10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-19871

STEMCELLS, INC.

(Exact name of Registrant as specified in its charter)

A Delaware Corporation	94-3078125
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7707 GATEWAY BLVD NEWARK, CA	94560
(Address of principal offices)	(zip code)

Registrant’s telephone number, including area code:

(510) 456-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    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 the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨     No  x

Aggregate market value of common stock held by non-affiliates at June 30, 2013: $66,836,311. Inclusion of shares held beneficially by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of management policies of the registrant, or that such person is controlled by or under common control with the Registrant.

Common stock outstanding at March 3, 2014: 55,419,116 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to the registrant’s 2014 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A are incorporated by reference in Part III of this report.

FORWARD LOOKING STATEMENTS

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED UNDER THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS COULD VARY MATERIALLY. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY ARE DESCRIBED HEREIN AND IN OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS SHOULD PAY PARTICULAR ATTENTION TO THE CONSIDERATIONS DESCRIBED IN THE SECTION OF THIS REPORT ENTITLED “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” AS WELL AS ITEM 1A UNDER THE HEADING “RISK FACTORS.” FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. WE DO NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY UPDATE ANY FORWARD-LOOKING STATEMENTS.

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Table of Contents

		Page
PART I
Item 1.	Business		4
Item 1A.	Risk Factors		27
Item 1B.	Unresolved Staff Comments		38
Item 2.	Properties		38
Item 3.	Legal Proceedings		39
Item 4.	Mine Safety Disclosures		39
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		40
Item 6.	Selected Financial Data		42
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		60
Item 8.	Financial Statements and Supplementary Data		61
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		97
Item 9A.	Controls and Procedures		97
Item 9B.	Other Information		99
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		99
Item 11.	Executive Compensation		101
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		101
Item 13.	Certain Relationships and Related Transactions, and Director Independence		101
Item 14.	Principal Accountant Fees and Services		101
PART IV
Item 15.	Exhibits and Financial Statement Schedules		102

NOTE REGARDING REFERENCES TO OUR COMMON STOCK

Throughout this Form 10-K, the words “we,” “us,” “our,” and “StemCells” refer to StemCells, Inc., including our directly and indirectly wholly-owned subsidiaries. “Common stock” refers to the common stock of StemCells, Inc., $0.01 par value.

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PART I

Item 1. BUSINESS

Overview

StemCells, Inc. is engaged in the research, development, and commercialization of stem cell therapeutics and related tools and technologies for academia and industry. We believe that understanding cells and cell biology, and in particular stem cells, will play an increasingly important role in the understanding of human diseases and in the discovery of new medical therapies. Consequently, we are focused on developing and commercializing (i) stem and progenitor cells as the basis for novel therapeutics and therapies, and (ii) cells and related tools and technologies to enable stem cell-based research and drug discovery and development.

Our primary research and development efforts are focused on identifying and developing stem and progenitor cells as potential therapeutic agents. Our lead product development program is our CNS Program, in which we are developing applications for HuCNS-SC^® cells, our proprietary human neural platform technology. We estimate that degenerative conditions of the central nervous system (CNS) currently affect more than 30 million people in the United States¹.

We are currently in clinical development with our HuCNS-SC cells for a range of diseases and disorders of the central nervous system. The CNS consists of the brain, spinal cord and eye, and we are currently the only stem cell company in clinical development for indications in all three organs comprising the CNS, specifically:

(i) with respect to the brain,

• in October 2012, we published in Science Translational Medicine, a peer-reviewed journal, the data from our Phase I clinical trial in Pelizeaus-Merzbacher Disease (PMD), a fatal myelination disorder in the brain. The data showed preliminary evidence of progressive and durable donor cell-derived myelination in all four patients transplanted with HuCNS-SC cells. Three of the four patients showed modest gains in neurological function; the fourth patient remained stable;

• we have completed a Phase I clinical trial in infantile and late infantile neuronal ceroid lipofuscinosis (NCL, also known as Batten disease), which is a neurodegenerative disorder of the brain. The data from that trial showed that our HuCNS-SC cells were well tolerated, non-tumorigenic, and there was evidence of engraftment and long-term survival of the transplanted HuCNS-SC cells; and

• we are also conducting preclinical studies of our HuCNS-SC cells in Alzheimer’s disease;

(ii) with respect to the spinal cord, we are conducting a Phase I/II clinical trial of our HuCNS-SC cells for the treatment of chronic spinal cord injury. To accelerate the trial, we have expanded this trial from a single-site, single-country study to a multi-site, multi-country program. This trial is being conducted in Switzerland, Canada and the United States. Data from the first three patients demonstrated a favorable safety profile and multi-segment gains in sensory function in two of the three patients 12 months after transplantation of HuCNS-SC cells compared to pre-transplant baselines; the third patient remained stable. As of February 2014, a total of eleven patients have been dosed with our HuCNS-SC cells in this trial and we expect to complete enrollment of the final patient in the first quarter of 2014;

(iii) with respect to the eye, in June 2012, we initiated a Phase I/II clinical trial for dry age-related macular degeneration (AMD), the most common form of AMD, with the first patient enrolled and dosed in

¹  This estimate is based on information from the Alzheimer’s Association, the Alzheimer’s Disease Education & Referral Center (National Institute on Aging), the National Parkinson Foundation, the National Institutes of Health’s National Institute on Neurological Disorders and Stroke, the Foundation for Spinal Cord Injury Prevention, Care & Cure, the Travis Roy Foundation, the Centers for Disease Control and Prevention, the Wisconsin Chapter of the Huntington’s Disease Society of America, and the Cincinnati Children’s Hospital Medical Center.

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October 2012. This trial is being conducted at three sites in the United States, and as of February 2014, we completed enrollment of the first of two planned patient cohorts with our HuCNS-SC cells. This cohort consisted of eight subjects, four of whom each received 200,000 cells and four of whom each received 1,000,000 cells. We expect to complete enrollment of the second cohort consisting of eight patients by the end of the second quarter of 2014.

In our tools and technologies programs, we are engaged in developing and commercializing applications of our technologies to enable stem cell-based research. We currently market a range of proprietary cell culture products, research grade human cells, and antibody reagents under the SC Proven^® brand. Our cell culture products include iSTEM^®, GS1-R^®, GS2-M^®, RHB-A^®, RHB-Basal^®, NDiff227™, NDiff^® N2, and NDiff N27™ supplements. Our cell lines available for research use include human neural stem cells and hFB101™, ultra primary human fibroblasts for genetic reprogramming. Our antibody reagents include STEM24™, STEM101^®, STEM121^®, and STEM123^®, which can be used for cell detection, isolation and characterization. Academic and industrial laboratories conducting stem cell research need specialized cell culture products and reagents for the derivation, growth, maintenance, and manipulation of stem cells, as well as their detection, isolation and characterization in both in vitro and in vivo models. As this type of research continues to grow, the market for such cell culture products and reagents should also continue to expand. We are seeking to leverage our proprietary technologies, including technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells, for use in stem cell-based research. Several of the cell technologies and intellectual property related to our enabling cell technologies programs were acquired in April 2009 through our acquisition of substantially all of the operating assets and liabilities of Stem Cell Sciences Plc (SCS).

The Potential of Our Tissue-Derived Cell-Based Therapeutics

Stem cells are “building block” cells as they produce all the mature functional cell types found in normal organs. Stem cells have two defining characteristics: (i) they produce all of the mature cell types of the particular organ, and (ii) they self renew — that is, some of the cells developed from stem cells are themselves new stem cells. Progenitor cells are cells that have already developed from stem cells, but can still produce one or more mature cell types within an organ. Stem cells are rare; to date only four human stem cells have been identified and characterized in vivo: (i) the hemotopoietic stem cell, (ii) the mesenchymal stem cell, (iii) the neural stem cell, and (iv) the embryonic stem cell. Because of this self-renewal property, we believe that stem cell-based therapies may have the potential to return an impaired organ to proper function for the life of the patient.

Many degenerative diseases are caused by the loss of normal cellular function in a particular organ. When cells are damaged or destroyed, they no longer produce, metabolize or accurately regulate the many substances essential to life. There is no technology existing today that can deliver these essential substances precisely to the sites of action, under the appropriate physiological regulation, in the appropriate quantity, or for the duration required to cure the degenerative condition. Cells, however, can do all of this naturally. Transplantation of stem or progenitor cells may therefore prevent the loss of, or even generate new, functional cells and thereby potentially maintain or restore organ function and the patient’s health.

We are focused on identifying and purifying tissue-derived stem and progenitor cells for use in homologous therapy. Homologous therapy means the use of cells derived from a particular organ to treat a disease of that same organ (for example, use of brain-derived neural stem cells for treatment of CNS disorders). Tissue-derived stem cells are developmentally pre-programmed to become the mature functional cells of the organ from which they were derived. We believe that homologous use of purified, unmodified tissue-derived cells is the most direct way to provide for engraftment and differentiation into functional cells, and should minimize the risk of transplantation or growth of unwanted cell types.

We use cells derived from donated tissues, which are supplied to us in compliance with all applicable state and federal regulations. We are not involved in any activity directed toward human cloning, nor do we have any

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plans to start such activities. We are currently developing embryonic stem cells and iPS cells as potential research tools. We are not currently developing embryonic or induced pluripotent stem cells for therapeutic use.

Business Strategy

Our aim is to create a sustainable business based on our belief that understanding cells and cell biology will play an increasingly important role in life science research and in the discovery, development and implementation of new medical therapies. Our strategy has been to identify multiple types of human stem and progenitor cells with therapeutic and commercial importance, to develop techniques and processes to purify these cells for direct transplant and to expand and bank these cells. We are currently focused on advancing these cells through clinical development and into commercialized cell-based therapeutic products.

The fundamental competencies required to execute this strategy are knowledge and expertise in cell biology, particularly stem cell biology, and a commitment to rigorous and robust research and development. We believe that these competencies are critical to identifying, characterizing and understanding cells with therapeutic potential and importance.

Consequently, we have made significant investments in our research and development, clinical and regulatory, and cell processing and process development capabilities. Our management and staff have many years of experience in the stem cell field and in developing potential cell therapies. Two of the four human stem cells identified and characterized to date (the hematopoietic and neural stem cells) were discovered by scientists who are currently on our staff, and we believe we were the first company to receive authorization from the FDA to conduct a clinical trial of a purified neural stem cell product candidate, as well as the first to complete such a clinical trial. We are committed to proving that “groundbreaking science,” especially in the field of stem cell biology, has the potential to create truly “breakthrough medicine.”

Many of our core competencies in cell biology have applicability beyond the development of therapeutic products. Therefore, another element of our business strategy is to leverage these core competencies to develop non-therapeutic applications for our cell technologies, which we believe represent nearer-term commercial opportunities. As scientific and medical research increasingly focuses on stem cells and cell biology, our technologies are expected to have utility as tools to help enable this research. We currently market specialized cell culture products and antibody reagents through our SC Proven product line and are seeking to develop and commercialize applications of our technologies for use in stem cell-based research.

Further, a key element of our business strategy is to obtain patent protection for the compositions, processes and uses of multiple types of cells, as well as for those technologies that appear applicable and useful to enable cell-based research. We believe that patent protection will be available to the first to identify and isolate any of the finite number of different types of human stem and progenitor cells, and the first to define methods to culture such cells, making the commercial development of cell-based therapeutics and enabling applications financially feasible. In addition to discovering and developing technologies in-house, we have obtained from various academic and commercial institutions rights to certain inventions relating to stem and progenitor cells, cell culture media, and technologies to reprogram, isolate and manipulate cells. We expect to continue to expand our search for, and to seek to acquire rights from third parties relating to, new stem and progenitor cells and cell technologies. We have created an extensive patent estate, see “Patents, Proprietary Rights and Licenses,” below.

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Therapeutic Product Development Programs

Overview

The following table summarizes the current status of, and the anticipated initial indications for, our therapeutic product development program. A more detailed discussion of each of these follows the table.

CNS Program	Cell-based therapeutics to restore or preserve function to central nervous system tissue by protecting, repairing or replacing dysfunctional or damaged cells.
Diseases and Disorders of the Brain	Pelizeaus-Merzbacher Disease:
	•    Four-patient Phase I clinical trial completed February 2012. •    Data from the Phase I trial was published in Science Translational Medicine, a peer-reviewed scientific journal, in October 2012 and showed preliminary evidence of new myelin in all four patients, and three of the four patients showed modest gains in neurological function; the fourth patient remained stable. The data also showed that the HuCNS-SC cells, the transplantation procedure, and the immunosuppression were all well tolerated. •    In August 2013, we presented data which show that, two years after transplantation of our HuCNS-SC cells into patients with PMD, the evidence of myelination, by magnetic resonance imaging (MRI), is more pronounced compared to one year post-transplantation, the gains in neurological function reported after one year were maintained, and there were no safety concerns. The neurological and MRI changes suggest a departure from the natural history of the disease and may represent signals of a clinical effect. •    Demonstrated in vivo proof of principle by showing in the myelin deficient shiverer mouse that transplanted HuCNS-SC cells can: •    generate and integrate myelin producing oligodendrocytes into the mouse brain; and •    tightly wrap the mouse nerve axons to form myelin sheath.
	Neuronal Ceroid Lipofuscinosis (also known as Batten disease):
	•    Six-patient Phase I clinical trial completed in January 2009. Trial results showed that the HuCNS-SC cells, the transplantation procedure, and the immunosuppression were well tolerated and the cells were not tumorigenic, and that there was evidence of engraftment and survival of the transplanted cells.

