employees and directors—1st qtr		—		—		—		—		—		—		1,410,498			—		—			—		—			1,410,498
Issuance of common stock in connection with exercise of warrants—2nd qtr		—		—		—		—		51,828		52		(52	)		—		—			—		—			—
Issuance of common stock for cash—2nd qtr		—		—		—		—		7,200,000		7,200		56,810,234			—		—			—		—			56,817,434
Compensation expense on options and warrants issued to non-employees and directors—2nd qtr		—		—		—		—		—		—		143,462			—		—			—		—	��		143,462
Issuance of common stock in connection with exercise of warrants—3rd qtr		—		—		—		—		7,431		7		(7	)		—		—			—		—			—
Issuance of common stock for cash in connection with exercise of stock options—3rd qtr		—		—		—		—		110,000		110		189,890			—		—			—		—			190,000
Issuance of common stock for cash in connection with exercise of warrants—3rd qtr		—		—		—		—		28,270		28		59,667			—		—			—		—			59,695
Compensation expense on options and warrants issued to non-employees and directors—3rd qtr		—		—		—		—		—		—		229,133			—		—			—		—			229,133
Issuance of common stock in connection with exercise of warrants—4th qtr		—		—		—		—		27,652		28		(28	)		—		—			—		—			—
Compensation expense on options and warrants issued to non-employees, employees, and directors—4th qtr		—		—		—		—		—		—		127,497			—		—			—		—			127,497
Purchase of treasury stock—4th qtr		—		—		—		—		—		—		—			4,000,000		(25,974,000	)		—		—			(25,974,000	)
Comprehensive income:
Net loss		—		—		—		—		—		—		—			—		—			—		(21,474,469	)		(21,474,469	)
Other comprehensive income, foreign currency translation adjustment		—		—		—		—		—		—		—			—		—			79,725		—			79,725
Other comprehensive income, net unrealized gain on available-for-sale investments		—		—		—		—		—		—		—			—		—			10,005		—			10,005
Comprehensive loss		—		—		—		—		—		—		—			—		—			—		—			(21,384,739	)
Balance, 12/31/04		—	$	—		—	$	—		34,194,899	$	34,195	$	109,935,174			4,000,000	$	(25,974,000	)	$	464,110	$	(55,474,054	)	$	28,985,425

The accompanying notes are an integral part of these consolidated financial statements.

8

																								Accumulated
	Series A				Series B																Accumulated			Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other			During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive			Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income (Loss)			Stage			(Deficit)
Issuance of common stock for cash in connection with exercise of stock options—1st qtr		—	$	—		—	$	—		25,000	$	25	$	74,975			—	$	—		$	—		$	—		$	75,000
Compensation expense on options and warrants issued to non-employees—1st qtr		—		—		—		—		—		—		33,565			—		—			—			—			33,565
Conversion of warrants into common stock—2nd qtr		—		—		—		—		27,785		28		(28	)		—		—			—			—			—
Compensation expense on options and warrants issued to non-employees—2nd qtr		—		—		—		—		—		—		(61,762	)		—		—			—			—			(61,762	)
Compensation expense on options and warrants issued to non-employees—3rd qtr		—		—		—		—		—		—		(137,187	)		—		—			—			—			(137,187	)
Conversion of warrants into common stock—3rd qtr		—		—		—		—		12,605		12		(12	)		—		—			—			—			—
Compensation expense on options and warrants issued to non-employees—4th qtr		—		—		—		—		—		—		18,844			—		—			—			—			18,844
Compensation expense on acceleration of options—4th qtr		—		—		—		—		—		—		14,950			—		—			—			—			14,950
Compensation expense on restricted stock award issued to employee—4th qtr		—		—		—		—		—		—		606			—		—			—			—			606
Conversion of predecessor company shares		—		—		—		—		94		—		—			—		—			—			—			—
Comprehensive loss:
Net loss		—		—		—		—		—		—		—			—		—			—			(35,777,584	)		(35,777,584	)
Other comprehensive loss, foreign currency translation adjustment		—		—		—		—		—		—		—			—		—			(1,372,600	)		—			(1,372,600	)
Foreign exchange gain on substantial liquidation of foreign entity																						133,851						133,851
Other comprehensive loss, net unrealized gain on available-for-sale investments		—		—		—		—		—		—		—			—		—			(10,005	)		—			(10,005	)
Comprehensive loss		—		—		—		—		—		—		—			—		—			—			—			(37,026,338	)
Balance, 12/31/05		—	$	—		—	$	—		34,260,383	$	34,260	$	109,879,125			4,000,000	$	(25,974,000	)	$	(784,644	)	$	(91,251,638	)	$	(8,096,897	)

The accompanying notes are an integral part of these consolidated financial statements.

9

																									Accumulated
	Series A				Series B																	Accumulated			Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock						Additional		Treasury Stock					Other			During						Shareholders’
	Number of				Number of				Number of						Paid-In		Number of					Comprehensive			Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Shares		Amount			Income			Stage			Interest			(Deficit)
Compensation expense on options and warrants issued to non-employees—1st qtr		—	$	—		—	$	—		—		$	—		$	42,810		—	$	—		$	—		$	—		$	—		$	42,810
Compensation expense on option awards issued to employee and directors—1st qtr		—		—		—		—		—			—			46,336		—		—			—			—			—			46,336
Compensation expense on restricted stock issued to employees—1st qtr		—		—		—		—		128,750			129			23,368		—		—			—			—			—			23,497
Compensation expense on options and warrants issued to non-employees—2nd qtr		—		—		—		—		—			—			96,177		—		—			—			—			—			96,177
Compensation expense on option awards issued to employee and directors—2nd qtr		—		—		—		—		—			—			407,012		—		—			—			—			—			407,012
Compensation expense on restricted stock to employees—2nd qtr		—		—		—		—		—			—			4,210		—		—			—			—			—			4,210
Cancellation of unvested restricted stock — 2nd qtr		—		—		—		—		(97,400	)		(97	)		97		—		—			—			—			—			—
Issuance of common stock for cash in connection with exercise of stock options—2nd qtr		—		—		—		—		10,000			10			16,490		—		—			—			—			—			16,500
Compensation expense on options and warrants issued to non-employees—3rd qtr		—		—		—		—		—			—			25,627		—		—			—			—			—			25,627
Compensation expense on option awards issued to employee and directors—3rd qtr		—		—		—		—		—			—			389,458		—		—			—			—			—			389,458
Compensation expense on restricted stock to employees—3rd qtr		—		—		—		—		—			—			3,605		—		—			—			—			—			3,605
Issuance of common stock for cash in connection with exercise of stock options—3rd qtr		—		—		—		—		76,000			76			156,824		—		—			—			—			—			156,900
Acquisition of Agera		—		—		—		—		—			—			—		—		—			—			—			2,182,505			2,182,505
Compensation expense on options and warrants issued to non-employees—4th qtr		—		—		—		—		—			—			34,772		—		—			—			—			—			34,772
Compensation expense on option awards issued to employee and directors—4th qtr		—		—		—		—		—			—			390,547		—		—			—			—			—			390,547
Compensation expense on restricted stock to employees—4th qtr		—		—		—		—		—			—			88		—		—			—			—			—			88
Cancellation of unvested restricted stock award—4th qtr		—		—		—		—		(15,002	)		(15	)		15		—		—			—			—			—			—
Comprehensive loss:
Net loss		—		—		—		—		—			—			—		—		—			—			(35,821,406	)		(78,132	)		(35,899,538	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—			—			—		—		—			657,182			—			—			657,182
Comprehensive loss		—		—		—		—		—			—			—		—		—			—			—			—			(35,242,356	)
Balance 12/31/06		—	$	—		—	$	—		34,362,731		$	34,363		$	111,516,561		4,000,000	$	(25,974,000	)	$	(127,462	)	$	(127,073,044	)	$	2,104,373		$	(39,519,209	)

The accompanying notes are an integral part of these consolidated financial statements.

10

																						Accumulated
	Series A				Series B															Accumulated		Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock					Other		During						Shareholders’
	Number of				Number of				Number of				Paid-In		Number of					Comprehensive		Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount			Income (Loss)		Stage			Interest			(Deficit)
Compensation expense on options and warrants issued to non-employees—1st qtr		—	$	—		—	$	—		—	$	—	$	39,742		—	$	—		$	—	$	—		$	—		$	39,742
Compensation expense on option awards issued to employee and directors—1st qtr		—		—		—		—		—		—		448,067		—		—			—		—			—			448,067
Compensation expense on restricted stock issued to employees—1st qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Issuance of common stock for cash in connection with exercise of stock options—1st qtr		—		—		—		—		15,000		15		23,085		—		—			—		—			—			23,100
Expense in connection with modification of employee stock options —1st qtr		—		—		—		—		—		—		1,178,483		—		—			—		—			—			1,178,483
Compensation expense on options and warrants issued to non-employees—2nd qtr		—		—		—		—		—		—		39,981		—		—			—		—			—			39,981
Compensation expense on option awards issued to employee and directors—2nd qtr		—		—		—		—		—		—		462,363		—		—			—		—			—			462,363
Compensation expense on restricted stock issued to employees—2nd qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Compensation expense on option awards issued to employee and directors—3rd qtr		—		—		—		—		—		—		478,795		—		—			—		—			—			478,795
Compensation expense on restricted stock issued to employees—3rd qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Issuance of common stock upon exercise of warrants—3rd qtr		—		—		—		—		492,613		493		893,811		—		—			—		—			—			894,304
Issuance of common stock for cash, net of offering costs—3rdqtr		—		—		—		—		6,767,647		6,767		13,745,400		—		—			—		—			—			13,752,167
Issuance of common stock for cash in connection with exercise of stock options—3rd qtr		—		—		—		—		1,666		2		3,164		—		—			—		—			—			3,166
Compensation expense on option awards issued to employee and directors—4thqtr		—		—		—		—		—		—		378,827		—		—			—		—			—			378,827
Compensation expense on restricted stock issued to employees—4thqtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—		—			—		(35,573,114	)		(246,347	)		(35,819,461	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—		—		—		—		—			846,388		—			—			846,388
Comprehensive loss		—		—		—		—		—		—		—		—		—			—		—			—			(34,973,073	)
Balance 12/31/07		—	$	—		—	$	—		41,639,657	$	41,640	$	129,208,631		4,000,000	$	(25,974,000	)	$	718,926	$	(162,646,158	)	$	1,858,026		$	(56,792,935	)

The accompanying notes are an integral part of these consolidated financial statements.

11

																										Accumulated
	Series A				Series B																		Accumulated			Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock						Additional			Treasury Stock					Other			During						Shareholders’
	Number of				Number of				Number of						Paid-In			Number of					Comprehensive			Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Shares		Amount			Income (Loss)			Stage			Interest			(Deficit)
Compensation expense on vested options related to non-employees—1st qtr		—	$	—		—	$	—		—		$	—		$	44,849			—	$	—		$	—		$	—		$	—		$	44,849
Compensation expense on option awards issued to employee and directors—1st qtr		—		—		—		—		—			—			151,305			—		—			—			—			—			151,305
Expense in connection with modification of employee stock options —1st qtr		—		—		—		—		—			—			1,262,815			—		—			—			—			—			1,262,815
Retirement of restricted stock		—		—		—		—		(165	)		(1	)		—			—		—			—			—			—			(1	)
Compensation expense on vested options related to non-employees—2nd qtr		—		—		—		—		—			—			62,697			—		—			—			—			—			62,697
Compensation expense on option awards issued to employee and directors—2nd qtr		—		—		—		—		—			—			193,754			—		—			—			—			—			193,754
Compensation expense on vested options related to non-employees—3rd qtr		—		—		—		—		—			—			166,687			—		—			—			—			—			166,687
Compensation expense on option awards issued to employee and directors—3rd qtr		—		—		—		—		—			—			171,012			—		—			—			—			—			171,012
Compensation expense on vested options related to non-employees—4th qtr		—		—		—		—		—			—			(86,719	)		—		—			—			—			—			(86,719	)
Compensation expense on option awards issued to employee and directors—4th qtr		—		—		—		—		—			—			166,196			—		—			—			—			—			166,196
Comprehensive loss:
Net loss		—		—		—		—		—			—			—			—		—			—			(31,411,179	)		(1,680,676	)		(33,091,855	)
Reclassification of foreign exchange gain on substantial liquidation of foreign entities		—		—		—		—		—			—			—			—		—			(2,152,569	)		—			—			(2,152,569	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—			—			—			—		—			1,433,643			—			—			1,433,643
Comprehensive loss		—		—		—		—		—			—			—			—		—			—			—			—			(33,810,781	)
Balance 12/31/08		—	$	—		—	$	—		41,639,492		$	41,639		$	131,341,227			4,000,000	$	(25,974,000	)	$	—		$	(194,057,337	)	$	177,350		$	(88,471,121	)

The accompanying notes are an integral part of these consolidated financial statements.

12

																						Accumulated
	Series A				Series B															Accumulated		Deficit
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock					Other		During						Total
	Number of				Number of				Number of				Paid-In		Number of					Comprehensive		Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount			Income (Loss)		Stage			Interest			(Deficit)
Compensation expense on vested options related to non-employees—1st qtr		—	$	—		—	$	—		—	$	—	$	1,746		—	$	—		$	—	$	—		$	—		$	1,746
Compensation expense on option awards issued to employee and directors—1st qtr		—		—		—		—		—		—		138,798		—		—			—		—			—			138,798
Conversion of debt into common stock — 1st qtr 2009		—		—		—		—		37,564		38		343,962		—		—			—		—			—			344,000
Comprehensive loss:
Net loss		—		—		—		—		—		—		—		—		—			—		(3,097,578	)		(13,929	)		(3,111,507	)
Comprehensive loss		—		—		—		—		—		—		—		—		—			—		—			—			(3,111,507	)
Balance 03/31/09		—	$	—		—	$	—		41,677,056	$	41,677	$	131,825,733		4,000,000	$	(25,974,000	)	$	—	$	(197,154,915	)	$	163,421		$	(91,098,084	)

The accompanying notes are an integral part of these consolidated financial statements.

13

Isolagen, Inc.
(A Development Stage Company)

Consolidated Statements of Cash Flows (Unaudited)

							Cumulative
							Period from
							December 28,
							1995 (date of
							inception) to
	March 31,						March 31,
	2009			2008			2009
Cash flows from operating activities:
Net loss	$	(3,097,578	)	$	(11,964,922	)	$	(184,141,230	)
Adjustments to reconcile net loss to net cash used in operating activities:
Expense related to equity awards		140,544			1,458,969			10,166,090
Uncompensated contribution of services		—			—			755,556
Depreciation and amortization		—			367,541			9,091,990
Provision for doubtful accounts		252			6,441			337,561
Provision for excessive and/or obsolete inventory		—			59,972			90,342
Amortization of debt issue costs		187,310			187,310			3,309,140
Amortization of debt discounts on investments		—			—			(508,983	)
Loss on disposal or impairment of property and equipment		—			6,329,556			17,668,477
Foreign exchange loss (gain) on substantial liquidation of foreign entity		20,156			(2,145,731	)		(2,266,264	)
Net loss attributable to non-controlling interests		(13,929	)		(38,585	)		(2,019,084	)
Change in operating assets and liabilities, excluding effects of acquisition:
Decrease in restricted cash		—			272,284			—
Decrease (increase) in accounts receivable		48,378			34,183			(134,784	)
Decrease in other receivables		10,587			727			205,933
Increase in inventory		(1,605	)		(33,404	)		(486,430	)
Decrease (increase) in prepaid expenses		211,212			150,001			(382,644	)
Decrease (increase) in other assets		—			(12	)		183,441
Increase (decrease) in accounts payable		(225,214	)		383,462			63,026
Increase (decrease) in accrued expenses and other liabilities		684,472			(551,034	)		2,127,862
Decrease in deferred revenue		(7,522	)		—-			(50,096	)
Net cash used in operating activities		(2,042,937	)		(5,483,242	)		(145,990,097	)
Cash flows from investing activities:
Acquisition of Agera, net of cash acquired		—			—			(2,016,520	)
Purchase of property and equipment		—			(16,880	)		(25,515,170	)
Proceeds from the sale of property and equipment, net of selling costs		—			5,859,069			6,542,434
Purchase of investments		—			—			(152,998,313	)
Proceeds from sales and maturities of investments		—			—			153,507,000
Net cash provided by (used in) investing activities		—			5,842,189			(20,480,569	)
Cash flows from financing activities:
Proceeds from convertible debt		—			—			91,450,000
Offering costs associated with the issuance of convertible debt		—			—			(3,746,193	)
Proceeds from notes payable to shareholders, net		—			—			135,667
Proceeds from the issuance of preferred stock, net		—			—			12,931,800
Proceeds from the issuance of common stock, net		—			—			93,753,857
Principle payments on insurance loan		(23,492	)		—			(38,828	)
Cash dividends paid on preferred stock		—			—			(1,087,200	)
Cash paid for fractional shares of preferred stock		—			—			(38,108	)
Merger and acquisition expenses		—			—			(48,547	)
Repurchase of common stock		—			—			(26,024,280	)
Net cash provided (used in) by financing activities		(23,492	)		—			167,288,168
Effect of exchange rate changes on cash balances		(19,829	)		(87,123	)		(49,460	)
Net increase (decrease) in cash and cash equivalents		(2,086,258	)		271,824			768,042
Cash and cash equivalents, beginning of period		2,854,300			16,590,720			—
Cash and cash equivalents, end of period	$	768,042		$	16,862,544		$	768,042
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—		$	—		$	12,715,283
Non-cash investing and financing activities:
Deemed dividend associated with beneficial conversion of preferred stock	$	—		$	—		$	11,423,824
Preferred stock dividend		—			—			1,589,861
Uncompensated contribution of services		—			—			755,556
Common stock issued for intangible assets		—			—			540,000
Common stock issued in connection with conversion of debt		344,000			—			344,000
Equipment acquired through capital lease		—			—			167,154
Financing of insurance premiums		—			—			87,623
Increase in receivable in connection with sale of Swiss property	$	—		$	653,575		$	27,125

The accompanying notes are an integral part of these consolidated financial statements.

14

Isolagen, Inc.
(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation, Business and Organization

Isolagen, Inc. (“Isolagen”), a Delaware corporation, is the parent company of Isolagen Technologies, Inc., a Delaware corporation (“Isolagen Technologies”) and Agera Laboratories, Inc., a Delaware corporation (“Agera”). Isolagen Technologies is the parent company of Isolagen Europe Limited, a company organized under the laws of the United Kingdom (“Isolagen Europe”), Isolagen Australia Pty Limited, a company organized under the laws of Australia (“Isolagen Australia”), and Isolagen International, S.A., a company organized under the laws of Switzerland (“Isolagen Switzerland”). The common stock of the Company, par value $0.001 per share, (“Common Stock”) had been traded on the NYSE Amex exchange (formerly known as the American Stock Exchange or “AMEX”) under the symbol “ILE” until trading was halted on May 6, 2009 (see Note 7).

The Company is an aesthetic and therapeutic company focused on developing novel skin and tissue rejuvenation products. The Company’s clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burns with a patient’s own, or autologous, fibroblast cells produced in the Company’s proprietary Isolagen Process. The Company also develops and markets an advanced skin care line with broad application in core target markets through its Agera subsidiary.

The Company acquired 57% of the outstanding common shares of Agera on August 10, 2006. Agera offers a complete line of skincare systems based on a wide array of proprietary formulations, trademarks and nano-peptide technology. These technologically advanced skincare products can be packaged to offer anti-aging, anti-pigmentary and acne treatment systems. Agera markets its product in both the United States and Europe (primarily the United Kingdom). The results of Agera’s operations and cash flows have been included in the consolidated financial statements from the date of the acquisition. The assets and liabilities of Agera have been included in the consolidated balance sheet since the date of the acquisition.

In October 2006, the Company reached an agreement with the FDA on the design of a Phase III pivotal study protocol for the treatment of nasolabial folds. The randomized, double-blind protocol was submitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Pursuant to this assessment process, the FDA has agreed that the Company’s study design for two identical trials, including patient numbers, clinical endpoints, and statistical analyses, is acceptable to the FDA to form the basis of an efficacy claim for a marketing application. The randomized, double-blind, pivotal Phase III trials will evaluate the efficacy and safety of Isolagen Therapy against placebo in approximately 400 patients with approximately 200 patients enrolled in each trial. The Company completed enrollment of the study and commenced injection of subjects in early 2007. All injections were completed in January 2008 and top line results from this trial were publically announced in August 2008. The data analysis, including safety data, was publically released in October 2008. The related Biologics License Application was submitted to the FDA in March 2009.

During 2006 and prior, the Company sold its aesthetic product primarily in the United Kingdom. However, during the fourth quarter of fiscal 2006, the Company decided to close the United Kingdom operation. The Company completed the closure of the United Kingdom operation on March 31, 2007, and as of March 31, 2007, the United Kingdom, Swiss and Australian operations were presented as discontinued operations for all periods presented, as more fully discussed in Note 5.

Through March 31, 2009, the Company has been primarily engaged in developing its initial product technology. In the course of its development activities, the Company has sustained losses and expects such losses to continue through at least 2009. During the three months ended March 31, 2009, the Company financed its operations primarily through its existing cash. However, the Company requires additional financing. As a result, as described in Note 2, there exists substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to operate profitably is largely contingent upon its success in obtaining financing, obtaining regulatory approval to sell one or a variety of applications of the Isolagen Therapy, upon its successful development of markets for its products and upon the development of profitable scaleable manufacturing processes. There is no assurance that the Company will be able to obtain any such additional capital as it needs to finance these efforts, through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet the Company’s ultimate capital needs and to support the Company’s growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, the Company’s operations would be materially negatively impacted. In addition, even if the Company were to obtain the capital it requires, no assurance can be given that the Company will be able to obtain necessary regulatory approvals, successfully develop the markets for its products or develop profitable manufacturing methods in the future. Refer to Note 2 for discussion of the existence of substantial doubt about the Company’s ability to continue as a going concern and likelihood of bankruptcy.

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Acquisition and merger and basis of presentation

On August 10, 2001, Isolagen Technologies consummated a merger with American Financial Holdings, Inc. (“AFH”) and Gemini IX, Inc. (“Gemini”). Pursuant to an Agreement and Plan of Merger, dated August 1, 2001, by and among AFH, ISO Acquisition Corp, a Delaware corporation and wholly-owned subsidiary of AFH (“Merger Sub”), Isolagen Technologies, Gemini, a Delaware corporation, and William J. Boss, Jr., Olga Marko and Dennis McGill, stockholders of Isolagen Technologies (the “Merger Agreement”), AFH (i) issued 5,453,977 shares of its common stock, par value $0.001 to acquire, in a privately negotiated transaction, 100% of the issued and outstanding common stock (195,707 shares, par value $0.01, including the shares issued immediately prior to the Merger for the conversion of certain liabilities, as discussed below) of Isolagen Technologies, and (ii) issued 3,942,400 shares of its common stock to acquire 100% of the issued and outstanding common stock of Gemini. Pursuant to the terms of the Merger Agreement, Merger Sub, together with Gemini, merged with and into Isolagen Technologies (the “Merger”), and AFH was the surviving corporation. AFH subsequently changed its name to Isolagen, Inc. on November 13, 2001. Prior to the Merger, Isolagen Technologies had no active business and was seeking funding to begin FDA trials of the Isolagen Therapy. AFH was a non-operating, public shell company with limited assets. Gemini was a non-operating private company with limited assets and was unaffiliated with AFH.

The consolidated financial statements presented include Isolagen, Inc., its wholly-owned subsidiaries and its majority-owned subsidiary. All significant intercompany transactions and balances have been eliminated. Isolagen Technologies was, for accounting purposes, the surviving entity of the Merger, and accordingly for the periods prior to the Merger, the financial statements reflect the financial position, results of operations and cash flows of Isolagen Technologies. The assets, liabilities, operations and cash flows of AFH and Gemini are included in the consolidated financial statements from August 10, 2001 onward.

Unless the context requires otherwise, the “Company” refers to Isolagen, Inc. and all of its consolidated subsidiaries, “Isolagen” refers to Isolagen, Isolagen Technologies, Isolagen Europe, Isolagen Australia and Isolagen Switzerland, and “Agera” refers to Agera Laboratories, Inc.

The consolidated financial statements and notes thereto presented herein are unaudited. In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of the Company as of March 31, 2009, and the results of its operations and cash flows for the three months ended March 31, 2009 and the cumulative period from December 28, 1995 (date of inception) to March 31, 2009. These financial statements should be read in conjunction with the financial statements that were included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2008.

Note 2—Going Concern

At March 31, 2009, the Company had cash and cash equivalents of $0.8 million and negative working capital of $(90.0) million. On April 30, 2009, the Company raised $0.4 million of net cash proceeds through the issuance of eight secured promissory notes (see Note 10, Subsequent Events). The Company believes that its existing capital resources are adequate to sustain its operation through approximately May 2009, under its current, reduced operating plan. The Company has no commitments for any such additional funding and there is no assurance that the Company will receive any such additional funding.

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Through March 31, 2009, the Company has been primarily engaged in developing its initial product technology. In the course of its development activities, the Company has sustained losses and expects such losses to continue through at least 2009. During the three months ended March 31, 2009, the Company financed its operations primarily through its existing cash. However, as discussed above, the Company now requires additional financing. There exists substantial doubt about the Company’s ability to continue as a going concern.

The Company is currently seeking commitments for debtor-in-possession financing in connection with the possible filing of a voluntary petition for reorganization relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (“Bankruptcy Code”). If the Company is successful in obtaining commitments for such financing in sufficient amounts, it is likely that the Company will file such a petition. The Company currently has no legal commitments for such financing, and there is no assurance that such financing will be available to the Company on satisfactory terms, if at all. If the Company is unable to secure commitments for sufficient debtor-in-possession financing prior to the end of May 2009, which is the date on which we expect to exhaust our existing capital resources, it is likely the Company will cease operations and the Company may file a petition for protection from creditors under Chapter 7 of the Bankruptcy Code.

As of March 31, 2009, the Company had $89.7 million of subordinated, convertible debt which could be called due by the debt holders as early as November 2009, or earlier upon certain events of default. Further, approximately $1.5 million of interest related to this debt was due on May 1, 2009. The Company did not pay the interest of $1.5 million which was on due May 1, 2009, and the Company does not currently have the cash or available funding to do so (see Note 10, Subsequent Events, for further discussion).

Currently the credit and equity markets both in the United States and internationally are severely contracted, which has made the Company’s task of raising additional debt or equity capital extremely difficult. In addition, the existence of the $89.7 million of subordinated, convertible debt, which could be called due as early as November 2009 by the bond holders, or earlier upon certain events of default, has made the Company’s task of raising additional debt or equity capital extremely difficult. The Company’s ability to complete a transaction may be dependent on the status of its FDA regulatory milestones and its clinical trials, and in particular, the status of its indication for the treatment of nasolabial folds, the status of the related Biologics License Application, and the status of its Phase II/III acne scar trial, which cannot be predicted. There is no assurance that funding in any form would be available to the Company, and if available, on terms and conditions that are acceptable.

As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States, there exists substantial doubt about the Company’s ability to continue as a going concern, and its ability to continue as a going concern is contingent, among other things, upon the Company’s ability to secure additional adequate financing prior to approximately the end of May 2009. If the Company does not obtain additional funding, or does not anticipate additional funding, prior to approximately the end of May 2009, the Company will likely cease operations. Further, if the Company does raise additional cash resources prior to the end of approximately May 2009, it will most likely be raised as debtor-in-possession financing in connection with a Chapter 11 bankruptcy. If the Company enters into bankruptcy, it is likely that our common stock and common stock equivalents would become severely diluted or worthless, and that our creditors will receive significantly less than what is owed to them.

Note 3—Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Examples include provisions for bad debts and inventory obsolescence, deferred taxes, the provision for and disclosure of litigation and loss contingencies (see Note 7) and estimates and assumptions related to equity-based compensation expense (see Note 8). In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Actual results may differ materially from those estimates.

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Change in Accounting Principle

Effective January 1, 2009, the Company implemented the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”) for the presentation of and accounting for changes in the minority interests (now referred to as “noncontrolling interests”) in the company’s Consolidated Financial Statements and accompanying notes. SFAS 160 changed the manner in which noncontrolling interests were presented in the Company’s Consolidated Balance Sheet (now included as a component of consolidated stockholders’ equity) and the manner in which in income or loss attributable to noncontrolling interests is presented on the Company’s Consolidated Statements of Operations. In addition, SFAS 160 changes the manner in which changes in noncontrolling interests are accounted for. As required by SFAS 160, the presentation and disclosure changes have been applied retrospectively to the financial statements for all periods presented, and the changes in the manner in which changes in noncontrolling interests are accounted for was adopted prospectively effective January 1, 2009. The effects of the implementation of SFAS 160 were not material.

Foreign Currency Translation

The financial position and results of operations of the Company’s foreign subsidiaries are determined using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income in shareholders’ deficit. Gains and losses resulting from foreign currency transactions are included in earnings and, other than discussed below, have not been material in any one period.

Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity is removed from the separate component of equity and is reported as gain or loss for the period during which the sale or liquidation occurs. During March 2008, the Company substantially liquidated the assets of the Company’s Swiss entity (in connection with the sale of the Company’s Swiss campus; seeAssets of Discontinued Operations Held for Salebelow). As such, the amount of the accumulated foreign currency translation adjustment account in stockholders’ deficit which related to the Company’s Swiss franc assets and liabilities was removed from equity by recording income of $2.1 million, which is included in loss from discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2008.

Statement of Cash Flows

For purposes of the statements of cash flows, the Company considers all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents.

Concentration of Credit Risk

The Company maintains its cash primarily with major U.S. domestic banks. The amounts held in these banks may exceed the insured limit of $250,000. The terms of these deposits are on demand to minimize risk. The Company has not incurred losses related to these deposits. Cash and cash equivalents are maintained in three financial institutions. The Company invests these funds primarily in money market accounts and demand deposit accounts.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts related to its accounts receivable that have been deemed to have a high risk of collectability. Management reviews its accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. One foreign customer represents 88% and 94% of accounts receivable, net, at March 31, 2009 and December 31, 2008, respectively. Management analyzes historical collection trends and changes in its customer payment patterns, customer concentration, and creditworthiness when evaluating the adequacy of its allowance for doubtful accounts. In its overall allowance for doubtful accounts, the Company includes any receivable balances that are determined to be uncollectible. Based on the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs might exceed the recorded allowance.

18

Inventory

Agera purchases the large majority of its inventory from one contract manufacturer. Agera accounts for its inventory on the first-in-first-out method. At March 31, 2009, Agera’s inventory of $0.5 million consisted of $0.3 million of raw materials and $0.2 million of finished goods. At December 31, 2008, Agera’s inventory of $0.5 million consisted of $0.2 million of raw materials and $0.3 million of finished goods.

Assets of discontinued operations held for sale

In April 2005, the Company acquired land and a two-building, 100,000 square foot campus (the “Swiss campus”) in Bevaix, Canton of Neuchâtel, Switzerland. In March 2008, the Company sold its Swiss campus to a third party for approximately $6.4 million, net of transaction costs. The net book value of the Swiss campus on the date of sale was approximately $12.7 million (or $10.6 million, net of the related cumulative foreign currency translation gain of approximately $2.1 million, as discussed inForeign Currency Translationabove). In connection with this sale of the Swiss campus, the Company recorded a net loss of $4.2 million which is reflected in loss from discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2008 (refer to Note 5 for further detail related to the net loss on the sale of the Swiss campus).

Debt Issue Costs

The costs incurred in issuing the Company’s 3.5% Convertible Subordinated Notes, including placement agent fees, legal and accounting costs and other direct costs are included in other assets and are being amortized to expense using the effective interest method over five years, through November 2009. Debt issuance costs, net of amortization, were approximately $0.4 million at March 31, 2009 and approximately $0.6 million at December 31, 2008 and were included in other current assets, net, at March 31, 2009 and December 31, 2008, in the accompanying consolidated balance sheets. The unamortized debt issue costs are classified as a current asset at March 31, 2009 and December 31, 2008 because the related debt is classified as a current liability at that date.

Treasury Stock

The Company utilizes the cost method for accounting for its treasury stock acquisitions and dispositions.

Revenue recognition

The Company recognizes revenue over the period the service is performed in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”). In general, SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed and determinable and (4) collectibility is reasonably assured.

Revenue from the sale of Agera’s products is recognized upon transfer of title, which is upon shipment of the product to the customer. The Company believes that the requirements of SAB 104 are met when the ordered product is shipped, as the risk of loss transfers to our customer at that time, the fee is fixed and determinable and collection is reasonably assured. Any advanced payments are deferred until shipment.

Shipping and handling costs

Agera charges its customers for shipping and handling costs. Such charges to customers are presented net of the costs of shipping and handling, as selling, general and administrative expense, and are not significant to the consolidated statements of operations.

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Advertising cost

Agera advertising costs are expensed as incurred and include the costs of public relations and certain marketing related activities. These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Research and development expenses

Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost. Research and development costs also include costs to develop manufacturing, cell collection and logistical process improvements.

Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. The Company accrues the costs of services rendered in connection with third-party contractor activities based on its estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimated clinical trial costs and are adjusted for in the period in which they become known.

Stock-based compensation

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123(R) requires entities to recognize compensation expense for all share-based payments to employees and directors, including grants of employee stock options, based on the grant-date fair value of those share-based payments, adjusted for expected forfeitures. The Company adopted SFAS No. 123(R) using the modified prospective application method. Under the modified prospective application method, the fair value measurement requirements of SFAS No. 123(R) is applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Compensation expense is recognized in connection with the issuance of stock options to non-employee consultants in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.” SFAS No. 123(R) did not change the accounting for stock-based compensation related to non-employees in connection with equity based incentive arrangements.

Income taxes

An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards (“NOLs”). If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

In the event the Company is charged interest or penalties related to income tax matters, the Company would record such interest as interest expense and would record such penalties as other expense in the consolidated statement of operations. No such charges have been incurred by the Company. As of March 31, 2009 and December 31, 2008, the Company had no accrued interest related to uncertain tax positions.

The Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. No material adjustment in the liability for unrecognized income tax benefits was recognized as a result of the adoption of FIN 48. At the adoption date of January 1, 2007, we had $40.4 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized. At March 31, 2009 and December 31, 2008, the Company had $65.1 and $63.9 million of unrecognized net deferred tax assets, the large majority of which relates to the future benefit of loss carryforwards. The Company has provided a full valuation allowance for the net deferred tax assets. The tax years 2005 through 2008 remain open to examination by the major taxing jurisdictions to which we are subject.

20

Loss per share data

Basic loss per share is calculated based on the weighted average common shares outstanding during the period, after giving effect to the manner in which the merger was accounted for as described in Note 1. Diluted earnings per share also gives effect to the dilutive effect of stock options, warrants (calculated based on the treasury stock method) and convertible notes and convertible preferred stock. The Company does not present diluted earnings per share for years in which it incurred net losses as the effect is antidilutive.

At March 31, 2009, options and warrants to purchase 8.1 million shares of common stock at exercise prices ranging from $0.41 to $9.00 per share were outstanding, but were not included in the computation of diluted earnings per share as their effect would be antidilutive. Also, 9.8 million shares issuable upon the conversion of the Company’s convertible notes, at a conversion price of approximately $9.16, were not included as their effect would be antidilutive.

At March 31, 2008, options and warrants to purchase 8.7 million shares of common stock at exercise prices ranging from $0.41 to $9.81 per share were outstanding, but were not included in the computation of diluted earnings per share as their effect would be antidilutive. Also, 9.8 million shares issuable upon the conversion of the Company’s convertible notes, at a conversion price of approximately $9.16, were not included as their effect would be antidilutive.

Fair Value of Financial Instruments

The Company’s financial instruments consist of accounts receivable, accounts payable and convertible subordinated debentures. The fair values of the Company’s accounts receivable and accounts payable approximate, in the Company’s opinion, their respective carrying amounts. The Company’s convertible subordinated debentures were quoted at approximately 15% at December 31, 2008. Accordingly, the fair value of our convertible subordinated debentures was approximately $13.5 million at December 31, 2008. The convertible subordinated debentures traded during January 2009 at less than 5% of par value. No quote for the convertible subordinated debentures was available at March 31, 2009. The Company’s convertible subordinated debentures are publicly traded, although most recently not actively traded. The fair value of the convertible subordinated debentures are estimated based on primary factors such as (1) the most recent trade prices of the convertible subordinated debentures on or near the respective reporting period end and/or (2) the bid and ask prices of the convertible subordinated debentures at the end of the reporting period. Historically, these factors have fluctuated significantly, and these factors are expected to fluctuate in future periods.

Recently Issued Accounting Standards Not Yet Effective

In December 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which is effective for fiscal years ending after December 15, 2009. The new standard expands disclosures for assets held by employer pension and other postretirement benefit plans. FSP FAS 132(R)-1 will not affect the company’s financial position or results of operations. The new standard solely affects the disclosure of information related to assets held by employer pension and other postretirement benefit plans.

Note 4—Agera Laboratories, Inc.

On August 10, 2006, the Company acquired 57% of the outstanding common shares of Agera Laboratories, Inc. (“Agera”). Agera is a skincare company that has proprietary rights to a scientifically-based advanced line of skincare products. Agera markets its product in both the United States and Europe. The acquisition agreement includes future contingent payments up to a maximum of $8.0 million. Such additional purchase price is based upon certain percentages of Agera’s cost of sales incurred after June 30, 2007. Accordingly, based upon the financial performance of Agera, up to an additional $8.0 million of purchase price may be due the selling shareholder in future periods. Approximately $0.1 million is due to the selling shareholder as of March 31, 2009. The results of Agera’s operations and cash flows have been included in the consolidated financial statements from the date of the acquisition. The assets and liabilities of Agera have been included in the consolidated balance sheet since the date of the acquisition.

21

Note 5— Discontinued Operations and Exit Costs

As part of the Company’s continuing efforts to evaluate the best uses of its resources, in the fourth quarter of 2006 the Company’s Board of Directors approved the closing of the Company’s United Kingdom operation. On March 31, 2007, the Company completed the closure of its United Kingdom manufacturing facility. The Company believes that substantially all costs related to the closure of the United Kingdom operation have been incurred as of March 31, 2009, excluding any potential claims or contingencies unknown or which cannot be estimated at this time (see Note 7).

As a result of the closure of the Company’s United Kingdom operation, the operations that the Company previously conducted in Switzerland and Australia, which when closed had been absorbed into the United Kingdom operation, were also classified as discontinued operations as of March 31, 2007. During March 2008, the Company sold its buildings located in Switzerland (see Note 3). All assets, liabilities and results of operations of the United Kingdom, Switzerland and Australian operations are reflected as discontinued operations in the accompanying consolidated financial statements. All prior period information has been restated to reflect the presentation of discontinued operations.

The balance sheet components of discontinued operations as of both March 31, 2009 and December 31, 2008 are comprised of $0.2 million of accrued expenses and other current liabilities. There are no remaining assets related to discontinued operations as of March 31, 2009 and December 31, 2008.

The following sets forth the results of operations of discontinued operations for the three months ended March 31, 2009 and March 31, 2008:

	March 31,		March 31,
(in millions)	2009		2008
Net revenue	$	—	$	—
Gross loss		—		—
Loss on sale of Swiss campus, before foreign currency gain		—		(6.3	)
Operating loss		—		(6.5	)
Foreign exchange gain on substantial liquidation of foreign entity		—		2.1
Other income		—		0.1
Loss from discontinued operations	$	—	$	(4.3	)

Note 6—Accrued Expenses

Accrued expenses are comprised of the following:

	March 31,		December 31,
	2009		2008
Accrued professional fees	$	436,549	$	479,943
Accrued settlement fees		325,000		325,000
Accrued compensation		28,205		17,570
Accrued interest		1,310,565		525,000
Accrued other		264,975		300,200
Accrued expenses	$	2,365,294	$	1,647,713

Note 7—Commitments and Contingencies

Federal Securities Litigation

The Company and certain of its current and former officers and directors are defendants in class action cases pending in the United States District Court for the Eastern District of Pennsylvania.

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In August 2005 and September 2005, various lawsuits were filed alleging securities fraud and asserting claims on behalf of a putative class of purchasers of publicly traded Isolagen securities between March 3, 2004 and August 1, 2005. These lawsuits wereElliot Liff v. Isolagen, Inc. et al., C.A. No. H-05-2887, filed in the United States District Court for the Southern District of Texas;Michael Cummiskey v. Isolagen, Inc. et al., C.A. No. 05-cv-03105, filed in the United States District Court for the Southern District of Texas;Ronald A. Gargiulo v. Isolagen, Inc. et al., C.A. No. 05-cv-4983, filed in the United States District Court for the Eastern District of Pennsylvania, andGregory J. Newman v. Frank M. DeLape, et al., C.A. No. 05-cv-5090, filed in the United States District Court for the Eastern District of Pennsylvania.

TheLiffandCummiskeyactions were consolidated on October 7, 2005. TheGargioloandNewman actions were consolidated on November 29, 2005. On November 18, 2005, the Company filed a motion with the Judicial Panel on Multidistrict Litigation (the “MDL Motion”) to transfer the Federal Securities Actions and theKeenederivative case (described below) to the United States District Court for the Eastern District of Pennsylvania. TheLiffandCummiskeyactions were stayed on November 23, 2005 pending resolution of the MDL Motion. TheGargiuloandNewmanactions were stayed on December 7, 2005 pending resolution of the MDL Motion. On February 23, 2006, the MDL Motion was granted and the actions pending in the Southern District of Texas were transferred to the Eastern District of Pennsylvania, where they have been captionedIn re Isolagen, Inc. Securities & Derivative Litigation, MDL No. 1741 (the “Federal Securities Litigation”).

On April 4, 2006, the United States District Court for the Eastern District of Pennsylvania appointed Silverback Asset Management, LLC, Silverback Master, Ltd., Silverback Life Sciences Master Fund, Ltd., Context Capital Management, LLC and Michael F. McNulty as Lead Plaintiffs, and the law firms of Bernstein Litowitz Berger & Grossman LLP and Kirby McInerney & Squire LLP as Lead Counsel in the Federal Securities Litigation.

On July 14, 2006, Lead Plaintiffs filed a Consolidated Class Action Complaint in the Federal Securities Litigation on behalf of a putative class of persons or entities who purchased or otherwise acquired Isolagen common stock or convertible debt securities between March 3, 2004 and August 9, 2005. The complaint purports to assert claims for securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Isolagen and certain of its former officers and directors. The complaint also purports to assert claims for violations of Section 11 and 12 of the Securities Act of 1933 against the Company and certain of its current and former directors and officers in connection with the registration and sale of certain shares of Isolagen common stock and certain convertible debt securities. The complaint also purports to assert claims against the underwriters of an April 2004 public offering of Isolagen common stock and a 2005 sale of convertible notes. On November 1, 2006, the defendants moved to dismiss the complaint. On September 26, 2007, the court denied the Company’s motions to dismiss the complaint. On November 6, 2007, the court entered a scheduling order that provides for discovery to be complete by June 8, 2009. On February 4, 2008, Lead Plaintiffs moved for class certification. On February 15, 2008, Lead Plaintiffs dismissed without prejudice their claims against certain of the underwriters named as defendants in the Federal Securities Class Action, but maintained claims against CIBC World Markets Corp. and UBS Securities LLC (the “Underwriters”).