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	•    Demonstrated in vivo proof of principle by showing in a mouse model for infantile NCL that transplanted HuCNS-SC cells can: •    continuously produce the enzyme that is deficient in infantile NCL; •    protect host neurons from death; and •    delay the loss of motor function in HuCNS-SC transplanted mice.
	Alzheimer’s Disease:
	•    In July 2012, reported data that showed our HuCNS-SC cells can restore memory in two mouse models relevant to Alzheimer’s disease. •    Demonstrated that our HuCNS-SC cells are capable of engrafting and surviving in the hostile environment reflective of an Alzheimer’s brain, which characteristically features abnormal accumulations of brain lesions called plaques and tangles. •    In September 2012 the governing board of the California Institute of Regenerative Medicine (CIRM) approved our application for a Disease Team Therapy Development Research Award for the study of HuCNS-SC cells as a potential treatment for Alzheimer’s disease. CIRM will provide up to approximately $19.3 million as a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations. The goal of the research will be to file an Investigational New Drug application with the U.S. Food and Drug Administration within four years.
Diseases and Disorders of the Spinal Cord	Spinal Cord Injury:
	•    Conducting a Phase I/II clinical trial in multiple sites for chronic spinal cord injury. The trial will enroll 12 patients with thoracic (chest-level) spinal cord injury, and will include both complete and incomplete injuries as classified by the American Spinal Injury Association (ASIA) Impairment Scale. •    In February 2013, reported that the first patient cohort had completed the Phase I/II trial, and that two of the three patients in the first cohort showed multi-segment gains in sensory function; the third patient remained stable. The data also showed that the cells, the transplantation procedure, and the immunosuppression were all well tolerated.

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	•    We expect to complete enrollment of the final patient for this trial in the first quarter of 2014. •    We plan to initiate by the middle of 2014, a controlled Phase II efficacy study to further investigate our HuCNS-SC cells as a treatment for cervical spinal cord injury.
	•    Demonstrated in vivo proof of principle by showing in a mouse model for spinal cord injury that transplanted HuCNS-SC cells can: •    restore motor function in injured animals; •    directly contribute to functional recovery (and that when human cells are ablated restored function is lost); and •    become specialized oligodendrocytes and neurons.
Diseases and Disorders of the Eye	Age-Related Macular Degeneration:
	•    16-patient Phase I/II clinical trial in dry AMD initiated in June 2012. •    Trial is being conducted at three sites in the United States, and as of February 2014, we completed enrollment of the first of two planned patient cohorts. This cohort consisted of eight subjects. We expect to complete enrollment of the second cohort consisting of eight subjects by the end of the second quarter of 2014. •    We plan to initiate by year-end 2014, a controlled Phase II efficacy study to further investigate our HuCNS-SC cells as a treatment for AMD.
	•    Demonstrated in vivo proof of principle by showing in the Royal College of Surgeons rat, a widely accepted model for retinal degeneration, that HuCNS-SC cells can: •    protect photoreceptor cells from death; and •    prevent or slow loss of vision.

Many neurodegenerative diseases involve the failure of central nervous system tissue (i.e., the brain, spinal cord and eye) due to the loss of functional cells. Our CNS Program is initially focusing on developing clinical applications in which transplanting HuCNS-SC cells would protect or restore organ function of the patient before such function is irreversibly damaged or lost due to disease progression. Our initial target indications are (i) Pelizeaus-Merzbacher Disease, and more generally, diseases in which deficient myelination plays a central role, such as cerebral palsy or multiple sclerosis; (ii) spinal cord injury; (iii) Alzheimer’s disease, and (iv) disorders in which retinal degeneration plays a central role, such as age-related macular degeneration or retinitis pigmentosa. These disorders affect a significant number of people in the United States and there currently are no effective long-term therapies for them.

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Our platform technology, HuCNS-SC cells, is a purified and expanded composition of normal human neural stem cells. Alternative therapies based on cells derived from cancer cells, embryonic stem cells, iPS cells, animal-derived cells, or unpurified mixes of cell types have a significantly higher safety hurdle to overcome and while they may provide an effective therapy, technologies to remove potentially harmful cells are still being developed and tested. Furthermore, our HuCNS-SC cells can be directly transplanted, unlike embryonic stem cells or iPS cells, which require one or more prerequisite differentiation steps prior to administration in order to preclude teratoma formation (tumors of multiple differentiated cell types). It is still unclear whether cellular transplants derived from embryonic stem cells or iPS cells can avoid forming teratomas or other abnormal cellular structures due to contaminating cell types in the transplant product.

Our preclinical research has shown in vivo that HuCNS-SC cells engraft, migrate, differentiate into neurons and glial cells, and survive for as long as one year with no sign of tumor formation or adverse effects. Moreover, the HuCNS-SC cells were still producing progeny cells at the end of the test period. These findings show that our neural stem cells, when transplanted, act like normal neural stem cells, suggesting the possibility of a continual replenishment of normal human neural cells in transplant recipients. In the longer term, then, we believe stem cells have the potential to restore or replace lost cells and cellular function.

We hold a substantial portfolio of issued and allowed patents in the neural stem cell field, which cover the isolation, expansion and use of neural stem and progenitor cells, as well as the compositions of the cells themselves. See “Patents, Proprietary Rights and Licenses,” below.

Diseases and Disorders of the Brain

Pelizaeus-Merzbacher Disease (PMD).

Pelizaeus-Merzbacher disease, a rare, degenerative, central nervous system disorder, is one of a group of genetic disorders known as leukodystrophies. Leukodystrophies involve abnormal growth of the myelin sheath, which is the fatty substance that surrounds nerve fibers in the brain and spinal cord. PMD is most commonly caused by a genetic mutation that affects an important protein found in myelin, proteolipid protein. PMD is most frequently diagnosed in early childhood and is associated with abnormal eye movements, abnormal muscle function, and in some cases, seizures. The course of the disease is marked by progressive neurological deterioration resulting in premature death.

In February 2012, we completed a Phase I clinical trial in PMD. A total of four patients were transplanted with HuCNS-SC cells and were evaluated periodically over a 12-month period. The study was designed to help detect evidence of new myelin, including by magnetic resonance imaging (MRI) of the brain, changes in neuropsychological tests of development and cognitive function, and clinical changes in neurological function. The trial was conducted at the University of California, San Francisco. In October 2012, we published the results of the trial in Science Translational Medicine, a peer-reviewed journal. The clinical data from this study showed evidence of new myelin in all four patients who were transplanted with HuCNS-SC cells. In addition, three of the four patients showed modest gains in neurological function; the fourth patient remained stable. The data also showed that the cells, the transplantation procedure and the immunosuppression regimen were all well tolerated.

In our preclinical research, we have shown that HuCNS-SC cells differentiate into oligodendrocytes, the myelin producing cells, and produce myelin. We have transplanted HuCNS-SC cells into the brain of the mutant shiverer mouse, which is deficient in myelin, and shown widespread engraftment of human cells that matured into oligodendrocytes, and that the human oligodendrocytes myelinated the mouse axons.

Other Myelin Disorders.

Loss of myelin characterizes conditions such as multiple sclerosis, cerebral palsy and certain genetic disorders (for example, Krabbe’s disease and metachromatic leukodystrophy). Loss of myelin can also play a role in certain spinal cord indications. Based on our preclinical data, we believe our HuCNS-SC product candidate may have applicability to a range of myelin disorders.

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Neuronal Ceroid Lipofuscinosis (NCL; also known as Batten disease).

Neuronal ceroid lipofuscinosis, which is often referred to as Batten disease, is a neurodegenerative disease that affects infants and young children. Infantile and late infantile NCL are brought on by inherited genetic mutations which result in either a defective or missing enzyme, leading to the accumulation of cellular waste product in various neuronal cell types. This accumulation eventually interferes with normal cellular and tissue function, and leads to seizures and progressive loss of motor skills, sight and mental capacity. Today, NCL is always fatal.

In January 2009, we completed a six-patient Phase I clinical trial of our HuCNS-SC cells in infantile and late infantile NCL. We believe that this clinical trial was the first FDA-authorized trial to evaluate purified human neural stem cells as a potential therapeutic agent. The trial data demonstrated that the HuCNS-SC cells, the transplantation procedure and the immunosuppression regimen were well tolerated by all six patients, and the patients’ medical, neurological and neuropsychological conditions, following transplantation, appeared consistent with the normal course of the disease. In addition to this favorable safety profile, there was evidence of engraftment and long-term survival of the HuCNS-SC cells. This Phase I trial was conducted at OHSU Doernbecher Children’s Hospital in Oregon.

Our preclinical data demonstrate that HuCNS-SC cells, when transplanted in a mouse model of infantile NCL, engraft, migrate throughout the brain, produce the relevant missing enzyme, measurably reduce the toxic storage material in the brain, protect host neurons so that more of them survive, and delay the loss of motor function compared to a control group of non-transplanted mice. A summary of this data was published in September 2009 in the peer-reviewed journal Cell Stem Cell. We have also demonstrated in vitro that HuCNS-SC cells produce the enzyme that is deficient in late infantile NCL.

Alzheimer’s Disease.

Alzheimer’s disease is a progressive, fatal neurodegenerative disorder that results in loss of memory and cognitive function. Today, there is no cure or effective treatment option. According to the Alzheimer’s Association, an estimated 5.2 million Americans have Alzheimer’s disease, including nearly 5 million people aged 65 and older. The prevalence of Alzheimer’s disease is expected to increase rapidly as a result of our aging population.

In July 2012, we reported data that showed that our HuCNS-SC cells restored memory and enhanced synaptic function in two animal models relevant to Alzheimer’s disease. This research was a result of a collaboration we entered into with a world renowned leader in Alzheimer’s disease research at the University of California, Irvine (UCI) to study the therapeutic potential of our HuCNS-SC cells in Alzheimer’s disease. Our collaborator’s published research had shown that mouse neural stem cells enhance memory in a mouse model of Alzheimer’s disease, and the goal of the collaboration was to replicate these results using our human neural stem cells.

Previously, we conducted studies of our HuCNS-SC cells in another model of Alzheimer’s disease as part of a collaboration with researchers at the McLaughlin Research Institute. This research, which was funded by a National Institutes of Health (NIH) grant, demonstrated that our HuCNS-SC cells are capable of engrafting and surviving in the hostile environment reflective of an Alzheimer’s brain, which characteristically features abnormal accumulations of brain lesions called plaques and tangles.

In September 2012, the governing board of the California Institute of Regenerative Medicine (CIRM) approved our application for a Disease Team Therapy Development Research Award for the study of HuCNS-SC cells as a potential treatment for Alzheimer’s disease. We committed to filing an IND by mid-2017, however, we are diligently exploring ways to accelerate this milestone and currently anticipate filing by mid-2016. In accordance with the award, in April 2013, we entered into an agreement with the California Institute for

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Regenerative Medicine (CIRM) under which CIRM will provide up to approximately $19.3 million as a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations. We received, under the CIRM Loan Agreement, an initial disbursement of $3.8 million in July 2013 and a subsequent disbursement of $3.8 million in January 2014.

Diseases and Disorders of the Spinal Cord

According to a study initiated by the Christopher and Dana Reeve Foundation, an estimated 1.3 million people in the United States are living with chronic spinal cord injury. There are no therapies today that can address the paralysis or loss of function caused by a spinal cord injury, but neural stem cells may have the potential to provide a novel therapeutic approach.

We are conducting a Phase I/II clinical trial to evaluate our HuCNS-SC cells as a treatment for chronic spinal cord injury. The trial was initiated at University Hospital Balgrist in Zurich and was authorized by Swissmedic, the regulatory agency for therapeutic products in Switzerland. A total of twelve patients are expected to enroll in the study, all of whom will be three to twelve months post-injury. The study will follow a progressive study design, beginning with patients with complete injuries and then enrolling patients with incomplete injuries, all as classified by the American Spinal Injury Association Impairment Scale (AIS). In addition to assessing safety, the trial will evaluate preliminary efficacy using defined clinical endpoints, such as changes in sensation, motor function, and bowel/bladder function. In February 2013, we reported that the first patient cohort, all of whom had complete injuries classified as AIS A, had completed the trial, and that data from this first cohort showed that two of the three patients showed multi-segment gains in sensory function compared to pre-transplant baseline. The gains in sensory function were first observed at the six month assessment and persisted to the 12 month assessment. The third patient remained stable. To accelerate patient enrollment, we have expanded the trial from a single-site, single-country study to a multi-site, multi-country program. The trial is currently being conducted in Switzerland, Canada and the United States. As of February 2014, a total of eleven patients have been dosed with our HuCNS-SC cells in this trial and we expect to complete enrollment of the final patient in the first quarter of 2014.

The results of numerous preclinical studies demonstrate the therapeutic potential of our human neural stem cells for the treatment of spinal cord injury. Using a mouse model of spinal cord injury, our collaborators at the Reeve-Irvine Research Center at the University of California, Irvine have shown that our HuCNS-SC cells have the potential to protect and regenerate damaged nerves and nerve fibers, and that injured mice transplanted with our HuCNS-SC cells showed improved motor function compared to control animals. Inspection of the spinal cords from the treated mice showed significant levels of human neural cells derived from the transplanted stem cells. Some of these cells were oligodendrocytes, the specialized neural cell that forms the myelin sheath around axons, while others had become neurons and showed evidence of synapse formation, a requirement for proper neuronal function. The researchers then selectively ablated the human cells, and found that the functional improvement was lost, thus demonstrating that the human cells had played a direct role in the functional recovery of the transplanted mice. Moreover, our preclinical studies show that our human neural stem cells enable a significant and persistent recovery of motor function when transplanted in spinal cord-injured mice at both sub-acute and chronic injury time points.