On April 1, 2008, the court entered an order staying the schedule set forth in its November 6, 2007 order for a period of 90 days and directing the parties (together with the parties in the Beattie action, described under “Derivative Actions,” below) to participate in mediation before a private mediator. The mediation occurred on June 2, 2008 and June 5, 2008, at which the parties reached an agreement in principle to settle the Federal Securities Litigation. On October 23, 2008, the parties executed a definitive settlement agreement. In November 2008, the Company received settlement proceeds of $5.25 million from its directors and officers liability insurance carrier, of which $4.4 million was paid to the class action plaintiffs in December 2008 in accordance with the definitive settlement agreement. The $5.25 million cash received by the Company from the directors and officers liability insurance carrier, the $4.4 million that the Company paid to the class action plaintiffs, and the $0.3 million which remains due to be paid by the Company to the derivative action plaintiffs (discussed further below) were each recorded as selling, general and administrative expense, net, for the year ended December 31, 2008 in the accompanying statement of operations. On March 25, 2009, the court entered an order and final judgment approving the settlement and dismissing the Federal Securities Litigation with prejudice. There is no accrual in the accompanying consolidated balance sheet at March 31, 2009 and December 31, 2008 with respect to the Federal Securities Litigation.

23

Derivative Actions

The Company is the nominal defendant in derivative actions (the “Derivative Actions”) pending in State District Court in Harris County, Texas, the United States District Court for the Eastern District of Pennsylvania, and the Court of Common Pleas of Chester County, Pennsylvania.

On September 28, 2005, Carmine Vitale filed an action styled, Case No. 2005-61840,Carmine Vitale v. Frank DeLape, et al.in the 55^th Judicial District Court of Harris County, Texas, and in February 2006, Mr. Vitale filed an amended petition. In this action, the plaintiff purports to bring a shareholder derivative action on behalf of the Company against certain of the Company’s current and former officers and directors. The Plaintiff alleges that the individual defendants breached their fiduciary duties to the Company and engaged in other wrongful conduct. Jeffrey Tomz, who formerly served as Isolagen’s Chief Financial Officer, was accused of engaging in insider trading of Isolagen stock through a proxy. The plaintiff did not make a demand on the Board of Isolagen prior to bringing the action and plaintiff alleges that a demand was excused under the law as futile.

On December 2, 2005, the Company filed its answer and special exceptions pursuant to Rule 91 of the Texas Rules of Civil Procedure based on pleading defects inherent in the Vitale petition. The plaintiff filed an amended petition on February 15, 2006, to which the defendants renewed their special exceptions. On September 6, 2006, the Court granted the special exceptions and permitted the plaintiff thirty days to attempt to replead. Thereafter, the plaintiff moved the Court for an order compelling discovery, which the Court denied on October 2, 2006. On October 18, 2006, the Court entered an order explaining its grounds for granting the special exceptions. On November 3, 2006, the plaintiff filed a second amended petition. On February 8, 2007, the Company filed its answer and special exceptions to the second amended petition. On August 9, 2007, the Court granted the special exceptions and dismissed the second amended petition with prejudice. On September 4, 2007, the plaintiff moved for reconsideration of the dismissal with prejudice of the second amended petition, for a new trial, and for leave to further amend the petition, and the defendants opposed that motion on September 20, 2007. On October 23, 2007, that motion was deemed denied by operation of law because the court had not acted on it by that date.

On October 8, 2005, Richard Keene filed an action styled, C.A. No. H-05-3441, Richard Keene v. Frank M. DeLape et al., in the United States District Court for the Southern District of Texas. This action makes substantially similar allegations as the original complaint in the Vitale action. The plaintiff also alleges that his failure to make a demand on the Board prior to filing the action is excused as futile.

The Company sought to transfer the Keene action to the United States District Court for the Eastern District of Pennsylvania as part of the MDL Motion. On January 21, 2006, the court stayed the Keene action pending resolution of the MDL Motion. On February 23, 2006, the Keene action was transferred with the Federal Securities Actions from the Southern District of Texas to the Eastern District of Pennsylvania. Thereafter, on May 15, 2006, the plaintiff filed an amended complaint, and on June 5, 2006, the defendants moved to dismiss the amended complaint. On August 21, 2006, the plaintiff moved for leave to file a second amended complaint, and on September 15, 2006, defendants filed an opposition to that motion. On January 24, 2007, the court denied the plaintiff’s motion to file a second amended complaint, and on April 10, 2007 the court granted the defendants’ motion to dismiss and dismissed the amended complaint without prejudice. On May 9, 2007, plaintiff filed a notice of appeal from the January 24, 2007 order denying plaintiff’s motion to file a second amended complaint, and from the April 10, 2007 order dismissing plaintiff’s amended complaint without prejudice. The appeal is fully briefed. On or about April 5, 2008, Keene moved the appeals court to stay the appeal for a period of 90 days to permit Keene to participate in the mediation of the federal securities litigation (described above) and the Beattie derivative litigation (described below). The mediation is described under “Federal Securities Litigation” above.

On October 31, 2005, William Thomas Fordyce filed an action styled, C.A. No. GD-05-08432, William Thomas Fordyce v. Frank M. DeLape, et al., in the Court of Common Pleas of Chester County, Pennsylvania. This action makes substantially similar allegations as the original complaint in the Vitale action. The plaintiff also alleges that his failure to make a demand on the Board prior to filing the action is excused as futile.

On January 20, 2006, the Company filed its preliminary objections to the complaint. On August 31, 2006, the Court of Common Pleas entered an opinion and order sustaining the preliminary objections and dismissing the complaint with prejudice. On September 19, 2006, Fordyce filed a motion for reconsideration, which the Court of Common Pleas denied. On September 28, 2006, Fordyce filed a notice of appeal to the Superior Court of Pennsylvania. On July 27, 2007, the Superior Court affirmed the decision of the Court of Common Pleas.

24

On February 14, 2008, Ronald Beattie filed an action styled C.A. No. 08-724, Ronald Beattie v. Michael Macaluso, et al., in the United States District Court for the Eastern District of Pennsylvania. This action makes substantially similar allegations as the original complaint in the Vitale action.

On April 1, 2008, the court entered an order extending the defendants’ time to respond to the complaint for a period ending 150 days from April 1, 2008 and directing the parties, together with the parties to the federal securities litigation described above, to mediation before a private mediator. The mediation is described under “Federal Securities Litigation” above.

The mediation occurred on June 2, 2008 and June 5, 2008, at which the parties reached an agreement in principle to settle the Keene and Beattie Derivative Actions, and on January 27, 2009, the parties executed a definitive settlement agreement. At a hearing held on May 12, 2009, the court approved the settlement, and we expect the court will enter a final judgment and order in the Keene and Beattie Derivative Actions promptly. The settlementof the Keene and Beattie Derivative Actions provides for the Company to make certain payments of attorneys’ fees and expenses to counsel for Keene and Beattie. Those payments are to be made by the Company from proceeds previously received by the Company from its directors and officers liability insurance. An accrual of $0.3 million and $0.0 million has been recorded in the accompanying consolidated balance sheets at March 31, 2009 and December 31, 2008, respectively, in connection with the proposed settlement (refer to Note 2 with respect to Going Concern and likelihood of bankruptcy).

Indemnity Demands

Mr. Jeffrey Tomz

After the above referenced litigations were commenced, Mr. Jeffrey Tomz, who formerly served as Isolagen’s Chief Financial Officer, demanded reimbursement of his costs of defense, and reimbursement for the costs of responding to a Securities and Exchange Commission investigation of his alleged insider trading in Isolagen stock. It is understood that Mr. Tomz’s defense costs to date amount to in excess of approximately $0.3 million.

As the Vitale matter has now been resolved in favor of all defendants, including Mr. Tomz, the Company is presently obligated to reimburse him for the reasonable and necessary costs of defending all claims asserted therein other than the insider trading allegations. Although decided on jurisdictional grounds, it is likely the Company is also obligated to reimburse Mr. Tomz for the reasonable and necessary costs incurred in defending the Fordyce matter given that it has also been resolved in favor of all defendants. The Company could potentially be liable to reimburse Mr. Tomz for the reasonable and necessary costs of defense in the Keene case and in the putative securities cases, both of which have been resolved by settlement, as described above. The Company has refused to pay the amount of fees and expenses for which Mr. Tomz has sought reimbursement because it believes they are excessive, duplicative and have not been properly segregated between reimbursable and non-reimbursable claims. The Company has negotiated an acceptable compromise for the amounts billed by Mr. Tomz’s local Pennsylvania counsel for an amount less than $0.1 million.

Prior to the resolution of the various derivative actions, Mr. Tomz filed a demand for arbitration seeking advancement of his defense costs. He subsequently agreed to stay those proceedings. At present, Mr. Tomz has not sought to lift this stay and it is uncertain whether he will attempt to do so in the future.

The Company has accrued less than $0.1 million in the accompanying consolidated financial statements as of March 31, 2009 and December 31, 2008 with respect to Mr. Tomz’s existing defense costs in dispute.

Underwriters

The Underwriters have each demanded that the Company indemnify, hold harmless and defend them with respect to the claims asserted in the putative securities actions. The total amount demanded to date is approximately $0.8 million. The Underwriters demands for indemnification were a subject of the ongoing mediation efforts described under “Federal Securities Litigation” above, and as part of the proposed settlement of the Federal Securities Litigation the Underwriters agreed to release their claims for indemnification. Accordingly, no accrual has been recorded in the accompanying consolidated balance sheets at March 31, 2009 and December 31, 2008 in connection with the Underwriters original demand of approximately $0.8 million.

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United Kingdom Customer Settlement

During 2005, the Company began an informal study and surveyed a number of patients who had previously received the Isolagen treatment to assess patient satisfaction. Some patients surveyed reported sub-optimal results from treatment. One hundred forty-nine patients who claimed to have received sub-optimal results were retreated for the purpose of determining the reasons for sub-optimal results. Only those patients who completed the survey, provided adequate medical records including before and after photographs and who were deemed both to have received a sub-optimal result from a first treatment administered according to the Isolagen protocol and who were considered to be appropriate patients for treatment with the Isolagen Therapy received re-treatment. No one completing the survey was offered re-treatment unless they agreed to these conditions. Following re-treatment, a number of patients reported better results than first obtained through the initial treatment by their initial treating physician.

During the first quarter of 2006, the Company received a number of complaints from certain patients who had learned of the limited re-treatment program and also learned that a number of physicians with dissatisfied patients were generating public ill-will as a result of the Company’s decision to limit the number of patients offered re-treatment and were encouraging dissatisfied patients to seek recourse against the Company. In response, in March 2006 the Company decided that it was in its best interest to address these complaints to foster goodwill in the marketplace and avoid the cost of any potential patient claims. Accordingly, the Company agreed to resolve any properly documented and substantiated patient complaints by offering to retreat the patient pursuant to the same criteria stated above or pay £1,000 (approximately US$1,750 at the time) to the patients identified to the Company as having received a sub-optimal result. In order to have qualified for re-treatment and in addition to the criteria set forth above, the patient would be treated by a physician identified by the Company who would treat these patients pursuant to a protocol. In addition, these patients must have agreed to follow-up visits and assessments of their response to treatment. No patient unlikely to benefit from Isolagen Therapy has been or would be retreated.

The Company made this offer to approximately 290 patients during late March 2006. Accordingly, the Company believed its range of liability was between £290,000 (or approximately $0.5 million at the time), assuming all 290 patients were to choose the £1,000 payment, and approximately £580,000 (or approximately $1.0 million at the time), assuming all 290 patients elected to be retreated. The estimated costs for retreatment include the cost of treatment, physician fees and other ancillary costs. The Company estimated that 60% of the patients would elect the £1,000 offer and 40% would elect to be retreated. Accordingly, the Company recorded a charge reflected under loss from discontinued operations for the three months ended March 31, 2006 of $0.7 million. During the three months ended June 30, 2006, an additional 31 patients were entered into the settlement program, resulting in an additional charge reflected in loss from discontinued operations of $0.1 million.

During the year ended December 31, 2006, payments to patients and retreatments reduced the accrual by $0.6 million. During the year ended December 31, 2007, payments and retreatments to patients reduced the accrual by approximately $0.1 million. As of December 31, 2008, the accrual, which is included in current liabilities of discontinued operations in the consolidated balance sheet, was $0.1 million. As discussed in Note 5, on March 31, 2007, the Company completed the closure of its United Kingdom manufacturing facility, and as such, treatments are no longer available in the United Kingdom, or elsewhere currently.

United Kingdom Claims

Subsequent to the Company’s public announcement regarding the closure of the United Kingdom operation, the Company received negative publicity and negative correspondence from former patients in the United Kingdom that previously received the Company’s treatment. To date, the Company received written demand by an attorney representing approximately 132 former patients, as of March 31, 2009, each claiming negligent misstatements were made and each claiming, on average, £3,500 (or approximately $5,000), plus unquantified interest and incidental expenses. The Company has responded to the written demand and is in the process of evaluating the merits of the claims. To date, no formal legal action has been brought by the attorney against the Company, and no provision has been recorded in the consolidated financial statements related to this matter.

26

During 2008, the Company received written correspondence from one former patient claiming physical injury allegedly from the use of Isolagen Therapy. The Company believes this claim is without merit. To date, no formal legal action has been brought by the former patient against the Company, and no provision has been recorded in the consolidated financial statements related to this matter.

NYSE Amex Noncompliance

On March 17, 2009, the Company received notice from the NYSE Amex LLC (the “Exchange”) notifying the Company it is not in compliance with Section 1003(a)(iv) of the Exchange’s Company Guide (the “Company Guide”). Specifically, the Exchange staff noted that the Company sustained losses which are so substantial in relation to its overall operations or its existing financial sources that is appears questionable, in the opinion of the Exchange, as to whether the Company will be able to continue operations and/or meet its obligations as they mature. As previously disclosed, the Company received a notice from the Exchange on March 12, 2008, advising the Company that it was not in compliance with Sections 1003 (a)(i)-(iii) of the Company Guide.

On May 6, 2009, the Company was advised that due to the Company’s disclosure with respect to the likelihood of bankruptcy, effective immediately the Exchange halted trading in the Company’s common stock. The Company has been further advised that it will receive a notice from the Exchange that it intends to delist the Company’s common stock from listing on the Exchange, which delisting will occur approximately seven days from the receipt of such notification if the Company determines not to appeal such decision. If the Company’s common stock is delisted from the Exchange, the Company intends to apply to have its common stock quoted on the OTC Bulletin Board as soon as practicable after the delisting. If the Company’s common stock is delisted from the Exchange, the Company does not anticipate that the trading of its common stock will recommence prior to the Exchange’s delisting of the common stock and the Company’s quotation on the OTC Bulletin Board.

Other

The Company has not accrued in its consolidated balance sheet at March 31, 2009, nor has it expensed as research and development expense in its consolidated statements of operations for the three months ended March 31, 2009, approximately $0.5 million of charges submitted to the Company by one of its consultants. The Company disputes these charges and does not currently consider payment of these charges to be probable.