In July 2012, the governing board of CIRM approved our application for a Disease Team Therapy Development Research Award for the study of HuCNS-SC cells as a potential treatment for cervical spinal cord injury. Under this disease team program, CIRM would have provided up to $20 million in the form of a forgivable loan. However, in March 2013, we elected not to borrow these funds from CIRM.

Diseases and Disorders of the Eye

The retina is a thin layer of neural cells that lines the back of the eye and is responsible for converting external light into neural signals. A loss of function in retinal cells leads to impairment or loss of vision. The

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most common forms of retinal degeneration are age-related macular degeneration (AMD) and retinitis pigmentosa. AMD is the leading cause of vision loss and blindness in people over the age of 55 and afflicts some 30 million people worldwide.

In June 2012, we initiated a Phase I/II clinical trial in dry age-related macular degeneration, the more common form of AMD, and in October 2012, the first patient was enrolled and dosed with HuCNS-SC cells. The trial, which was authorized by the FDA in January 2012, is expected to enroll a total of 16 patients and will evaluate the safety and preliminary efficacy of our HuCNS-SC cells as a treatment for dry AMD. Patients’ vision will be evaluated using conventional methods of ophthalmological assessment at predetermined intervals over a one-year period. This trial is being conducted at three sites in the United States, and as of February 2014, we completed enrollment of the first of two planned patient cohorts. We expect to complete enrollment of the second cohort consisting of eight patients by the end of the second quarter of 2014.

Our preclinical data have shown that our HuCNS-SC cells, when transplanted in a well-established animal model of retinal degeneration, engraft long-term, can protect photoreceptors (the key cells involved in vision) from progressive degeneration, and can slow or prevent loss of visual function. In this model, called the Royal College of Surgeons (RCS) rat, a genetic mutation causes dysfunction of the retinal pigmented cells, which leads to progressive loss of the photoreceptors and ultimately, loss of visual function in the rat. Our preclinical data shows that our human neural stem cells protect both rod and cone photoreceptors in the eye from progressive degeneration and preserve visual function long term. The cone photoreceptors are light sensing cells that are highly concentrated within the macula of the human eye, and the ability to protect these cells suggests a promising approach to treating AMD. A summary of our preclinical data was featured as the cover article in February 2012 edition of the international peer-reviewed European Journal of Neuroscience.

Other CNS Collaborations.

We have collaborated on a number of research programs to assess both the in vitro potential of the HuCNS-SC cells and the effects of transplanting HuCNS-SC cells into various preclinical animal models. One such collaboration was with researchers at the Stanford University School of Medicine that evaluated our human neural stem cells in animal models of stroke. The results of these studies demonstrated the targeted migration of the cells toward the stroke lesion and differentiation toward the neuronal lineage. Another study with researchers at Stanford’s School of Medicine demonstrated that HuCNS-SC cells labeled with magnetic nanoparticles could non-invasively track the survival and migration of human cells within the brain. We continue to search for and evaluate, promising collaborations to supplement our efforts to develop and commercialize our proprietary human neural platform technology.

Tools and Technologies Programs

Overview

Cells, and stem cells in particular, are an important resource for researchers seeking to understand human diseases, advance medical research and develop more effective therapies. Stem cells provide potentially unlimited sources of different cell types owing to their ability to be expanded and subsequently differentiated into particular cell types. Embryonic stem cells, for example, have the ability to become any one of the more than 200 specialized cell types found in the human body (they are said to be pluripotent); induced pluripotent stem (iPS) cells also possess this ability. Because of this versatility, these cells are valuable tools for examining and researching the fundamental biology of cells and the pathways involved in early development and tissue formation. In recent years, the pharmaceutical industry has become increasingly interested in using stem cell-based assays in its drug discovery and development efforts. Academia and industry use specialty cell culture products and antibody reagents to enable stem cell-based research and drug discovery and development. We sell specialty cell culture products and antibody reagents under our SC Proven brand.

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Specialty Cell Culture Products and Antibody Reagents

Stem cell research is a growing and highly specialized field. Because of their nature, stem and progenitor cells are rare and they require specific conditions to survive and thrive. For this reason, researchers require specialized cell culture products that enable the derivation, growth, maintenance, and manipulation of such cells. One of the greatest challenges facing researchers is the limited quality and quantity of available stem and progenitor cells. The challenge is in maintaining the pluripotency or multipotency of stem or progenitor cells in culture, i.e., keeping these cells from differentiating into other cell types, which is their natural tendency. Our cell biology expertise has enabled us to develop and commercialize proprietary cell culture products to optimize the derivation, growth, maintenance, and differentiation of stem cells. In contrast to common industry practice, we have developed media formulations that are free of animal serum and feeder cells (helper cells added to promote cell growth), which are known sources of undesirable agents affecting stem cell performance and safety.

Our current range of cell culture products, which are sold under the SC Proven brand, includes iSTEM, GS1-R, GS2-M, RHB-A, RHB-Basal, NDiff N2, and NDiff 227. The following table describes each of these in more detail:

iSTEM	A serum-free, feeder-free medium that maintains mouse embryonic stem cells (ESCs) in their pluripotent “ground state” by using selective small molecule inhibitors to block the pathways which induce differentiation.
RHB-A	A defined, serum-free culture medium for the selective culture of human and mouse neural stem cells and their maintenance and expansion as adherent cell populations.
RHB-Basal	A defined, serum-free basal medium. When supplemented with specific growth factors, this media is specifically formulated for the propagation and differentiation of adherent neural stem cells. RHB-Basal can also be tailored to specific-cell type requirements by the addition of customer preferred supplements.
NDiff N2	A defined serum-free cell culture supplement for the derivation, maintenance, expansion and/or differentiation of human and mouse ESCs and tissue-derived neural stem cells supplement.
NDiff N2-AF	A serum-free and animal component-free version of NDiff N2.
NDiff 227	A defined, serum-free medium for the differentiation of mouse ESCs to neural cell types.
NDiff N27	Defined, serum-free cell culture supplement for the derivation, maintenance, expansion and/or differentiation of human and mouse ESCs induced pluripotent stem (iPS) cells and tissue-derived neural stem cells.
NDiff N27-AF	A serum-free and animal component-free version of NDiff N27.
GS1-R	The first defined, serum-free media formulation shown to enable the derivation and long-term maintenance of true, germline competent rat ESCs without the addition of cytokines or growth factors.
GS2-M	A defined, serum- and feeder-free medium for the derivation and long-term maintenance of true, germline competent iPS cells.

We also currently market a number of antibody reagents for use in cell detection, isolation and characterization. These reagents are also under the SC Proven brand. The following table describes each of these in more detail:

STEM24	A human antibody that recognizes human CD24, also known as Heat Stable Antigen (HSA), a glycoprotein expressed on the surface of many human cell types, including immature human hematopoietic cells, peripheral blood lymphocytes, erythrocytes, and many human carcinomas. CD24 is also a marker of human neural differentiation.
STEM101	A human-specific mouse antibody that recognizes the Ku80 protein found in human nuclei.

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STEM121	A human-specific mouse antibody that recognizes a cytoplasmic protein of human cells.
STEM123	A human-specific mouse antibody that recognizes human glial fibrillary acidic protein (GFAP).

We also market a number of human cell lines for use in research, including human neural stem cells derived from different areas of the CNS as well as hFB101, ultra primary human fibroblasts for use in genetic reprogramming and the creation of human IPS cells.

Other products marketed under SC Proven include total cell genomic DNA (gDNA), RNA and protein lysate reagents purified from homogenous stem cell populations for intra-comparative studies, such as Epigenetic fingerprinting, Southern, Western and Northern blots, PCR, RT-PCR, and microarrays. This range of purified stem cell line lysates includes:

• Mouse ESCs propagated in proprietary SC Proven ‘2i’ inhibitor-based GS2-M media; and

• Mouse ES cell-derived and fetal tissue-derived neural stem cells propagated in proprietary SC Proven RHB-A^® media.

Other Technologies

In addition to our cell therapeutics and research reagent programs, we hold a number of “non-core” technologies which we feel present licensing opportunities, such as technologies for the generation of transgenic rats.

Transgenic Rat Program.

As part of our acquisition of assets from SCS in April 2009, we acquired exclusive rights to an intellectual property portfolio that broadly covers rat pluripotent stem cells, methods for using these cells to generate transgenic rats, and media for the culturing of these cells. This intellectual property was based upon research done at the University of Edinburgh, which showed for the first time the successful derivation and culture of true germline competent rat ES cells required for precise genetic engineering.

In August 2010, researchers demonstrated for the first time the creation of genetically modified rats using rat pluripotent cells that have been gene targeted via homologous recombination, a method which involves adding DNA sequences to the cells to delete (‘knock-out’), add (‘knock-in’) or otherwise modify genes of interest. This work resulted in the successful generation of knock-out rats missing the tumor suppressor gene p53 and served as a proof-of-principle for creating genetically engineered rats using rat ES cells. Prior to this breakthrough, these types of genetic manipulations were only possible in mice, and genetically engineered mice are widely used as disease models. While both mice and rats are used as animal models of human disease, aspects of the rat’s physiology, behavior, and metabolism are closer to the human, making rats the preferred species for drug development and studying human disease. Moreover, the rat cells used to generate these genetically engineered rats were cultured using a proprietary ‘2i’ inhibitor-based media formulation marketed as part of our SC Proven line of specialty cell culture products under the product name “GS1-R.” GS1-R is the first and only commercially available medium shown to enable the derivation and long-term maintenance of the true rat pluripotent cells required for precise genetic manipulation.

We believe that over the past few years a number of researchers have used our rat pluripotent cell technology to derive different knock-out and knock-in rat models. And, over this time, the first of the patents in this portfolio issued (GB Patent No. 2451523), and the proprietary media patent application was allowed in Europe (EPO Patent No. 1999249). We are therefore exploring our rat pluripotent cell technology and our inhibitor-based media as licensing and commercial opportunities.

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Contract Services and Supply Agreements

Our team members have been at the forefront of the research, development, manufacture, and clinical translation of various different stem cells and cell-based therapies for over 20 years. We have demonstrated expertise in the development and implementation of state-of-the-art cell separation devices, bioreactors, closed systems, and robotic platforms for manufacture of cells at the required scales. Leveraging this expertise, we now offer contract services for process development, process scale-up/scale-out and production, including use of our automated TAP Biosystems CompacT^® SelecT Robotic platform.

In an extension of the process development and production services we have been contracted to scale-up and supply quantities of cell lines, reagents, cell line derivatives, and assay protocols for use in client’s drug development and other programs.

Our clients include the service division of a global biotechnology company developing new medicines, and a world-renowned scientific research institute.

Operations

Manufacturing

We have made considerable investments in our manufacturing operations. Our team includes world-recognized experts with proven track records in the development, manufacture and delivery of a range of different cell-based products. For clinical trials, our highly-qualified personnel manufacture cell products in clean room environments in compliance with current Good Manufacturing Practice (cGMP) and to quality standards that meet US as well as international regulatory requirements. By combining expertise and experience, we believe our expandable and bankable cell products can ultimately be manufactured and distributed at commercial scale as “stem cells in a bottle,” much like an off-the-shelf pharmaceutical product. We believe we also have sufficient ability to manufacture the cell culture media and reagent products that we are currently selling commercially, and that we have sufficient resources to add additional media and reagent manufacturing capacity should the business need arise.

Marketing

Because of the early stage of our stem and progenitor cell-based therapeutic product development programs, we have not yet addressed questions of channels of distribution or marketing of potential future products. We sell and ship our proprietary cell culture products directly from our facility in Cambridge, U.K. Customers can order these products through our dedicated website (www.scproven.com). In addition, we have a number of co-exclusive distribution agreements with Millipore Corporation for the marketing and sale of certain of our cell culture products, including HEScGRO and ESGRO Complete.

Employees

As of December 31, 2013, we had 58 full-time employees, 13 of whom have Ph.D., M.D. or D.V.M. degrees. 47 full-time employees work in research and development and laboratory support services. No employees are covered by collective bargaining agreements. We consider our employee relations in general to be good.

Patents, Proprietary Rights and Licenses

We believe that proprietary protection of our inventions will be critical to our future business. We vigorously seek out intellectual property that we believe might be useful in connection with our products, and have an active program of protecting our intellectual property. We may also from time to time seek to acquire licenses to important externally developed technologies.

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We have exclusive or non-exclusive rights to a portfolio of patents and patent applications related to various stem and progenitor cells and methods of deriving and using them. These patents and patent applications relate to compositions of matter, methods of obtaining such cells, and methods for preparing, transplanting and utilizing these cells. We also own or have exclusive rights to exploit a number of patents that claim tools and techniques important to cell-based research. A number of these patents were acquired from SCS in April 2009. Additional patents were acquired from NsGene A/S, a Danish company, in February 2013. These patents claim GFAP+ Nestin+ precursor cells capable of differentiating into neurons. Among our significant U.S. patents covering stem and progenitor cells are:

• U.S. Patent No. 5,968,829, entitled “Human CNS Neural Stem Cells,” which covers our composition of matter for human CNS stem cells;

• U.S. Patent No. 7,361,505, entitled “Multipotent neural stem cell compositions,” which covers mammalian neural stem cells derived from any tissue source, including embryonic, fetal, juvenile, or adult tissue;

• U.S. Patent No. 7,153,686, entitled “Enriched Central Nervous System Stem Cell and Progenitor Cell Populations, and Methods for Identifying, Isolating and Enriching such Populations,” which claims the composition of matter of various antibody-selected neural stem cell populations;

• U.S. Patent No. 6,777,233, entitled “Cultures of Human CNS Neural Stem Cells,” which discloses a neural stem cell culture with a doubling rate faster than days;

• U.S. Patent No. 6,497,872, entitled “Neural transplantation using proliferated multipotent neural stem cells and their progeny,” which covers transplanting any neural stem cells or their differentiated progeny, whether the cells have been cultured in suspension or as adherent cells, for the treatment of any disease;

• U.S. Patent No. 6,468,794, entitled “Enriched central nervous system stem cell and progenitor cell populations, and methods for identifying, isolating and enriching for such populations,” which covers the identification and purification of the human CNS stem cell;

• U.S. Patent No. 5,851,832, entitled “In Vitro growth and proliferation of multipotent neural stem cells and their progeny,” which covers methods and compositions of proliferating and expanding human CNS cell cultures; and

• U.S. Patent No. 6,294,346, entitled “Use of multipotent neural stem cells and their progeny for the screening of drugs and other biological agents,” which describes the use of human neural stem cells as a tool for screening the effects of drugs and other biological agents on such cells, such as small molecule toxicology studies.

Among our significant U.S. patents covering cell-based research tools and technologies are:

• U.S. Patent Nos. 7,005,299 and 6,150,169, both entitled “Expression of heterologous genes according to a targeted expression profile,” which cover the use of a gene sequence called IRES (internal ribosome entry site), a pivotal technology to target exogenous gene expression in stem cells, thereby facilitating their identification and use; and

• U.S. Patent Nos. 6,878,542 and 7,256,041, both entitled “Isolation, selection and propagation of animal transgenic stem cells,” and U.S. Patent No. 6,146,888, entitled “Method of enriching for mammalian stem cells,” which cover the isolation of stem cells using a nucleic acid construct including a selectable marker.

In October 2013, we acquired a portfolio of issued patents claiming compositions of human neural stem cells and their proliferation and use from NeuroSpheres Holdings, a Canadian holding company affiliated with the University of Calgary. Accordingly, of the patents identified above as being amongst our “significant” patents, eight are owned by us and five are exclusively licensed to us. The table below sets out the anticipated expiration

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dates of these patents absent the grant of any patent term extension, whether under the Hatch Waxman Act (Pub. L. 98-417) or otherwise:

Patents Owned	7,361,505 (2015); 6,497,872 (2019); 5,851,832 (2015); 6,294,346 (2018); 5,968,829 (2017); 7,153,686 (2019); 6,777,233 (2017); 6,468,794 (2019)
Patents Exclusively Licensed (licensor included):	7,005,299 (University of Edinburgh, 2014); 6,150,169 (University of Edinburgh, 2014); 6,878,542 (University of Edinburgh 2014); 7,256,041 (University of Edinburgh, 2014); 6,146,888 (University of Edinburgh, 2014)

We also rely upon trade secret protection for our proprietary information and know-how, and we take active measures to control access to this information. We believe that our know-how will also provide a significant competitive advantage.

Our policy is to require our employees, consultants and significant scientific collaborators and sponsored researchers to execute confidentiality agreements upon the commencement of any employment or consulting relationship with us. These agreements generally provide that all confidential information disclosed by us or developed during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and consultants, the agreements generally provide that all inventions conceived by the individual in the course of rendering services to us will be our exclusive property.

Licenses Agreements

Since inception, we have entered into a number of license agreements with academic organizations and commercial entities, including NeuroSpheres, Ltd. (Neurospheres), ReNeuron Ltd. (ReNeuron), Stem Cell Therapeutics Corp. (SCT), genOway SA (genOway), and the University of Edinburgh, to either acquire or license out intellectual property rights. Under these license agreements, there are typically obligations of due diligence and the requirement to pay royalties on products that use patented technology licensed under these agreements. The license agreements with some of these institutions relate largely to stem or progenitor cells or to processes and methods for the isolation, identification, expansion, or culturing of stem or progenitor cells. Generally speaking, these license agreements will terminate upon expiration, revocation or invalidation of the licensed patents, unless governmental regulations require a shorter term. Typically, the licensee under each of these license agreements can terminate the agreement at any time upon notice. At this time, we do not believe the future success of our research and development efforts depend significantly on any particular license agreement or research collaboration. Nevertheless, we describe the more important license agreements below.

NeuroSpheres

In March 1994, we entered into a contract research and license agreement with NeuroSpheres, which was clarified in a license agreement dated as of April 1, 1997. Under the agreement as clarified, we obtained an exclusive patent license from NeuroSpheres in the field of transplantation, subject to a limited right of NeuroSpheres to purchase a nonexclusive license from us, which right was not exercised and has expired. We then developed additional intellectual property relating to the subject matter of the license. We entered into an additional license agreement with NeuroSpheres as of October 30, 2000, under which we obtained an exclusive license in the field of non-transplant uses, such as drug discovery. Together, our rights under these licenses were exclusive for all uses of the technology. All of the product-based royalty rates in the license agreement between the Company and NeuroSpheres were in the single digits. We made up-front payments to NeuroSpheres of 6,500 shares of our common stock in October 2000 and $50,000 in January 2001, and were required to make additional cash payments when milestones are achieved under the terms of the October 2000 agreement. In addition, in October 2000 we reimbursed NeuroSpheres for patent costs amounting to $341,000. Milestone payments, payable at various stages in the development of potential products, would total $500,000 for each

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product that is approved for market. In addition, beginning in 2004, annual payments of $50,000 became due, payable by the last day of the year and fully creditable against royalties due to NeuroSpheres under the October 2000 Agreement. In July 2008, we amended our 1997 and 2000 license agreements with NeuroSpheres. Six of the patents covered by the license agreements are the basis of our patent infringement suits against Neuralstem. Under the terms of the amendment, we agreed to pay all reasonable litigation costs, expenses and attorney’s fees incurred by NeuroSpheres in the declaratory judgment suit between us and Neuralstem. In return, we were entitled to off-set all litigation costs incurred in that suit against amounts that would otherwise be owed under the license agreements, such as annual maintenance fees, milestones and royalty payments.

In October, 2013, we acquired from NeuroSpheres the patent portfolio we licensed. As consideration for the patents, we issued 139,548 shares of unregistered common stock to NeuroSpheres. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres., and all preexisting agreements were terminated.

University of Edinburgh

In January 2006, we entered into an exclusive, world-wide license agreement with the University of Edinburgh covering approximately twelve separate patent families in the stem cell field. Since then, the parties added some additional patent families and dropped some patent families which were not considered core to our business activities. Today, the license agreement patent families, including several that cover culture media and research technologies, one that covers purified populations of neural stem cells, some that cover cell reprogramming technologies, and one that covers the manipulation and use of embryonic stem cells for the derivation of research animal models, such as knock-out rats, with one or more missing genes. Under the license agreement, we have the exclusive right to commercialize the technologies in all fields. We have been paying royalties to the University of Edinburgh on the commercial sale of certain SC Proven products, and will pay royalties on all net sales of products covered by any of the intellectual property licensed under this agreement. All of the product-based royalty rates in the license agreement between the Company and the University of Edinburgh are in the single digits and there are no provisions under the University of Edinburgh license agreement for the payment of potential milestones by the Company.

ReNeuron

In July 2005, we entered into an agreement with ReNeuron under which we granted ReNeuron a license that allows ReNeuron to exploit its “c-mycER” conditionally immortalized adult human neural stem cell technology for therapy and other purposes. We received shares of ReNeuron common stock, as well as a cross-license to the exclusive use of ReNeuron’s technology for certain diseases and conditions, including lysosomal storage diseases, spinal cord injury, cerebral palsy, and multiple sclerosis. The agreement also provides for full settlement of any potential claims that either we or ReNeuron might have had against the other in connection with any putative infringement of certain of each party’s patent rights prior to the effective date of the agreement. As part of the agreement, we received in aggregate, approximately 10,097,000 ordinary shares of ReNeuron common stock, net of approximately 122,000 shares that were transferred to NeuroSpheres. Between 2007 and 2011, we sold our entire holdings of shares of ReNeuron common stock for aggregate net proceeds of approximately $3,743,000. As of June 30, 2011, we no longer hold any shares of ReNeuron.

Stem Cell Therapeutics

In August 2006, we entered into an agreement with Stem Cell Therapeutics, a Canadian corporation listed on the Toronto Stock Exchange, granting it a non-exclusive, royalty-bearing license to use several of our patents for treating specified diseases of the central nervous system; the grant does not include any rights to cell transplantation. SCT granted us a royalty-free non-exclusive license to certain of its patents for research and development and a royalty-bearing non-exclusive license for certain commercial purposes. SCT paid an up-front license fee; the license also provides for other payments including annual maintenance, milestones and royalties.

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genOway

In October 2008, we entered into a license agreement with genOway, a leading transgenics company located in France, in which we granted a non-exclusive sublicense to genOway for the use of Internal Ribosome Entry Site (IRES) technology. The IRES technology enables the dual expression of a protein of interest and a selectable marker, thereby enabling researchers to genetically modify any mammalian cell and monitor the activity of a particular gene of interest in living cells or tissues without blocking the normal function of the gene. The IRES technology is particularly important for evaluating the success of gene knock-outs or knock-ins in stem cells and for the successful creation of transgenic rodent disease models. The IRES technology has been used to develop hundreds of genetically modified models in the past decade, and the technology is now considered to be the reference technology for transgene expression in some key rodent animal models, such as humanized models, reporter model, and cell trafficking models. The IRES technology is covered by one of the patent families exclusively licensed to us by the University of Edinburgh, specifically U.S. Patents No. 7,005,299 and 6,150,169 and their foreign counterparts.

In March 2012, we agreed to amend the genOway license agreement to give genOway exclusive worldwide rights, including a right to grant sublicenses, under the IRES patent family in order to commercialize transgenic mice, and provide related services such as the genetic engineering of such mice. Under this exclusive license agreement, as amended, we received a six figure lump sum payment in lieu of annual maintenance fees, and will receive single digit royalties on licensed products and services.

Other Commercial Licenses

We have approximately thirteen other license agreements with commercial entities, which we entered into in the ordinary course of business to monetize certain of our patents. A number of these include sublicenses to certain patents exclusively licensed to us from either NeuroSpheres or the University of Edinburgh. Some of these are license agreements to commercialize cells. A number of these are license agreements to our research tools patents, such as the IRES and selectable marker technologies described above. We have an on-going licensing program at the Company with the goal of identifying likely infringers of our intellectual property rights in order to generate license revenues.

Scientific Advisory Board

Members of our Scientific Advisory Board provide us with strategic guidance primarily in regard to our therapeutic products research and development programs, as well as assistance in recruiting employees and collaborators. Each Scientific Advisory Board member has entered into a consulting agreement with us. These consulting agreements specify the compensation to be paid and require that all information about our products and technology be kept confidential. All of the Scientific Advisory Board members are employed by employers other than us and may have commitments to, or consulting or advising agreements with, other entities that limit their availability to us. The Scientific Advisory Board members have generally agreed, however, for so long as they serve as consultants to us, not to provide any services to any other entities that would conflict with the services the member provides to us. We are entitled to terminate the arrangements if we determine that there is such a conflict.

The following persons are members of our Scientific Advisory Board:

• Irving L. Weissman, M.D., Chairman of our Scientific Advisory Board, is the Virginia and Daniel K. Ludwig Professor of Cancer Research, Professor of Pathology and Professor of Developmental Biology at Stanford University, Director of the Stanford University Institute for Stem Cell Biology and Regenerative Medicine, and Director of the Stanford Ludwig Center for Cancer Stem Cell Research and Medicine, all in Stanford, California. Dr. Weissman’s lab was responsible for the discovery and isolation of the first ever mammalian tissue stem cell, the hematopoietic (blood-forming) stem cell. Dr. Weissman was responsible for the formation of three stem cell companies, SyStemix, Inc.,

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StemCells, Inc. and Cellerant, Inc. Dr. Weissman co-discovered the mammalian and human hematopoietic stem cells and the human neural stem cell. He has extended these stem cell discoveries to cancer and leukemia, discovering the leukemic stem cells in human and mouse acute or blast crisis myeloid leukemias, and has enriched the cancer stem cells in several human brain cancers as well as human head and neck squamous cell carcinoma. Past achievements of Dr. Weissman’s laboratory include identification of the states of development between stem cells and mature blood cells, the discovery and molecular isolation and characterization of lymphocyte and stem cell homing receptors, and identification of the states of thymic lymphocyte development. His laboratory at Stanford has developed accurate mouse models of human leukemias, and has shown the central role of inhibition of programmed cell death in that process. He has also established the evolutionary origins of pre-vertebrate stem cells, and identified and cloned the transplantation genes that prevent their passage from one organism to another. Dr. Weissman has been elected to the National Academy of Science, the Institute of Medicine of the National Academies, the American Academy of Arts and Sciences, the American Society of Microbiology, and several other societies. He has received the Kaiser Award for Excellence in Preclinical Teaching, the Pasarow Foundation Award for Cancer Research, the California Scientist of the Year (2002), the Kovalenko Medal of the National Academy of Sciences, the Elliott Joslin Medal for Diabetes Research, the de Villiers Award for Leukemia Research, the Irvington Award for Immunologist of the Year, the Bass Award of the Society of Neurosurgeons, the New York Academy of Medicine Award for Medical Research, the Alan Cranston Award for Aging Research, the Linus Pauling Award for Biomedical Research, the E. Donnall Thomas Award for Hematology Research, the van Bekkum Award for Stem Cell Research, the Outstanding Investigator Award from the National Institutes of Health, Robert Koch Award for research in the hemopoieteic system, and many other awards. In 2010, Dr. Weissman was appointed as an Honorary Director of the Center for Biotech and BioMedicine and the Shenzhen Key Lab of Gene and Antibody Therapy at the Graduate School of Shenzhen at Tsinghua University. He was also appointed as an Honorary Professor at Peking Union Medical College and an Honorary Investigator at the State Key Laboratory of Experimental Hematology, Institute of Hematology and Blood Disease Hospital at the Chinese Academy of Medical Sciences and Peking Union Medical College. In 2011, Dr. Weissman was elected to the National Academy of Sciences Council.