Note 8—Equity-based Compensation

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) replaced SFAS No. 123, “Accounting for Stock-Based Compensation”, superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and amended SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123(R) requires entities to recognize compensation expense for all share-based payments to employees and directors, including grants of employee stock options, based on the grant-date fair value of those share-based payments, adjusted for expected forfeitures. Further, compensation expense is recognized in connection with the issuance of stock options to non-employee consultants in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.”

The Company utilizes the straight-line attribution method for recognizing stock-based compensation expense under SFAS No. 123(R). The Company recorded $0.1 million and $0.2 million of compensation expense, net of tax, during the three months ended March 31, 2009 and March 31, 2008, respectively, for stock option awards to employees and directors based on the estimated fair values, at the grant dates, of the awards. In addition, refer toEquity Instruments Issued for Servicesfor discussion below of additional stock option expense incurred by the Company in accordance with EITF 96-18.

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There were no options granted for the three months ended March 31, 2009. The weighted average fair market value using the Black-Scholes option-pricing model of the options granted was $1.01 for the three months ended March 31, 2008. The fair market value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months ended
	March 31, 2008
Expected life (years)		5.8 years
Interest rate		3.0%
Dividend yield		—
Volatility		92%

The risk-free interest rate is based on U.S. Treasury interest rates at the time of the grant whose term is consistent with the expected life of the stock options. Expected volatility is based on the Company’s historical experience. Expected life represents the period of time that options are expected to be outstanding and is based on the Company’s historical experience or the simplified method, as permitted by SEC Staff Accounting Bulletin No. 107 where appropriate. Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has no current plans to do so in the future. The forfeiture rate used was based upon historical experience. As required by SFAS No. 123(R), the Company will adjust the estimated forfeiture rate based upon actual experience.

There were no stock options exercised during the three months ended March 31, 2009 and March 31, 2008, respectively. A summary of option activity for the three months ended March 31, 2009 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Options	Shares			Price		Term		Value
Outstanding at January 1, 2009		8,436,833		$	3.04
Three months ended March 31, 2009:
Granted		—			—
Exercised		—			—
Forfeited		(320,000	)		4.47
Outstanding at March 31, 2009		8,116,833		$	2.98		5.18	$	—
Options exercisable at March 31, 2009		6,350,826		$	3.33		4.87	$	—

The following table summarizes the status of the Company’s non-vested stock options since January 1, 2009:

	Non-vested Options
				Weighted-
	Number of			Average Fair
	Shares			Value
Non-vested at January 1, 2009		2,229,171		$	1.22
Granted		—			—
Vested		(303,164	)		1.09
Forfeited		(160,000	)
		—			1.61
Non-vested at March 31, 2009		1,766,007		$	1.20

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The total fair value of shares vested during the three months ended March 31, 2009 and March 31, 2008 was $0.3 million and $0.4 million, respectively. As of March 31, 2009 and December 31, 2008, there was $0.5 million and $0.7 million of total unrecognized compensation cost, respectively, related to non-vested director and employee stock options which vest over time. That cost is expected to be recognized over a weighted-average period of 1.6 years. As of March 31, 2009 and December 31, 2008, there was $0.1 million and $0.3 million, respectively, of total unrecognized compensation cost related to performance-based, non-vested employee stock options. That cost is recognized when the performance criteria within the respective performance-base option grants become probable of achievement. During the three months ended March 31, 2009, the Company recorded $ 0.1 million of stock option compensation expense in the accompanying statement of operations which related to previously granted performance-based option grants that became probable of achievement during the three months ended March 31, 2009.

2001 Stock Option and Stock Appreciation Rights Plan

Effective August 10, 2001, the Company adopted the Isolagen, Inc. 2001 Stock Option and Stock Appreciation Rights Plan (the “2001 Stock Plan”). The 2001 Stock Plan is discretionary and allows for an aggregate of up to 5,000,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The 2001 Stock Plan is administered by the Company’s Board of Directors, who has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted. As of March 31, 2009, there were 2,763,500 options outstanding under the Stock Plan and 1,610,834 options were available to be issued under the Stock Plan. There were no stock options granted during the three months ended March 31, 2009. A total of 952,000 stock options were granted during the three months ended March 31, 2008 under the 2001 Stock Plan.

During the three months ended March 31, 2008, the Company issued under the 2001 Stock Plan the following ten-year life option grants to Mr. Declan Daly, Chief Executive Officer: (a) an option to purchase 350,000 shares of common stock at an exercise price of $2.36, which vests in twelve equal quarterly installments commencing March 31, 2008; and (b) a performance stock option to purchase 100,000 shares of common stock at an exercise price of $2.36 that shall vest as follows: (i) 50% of performance stock option vested upon the Company’s accepted filing of a Biologics License Application by the FDA during the three months ended March 31, 2009 and (ii) the remaining 50% of the performance stock option shall vest upon the FDA’s approval of the Company’s Biologics License Application filing; provided that Mr. Daly is the Company’s Chief Executive Officer at the time of said event.

2003 Stock Option and Stock Appreciation Rights Plan

On January 29, 2003, the Company’s Board of Directors approved the 2003 Stock Option and Appreciation Rights Plan (the “2003 Stock Plan”). The 2003 Stock Plan is discretionary and allows for an aggregate of up to 2,250,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The 2003 Stock Plan is administered by the Company’s Board of Directors, who has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted. As of March 31, 2009, there were 1,480,000 options outstanding under the 2003 Stock Plan and 770,000 shares were available for issuance under the 2003 Stock Plan. No options have been granted under the 2003 Stock Plan since November 2006.

2005 Equity Incentive Plan

On April 26, 2005, the Company’s Board of Directors approved the 2005 Equity Incentive Plan (the “2005 Stock Plan”). The 2005 Stock Plan is discretionary and allows for an aggregate of up to 2,100,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options, stock units, stock awards, stock appreciation rights and other stock-based awards. The 2005 Stock Plan is administered by the Compensation Committee of the Company’s Board of Directors, who has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted. As of March 31, 2009, there were 305,000 options outstanding and 1,712,818 shares were available for issuance under the 2005 Stock Plan. No options have been granted under the 2005 Stock Plan since June 2006.

Other Stock Options

The Company has not issued any options outside the 2001 Stock Plan, the 2003 Stock Plan or the 2005 Stock Plan since June 2006. As of March 31, 2009, there were 3,568,333 nonqualified stock options outstanding outside of the shareholder approved plans discussed above.

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Modification of Stock Options

On January 7, 2008, the Company and Mr. Nicholas L. Teti, Jr. entered into a consulting and non-competition agreement (the “Consulting Agreement”), pursuant to which Mr. Teti agreed to continue as the Company’s non-executive Chairman of the Board and to become a consultant to the Company, and Mr. Teti resigned his position as Chief Executive Officer and President of the Company. Pursuant to the Consulting Agreement, Mr. Teti’s original employment agreement, dated June 5, 2006, was terminated and the parties agreed that he was owed no severance payments under the original employment agreement. Mr. Teti retained his previously issued stock options which were modified such that Mr. Teti continued to vest in accordance with the original terms, except as a non-employee. As a result of the modifications to Mr. Teti’s stock options set forth in the Consulting Agreement, the Company recorded a non-cash compensation charge during the three months ended March 31, 2008 of approximately $1.3 million related to Mr. Teti’s 1,166,665 vested stock options on the date of modification.

Further, stock compensation expense relating to the 833,335 unvested stock options Mr. Teti held at the time of modification was recorded as stock option expense over the remaining periods those stock options were earned in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.” These stock options vested ratably through March 31, 2009.

Equity Instruments Issued for Services

As of March 31, 2009, the Company had outstanding 1,216,935 warrants and options issued to non-employees under consulting agreements, including the 833,335 options related to Mr. Teti, the Company’s former CEO, which were unvested at the time of modification, as discussed above. The following sets forth certain information concerning these warrants and options:

	Vested
Warrants and options outstanding	1,216,935
Range of exercise prices	$1.50 – 6.00
Weighted average exercise price	$2.27
Expiration dates	2011 – 2016

Expense related to these contracts was less than $0.1 million in each three month period ended March 31, 2009 and 2008. The expense was calculated using the Black Scholes option-pricing model based on the following assumptions:

Expected life (years)	3 – 4 Years
Interest rate	1.2 – 3.0%
Dividend yield	—
Volatility	100 – 150%

Note 9—Segment Information and Geographical information

With the acquisition of Agera on August 10, 2006 (see Note 4), the Company now has two reportable segments: Isolagen Therapy and Agera. Prior to the acquisition of Agera, the Company reported one reportable segment. The Isolagen Therapy segment specializes in the development and commercialization of autologous cellular therapies for soft tissue regeneration. The Agera segment maintains proprietary rights to a scientifically-based advanced line of skincare products. The following table provides operating financial information for the continuing operations of the Company’s two reportable segments:

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Three Months Ended March 31, 2009

	Segment
	Isolagen Therapy			Agera			Consolidated
External revenue	$	—		$	158,889		$	158,889
Intersegment revenue		—			—			—
Total operating revenue		—			158,889			158,889
Cost of revenue		—			63,790			63,790
Selling, general and administrative expense		1,072,068			127,496			1,199,564
Research and development expense		1,007,907			—			1,007,907
Management fee		(37,875	)		37,875			—
Total operating expenses		2,042,100			165,371			2,207,471
Operating loss		(2,042,100	)		(70,272	)		(2,112,372	)
Interest income		236			4			240
Interest expense		(972,875	)		—			(972,875	)
Segment loss from continuing operations	$	(3,014,739	)	$	(70,268	)	$	(3,085,007	)
Supplemental information related to continuing operations
Equity awards issued for services	$	140,543		$	—		$	140,543
Amortization of debt issuance costs		187,310			—			187,310
Total assets at March 31, 2009, including assets from discontinued operations		1,639,628			869,016			2,508,644

An intercompany receivable of $1.0 million, due from the Agera segment to the Isolagen Therapy segment, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera by Isolagen, as well as Agera working capital needs provided by Isolagen, and has been excluded from total assets of the Isolagen Therapy segment in the above table. Total assets on the consolidated balance sheet at March 31, 2009 are approximately $2.5 million, which includes assets of discontinued operations of less than $0.1 million.

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Three Months Ended March 31, 2008

	Segment
	Isolagen Therapy			Agera			Consolidated
External revenue	$	—		$	217,953		$	217,953
Intersegment revenue		—			—			—
Total operating revenue		—			217,953			217,953
Cost of revenue		—			170,975			170,975
Selling, general and administrative expense		3,808,108			136,730			3,944,838
Research and development expense		2,893,856			—			2,893,856
Management fee		(150,000	)		150,000			—
Total operating expenses		6,551,964			286,730			6,838,694
Operating loss		(6,551,964	)		(239,752	)		(6,791,716	)
Interest income		86,614			18			86,632
Other income		—			—			—
Interest expense		(974,810	)		—			(974,810	)
Segment loss from continuing operations	$	(7,440,160	)	$	(239,734	)	$	(7,679,894	)
Supplemental information related to continuing operations
Depreciation and amortization expense	$	285,833		$	81,708		$	367,541
Capital expenditures		16,880			—			16,880
Equity awards issued for services		1,458,969			—			1,458,969
Amortization of debt issuance costs		187,310			—			187,310
Total assets, including assets from discontinued operations		23,030,544			5,140,477			28,171,021
Property and equipment, net		3,113,496			—			3,113,496
Intangible assets, net		528,047			3,987,955			4,516,002

An intercompany receivable of $1.1 million, due from the Agera segment to the Isolagen Therapy segment, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera by Isolagen, as well as Agera working capital needs provided by Isolagen, and has been excluded from total assets of the Isolagen Therapy segment in the above table. Total assets on the consolidated balance sheet at March 31, 2008 are approximately $28.2 million, which includes assets of continuing operations of $27.4 million and assets of discontinued operations of $0.8 million.

Geographical information concerning the Company’s operations and assets is as follows:

	Revenue
	Three months ended March 31,
	2009		2008
United States	$	73,490	$	97,280
United Kingdom		59,044		107,510
Other		26,355		13,163
	$	158,889	$	217,953

During the three months ended March 31, 2009 revenue from one foreign customer and one domestic customer represented 37% and 31% of consolidated revenue, respectively. During the three months ended March 31, 2008 revenue from one foreign customer and one domestic customer represented 49% and 30% of consolidated revenue, respectively.

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Note 10—Subsequent Events

The following events occurred subsequent to March 31, 2009:

Secured Promissory Notes

On April 30, 2009, the Company entered into secured promissory notes and security agreements (the “Notes”) with eight lenders pursuant to which the Company borrowed an aggregate of $0.5 in principal amount. The net proceeds were $0.4 million, net of fees and commissions. The Notes bear interest at a rate of 20% per annum with principal and interest on the Notes due on the earlier of June 20, 2009 or the date that the Company files for voluntary or involuntary bankruptcy.

If an event of default under the Notes occurs, the holders of the Notes may declare the Notes to be due and payable. An event of default will occur: (a) if the Company defaults in the payment of the Notes or any other amounts payable to the holders of the Notes; (b) if the Company defaults in the performance of or compliance with any material term contained in the agreements pursuant to which the Notes were issued and such default shall not have been remedied within five business days after written notice to the Company; or (c) if the Company defaults (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any indebtedness for borrowed money, excluding the interest due May 1, 2009 on the Company’s pre-existing subordinated notes. The default rate of interest shall be 25% per annum from the date of any event of default under the Notes.

If the Company receives debtor-in-possession financing in any bankruptcy proceeding, the holders of the Notes shall have the right to exchange the face amount of the Notes, plus any accrued but unpaid interest, into such debtor-in-possession financing on the same terms and conditions as the debtor-in-possession financing on a pari passu basis and on a dollar-for-dollar basis. The Company is required to redeem the Notes with a 25% premium on the then outstanding principal plus accrued but unpaid interest, upon the (i) receipt of proceeds from the sale of any assets of the Company or any of its subsidiaries, excluding sales in the ordinary course of business by Agera Laboratories, Inc. (“Agera”); (b) receipt of the proceeds from any insurance policy held by the Company or any of its subsidiaries or pursuant to which the Company or any of its subsidiaries are beneficiaries; and (c) receipt of proceeds from the sale of any equity of the Company or the Company subsidiaries or issuance of any indebtedness of by the Company or any of its subsidiaries. To secure the repayment of the Notes, the Company granted the holders of the Notes a security interest in and a lien on the Company’s 57% equity interest in Agera.

The Company is seeking commitments for debtor-in-possession financing in connection with the possible filing of a voluntary petition for reorganization relief under Chapter 11 of Title 11 of the United States Code (“Bankruptcy Code”). If the Company is successful in obtaining commitments for such financing in sufficient amounts, it is likely that the Company will file such a petition. The Company currently has no legal commitments for such financing, and there is no assurance that such financing will be available to the Company on satisfactory terms, if at all. If the Company is unable to secure sufficient debtor-in-possession financing, the Company will likely cease operations and the Company may file a petition for protection from creditors under Chapter 7 of the Bankruptcy Code.