• David J. Anderson, Ph.D., is Seymour Benzer Professor of Biology, California Institute of Technology, Pasadena, California and Investigator, Howard Hughes Medical Institute. His laboratory was the first to isolate a multipotent, self-renewing, stem cell for the peripheral nervous system, the first to identify instructive signals that promote the differentiation of these stem cells along various lineages, and the first to accomplish a direct purification of peripheral neural stem cells from uncultured tissue. Dr. Anderson’s laboratory also was the first to isolate transcription factors that act as master regulators of neuronal fate. More recently, he has identified signals that tell a neural stem cell to differentiate to oligodendrocytes, the myelinating glia of the central nervous system, as well as factors for astrocyte differentiation. Dr. Anderson is a co-founder of the Company and was a founding member of the scientific advisory board of the International Society for Stem Cell Research. Dr. Anderson also serves on the scientific advisory board of Allen Institute for Brain Science. He has held a presidential Young Investigator Award from the National Science Foundation, a Sloan foundation Fellowship in Neuroscience, and has been Donald D. Matson lecturer at Harvard Medical School. He has received the Charles Judson Herrick Award from the American Association of Anatomy, the 1999 W. Alden Spencer Award in Neurobiology from Columbia University, and the Alexander von Humboldt Foundation Award. Dr. Anderson has been elected to the National Academy of Science and is a member of the American Academy of Arts and Sciences.

• Fred H. Gage, Ph.D., is Professor, Laboratory of Genetics, The Salk Institute for Biological Studies, La Jolla, California and Adjunct Professor, Department of Neurosciences, University of California, San Diego, California. Dr. Gage’s lab was the first to discover Neurogenesis in the adult human brain. His research focus is on the development of strategies to induce recovery of function following central nervous system damage. Dr. Gage is a co-founder of StemCells and of BrainCells, Inc., and a member

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of the scientific advisory board of each. Dr. Gage also serves on the Scientific Advisory Board of Ceregene, Inc, and he is a founding member of the scientific advisory board of the International Society for Stem Cell Research. Dr. Gage has been the recipient of numerous awards, including the 1993 Charles A. Dana Award for Pioneering Achievements in Health and Education, the Christopher Reeves Medal, the Decade of the Brain Medal, the Max-Planck research Prize, and the Pasarow Foundation Award. Professor Gage is a member of the Institute of Medicine, a member of the National Academy of Science, and a Fellow of the American Academy of Arts and Science.

Government Regulation

Our research and development activities and the future manufacturing and marketing of our potential therapeutic products are, and will continue to be, subject to regulation for safety and efficacy by numerous governmental authorities in the United States and other countries.

U.S. Regulations

In the United States, pharmaceuticals, biologicals and medical devices are subject to rigorous regulation by the U.S. Food and Drug Administration (FDA). The Federal Food, Drug and Cosmetic Act, the Public Health Service Act, applicable FDA regulations, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, labeling, storage, export, record keeping, approval, marketing, advertising, and promotion of our potential products. Product development and approval within this regulatory framework takes a number of years and involves significant uncertainty combined with the expenditure of substantial resources. In addition, many jurisdictions, both federal and state, have restrictions on the use of fetal tissue.

FDA Marketing Approval

The steps required before our potential therapeutic products may be marketed in the United States include:

Steps	Considerations
1. Preclinical laboratory and animal tests	Preclinical tests include laboratory evaluation of the cells and the formulation intended for use in humans for quality and consistency. In vivo studies are performed in normal animals and specific disease models to assess the potential safety and efficacy of the cell therapy product.
2. Submission of an Investigational New Drug (IND) application	The IND is a regulatory document submitted to the FDA with preclinical and manufacturing data, a proposed development plan and a proposed protocol for a study in humans. The IND becomes effective 30 days following receipt by the FDA, provided there are no questions, requests for delay or objections from the FDA. If the FDA has questions or concerns, it notifies the sponsor, and the IND will then be on clinical hold until the sponsor responds satisfactorily. In general an IND must become effective before U.S. human clinical trials may commence.
3. Human clinical trials	Clinical trials involve the evaluation of a potential product under the supervision of a qualified physician, in accordance with a protocol that details the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA as part of the IND. The protocol for each clinical study

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	must be approved by an independent Institutional Review Board (IRB) of the institution at which the study is conducted and the informed consent of all participants must be obtained. The IRB reviews the existing information on the product, considers ethical factors, the safety of human subjects, the potential benefits of the therapy, and the possible liability of the institution. The IRB is responsible for ongoing safety assessment of the subjects during the clinical investigation.
	Clinical development is traditionally conducted in three sequential phases, Phase I, II and III.
	Phase I studies for a product are designed to evaluate safety in a small number of subjects in a selected patient population by assessing adverse effects, and may include multiple dose levels. This study may also gather preliminary evidence of a beneficial effect on the disease.
	Phase II studies typically involve a larger, but still limited, patient population to determine biological and clinical effects of the investigational product and to identify possible adverse effects and safety risks of the product in the selected patient population.
	Phase III studies are undertaken to demonstrate clinical benefit or effect in a statistically significant manner and to test further for safety within a broader patient population, generally at multiple study sites.
	The FDA continually reviews the clinical trial plans and results and may suggest changes or may require discontinuance of any trial at any time if significant safety issues arise.
4. Submission of a Biologics Licensing Application (BLA)	The results of the preclinical studies and clinical studies are submitted to the FDA in an application for marketing approval authorization.
5. Regulatory Approval	The testing and approval process will require substantial time, effort and expense. The time for approval is affected by a number of factors, including relative risks and benefits demonstrated in clinical trials, the availability of alternative treatments and the severity of the disease. Additional animal studies or clinical trials may be requested during the FDA review period, which might add to that time. FDA approval of the application(s) is required prior to any commercial sale or shipment of the therapeutic product. Biologic product manufacturing facilities located in certain states also may be subject to separate regulatory and licensing requirements.

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6. Post-marketing studies After receiving FDA marketing approval for a product for an initial indication, further clinical trials may be required to gain approval for the use of the product for additional indications. The FDA may also require post-marketing testing and surveillance to monitor for adverse effects, which could involve significant expense, or the FDA may elect to grant only conditional approvals subject to collection of post-marketing data.

FDA Manufacturing Requirements

Among the conditions for product licensure is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to the FDA’s current good manufacturing practice (GMP) requirements. Even after a product’s licensure approval, its manufacturer must comply with GMP on a continuing basis, and what constitutes GMP may change as the state of the art of manufacturing changes. Domestic manufacturing facilities are subject to regular FDA inspections for GMP compliance, which are normally held at least every two years. Foreign manufacturing facilities are subject to periodic FDA inspections or inspections by the foreign regulatory authorities. Domestic manufacturing facilities may also be subject to inspection by foreign authorities.

Orphan Drug Act

The Orphan Drug Act provides incentives to drug manufacturers to develop and manufacture drugs for the treatment of diseases or conditions that affect fewer than 200,000 individuals in the United States. Orphan drug status can also be sought for treatments for diseases or conditions that affect more than 200,000 individuals in the United States if the sponsor does not realistically anticipate its product becoming profitable from sales in the United States. We may apply for orphan drug status for certain of our therapies. Under the Orphan Drug Act, a manufacturer of a designated orphan product can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity in the United States for that product for the orphan indication. While the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same compound for the same indication, it would not prevent other compounds or products from being approved for the same use including, in some cases, slight variations on the originally designated orphan product.

FDA programs to expedite drug development for serious conditions

We may avail of various FDA programs that are intended to facilitate and expedite development and review of new drugs to address unmet medical need in the treatment of serious or life-threatening conditions.

Breakthrough therapy designation

This program is intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy. A breakthrough therapy designation conveys all of the fast track program features as well as more intensive FDA guidance on an efficient drug development program.

Fast Track Designation

This program is intended to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need. Designation may be granted on the basis of preclinical data. A sponsor of a drug that receives fast track designation will typically have more frequent interactions with FDA

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during drug development. In addition, products that have been designated as fast track can submit portions of a marketing application before submitting the complete application, known as rolling review.

Accelerated Approval

This program can be used for speeding the development and approval of promising therapies that treat a serious or life-threatening condition and provide meaningful therapeutic benefit over available therapies. Accelerated approval allows approval of a drug that demonstrates an effect on a “surrogate endpoint” that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality (IMM) that is reasonably likely to predict an effect on IMM or other clinical benefit. The accelerated approval pathway is most often useful in settings in which the disease course is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Nevertheless, even after the drug enters the market, the sponsor may be required to conduct post-marketing trials to verify and describe the drug’s clinical benefit. If further trials fail to verify the predicted clinical benefit, the FDA may withdraw approval. A drug that has received a breakthrough therapy designation or a fast track designation can be eligible for the accelerated approval pathway, if the relevant criteria are met.

FDA Human Cell and Tissue Regulations

Our research and development is based on the use of human stem and progenitor cells. The FDA has initiated a risk-based approach to regulating Human Cells, Tissues, and Human Cellular and Tissue-based products (HCT/P) and has published current Good Tissue Practice (GTP) regulations. As part of this approach, the FDA has published final rules for registration of establishments that recover, process, store, label, package, or distribute HCT/P or that screen or test the donor of HCT/P, and for the listing of such products. In addition, the FDA has published rules for determining the suitability of donors of cells and tissue, the eligibility of the cells and tissues for clinical use and for current good tissue practice for manufacturers using them. We have adopted policies and procedures to comply with these regulations.

Other Regulations

In addition to safety regulations enforced by the FDA, we are also subject to regulations under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, and other present and potential future foreign, federal, state, and local regulations.

International Law

Outside the United States, we will be subject to regulations that govern the import of drug products from the United States or other manufacturing sites and foreign regulatory requirements governing human clinical trials and marketing approval for our products. The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursements vary widely from country to country. In particular, the European Union (EU) is revising its regulatory approach to biotechnology products, and representatives from the United States, Japan and the EU are in the process of harmonizing and making more uniform the regulations for the registration of pharmaceutical products in these three markets. This process increases uncertainty over regulatory requirements in our industry. Furthermore, human stem and progenitor cells may be regulated in the EU and other countries as transplant material or as a somatic cell therapy medicinal product, depending on the processing, indication and country.

Environment

We have made, and will continue to make, expenditures for environmental compliance and protection. Expenditures for compliance with environmental laws have not had, and are not expected to have, a material effect on our capital expenditures, results of operations or competitive position.

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Reimbursement and Health Care Cost Control

Reimbursement for the costs of treatments and products such as ours from government health administration authorities, private health insurers and others, both in the United States and abroad, is a key element in the success of new health care products. Significant uncertainty often exists as to the reimbursement status of newly approved health care products.

The revenue and profitability of some health care-related companies have been affected by the continuing efforts of governmental and third party payors to contain or reduce the cost of health care through various means. Payors are increasingly attempting to limit both coverage and the levels of reimbursement for new therapeutic products approved for marketing by the FDA, and are refusing, in some cases, to provide any coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, there have been a number of federal and state proposals to implement government control over health care costs.

The U.S. Patient Protection and Affordance Care Act and the Health Care and Education Reconciliation Act were signed into law in March 2010. A number of provisions of those laws require further rulemaking action by governmental agencies to implement. The laws change access to health care products and services and create new fees for the pharmaceutical and medical device industries. Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services, or require additional reporting and disclosure. The laws also include new authorization to the FDA to approve companies to market biosimilar products within the United States, although to date FDA rulemaking under this legislation has been limited. We cannot predict the timing or impact of any such future rulemaking on our business.

Competition

In most instances, the targeted indications for our initial products in development have no effective long-term therapies at this time. However, we do expect that our initial products will have to compete with a variety of therapeutic products and procedures. Other pharmaceutical and biotechnology companies currently offer a number of pharmaceutical products to treat lysosomal storage diseases, neurodegenerative and liver diseases, and other diseases for which our technologies may be applicable. Many pharmaceutical and biotechnology companies are investigating new drugs and therapeutic approaches for the same purposes, which may achieve new efficacy profiles, extend the therapeutic window for such products, alter the prognosis of these diseases, or prevent their onset. We believe that our products, when and if successfully developed, will compete with these products principally on the basis of improved and extended efficacy and safety and their overall economic benefit to the health care system. The market for therapeutic products that address degenerative diseases is large and competition is intense. Many companies have significant products approved or in development that could be competitive with our potential products. We expect competition to increase.

Competition for any stem and progenitor cell products that we may develop may be in the form of existing and new drugs, other forms of cell transplantation, ablative and simulative procedures, medical devices, and gene therapy. We believe that some of our competitors are also trying to develop stem and progenitor cell-based technologies. We may also face competition from companies that have filed patent applications relating to the use of genetically modified cells to treat disease, disorder or injury. In the event our therapies should require the use of such genetically modified cells, we may be required to seek licenses from these competitors in order to commercialize certain of our proposed products, and such licenses may not be granted.

If we develop products that receive regulatory approval, they would then have to compete for market acceptance and market share. For certain of our potential products, an important success factor will be the timing of market introduction of competitive products. This is a function of the relative speed with which we and our competitors can develop products, complete the clinical testing and approval processes, and supply commercial quantities of a product to market. These competitive products may also impact the timing of clinical testing and

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approval processes by limiting the number of clinical investigators and patients available to test our potential products.

We expect that all of these products will compete with our potential stem and progenitor cell-based products based on efficacy, safety, cost, and intellectual property positions. While we believe that these will be the primary competitive factors, other factors include, in certain instances, obtaining marketing exclusivity under the Orphan Drug Act, availability of supply, manufacturing, marketing and sales expertise and capability, and reimbursement coverage.

The research markets served by our tools and technologies are highly competitive, complex and dynamic. Technological advances and scientific discoveries have accelerated the pace of change in biological research, and stem cell technologies have been evolving particularly fast. In these markets we face a wide array of competitors, ranging from specialized companies with strengths in niche segments of the life science markets to large manufacturers offering a broad portfolio of products, tools and services. Many of these competitors have significant financial, operational, sales, and marketing resources, and experience in research and development. In some cases, these and other competitors are also our customers, distributors and suppliers. In addition, many of our products can be “home brewed” by customers following publicly available procedures and methodologies.

Reliable independent information on sales and market share of products produced by our competitors is not generally available. We believe, however, based on our own estimates, that no one company is so dominant that it prevents other companies from competing effectively. We compete mainly by focusing on specialty products, which are custom designed for use in stem cell-based research, where we believe our expertise, intellectual property and reputation give us competitive advantage. We believe that, in this particular market niche, our products and technologies offer customers specific advantages over those offered by our competitors. We compete by offering innovative, quality-controlled products, consistently made and designed to produce reproducible results. We tend to avoid head to head competition against entrenched competitors with commoditized products.

Available Information

The following information can be obtained free of charge through our website at http://www.stemcellsinc.com or by sending an e-mail message to irpr@stemcellsinc.com:

• our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission;

• our policies related to corporate governance, including StemCells’ Code of Conduct and Ethics and Procedure for Submission of Complaints; and

• the charters of the Audit Committee, the Compensation & Stock Option Committee and the Corporate Governance & Nominating Committee of our Board of Directors.

The public may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC, 20549. The public may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, http://www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 1A. RISK FACTORS

This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our business, operating results, financial performance, and share price may be materially adversely affected by a number of factors, including but not limited to the following risk factors, any one of which could cause actual

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results to vary materially from anticipated results or from those expressed in any forward-looking statements made by us in this annual report on Form 10-K or in other reports, press releases or other statements issued from time to time. Additional factors that may cause such a difference are set forth elsewhere in this annual report on Form 10-K. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statements.

Risks Related to our Business

Any adverse development relating to our HuCNS-SC product candidate, such as a significant clinical trial failure, could substantially depress our stock price and prevent us from raising additional capital.

At present, our ability to progress as a company is significantly dependent on a single platform technology, our HuCNS-SC cells (purified human neural stem cells), and on early stage clinical trials. Any clinical, regulatory or other development that significantly delays or prevents us from completing any of our trials, any material safety issue or adverse side effect to any study participant in any of these trials, or the failure of these trials to show the results expected would likely depress our stock price significantly and could prevent us from raising the substantial additional capital we will need to further develop our cell technologies. Moreover, any material adverse occurrence in our first clinical trials could substantially impair our ability to initiate additional clinical trials to test our HuCNS-SC cells, whether in other potential indications or otherwise. This, in turn, could adversely impact our ability to raise additional capital and pursue our planned research and development efforts.

We have limited capital resources and we may not obtain the significant additional capital needed to sustain our research and development efforts.

We have limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain our product development efforts, acquire businesses, technologies and intellectual property rights which may be important to our business, continue preclinical and clinical testing of our therapeutic products, pursue regulatory approvals, acquire capital equipment, laboratory and office facilities, establish production capabilities, maintain and enforce our intellectual property portfolio, and support our general and administrative expenses and other working capital requirements. We rely on cash reserves and proceeds from equity and debt offerings, proceeds from the transfer, license, lease, or sale of our intellectual property rights, equipment, facilities, or investments, and government grants and funding from collaborative arrangements, if obtainable, to fund our operations.

We intend to pursue opportunities for additional fundraising in the future through equity or debt financings, corporate alliances or combinations, grants or collaborative research arrangements, sales or dispositions of assets, or any combination of these. However, the source, timing and availability of any future fundraising will depend principally upon market conditions, and, more specifically, on progress in our research, preclinical and clinical development programs. Funding may not be available when needed — at all or on terms acceptable to us. While we actively manage our programs and resources in order to conserve cash between fundraising opportunities, our existing capital resources may not be sufficient to fund our operations beyond the next twelve months. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and/or our capital expenditures or to license our potential products or technologies to third parties. If we exhaust our cash reserves and are unable to realize adequate additional fundraising, we may be unable to meet operating obligations and be required to initiate bankruptcy proceedings or delay, scale back or eliminate some or all of our research and product development programs.

Our product development programs are based on novel technologies and are inherently risky.

We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of these therapies creates significant challenges in regard to product development and optimization, manufacturing, government regulation, third party reimbursement, and market acceptance. For

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example, the pathway to regulatory approval for cell-based therapies, including our therapeutic product candidates, may be more complex and lengthy than the pathway for conventional drugs. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.

Our technologies are at early stages of discovery and development, and we may fail to develop any commercially acceptable or profitable products.

We have incurred significant operating losses and negative cash flows since inception. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We have yet to develop any therapeutic products that have been approved for marketing, and we do not expect to become profitable within the next several years, but rather expect to incur additional and increasing operating losses. Before commercializing any therapeutic product, we will need to obtain regulatory approval from the FDA or from equivalent foreign agencies after conducting extensive preclinical studies and clinical trials that demonstrate that the product candidate is safe and effective. Except for the Phase I NCL and Phase I PMD trials we completed, and our currently ongoing Phase I/II clinical trial in spinal cord injury and Phase I/II clinical trial in dry age-related macular degeneration, we have had no experience conducting human clinical trials. We expect that none of our cell-based therapeutic product candidates will be commercially available for several years, if at all.

While regulatory agencies in the United States, Switzerland and Canada have approved the clinical study of our cells in a total of four indications, there can be no assurance that any of our clinical trials will be completed or result in a successful outcome.

We may elect to delay or discontinue studies or clinical trials based on unfavorable results. Any product developed from, or based on, cell technologies may fail to:

• survive and persist in the desired location;

• provide the intended therapeutic benefit;

• engraft into existing tissue in the desired manner; or

• achieve therapeutic benefits equal to, or better than, the standard of treatment at the time of testing.

In addition, our therapeutic products may cause undesirable side effects. Results of preclinical research in animals may not be indicative of future clinical results in humans.

Ultimately, if regulatory authorities do not approve our products or if we fail to maintain regulatory compliance, we would be unable to commercialize our products, and our business and results of operations would be harmed. Even if we do succeed in developing products, we will face many potential obstacles such as the need to develop or obtain manufacturing, marketing and distribution capabilities. Furthermore, because transplantation of cells is a new form of therapy, the marketplace may not accept any products we may develop.

Moreover, because our cell-based therapeutic products will be derived from tissue of individuals other than the patient (that is, they will be “non-self” or “allogeneic” transplant products), patients may require the use of immunosuppressive drugs. While immunosuppression is now standard in connection with allogeneic transplants of various kinds, such as heart or liver transplants, long-term maintenance on immunosuppressive drugs can result in complications such as infection, cancer, cardiovascular disease, and renal dysfunction. An immunosuppression regimen was used with our therapeutic product candidate in all our clinical trials to date.

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Delays in the commencement or completion of clinical testing of our current and potential product candidates could result in increased costs to us and delay our ability to generate revenues.

The commencement of clinical trials can be delayed for a variety of reasons, including delays in:

• the preclinical studies necessary to demonstrate safety and efficacy in relevant animal models sufficient to obtain regulatory clearance to commence the planned clinical trials;

• the manufacturing activities needed to produce sufficient quantities of the product candidate that meets our quality standards for clinical testing;

• regulatory approval needed to commence the planned clinical trials, including agreement with the FDA or other regulatory body on the clinical protocol and study design;

• reaching agreement with our collaborators, including any contract research organizations (CROs) and the trial sites, on all aspects of the clinical trial; and

• securing the institutional review board approval needed to conduct the clinical trials at the prospective sites.

Even after commencement, the completion of clinical trials can be delayed or prevented for a number of reasons, such as:

• the FDA or similar foreign regulatory authorities may find that our product candidates are not sufficiently safe or effective or may find our cell culturing processes or facilities unsatisfactory;

• our clinical trials may produce negative or inconclusive results or may not meet the level of statistical significance required by the FDA or other regulatory authorities, and we may decide, or regulators may require us, to conduct additional preclinical studies and/or clinical trials or to abandon one or more of our development programs;

• the FDA or similar foreign regulatory authorities may change their approval policies or adopt new regulations;

• we, or regulators, may suspend or terminate our clinical trials because the participating patients are being exposed to unacceptable health risks or undesirable side effects;

• we may experience difficulties in managing multiple clinical sites;

• we may be unable to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates for use in clinical trials; and

• our product candidates may be deemed unsafe or ineffective, or may be perceived as being unsafe or ineffective, by healthcare providers for a particular indication.

In addition, clinical trials may be delayed due to insufficient patient enrollment, which is a function of many factors, including the size and nature of the relevant patient populations, the nature of the protocols, the proximity of patients to clinical sites, the availability of effective treatments for the relevant diseases, clinical testing alternatives available to patients interested in enrolling in our studies, and the eligibility criteria for our clinical trials. Delays in clinical testing of our product candidate could prevent or delay us from obtaining the additional evidence of clinical efficacy we will need for the approval for our product candidate in any indication.

Acquisitions of companies, businesses or technologies may substantially dilute our stockholders and increase our operating losses.

We may make acquisitions of businesses, technologies or intellectual property rights or otherwise modify our business model in ways we believe to be necessary, useful or complementary to our current business. For example, in April 2009, we acquired substantially all of the operating assets and liabilities of Stem Cell Sciences

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Plc (SCS). Any such acquisition or change in business activities may require assimilation of the operations, products or product candidates and personnel of the acquired business and the training and integration of its employees, and could substantially increase our operating costs, without any offsetting increase in revenue. Acquisitions may not provide the intended technological, scientific or business benefits and could disrupt our operations and divert our limited resources and management’s attention from our current operations, which could harm our existing product development efforts. We would likely issue equity securities to pay for any other future acquisitions. The issuance of equity securities for an acquisition could be substantially dilutive to our stockholders. Any investment made in, or funds advanced to, a potential acquisition target could also significantly adversely affect our results of operation and could further reduce our limited capital resources. Any acquisition or action taken in anticipation of a potential acquisition or other change in business activities could substantially depress the price of our stock. In addition, our results of operations may suffer because of acquisition-related costs or the post-acquisition costs of funding the development of an acquired technology or product candidates or operation of the acquired business, or due to amortization or impairment costs for acquired goodwill and other intangible assets. In December 2011, for example, we determined that the intangible in-process research and development (IPR&D) asset related to the assays technology was impaired. In part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays program, we determined that we could not predict the future cash flows from this asset and that the approximately $655,000 carrying value of the asset should be written-off in full.

We have payment obligations resulting from real property owned by us in Rhode Island, which diverts funding from our cell-based therapeutics research and development and enabling cell technologies programs.

We are obligated to make debt service payments and payments for operating costs for our former encapsulated cell therapy pilot manufacturing facility in Rhode Island, which we own. As of December 31, 2013, we have in aggregate, remaining principal and interest payments of approximately $137,000, which we are obligated to pay in full by July 2014. In addition, we currently have operating expenses of approximately $10,000 per month. We are not actively seeking subtenants, and we are actively seeking to dispose of our interests in this facility.

We may be unable to obtain partners to support our product development efforts when needed to commercialize our technologies.

Equity and debt financings alone may not be sufficient to fund the cost of developing our cell technologies, and we may need to rely on partnering or other arrangements to provide financial support for our product development efforts. In addition, in order to successfully develop and commercialize our technologies, we may need to enter into various arrangements with corporate sponsors, pharmaceutical companies, universities, research groups, and others. With the exception of our distribution agreements with Millipore Corporation, we have no such agreements. While we have engaged, and expect to continue to engage, in discussions regarding such arrangements, we may fail to obtain any such agreement on terms acceptable to us. Even if we enter into such arrangements, we may not be able to satisfy our obligations under them or renew or replace them after their original terms expire. Furthermore, these arrangements may require us to grant rights to third parties, such as exclusive marketing rights to one or more products, may require us to issue securities to our collaborators and may contain other terms that are burdensome to us or result in a decrease in our stock price.

If we are unable to protect our patents and proprietary rights, our business, financial condition and results of operations may be materially harmed.