NYSE Amex Delisting Procedures

As discussed in Note 7, on May 6, 2009, the Company was advised that due to the Company’s disclosure with respect to the likelihood of bankruptcy, effective immediately the Exchange halted trading in the Company’s common stock. The Company has been further advised that it will receive a notice from the Exchange that it intends to delist the Company’s common stock from listing on the Exchange, which delisting will occur approximately seven days from the receipt of such notification if the Company determines not to appeal such decision. If the Company’s common stock is delisted from the Exchange, the Company intends to apply to have its common stock quoted on the OTC Bulletin Board as soon as practicable after the delisting. If the Company’s common stock is delisted from the Exchange, the Company does not anticipate that the trading of its common stock will recommence prior to the Exchange’s delisting of the common stock and the Company’s quotation on the OTC Bulletin Board.

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Subordinated, Convertible Notes and Related Interest Payment

The Company did not make an interest payment of approximately $1.5 million that was due on May 1, 2009 to the holders of $89.7 million (as of March 31, 2009) in principal amount of subordinated notes issued by the Company. No event of default has occurred with respect to the unpaid interest because the indenture agreement governing the subordinated notes defines an interest payment default as a failure in the payment of any interest when it becomes due and payable, and continuance of such default for a period of 30 days. If the interest payment is not paid within the 30 days from May 1, 2009, or by approximately May 30, 2009, then the subordinated, convertible notes will become due upon demand.

In April 2009, certain note holders converted an additional $2.2 million of the subordinated, convertible notes into the Company’s common shares at a conversion rate of approximately $9.16 per common share (or approximately 246,600 of additional common shares issued in total), pursuant to the original terms of the subordinated, convertible notes. In May 2009, a note holder converted an additional $8.1 million of the subordinated, convertible notes into the Company’s common shares at a conversion rate of approximately $9.16 per common share (or approximately 881,250 of additional common shares issued in total), pursuant to the original terms of the subordinated, convertible notes. As of May 13, 2009, there is approximately $79.3 million of remaining principal amount of subordinated, convertible notes, which are due to be repaid as early as November 1, 2009, or earlier upon certain events of default, by the Company.

The Company does not have the cash or available resources to pay the $1.5 million of interest which was due on May 1, 2009, nor does the Company have the cash or available resources to pay the remaining $79.3 million of subordinated, convertible notes.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto.

Forward-Looking Information

This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to Isolagen that is based on management’s exercise of business judgment and assumptions made by and information currently available to management. When used in this document and other documents, releases and reports released by us, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Several of these factors include, without limitation:

• our ability to finance our business and continue in operations;

• our ability to develop autologous cellular therapies that have specific applications in cosmetic dermatology, and our ability to explore (and possibly develop) applications for periodontal disease, reconstructive dentistry, treatment of restrictive scars and burns and other health-related markets;

• whether our clinical human trials relating to autologous cellular therapy applications for the treatment of dermal defects, gingival recession, and such other indications as we may identify and pursue can be conducted within the timeframe that we expect, whether such trials will yield positive results, or whether additional applications for the commercialization of autologous cellular therapy can be identified by us and advanced into human clinical trials;

• whether the results of our full Phase III pivotal study and our BLA filing will result in approval of our product candidate;

• adverse results from, or changes in, any pending or threatened legal proceedings;

• our ability to maintain NYSE Amex listing of our common stock;

• our ability to provide and deliver any autologous cellular therapies that we may develop on a basis that is competitive with other therapies, drugs and treatments that may be provided by our competitors;

• our ability to decrease our manufacturing costs for our Isolagen Therapy product candidates through the improvement of our manufacturing process, and our ability to validate any such improvements with the relevant regulatory agencies;

• our ability to reduce our need for fetal bovine calf serum by improved use of less expensive media combinations and different media alternatives;

• our ability to improve our historical pricing model;

• our ability to meet requisite regulations or receive regulatory approvals in the United States, Europe, Asia and the Americas, and our ability to retain any regulatory approvals that we may obtain; and the absence of adverse regulatory developments in the United States, Europe, Asia and the Americas or any other country where we plan to conduct commercial operations;

• a stable currency rate environment in the world, and specifically the countries we are doing business in or plan to do business in;

• continued availability of supplies at satisfactory prices;

• new entrance of competitive products or further penetration of existing products in our markets;

• the effect on us from adverse publicity related to our products or the company itself;

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• any adverse claims relating to our intellectual property;

• the adoption of new, or changes in, accounting principles;

• our ability to efficiently integrate our past acquisition and future acquisitions, if any, or any other new lines of business that we may enter in the future;

• our issuance of certain rights to our shareholders that may have anti-takeover effects;

• our dependence on physicians to correctly follow our established protocols for the safe administration of our Isolagen Therapy; and

• other risks referenced from time to time elsewhere in this report and in our filings with the SEC, including, without limitation, the risks and uncertainties described in Item 1A of our Form 10-K for the year ended December 31, 2008, as well as Part II, Item 1A of this Form 10-Q.

These factors are not necessarily all of the important factors that could cause actual results of operations to differ materially from those expressed in these forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. We cannot assure you that projected results will be achieved.

Overview

We are an aesthetic and therapeutic development stage company focused on developing novel skin and tissue rejuvenation products. Our clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burn scars with a patient’s own, or autologous, fibroblast cells produced by our proprietary Isolagen Process. Our clinical development programs encompass both aesthetic and therapeutic indications. Our most advanced indication utilizing the Isolagen Therapy is for the treatment of nasolabial folds/wrinkles and has recently completed Phase III clinical studies, and the related Biologics License Application (“BLA”) has been filed with the Food and Drug Administration (“FDA”). During 2009 we completed one of two Phase II/III studies for the treatment of acne scars. During 2008 we completed our open-label Phase II study related to full face rejuvenation.

We also develop and market an advanced skin care product line through our Agera Laboratories, Inc. subsidiary, in which we acquired a 57% interest in August 2006.

Going Concern and Bankruptcy

At March 31, 2009, we had cash and cash equivalents of $0.8 million and negative working capital of $(90.0) million. On April 30, 2009, we raised $0.4 million of net cash proceeds through the issuance of eight secured promissory notes (see Subsequent Events discussion below). We believe that our existing capital resources are adequate to sustain our operation through approximately May 2009, under our current, reduced operating plan.

As previously disclosed, we are currently seeking commitments for debtor-in-possession financing in connection with the possible filing of a voluntary petition for reorganization relief under Chapter 11 of Title 11 of the United States Code (“Bankruptcy Code”). If we are successful in obtaining commitments for such financing in sufficient amounts, it is likely that we will file such a petition. We currently have no legal commitments for such financing, and there is no assurance that such financing will be available to us on satisfactory terms, if at all. If we are unable to secure commitments for sufficient debtor-in-possession financing prior to the end of May 2009, which is the date on which we expect to exhaust our existing capital resources, it is likely we will cease operations and we may file a petition for protection from creditors under Chapter 7 of the Bankruptcy Code.

As of March 31, 2009, we had $89.7 million of subordinated, convertible debt which could be called due by the debt holders as early as November 2009, or earlier upon certain events of default. Further, approximately $1.5 million of interest related to this debt was due on May 1, 2009. We did not pay the interest of $1.5 million which was on due May 1, 2009, and we do not currently have the cash or available funding to do so (see Subsequent Events discussion below with respect to this unpaid interest).

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Currently the credit and equity markets both in the United States and internationally are severely contracted, which has made our task of raising additional debt or equity capital extremely difficult. In addition, the existence of the $89.7 million of subordinated, convertible debt, which could be called due as early as November 2009 by the bond holders, has made our task of raising additional debt or equity capital extremely difficult. Our ability to complete a transaction may be dependent on the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for the treatment of nasolabial folds, the status of the related Biologics License Application, and the status of our Phase II/III acne scar trial, which cannot be predicted. There is no assurance that funding in any form would be available to us, and if available, on terms and conditions that are acceptable.

As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern is contingent, among other things, upon our ability to secure additional adequate financing prior to approximately the end of May 2009. If we do not obtain additional funding, or do not anticipate additional funding, prior approximately the end of May 2009, we will likely cease operations. Further, if we do raise additional cash resources prior to the end of approximately May 2009, it will most likely be raised as debtor-in-possession financing in connection with a Chapter 11 bankruptcy. If we enter into bankruptcy, it is likely that our common stock and common stock equivalents would become severely diluted or worthless, and that our creditors will receive significantly less than what is owed to them.

Subsequent Events

The following events occurred subsequent to March 31, 2009:

Secured Promissory Notes

On April 30, 2009, we entered into secured promissory notes and security agreements (the “Notes”) with eight lenders pursuant to which we borrowed an aggregate of $0.5 in principal amount. The net proceeds were $0.4 million, net of fees and commissions. The Notes bear interest at a rate of 20% per annum with principal and interest on the Notes due on the earlier of June 20, 2009 or the date that we file for voluntary or involuntary bankruptcy.

If an event of default under the Notes occurs, the holders of the Notes may declare the Notes to be due and payable. An event of default will occur: (a) if we default in the payment of the Notes or any other amounts payable to the holders of the Notes; (b) if we default in the performance of or compliance with any material term contained in the agreements pursuant to which the Notes were issued and such default shall not have been remedied within five business days after written notice to us; or (c) if we default (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any indebtedness for borrowed money, excluding the interest due May 1, 2009 on our pre-existing subordinated notes. The default rate of interest shall be 25% per annum from the date of any event of default under the Notes.

If we receive debtor-in-possession financing in any bankruptcy proceeding, the holders of the Notes shall have the right to exchange the face amount of the Notes, plus any accrued but unpaid interest, into such debtor-in-possession financing on the same terms and conditions as the debtor-in-possession financing on a pari passu basis and on a dollar-for-dollar basis. We are required to redeem the Notes with a 25% premium on the then outstanding principal plus accrued but unpaid interest, upon the (i) receipt of proceeds from the sale of any of our assets or the assets of any of our subsidiaries, excluding sales in the ordinary course of business by Agera Laboratories, Inc. (“Agera”); (b) receipt of the proceeds from any insurance policy held by us or any of our subsidiaries or pursuant to which we or any of our subsidiaries are beneficiaries; and (c) receipt of proceeds from the sale of any equity of us or our subsidiaries or issuance of any indebtedness of by us or any of our subsidiaries. To secure the repayment of the Notes, we granted the holders of the Notes a security interest in and a lien on our 57% equity interest in Agera.

We are seeking commitments for debtor-in-possession financing in connection with the possible filing of a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code. If we are successful in obtaining commitments for such financing in sufficient amounts, it is likely that we will file such a petition. We currently have no legal commitments for such financing, and there is no assurance that such financing will be available to us on satisfactory terms, if at all. If we are unable to secure sufficient debtor-in-possession financing, we will likely cease operations and we may file a petition for protection from creditors under Chapter 7 of the Bankruptcy Code.

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NYSE Amex Delisting Procedures

On May 6, 2009, we were advised that due to the foregoing, the NYSE Amex LLC, formerly known as the American Stock Exchange (“NYSE Amex”), would be immediately halting trading in our common stock. We were further advised that we will receive a notice from the NYSE Amex that the exchange intends to delist our common stock from listing on the NYSE Amex, which delisting will occur approximately seven days from the receipt of such notification if we determine not to appeal such decision. If our common stock is delisted from the NYSE Amex, we intend to apply to have our common stock quoted on the OTC Bulletin Board as soon as practicable after the delisting. If the our common stock is delisted from the NYSE Amex, we do not anticipate that the trading of our common stock will recommence prior to the exchange’s delisting of the common stock and our quotation on the OTC Bulletin Board.

Subordinated, Convertible Notes and Related Interest Payment

We did not make an interest payment of approximately $1.5 million that was due on May 1, 2009 to the holders of $89.7 million (as of March 31, 2009) in principal amount of subordinated notes issued by us. No event of default has occurred with respect to the unpaid interest because the indenture agreement governing the subordinated notes defines an interest payment default as a failure in the payment of any interest when it becomes due and payable, and continuance of such default for a period of 30 days. If the interest payment is not paid within the 30 days from May 1, 2009, or by approximately May 30, 2009, then our subordinated, convertible notes will become due upon demand.

In April 2009, certain note holders converted an additional $2.2 million of the subordinated, convertible notes into our common shares at a conversion rate of approximately $9.16 per common share (or approximately 246,600 of additional common shares issued in total), pursuant to the original terms of the subordinated, convertible notes. In May 2009, a note holder converted an additional $8.1 million of the subordinated, convertible notes into the Company’s common shares at a conversion rate of approximately $9.16 per common share (or approximately 881,250 of additional common shares issued in total), pursuant to the original terms of the subordinated, convertible notes. As of May 13, 2009, there is approximately $79.3 million of remaining principal amount of subordinated, convertible notes, which are due to be repaid as early as November 1, 2009, or earlier upon certain events of default, by the Company.

We do not have the cash or available resources to pay the $1.5 million of interest which was due on May 1, 2009, nor do we have the cash or available resources to pay the remaining $79.3 million of subordinated, convertible notes.

Clinical Development Programs

Our product development programs are focused on the aesthetic and therapeutic markets. These programs are supported by a number of clinical trial programs at various stages of development. Currently, under our reduced operating plan, we have suspended activity on all of our trials.

Our aesthetics development programs include product candidates to treat targeted areas or wrinkles and to provide full-face rejuvenation that includes the improvement of fine lines, wrinkles, skin texture and appearance. Our therapeutic development programs are designed to treat acne scars, restrictive burn scars and dental papillary recession. All of our product candidates are non-surgical and minimally invasive. Although the discussions below may include estimates of when we expect trials to be completed, the prediction of when a clinical trial will be completed is subject to a number of factors and uncertainties. Also, please refer to Part I, Item 1A of our Form 10-K for the year ending December 31, 2008 for a discussion of certain of our risk factors related to our clinical development programs, as well as other risk factors related to our business.

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Aesthetic Development Programs

Wrinkles/Nasolabial Folds —Phase III Trials: In October 2006, we reached an agreement with the U.S. Food and Drug Administration, or FDA, on the design of a Phase III pivotal study protocol for the treatment of nasolabial folds (lines which run from the sides of the nose to the corners of the mouth). The randomized, double-blind protocol was submitted to the FDA under the agency’s Special Protocol Assessment, or SPA. Pursuant to this assessment process, the FDA has agreed that our study design for two identical trials, including subject numbers, clinical endpoints, and statistical analyses, is adequate to provide the necessary data that, depending on the outcome, could form the basis of an efficacy claim for a marketing application. The pivotal Phase III trials evaluated the efficacy and safety of Isolagen Therapy against placebo in approximately 400 subjects total with approximately 200 subjects enrolled in each trial. The injections were completed in January 2008 and the trial data results were disclosed in October 2008. The Phase III trial data results indicated statistically significant efficacy results for the treatment of nasolabial folds. The Phase III data analysis, including safety results, was disclosed in October 2008. We submitted the related Biologics License Application (BLA) to the FDA in March 2009. In May 2009, the FDA accepted our BLA submission for filing. The acknowledgment of the filing from the FDA does not mean that the FDA has issued a license nor does it represent any evaluation of the adequacy of the data submitted. The filing review by the FDA is only a preliminary review, and deficiencies may be indentified during the FDA’s complete review of the application.