We either own or exclusively license a number of patents and pending patent applications related to various stem and progenitor cells, including human neural stem cell cultures, as well as methods of deriving and using them. We also own or exclusively license a number of patents and patent applications related to certain mammalian pluripotent and multipotent stem cells, cellular reprogramming, genetic manipulation of stem cells,

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the creation of genetically engineered animals used for research, technologies that facilitate the identification and isolation of specific stem cell types, and media formulations for the culture of stem cells. The process of obtaining patent protection for products such as those we propose to develop is highly uncertain and involves complex and continually evolving factual, legal and occasionally ethical questions. The governmental authorities that consider patent applications can deny or significantly reduce the patent coverage requested in an application either before or after issuing the patent and procedures exist in all relevant geographies for third parties to challenge even issued patents. In addition, changes to the laws protecting intellectual property rights could adversely impact the perceived or actual value of our Company. Consequently, we do not know whether any of our pending applications will result in the issuance of patents, whether any of our issued patents will be invalidated or restricted, whether any existing or future patents will provide sufficient protection or significant commercial advantage, or whether others will circumvent or invalidate these patents, whether or not lawfully. In addition, our patents may not afford us adequate protection from competing products. Moreover, because patents issue for a limited term, our patents may expire before we can commercialize a product covered by the issued patent claims or before we can utilize the patents profitably. Some of our most important patents begin to expire in 2015.

If we learn of third parties who infringe our patent rights, we may decide to initiate legal proceedings to enforce these rights. In 2006, for example, we filed suit against Neuralstem, Inc. for patent infringement. Patent litigation, including the pending litigation to which we are a party, is inherently unpredictable and highly risky and may result in unanticipated challenges to the validity or enforceability of our intellectual property, antitrust claims or other claims against us, which could result in the loss of these intellectual property rights. Litigation proceedings can be very time-consuming for management and are also very costly and the parties we bring actions against may have significantly greater financial resources than our own. We may not prevail in these proceedings and if we do not prevail we could be liable for damages as well as the costs and attorney fees of our opponents.

Proprietary trade secrets and unpatented know-how are also important to our research and development activities. We cannot be certain that others will not independently develop the same or similar technologies on their own or gain access to our trade secrets or disclose such technology or that we will be able to meaningfully protect our trade secrets and unpatented know-how. We require our employees, consultants and significant scientific collaborators and sponsored researchers to execute confidentiality agreements upon the commencement of an employment or consulting relationship with us. These agreements may, however, fail to provide meaningful protection or adequate remedies for us in the event of unauthorized use, transfer or disclosure of such information or technology.

If we are unable to obtain necessary licenses to third-party patents and other rights, we may not be able to commercially develop our expected products.

A number of pharmaceutical, biotechnology and other companies, universities and research institutions have filed patent applications or have received patents relating to cell therapy, stem and progenitor cells and other technologies potentially relevant to, or necessary for, our expected products. We cannot predict which, if any, of these applications will issue as patents or how many of these issued patents will be found valid and enforceable. There may also be existing issued patents which we are currently unaware of which would be infringed by the commercialization of one or more of our product candidates. If so, we may be prevented from commercializing these products unless the third party is willing to grant a license to us. We may be unable to obtain licenses to the relevant patents at a reasonable cost, if at all, and may also be unable to develop or obtain alternative non-infringing technology. If we are unable to obtain such licenses or develop non-infringing technology at a reasonable cost, our business could be significantly harmed. Also, any infringement lawsuits commenced against us may result in significant costs, divert our management’s attention and result in an award against us for substantial damages, or potentially prevent us from continuing certain operations.

We are aware of intellectual property rights held by third parties that relate to products or technologies we are developing. For example, some aspects of our cell-based therapeutic product candidates involve the use of

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growth factors, antibodies and other reagents that may, in certain cases, be the subject of third party rights. Before we commercialize any product using these growth factors, antibodies or reagents, we may need to obtain license rights from third parties or use alternative growth factors, antibodies and reagents that are not then the subject of third party patent rights. We currently believe that the commercialization of our products as currently planned will not infringe these third party rights, or, alternatively, that we will be able to obtain necessary licenses or otherwise use alternative non-infringing technology. However, third parties may nonetheless bring suit against us claiming infringement. If we are unable to prove that our technology does not infringe their patents, or if we are unable to obtain necessary licenses or otherwise use alternative non-infringing technology, we may not be able to commercialize any products.

We have obtained rights from companies, universities and research institutions to technologies, processes and compounds that we believe may be important to the development of our products. These licensors, however, may cancel our licenses or convert them to non-exclusive licenses if we fail to use the relevant technology or otherwise breach these agreements. Loss of these licenses could expose us to the risk that our technology infringes the rights of third parties. We can give no assurance that any of these licenses will provide effective protection against our competitors.

We compete with companies that have significant advantages over us.

The market for therapeutic products to treat diseases of, or injuries to, the central nervous system (CNS) is large and competition is intense. The majority of the products currently on the market or in development are small molecule pharmaceutical compounds, and many pharmaceutical companies have made significant commitments to the CNS field. We believe cellular therapies, if proven safe and effective, will have unique properties that will make them desirable over small molecule drugs, none of which currently replace damaged tissue. However, any cell-based therapeutic to treat diseases of, or injuries to, the CNS is likely to face intense competition from small molecules, biologics, as well as medical devices. We expect to compete with a host of companies, some of which are privately owned and some of which have resources far greater than ours.

The life science and research markets are each highly competitive. Most of our competitors have greater financial resources than we do, making them better equipped to license technologies and intellectual property from third parties or to fund research and development, manufacturing and marketing efforts. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics.

The research market is heavily dependent on government funding, and changes in government funding can adversely affect revenues for our tools and technologies products.

Our customers include researchers at academic institutions, pharmaceutical and biotechnology companies and government laboratories, all of whom fund much of their stem cell research using government monies, such as grants. A number of these customers, for example, are dependent for their funding upon grants from U.S. government agencies, such as the U.S. National Institutes of Health (NIH) and agencies in other countries. The level of government funding of research and development is unpredictable. Research and development spending of our customers can fluctuate based on spending priorities and general economic conditions. There have been instances when NIH grants have been frozen or otherwise unavailable for extended periods. The availability of governmental research funding may also continue to be adversely affected by current economic instability. Any reduction or delay in governmental funding could cause our customers to delay or forego purchases or reallocate their budgets in a manner adverse to us, in which case our anticipated revenues could be materially lower.

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Development of our technologies is subject to, and restricted by, extensive government regulation, which could impede our business.

Our research and development efforts, as well as any ongoing or future clinical trials, and the manufacturing and marketing of any products we may develop, will be subject to, and restricted by, extensive regulation by governmental authorities in the United States and other countries. The process of obtaining FDA and other necessary regulatory approvals for human therapeutics is lengthy, expensive and uncertain. FDA and other legal and regulatory requirements applicable to the development and manufacture of the cells required for our preclinical and clinical products could substantially delay or prevent us from producing the cells needed to initiate additional clinical trials. We or our collaborators may fail to obtain the necessary approvals to commence or continue clinical testing or to manufacture or market our potential products in reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may enact regulatory reforms or restrictions on the development of new therapies that could adversely affect the regulatory environment in which we operate or the development of any products we may develop.

We base our research and development on the use of human stem and progenitor cells obtained from human tissue, including fetal tissue. The U.S. federal and state governments and other jurisdictions impose restrictions on the acquisition and use of fetal tissue, including those incorporated in federal Good Tissue Practice, or GTP, regulations. These regulatory and other constraints could prevent us from obtaining cells and other components of our products in the quantity or quality needed for their development or commercialization of both therapeutic products and certain of our enabling cell technologies. These restrictions change from time to time and may become more onerous. Additionally, we may not be able to identify or develop reliable sources for the cells necessary for our potential products — that is, sources that follow all state and federal laws and guidelines for cell procurement. Certain components used to manufacture our stem and progenitor cell product candidates will need to be manufactured in compliance with the FDA’s Good Manufacturing Practices, or GMP. Accordingly, we will need to enter into supply agreements with companies that manufacture these components to GMP standards.

Noncompliance with applicable requirements both before and after product marketing approval, if any, can subject us, our third party suppliers and manufacturers, and our other collaborators to administrative and judicial sanctions, such as, among other things, warning letters, fines and other monetary payments, recall or seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption or cessation of clinical trials, total or partial suspension of production or distribution, injunctions, limitations on or the elimination of claims we can make for our products, and refusal of the government to enter into supply contracts or fund research, or delay in approving or refusal to approve new drug applications.

We are dependent on the services of key personnel.

We are highly dependent on the principal members of our management, operations, and scientific staff, and on some of our outside consultants. Although we have entered into employment agreements with some of these individuals, they may terminate their agreements at any time. In addition, our operations are dependent upon our ability to attract and retain additional qualified scientific and management personnel. We may not be able to attract and retain the personnel we need on acceptable terms given the competition for experienced personnel among pharmaceutical, biotechnology and health care companies, universities and research institutions.

Our activities involve hazardous materials and experimental animal testing; improper handling of these animals and materials by our employees or agents could expose us to significant legal and financial penalties.

Our research and development activities involve the controlled use of test animals as well as hazardous chemicals and potentially hazardous biological materials such as human tissue. Their use subjects us to environmental and safety laws and regulations such as those governing laboratory procedures, exposure to

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blood-borne pathogens, use of laboratory animals, and the handling of biohazardous materials. Compliance with current or future laws and regulations may be expensive and the cost of compliance could adversely affect us.

Although we believe that our safety procedures for using, handling, storing, and disposing of hazardous and potentially hazardous materials comply with the standards prescribed by applicable state, federal and international law, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident or of any violation of these or future laws and regulations, state or federal authorities could curtail our use of these materials; we could be liable for any civil damages that result, the cost of which could be substantial; and we could be subjected to substantial fines or penalties. In addition, any failure by us to control the use, disposal, removal, or storage, or to adequately restrict the discharge, or to assist in the cleanup, of hazardous chemicals or hazardous, infectious or toxic substances could subject us to significant liability. Any such liability could exceed our resources and could have a material adverse effect on our business, financial condition and results of operations. Moreover, an accident could damage our research and manufacturing facilities and operations and result in serious adverse effects on our business.

Natural disasters and violent acts of public protest may cause damage or disruption to us and our employees, facilities, information systems, vendors, suppliers, and customers.

Our operations are concentrated in Northern California. The western United States has experienced a number of earthquakes, wildfires, flooding, landslides, and other natural disasters in recent years. These occurrences could damage or destroy our facilities which may result in interruptions to our business and losses that exceed our insurance coverage. In addition, we know that certain individuals are strenuously opposed to certain types of medical research, including animal testing and embryonic stem cell research engaged in by both us and many of our customers. Acts of both legal and illegal public protest, including picketing and bioterrorism, could affect the markets in which we operate and our business operations. Any of these events could cause a decrease in our actual and anticipated revenue, earnings, and cash flows.

The development, manufacturing and commercialization of cell-based therapeutic products expose us to product liability claims, which could lead to substantial liability.

By developing and, ultimately, commercializing therapeutic products, we are exposed to the risk of product liability claims. Product liability claims against us could result in substantial litigation costs and damage awards against us. We have obtained liability insurance that covers our clinical trials, and we will need to increase our insurance coverage if and when we begin commercializing products. We may not be able to obtain insurance on acceptable terms, if at all, and the policy limits on our insurance policies may be insufficient to cover our liability.

The manufacture of cell-based therapeutic products is novel, highly regulated, critical to our business, and dependent upon specialized key materials.

The manufacture of cell-based and related products is complicated and difficult, dependent upon substantial know-how and subject to the need for continual process improvements to be competitive. Our manufacturing experience is limited and the technologies are comparatively new. In addition, our ability to scale-up manufacturing to satisfy the various requirements of our planned clinical trials, such as GTP, GMP and release testing requirements, is uncertain. Manufacturing disruptions may occur and despite efforts to regulate and control all aspects of manufacturing, the potential for human or system failure remains. Manufacturing irregularities or lapses in quality control could have a serious adverse effect on our reputation and business, which could cause a significant loss of stockholder value. Many of the materials that we use to prepare our cell-based and related products are highly specialized, complex and available from only a limited number of suppliers or derived from a biological origin. At present, some of our material requirements are single sourced, and the loss of one or more of these sources may adversely affect our business if we are unable to obtain alternatives or alternative sources at all or upon terms that are acceptable to us.

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Because health care insurers and other organizations may not pay for our products or may impose limits on reimbursements, our ability to become profitable could be adversely affected.

In both domestic and foreign markets, sales of potential therapeutic products are likely to depend in part upon the availability and amounts of reimbursement from third-party health care payor organizations, including government agencies, private health care insurers and other health care payors, such as health maintenance organizations and self-insured employee plans. There is considerable pressure to reduce the cost of therapeutic products. Government and other third party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing, in some cases, to provide any coverage for uses of approved products for disease indications for which the FDA or other relevant authority has not granted marketing approval. Moreover, in some cases, government and other third party payors have refused to provide reimbursement for uses of approved products for disease indications for which the FDA or other relevant authority has granted marketing approval. Significant uncertainty exists as to the reimbursement status of newly approved health care products or novel therapies such as ours. Even if we obtain regulatory approval to market our products, we can give no assurance that reimbursement will be provided by such payors at all or without substantial delay or, if such reimbursement is provided, that the approved reimbursement amounts will be sufficient to enable us to sell products we develop on a profitable basis. Changes in reimbursement policies could also adversely affect the willingness of pharmaceutical companies to collaborate with us on the development of our cellular technologies. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. We also expect that there will continue to be a number of federal and state proposals to implement government control over health care costs. Efforts to change regulatory and reimbursement standards are likely to continue in future legislative sessions. We do not know what legislative proposals federal or state governments will adopt or what actions federal, state or private payors for health care goods and services may take in response to such proposals or legislation. We cannot predict the effect of government control and health care reimbursement practices on our business.