Full Face Rejuvenation —Phase II Trial: In March 2007 we commenced an open label (unblinded) trial of approximately 50 subjects. Injections of Isolagen Therapy began to be administered in July 2007. This trial was designed to further evaluate the safety and use of Isolagen Therapy to treat fine lines and wrinkles for the full face. Five investigators across the United States participated in this trial. The subjects received two series of injections approximately one month apart. In late December 2007, all 45 remaining subjects completed injections. The subjects were followed for twelve months following each subject’s last injection. Data results related to this trial were disclosed in August 2008, which included top line positive efficacy results related to this open label Phase II trial.

Therapeutic Development Programs

Acne Scars —Phase II/III Trial: In November 2007, we commenced an acne scar Phase II/III study. This study included approximately 95 subjects. This placebo controlled trial was designed to evaluate the use of our Isolagen Therapy to correct or improve the appearance of acne scars. Each subject served as their own control, receiving Isolagen Therapy on one side of their face and placebo on the other. The subjects received three treatments two weeks apart. The follow-up and evaluation period was completed four months after each subject’s last injection. In March 2009, we disclosed certain trial data results, which included statistically significant efficacy results for the treatment of moderate to severe acne scars. Compilation of safety data and data related to the validation of the study photo guide assessment scale discussed below is ongoing and is also subject to additional financing.

In connection with this acne scar program, we developed a photo guide for use in the evaluators’ assessment of acne study subjects. We had originally designed the acne scar clinical program as two randomized, double-blind, Phase III, placebo-controlled trials. However, our evaluator assessment scale and photo guide have not previously been utilized in a clinical trial. In November 2007, the FDA recommended that we consider conducting a Phase II study in order to address certain study issues, including additional validation related to our evaluator assessment scale. As such, we modified our clinical plans to initiate a single Phase II/III trial. This Phase II/III study, was powered to demonstrate efficacy, and has allowed for a closer assessment of the evaluator assessment scale and photo guide that is ongoing. We expect to initiate a subsequent, additional Phase III trial, subject to sufficient financial resources. We believe that the two trials may have the potential to form the basis of a licensure submission to the FDA.

Restrictive Burn Scars- Phase II Trial: In January 2007, we met with the FDA to discuss our clinical program for the use of Isolagen Therapy for restrictive burn scar patients. This Phase II trial would evaluate the use of Isolagen Therapy to improve range of motion, function and flexibility, among other parameters, in existing restrictive burn scars in approximately 20 patients. However, we have delayed the screening and enrollment in this trial until such time as we raise sufficient additional financing.

Dental Study- Phase II Trial: In late 2003, we completed a Phase I clinical trial for the treatment of condition relating to periodontal disease, specifically to treat Interdental Papillary Insufficiency. In the second quarter of 2005, we concluded the Phase II dental clinical trial with the use of Isolagen Therapy and subsequently announced that investigator and subject visual analog scale assessments demonstrated that the Isolagen Therapy was statistically superior to placebo at four months after treatment. Although results of the investigator and subject assessment demonstrated that the Isolagen Therapy was statistically superior to placebo, an analysis of objective linear measurements did not yield statistically significant results.

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In 2006, we commenced a Phase II open-label dental trial for the treatment of Interdental Papillary Insufficiency. This single site study included 11 subjects. The study was previously placed on internal hold due to our financial resource constraints. We currently do not expect to fund additional trial efforts related to this application

Agera Skincare Systems

We market and sell a skin care product line through our majority-owned subsidiary, Agera Laboratories, Inc., which we acquired in August 2006. Agera offers a complete line of skincare systems based on a wide array of proprietary formulations, trademarks and nano-peptide technology. These skincare products can be packaged to offer anti-aging, anti-pigmentary and acne treatment systems. Agera primarily markets its products in both the United States and Europe (primarily the United Kingdom).

Closure of the United Kingdom Operation

In the fourth quarter of 2006 our Board of Directors approved the closing of the United Kingdom operation. On March 31, 2007, we completed the closure of the United Kingdom manufacturing facility. With the closure of the United Kingdom operation on March 31, 2007, our European operations (both the United Kingdom and Switzerland) and Australian operations have been presented in the financial statements as discontinued operations for all periods presented. See Note 5 of Notes to Consolidated Financial Statements.

Critical Accounting Policies

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 3 of the Notes to the Unaudited Consolidated Financial Statements. However, certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of the control of management. As a result they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. The following discusses our critical accounting policies and estimates.

Going Concern:As disclosed in Note 2 to the Consolidated Financial Statements, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern. This conclusion is based on estimates of our future spending and future funding required during 2009. We will be required to obtain additional capital in May 2009 to continue and expand our operations. There is no assurance that we will be able to obtain any such additional funding as we need to finance these efforts, through asset sales, equity or debt financing, or any combination thereof, or on satisfactory terms or at all (refer to Going Concern and Bankruptcy discussion above). Further, if we do raise additional cash resources prior to the end of approximately May 2009, it will most likely be raised as debtor-in-possession financing in connection with a Chapter 11 bankruptcy.

At March 31, 2009, our cash and cash equivalents was $0.8 million. For the quarter ended March 31, 2009, our cash used for operations was $(2.0) million. Further, we have interest and debt due during 2009 for which we do not have the available funding to pay when due. These factors, as well as our future spending estimates, are important factors in concluding that substantial doubt exists about our ability to continue as a going concern. We believe these estimates are particularly important to the understanding of our financial position.

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Stock-Based Compensation: In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123 (R)”). SFAS No. 123 (R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123 (R) requires entities to recognize compensation expense for all share-based payments to employees and directors, including grants of employee stock options, based on the grant-date fair value of those share-based payments, adjusted for expected forfeitures.

We adopted SFAS No. 123(R) as of January 1, 2006 using the modified prospective application method. Under the modified prospective application method, the fair value measurement requirements of SFAS No. 123(R) is applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that were outstanding as of January 1, 2006 is recognized as the requisite service is rendered on or after January 1, 2006. The compensation cost for that portion of awards is based on the grant-date fair value of those awards as calculated for pro forma disclosures under SFAS No. 123. Changes to the grant-date fair value of equity awards granted before January 1, 2006 are precluded.

The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for awards in footnote disclosures required under SFAS No. 123. Prior to the adoption of SFAS No. 123(R), we followed the intrinsic value method in accordance with APB No. 25 to account for our employee and director stock options. Historically, substantially all stock options have been granted with an exercise price equal to the fair market value of the common stock on the date of grant. Accordingly, no compensation expense was recognized from substantially all option grants to employees and directors prior to the adoption of SFAS No. 123(R). However, compensation expense was recognized in connection with the issuance of stock options to non-employee consultants in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.” SFAS No. 123(R) did not change the accounting for stock-based compensation related to non-employees in connection with equity based incentive arrangements.

The adoption of SFAS No. 123(R) requires additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangement. This change in accounting resulted in the recognition of compensation expense of $0.1 million and $0.2 million related to our employee and director stock options for the three months ended March 31, 2009 and 2008, respectively. No stock options were granted during the three months ended March 31, 2009. During the three months ended March 31, 2008, we granted stock options to purchase 1.0 million shares of our common stock. As of March 31, 2009, there was $0.5 million of total unrecognized compensation cost related to non-vested director and employee stock options which vest over time. That cost is expected to be recognized over a weighted-average period of 1.6 years. As of March 31, 2009, there was $0.1 million of total unrecognized compensation cost related to performance-based, non-vested employee stock options. That cost is recognized when the performance criteria within the respective performance-base option grants become probable of achievement. During the three months ended March 31, 2009, we recorded $0.1 million of stock option compensation expense in the accompanying statement of operations which related to previously granted performance-based option grants that became probable of achievement during the three months ended March 31, 2009.

On January 7, 2008, we and Mr. Nicholas L. Teti, Jr. entered into a consulting and non-competition agreement (the “Consulting Agreement”), pursuant to which Mr. Teti agreed to continue as our non-executive Chairman of the Board and to become a consultant to the company, and Mr. Teti resigned his position as Chief Executive Officer and President. Mr. Teti retained his previously issued stock options which were modified such that Mr. Teti will continue to vest in accordance with the original terms, except as a non-employee. As a result of the modifications to Mr. Teti’s stock options set forth in the Consulting Agreement, we recorded a non-cash compensation charge during the three months ended March 31, 2008 of approximately $1.3 million related to Mr. Teti’s 1,166,665 vested stock options. Further, related to Mr. Teti’s 833,335 unvested stock options at the date of modification, we recorded stock option expense over the remaining periods those stock options were earned in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.”

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Accounting for Legal Matters:As discussed in Note 7 of Notes to Unaudited Consolidated Financial Statements, set forth elsewhere in this Report, we have settled in principle our class and derivative actions. We have also received threats of litigation and demands from former patients associated with our United Kingdom operation. We intend to defend ourselves vigorously against these actions, as needed. We cannot currently estimate the amount of loss, if any, that may result from the resolution of these actions related to our discontinued United Kingdom operation, and no provision has been recorded in our consolidated financial statements. No provision has been recorded in our consolidated financial statements related to the class and derivative actions, other than a remaining settlement accrual of approximately $0.3 million with respect to the derivative action. Generally, a loss is not recorded until it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. We expense our legal costs as they are incurred and record any insurance recoveries on such legal costs in the period the recoveries are received. Although we have not recorded a provision for loss regarding these matters, other than the $0.3 million settlement accrual discussed above, a loss could occur in a future period.

Research and Development Expenses:Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimated clinical trial costs and are adjusted for in the period in which they become known.

Results of Operations

Comparison of the three months ended March 31, 2009 and 2008

REVENUE. Revenue remained constant at approximately $0.2 million for the three months ended March 31, 2009 and 2008. For the three months ended March 31, 2009 and 2008, 37% and 49%, respectively, of Agera’s revenue were to one foreign customer. As such, total revenue is subject to fluctuation depending primarily on the orders received and orders fulfilled with respect to this large customer.

COST OF SALES. Costs of sales were $0.1 million for the three months ended March 31, 2009, as compared to $0.2 million for the three months ended March 31, 2008. Our cost of sales relates to the operation of Agera. As a percentage of revenue, Agera cost of sales were approximately 40% for the three months ended March 31, 2009 and 78% for the three months ended March 31, 2008. The decrease in costs of sales as a percentage of revenue is due to a reserve of less than $0.1 million for excessive and/or obsolete inventory recorded during the three months ended March 31, 2008. Had no reserve been recorded during the three months ended March 31, 2008, Agera cost of sales would have been approximately 47% for the three months ended March 31, 2008. Costs of sales as a percentage of revenue also vary as a result of Agera’s product sales mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased approximately $2.7 million, or 70%, to $1.2 million for the three months ended March 31, 2009, as compared to $3.9 million for the three months ended March 31, 2008. The decrease in selling, general and administrative expense is primarily due to the following:

a) Employee compensation, bonuses and payroll taxes decreased by approximately $1.4 million to $0.6 million for the three months ended March 31, 2009, as compared to $2.0 million for the three months ended March 31, 2008, due primarily to the $1.3 million stock option modification charge related to our former CEO recorded during the three months ended March 31, 2008. The remaining decrease relates to reduced average headcount and reduced bonus expense recorded during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008.

b) Other general and administrative operating costs decreased by approximately $0.5 million to $0.7 million for the three months ended March 31, 2009, as compared to $1.2 million for the three months ended March 31, 2008 due primarily to a reduction in insurance premiums, rent and accounting fees, as well as reduced general operating expenses as we have further increased our focus on cash conservation.

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c) Legal expenses decreased by approximately $0.6 million to ($0.2) million for the three months ended March 31, 2009, as compared to $0.4 million for the three months ended March 31, 2008. For the three months ended March 31, 2009, we received $0.3 million of reimbursement from our insurance carrier as reimbursement for defense costs. If we had not received this $0.3 million reimbursement, our legal expenses would have been $0.1 million for the three months ended March 31, 2009. For the three months ended March 31, 2008, we received a $0.1 million reimbursement from our insurance carrier as reimbursement for defense costs related to our class action and derivative matters. If we had not received this $0.1 million reimbursement, our legal expenses would have been approximately $0.5 million for the three months ended March 31, 2008. As a result of the class action and derivative action settlements which occurred in late 2008, our legal expenses have decreased during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008.

d) Travel expense decreased by approximately $0.1 million to less than $0.1 million for the three months ended March 31, 2009, as compared to $0.1 million for the three months ended March 31, 2008 due to the decrease in the number of our employees, primarily at the executive management level, and our increased focus on cash conservation.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $1.9 million for the three months ended March 31, 2009 to $1.0 million, as compared to $2.9 million for the three months ended March 31, 2008. The decrease of $1.9 million is primarily due to reduced consulting costs, as injections related to our Phase II/III Acne Scar trial were completed during late 2008. During the three months ended March 31, 2009, there was very little clinical trial activity other than efforts related to the filing of our BLA related to our Nasolabial Folds/Wrinkles product candidate, which occurred in March 2009.

Our historical research and development costs have been composed primarily of costs related to our efforts to gain FDA approval for our Isolagen Therapy for specific dermal applications in the United States, as well as costs related to other potential indications for our Isolagen Therapy. Also, research and development expense includes costs to develop manufacturing, cell collection and logistical process improvements.

Our initial pivotal Phase III dermal studies and our Phase II dental studies concluded during the first half of 2005. We subsequently commenced preparations for a confirmatory Phase III dermal trial during the fourth quarter of 2005. In October 2006, we reached an agreement with the FDA on the design of our Phase III dermal pivotal study protocol. The protocol was submitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Injections related to our Phase III dermal pivotal study were completed in January 2008. Research and development costs primarily include personnel and laboratory costs related to these FDA trials and certain consulting costs. The total inception to date cost of research and development as of March 31, 2009 was $55.2 million. The FDA approval process is extremely complicated and is dependent upon our study protocols and the results of our studies. In the event that the FDA requires additional studies for our dermal product candidate or requires changes in our study protocols or in the event that the results of any of our studies are not consistent with our expectations, as occurred during 2005 with respect to our pivotal Phase III dermal trial, the process will be more expensive and time consuming. Due to the complexities of the FDA approval process, we are unable to predict what the cost of obtaining approval for our dermal product candidate will be at this time.

LOSS FROM DISCONTINUED OPERATIONS. During the three months ended December 31, 2006, the Board of Directors approved the closure of our United Kingdom operation. The loss from discontinued operations decreased by approximately $4.3 million for the three months ended March 31, 2009 to less than $0.1 million, as compared to $4.3 million for the three months ended March 31, 2008.

The $4.3 million loss from discontinued operations for the three months ended March 31, 2008 primarily related to the sale of our Swiss campus in March 2008. In connection with this sale, we recorded a loss on sale of $6.3 million, offset by a foreign currency exchange gain of $2.1 million upon the substantial liquidation of the Swiss subsidiary. The foreign exchange gain recorded during the three months ended March 31, 2008 results from removing from the accumulated foreign currency translation adjustment account in stockholders’ equity a credit balance which related to the translation into U.S. dollars of our Swiss franc assets and liabilities. The credit balance which had accumulated, and the resulting gain recorded upon the substantial liquidation of our Swiss franc assets, reflected the increase in the value of the Swiss franc relative to the U.S. dollar over the period that we had operated in Switzerland. Lease and facility costs related to the United Kingdom and Switzerland (prior to the sale of the Swiss campus) comprised the remaining costs of approximately $0.1 million, net.

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INTEREST INCOME. Interest income decreased approximately $0.1 million to nearly $0.0 million for the three months ended March 31, 2009, as compared to $0.1 million for the three months ended March 31, 2008. The decrease in interest income of $0.1 million resulted principally from a decrease in the amount of cash and cash equivalents, as a result of our normal operating activities primarily related to our efforts to gain FDA approval for our Isolagen Therapy, as well as decreases in the average interest rate.

INTEREST EXPENSE. Interest expense remained constant at $1.0 million for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. Our interest expense is related to our 3.5% convertible subordinated notes, , of which $89.7 million was outstanding at March 31, 2009, as well as the related amortization of deferred debt issuance costs of $0.2 million, for the three months ended March 31, 2009 and 2008, respectively.

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. Net loss attributable to common shareholders decreased approximately $8.9 million to $3.1 million for the three months ended March 31, 2009, as compared to a net loss of $12.0 million for the three months ended March 31, 2008. This decrease in loss primarily represents the effects of the decreases in our selling, general and administrative expenses and research and development expenses, and our decrease in loss from discontinued operations, as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by (used in) operating, investing and financing activities for the three months ended March 31, 2009 and 2008, respectively, were as follows:

	Three Months Ended March 31,
	2009			2008
	(in millions)
Cash flows from operating activities	$	(2.0	)	$	(5.5	)
Cash flows from investing activities		—			5.8
Cash flows from financing activities		—			—

Operating Activities

Cash used in operating activities during the three months ended March 31, 2009 amounted to $2.0 million, as compared to the $5.5 million of cash used in operating activities during the three months ended March 31, 2008. The decrease in the cash used in operations of approximately $3.5 million is primarily due to our $8.9 million decrease in net loss, adjusted for the change in the level of non-cash items and changes in operating assets and liabilities of approximately $5.4 million. Our net loss, adjusted for noncash items, decreased from $5.7 million during the three months ended March 31, 2008 to approximately $2.8 million during the three months ended March 31, 2009, reflecting the change in our net loss and a $5.9 million decrease in non-cash items included in the net loss from the three months ended March 31, 2008 to the three months ended March 31, 2009. Also, during the three months ended March 31, 2009, our changes in net operating assets and liabilities resulted in a cash inflow of $0.7 million, as compared to a cash inflow of $0.2 million during the three months ended March 31, 2008, which resulted in a positive impact to cash flows of $0.5 million. For the three months ended March 31, 2009, we financed our operating cash flow needs from our cash on hand at the beginning of the period, which were primarily the result of previously completed debt and equity offerings, as well as from the proceeds of the sale of our Swiss campus in March 2008, discussed further below.

Investing Activities

Cash provided by investing activities during the three months ended March 31, 2008 amounted to approximately $5.8 million as compared to no cash provided by or used in investing activities during the three months ended March 31, 2009. Investing activities during the three months ended March 31, 2008 related primarily to the sale of our Swiss campus in March 2008 for approximately $6.4 million, net of selling costs. Of this $6.4 million, approximately $5.8 million was paid to us during the three months ended March 31, 2008, and the remaining amount due was reflected as a receivable at March 31, 2008.

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Cash Flows Related to Discontinued Operations

Cash flows related to discontinued operations, which are included in the table of cash flows above, were as follows:

	Three Months Ended March 31,
	2009		2008
	(in millions)
Cash flows from operating activities	$	—	$	(0.1	)
Cash flows from investing activities		—		5.8
Cash flows from financing activities		—		—

The cash provided by investing activities during the three months ended March 31, 2008 of $5.8 million is discussed above under “Investing Activities”.

Working Capital

At March 31, 2009, we had cash and cash equivalents of $0.8 million and negative working capital of $(90.0) million. On April 30, 2009, we raised an additional $0.4 million of net cash proceeds through the issuance of eight secured promissory notes (see Subsequent Event discussion above). We believe that our existing capital resources are adequate to sustain our operation through approximately May 2009, under our current, reduced operating plan.

As previously disclosed, we are currently seeking commitments for debtor-in-possession financing in connection with the possible filing of a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code. If we are successful in obtaining commitments for such financing in sufficient amounts, it is likely that we will file such a petition. We currently have no legal commitments for such financing, and there is no assurance that such financing will be available to us on satisfactory terms, if at all. If we are unable to secure commitments for sufficient debtor-in-possession financing, prior to the end of May 2009, which is the date on which we expect to exhaust our existing capital resources, it is likely we will cease operations and we may file a petition for protection from creditors under Chapter 7 of the Bankruptcy Code.

As of March 31, 2009, we had $89.7 million of subordinated, convertible debt which could be called due by the debt holders as early as November 2009, or earlier upon certain events of default. Further, approximately $1.5 million of interest related to this debt was due on May 1, 2009. We did not pay the interest of $1.5 million which was on due May 1, 2009, and we do not currently do not have the cash or available funding to do so (see Subsequent Event discussion above with respect to this unpaid interest and subsequent debt conversions into common shares).

Currently the credit and equity markets both in the United States and internationally are severely contracted, which has made our task of raising additional debt or equity capital extremely difficult. In addition, the existence of the $89.7 million of subordinated, convertible debt, which could be called due as early as November 2009 by the bond holders, has made our task of raising additional debt or equity capital extremely difficult. Our ability to complete a transaction may be dependent on the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for the treatment of nasolabial folds, the status of the related Biologics License Application, and the status of our Phase II/III acne scar trial, which cannot be predicted. There is no assurance that funding in any form would be available to us, and if available, on terms and conditions that are acceptable.

As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern is contingent, among other things, upon our ability to secure additional adequate financing prior to approximately the end of May 2009. If we do not obtain additional funding, or do not anticipate additional funding, prior approximately the end of May 2009, we will likely cease operations. Further, if we do raise additional cash resources prior to the end of approximately May 2009, it will most likely be raised as debtor-in-possession financing in connection with a Chapter 11 bankruptcy. If we enter into bankruptcy, it is likely that our common stock and common stock equivalents would become severely diluted or worthless, and that our creditors will receive significantly less than what is owed to them.

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$90.0 million, 3.5% Convertible Subordinated Notes

In November 2004, we issued $90.0 million in principal amount of 3.5% convertible subordinated notes due November 1, 2024. As of March 31, 2009 and May 13, 2009, the outstanding principal balance was $89.7 million and $79.3 million, respectively.

The notes are our general, unsecured obligations. The notes are subordinated in right of payment, which means that they will rank in right of payment behind other indebtedness of ours. In addition, the notes are effectively subordinated to all existing and future liabilities of our subsidiaries. We will be required to repay the full principal amount of the notes on November 1, 2024 unless they are previously converted, redeemed or repurchased.

The notes bear interest at an annual rate of 3.5% from the date of issuance of the notes. We pay interest twice a year, on each May 1 and November 1, until the principal is paid or made available for payment or the notes have been converted. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. We do not currently have the cash or available funding to pay our $1.5 million of interest that was due on May 1, 2009 (refer to Going Concern and Bankruptcy discussion above).

The note holders may convert the notes into shares of our common stock at any time before the close of business on November 1, 2024, unless the notes have been previously redeemed or repurchased as discussed below. The initial conversion rate (which is subject to adjustment) for the notes is 109.2001 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $9.16 per share. Holders of notes called for redemption or submitted for repurchase will be entitled to convert the notes up to and including the business day immediately preceding the date fixed for redemption or repurchase.

At any time on or after November 1, 2009, we may redeem some or all of the notes at a redemption price equal to 100% of the principal amount of such notes plus accrued and unpaid interest (including additional interest, if any) to, but excluding, the redemption date.

The note holders will have the right to require us to repurchase their notes on November 1 of 2009, 2014 and 2019. In addition, if we experience a fundamental change (which generally will be deemed to occur upon the occurrence of a change in control or a termination of trading of our common stock), note holders will have the right to require us to repurchase their notes. In the event of certain fundamental changes that occur on or prior to November 1, 2009, we will also pay a make-whole premium to holders that require us to purchase their notes in connection with such fundamental change. We do not currently have the cash or available funding to pay our remaining principle on the notes, which may be called due as early as November 1, 2009, or earlier upon certain events of default (refer to Going Concern and Bankruptcy discussion above).

Factors Affecting Our Capital Resources

An adverse result related to our class action matter or derivative action matter (see Note 7 in Notes to Unaudited Consolidated Financial Statements) could materially, adversely affect our working capital, thereby materially impacting the financial position of the Company.

Inflation did not have a significant impact on the Company’s results during the three months ended March 31, 2009.

Off-Balance Sheet Transactions

We do not engage in material off-balance sheet transactions.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates or interest rates.

Foreign Exchange Rate Risk

Primarily as the result of the sale of our Swiss campus in March 2008, we now have less than $0.1 million of foreign assets and approximately $0.2 million of foreign liabilities. We do not believe that we have significant foreign exchange rate risk at March 31, 2009.

Interest Rate Risk

As of March 31, 2009, our 3.5%, $89.7 million convertible, subordinated notes, pay interest at a fixed rate and, accordingly, we are not exposed to interest rate risk as a result of this debt. The fair value of our $90.0 million convertible, subordinated notes has varied significantly based upon, among other factors, the price of our common stock and current interest rates on similar instruments.

We do not enter into derivatives or other financial instruments for trading or speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that material information required to be in this quarterly report is made known to them by others on a timely basis and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Controls. There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 7 of Notes to the Consolidated Financial Statements, within Part I of this Form 10-Q, for a discussion of legal proceedings.

ITEM 1A. RISK FACTORS

In addition to the Risk Factors disclosed in our December 31, 2007 Form 10-K, investors should consider the following risks and uncertainties, or updates to such risks and uncertainties, prior to making an investment decision with respect to our securities.

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We will most likely file for bankruptcy in the very near term. We will need to raise substantial additional capital to fund our operations through the very near term and through commercialization of our product candidates, and we do not have any commitments for that capital.

At March 31, 2009, we had cash and cash equivalents of $0.8 million and negative working capital of $(90.0) million. On April 30, 2009, we raised an additional $0.4 million of net cash proceeds through the issuance of eight secured promissory notes (see Subsequent Event discussion below). We believe that our existing capital resources are adequate to sustain our operation through approximately May 2009, under our current, reduced operating plan.

We are currently seeking commitments for debtor-in-possession financing in connection with the possible filing of a voluntary petition for reorganization relief under Chapter 11 of Title 11 of the United States Code (“Bankruptcy Code”). If we are successful in obtaining commitments for such financing in sufficient amounts, it is likely that we will file such a petition. We currently have no legal commitments for such financing, and there is no assurance that such financing will be available to us on satisfactory terms, if at all. If we are unable to secure commitments for sufficient debtor-in-possession financing, prior to the end of May 2009, which is the date on which we expect to exhaust our existing capital resources, we will likely we will cease operations and we may file a petition for protection from creditors under Chapter 7 of the Bankruptcy Code.

As of March 31, 2009, we had $89.7 million of subordinated, convertible debt which could be called due as early as November 2009, at the option of the bond holders, or earlier upon certain events of default. Further, approximately $1.5 million of interest related to this debt was due on May 1, 2009. We did not pay the interest of $1.5 million which was on due May 1, 2009, and we do not currently have the cash or available funding to do so.

Currently the credit and equity markets both in the United States and internationally are severely contracted, which has made our task of raising additional debt or equity capital extremely difficult. In addition, the existence of the $89.7 million of subordinated, convertible debt, which could be called due as early as November 2009 by the bond holders, or earlier upon certain events of default, has made our task of raising additional debt or equity capital extremely difficult. Our ability to complete a transaction may be dependent on the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for the treatment of nasolabial folds, the status of the related Biologics License Application, and the status of our Phase II/III acne scar trial, which cannot be predicted. There is no assurance that funding in any form would be available to us, and if available, on terms and conditions that are acceptable.

As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern is contingent, among other things, upon our ability to secure additional adequate financing prior to approximately the end of May 2009. If we do not obtain additional funding, or do not anticipate additional funding, prior approximately the end of May 2009, we will likely cease operations. Further, if we do raise additional cash resources prior to the end of approximately May 2009, it will most likely be raised as debtor-in-possession financing in connection with a Chapter 11 bankruptcy. If we enter into bankruptcy, it is likely that our common stock and common stock equivalents would become severely diluted or worthless, and that our creditors will receive significantly less than what is owed to them.

We are not in compliance with the NYSE Amex’s continued listing standards and, as a result, we will likely be delisted from the NYSE Amex.

On May 6, 2009, we were advised that due to our financial status, the NYSE Amex would immediately halt trading in our common stock. We were further advised that we will receive a notice from the NYSE Amex that the exchange intends to delist our common stock from listing on the NYSE Amex, which delisting will occur approximately seven days from the receipt of such notification if we determine not to appeal such decision. If our common stock is delisted from the NYSE Amex, we intend to apply to have our common stock quoted on the OTC Bulletin Board as soon as practicable after the delisting. If the our common stock is delisted from the NYSE Amex, we do not anticipate that the trading of our common stock will recommence prior to the exchange’s delisting of the common stock and our quotation on the OTC Bulletin Board.

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ITEM 6. EXHIBITS

(a) Exhibits

EXHIBIT NO.		IDENTIFICATION OF EXHIBIT
	10.1	Form of secured promissory note and security agreement between Isolagen, Inc. and certain lenders.
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ISOLAGEN, INC.
Date: May 15, 2009	By:	/s/ Todd J. Greenspan
		Todd J. Greenspan, Chief Financial Officer
		(Principal Financial Officer)

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