Ethical and other concerns surrounding the use of stem or progenitor-based cell therapy may negatively affect regulatory approval or public perception of our product candidates, which could reduce demand for our products or depress our stock price.

The use of stem cells for research and therapy has been the subject of considerable public debate, with many people voicing ethical, legal and social concerns. Although these concerns have mainly been directed to the use of embryonic stem cells, which we are not presently pursuing for therapeutic use, the distinction between embryonic and non-embryonic stem cells is frequently overlooked; moreover, our use of human stem or progenitor cells from fetal sources might raise these or similar concerns. In addition, we are continuing the development of embryonic stem cells and iPS cells as potential research tools. Negative public attitudes toward stem cell therapy could result in greater governmental regulation of stem cell therapies, which could harm our business. The use of these cells could give rise to ethical and social commentary adverse to us, which could harm the market price of our common stock. Additional government-imposed restrictions on the use of embryos or human embryonic stem cells in research and development could also cause an adverse effect on us by harming our ability to establish important partnerships or collaborations, delaying or preventing the development of certain non-therapeutic products, and causing a decrease in the price of our stock or by otherwise making it more difficult for us to raise additional capital. For example, concerns regarding such possible regulation could impact our ability to attract collaborators and investors. Also, existing regulatory constraints on the use of embryonic stem cells may in the future be extended to use of fetal stem cells, and these constraints might prohibit or restrict us from conducting research or from commercializing products. Similarly, concerns and moral objections to embryonic and fetal-tissue derived technologies could delay or prevent us from patenting or enforcing our patents in certain geographies. Also, existing and potential government regulation of embryonic tissue may lead researchers to leave the field of stem cell research or the country altogether, in order to assure that their careers will not be impeded by restrictions on their work. Similarly, these factors may induce graduate students to choose other fields less vulnerable to changes in regulatory oversight, thus exacerbating the risk that we may not be able to attract and retain the scientific personnel we need in face of the competition among pharmaceutical,

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biotechnology and health care companies, universities and research institutions for what may become a shrinking class of qualified individuals.

Our corporate documents and Delaware law contain provisions that could make it difficult for us to be acquired in a transaction that might be beneficial to our stockholders.

Our board of directors has the authority to issue shares of preferred stock and to fix the rights, preferences, privileges, and restrictions of these shares without stockholder approval. These provisions in our corporate documents, along with certain provisions under Delaware law, may make it more difficult for a third party to acquire us or discourage a third party from attempting to acquire us, even if the acquisition might be beneficial to our stockholders.

Risks Related to Our Stock

Our stock price has been, and will likely continue to be, highly volatile, which may negatively affect our ability to obtain additional financing in the future.

The market price per share of our common stock has been and is likely to continue to be highly volatile due to the risks and uncertainties described in this section of this Annual Report on Form 10-K, as well as other factors, including:

• our ability to develop and test our technologies;

• our ability to patent or obtain licenses to necessary technologies;

• conditions and publicity regarding the industry in which we operate, as well as the specific areas our product candidates seek to address;

• competition in our industry;

• economic and other external factors or other disasters or crises;

• price and volume fluctuations in the stock market at large that are unrelated to our operating performance; and

• comments by securities analysts, or our failure to meet market expectations.

Over the two-year period ended December 31, 2013, the trading price of our common stock as reported on NASDAQ ranged from a high of $2.66 to a low of $0.54 per share. As a result of this volatility, an investment in our stock is subject to substantial risk. Furthermore, the volatility of our stock price could negatively impact our ability to raise capital or acquire businesses or technologies.

Our stock could be delisted from the NASDAQ Capital Market, which could affect our stock’s market price and liquidity.

Our listing on the NASDAQ Capital Market is contingent upon meeting all the continued listing requirements of the NASDAQ Capital Market which include maintaining a minimum bid price of not less than $1.00 per share and a minimum of $2.5 million in stockholders’ equity. Our price per share and stockholders’ equity at December 31, 2013 was $1.23 and $15.0 million, respectively. If our common stock is delisted from the NASDAQ Capital Market, our ability to raise capital in the future may be limited. Delisting could also result in less liquidity for our stockholders and a lower stock price.

We are contractually obligated to issue shares in the future, diluting the interest of current stockholders.

As of December 31, 2013, there were outstanding warrants to purchase 16,267,659 shares of our common stock, at a weighted average exercise price of $3.27 per share, outstanding options to purchase 428,258 shares of

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our common stock, at a weighted average exercise price of $19.97 per share, and outstanding restricted stock units for 3,326,282 shares of our common stock. We expect to issue additional options and restricted stock units to purchase shares of our common stock to compensate employees, consultants and directors, and may issue additional shares to raise capital, to acquire other companies or technologies, to pay for services, or for other corporate purposes. Any such issuances will have the effect of diluting the interest of current stockholders.

Item 1B. UNRESOLVED STAFF COMMENTS

None

Item 2. PROPERTIES

In December 2010, we entered into a commercial lease agreement with BMR-Gateway Boulevard LLC (BMR), as landlord, for approximately 43,000 square feet of office and research space at BMR’s Pacific Research Center in Newark, California. The initial term of the lease is approximately eleven and one-half years. We will pay approximately $17,869,000 in aggregate as rent over the term of the lease to BMR. As part of the lease, BMR agreed to provide various financial allowances so that we can build initial and future laboratories, offices and other improvements, subject to customary terms and conditions relating to landlord-funded tenant improvements.

In September 2010, we entered into a two-year sublease agreement with Caliper Life Sciences, Inc., for office and research space in a facility located in Mountain View, California. In June 2012, the sublease term was extended to September 30, 2013. We paid approximately $1,081,000 in aggregate as rent over the term of the lease. The lease terminated in accordance with its terms on September 30, 2013.

In March 2013, we entered into a commercial lease agreement with Prologis, L.P. (Prologis), as landlord, for office and research space in Sunnyvale, California. The facility is for operations that support our clinical development activities. The initial term of the lease is ten years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $3,497,000 in aggregate rent over the term of the lease. As part of the lease, Prologis has agreed to provide us financial allowances to build initial tenant improvements, subject to customary terms and conditions relating to landlord-funded tenant improvements.

We entered into a fifteen-year lease agreement for a scientific and administrative facility (SAF) in Rhode Island in connection with a sale and leaseback arrangement in 1997. The lease term expired on June 30, 2013. For the year 2013, we paid approximately $1,165,000 in operating lease payments and operating expenses net of sub-tenant income.

We own a 21,000 square-foot pilot manufacturing facility and a 3,000 square-foot cell processing facility in Rhode Island financed by bonds issued by the Rhode Island Industrial Facilities Corporation. As of December 31, 2013, we have in aggregate, remaining principal and interest payments of approximately $137,000, which we are obligated to pay in full by July 2014. We are actively seeking to dispose our remaining interests in these properties.

In January 2011, we amended the existing lease agreements of our wholly-owned subsidiary, Stem Cell Sciences (U.K.) Ltd, effectively reducing our leased office and lab space. The lease by its terms was extended to September 30, 2013. In October 2013, we signed a new three-year lease agreement for the leased space and expect to pay rent of approximately GBP 53,000 per annum. StemCells, Inc. is the guarantor of Stem Cell Sciences (U.K.) Ltd’s obligations under the existing lease. The lease gives SCS an option for early termination of the lease agreement.

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Item 3. LEGAL PROCEEDINGS

In July 2006, we filed suit against Neuralstem, Inc. in the Federal District Court for the District of Maryland, alleging that Neuralstem’s activities violate claims in four of the patents we exclusively licensed at the time from NeuroSpheres, specifically U.S. Patent No. 6,294,346 (claiming the use of human neural stem cells for drug screening), U.S. Patent No. 7,101,709 (claiming the use of human neural stem cells for screening biological agents), U.S. Patent No. 5,851,832 (claiming methods for proliferating human neural stem cells), and U.S. Patent No. 6,497,872 (claiming methods for transplanting human neural stem cells). In May 2008, we filed a second patent infringement suit against Neuralstem and its two founders, Karl Johe and Richard Garr. In this suit, which we filed in the Federal District Court for the Northern District of California, we allege that Neuralstem’s activities infringe claims in two patents we exclusively licensed at the time from NeuroSpheres, specifically U.S. Patent No. 7,361,505 (claiming composition of matter of human neural stem cells derived from any source material) and U.S. Patent No. 7,115,418 (claiming methods for proliferating human neural stem cells). In addition, we allege various state law causes of action against Neuralstem arising out of its repeated derogatory statements to the public about our patent portfolio. Also in May 2008, Neuralstem filed suit against us and NeuroSpheres in the Federal District Court for the District of Maryland seeking a declaratory judgment that the ‘505 and ‘418 patents are either invalid or are not infringed by Neuralstem and that Neuralstem has not violated California state law. In August 2008, the California court transferred our lawsuit against Neuralstem to Maryland for resolution on the merits. In July 2009, the Maryland District Court granted our motion to consolidate these two cases with the litigation we initiated against Neuralstem in 2006. Discovery is ongoing in these cases.

In addition to the actions described above, in April 2008, we filed an opposition to Neuralstem’s European Patent No. 0 915 968 (methods of isolating, propagating and differentiating CNS stem cells), because the claimed invention is believed by us to be unpatentable over prior art, including the patents we acquired from NeuroSpheres. In December 2010, the European Patent Office ruled that all composition claims in Neuralstem’s ‘968 European patent were invalid and unpatentable over prior art. Neuralstem has appealed this decision.

In October 2013, we acquired from NeuroSpheres a patent portfolio consisting of the patents we licensed from NeuroSpheres on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we issued 139,548 shares of unregistered common stock to NeuroSpheres. In connection with the patent acquisition, all preexisting agreements were terminated. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market price and dividend information

Our stock is traded on the NASDAQ Capital Market under the symbol STEM. The quarterly ranges of high and low bid prices per share for the last two fiscal years as reported by NASDAQ are shown below:

	High		Low
2013
First Quarter	$	2.12	$	1.60
Second Quarter	$	1.94	$	1.40
Third Quarter	$	1.83	$	1.50
Fourth Quarter	$	1.72	$	1.16
2012
First Quarter	$	1.18	$	0.65
Second Quarter	$	1.10	$	0.54
Third Quarter	$	2.66	$	0.77
Fourth Quarter	$	2.49	$	1.50

No cash dividends have been declared on our common stock since our inception.

PERFORMANCE GRAPH

We show below the cumulative total return to our stockholders during the period from December 31, 2008 through December 31, 2013⁽¹⁾ in comparison to the cumulative return on the Standard & Poor’s 500 Index and the Amex Biotechnology Index during that same period.

The stock price performance shown on the graph below is not necessarily indicative of future stock price performance.

	December 31, 2008		December 31, 2009		December 31, 2010		December 31, 2011		December 31, 2012		December 31, 2013
StemCells, Inc.	$	100.00	$	92.65	$	79.41	$	6.03	$	11.99	$	9.04
S&P 500 Index	$	100.00	$	123.45	$	139.23	$	139.23	$	157.90	$	204.63
Amex Biotechnology Index	$	100.00	$	145.58	$	200.51	$	168.65	$	239.05	$	360.10

(1) Cumulative total returns assume a hypothetical investment of $100 on December 31, 2008.

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The information under “Performance Graph” is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this 10-K and irrespective of any general incorporation language in those filings.

Approximate Number of Holders of Common Stock

As of March 3, 2014, there were approximately 251 holders of record of our common stock and the closing price of our common stock on the NASDAQ Capital Market was $1.47 per share.

The number of record holders is based upon the actual number of holders registered on the books of our transfer agent at such date and does not include holders of shares in “street names” or persons, partnerships, associations, corporations, or other entities identified in security position listings maintained by depository trust companies.

Recent Sales of Unregistered Securities (last three years ending December 31, 2013)

In October, 2013, we acquired from NeuroSpheres a patent portfolio we licensed on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we issued 139,548 shares of unregistered common stock to NeuroSpheres. In connection with the patent acquisition, all preexisting agreements were terminated. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres.

In September 2012, pursuant to Regulation S of the Securities Act of 1933, we issued 24,753 shares of restricted common stock under the terms of an agreement with a developer of biological materials in return for certain product rights including an exclusive right of first offer to commercialize the developer’s products as may be developed on or before April 18, 2017.

We did not issue unregistered securities in 2011.

Equity Compensation Plan Information

The following table provides certain information with respect to all of our equity compensation plans in effect as of December 31, 2013.

	Equity Compensation Plan Information
Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Stock Options, Warrants and Rights (a)		Weighted-Average Exercise Price of Outstanding Stock Options, Warrants and Rights (b)		Number of Securities Remaining Available for Future Issuance Under  Equity Compensation Plans (Excluding Securities Reflected in Column(a)) (c)
Equity compensation plans approved by security holders(1)		3,219,340	$	2.66		6,100,573
Equity compensation plans not approved by security holders(2)		535,200		—		2,453,035
		3,754,540	$	2.28		8,553,608

(1) Consists of stock options issued to employees and directors, restricted stock units issued to employees and stock options issued as compensation to consultants for consultation services. These stock options and restricted stock units were issued under our 2001, 2004 and 2006 Equity Incentive Plans.

(2) In 2012, we adopted by board action the 2012 Commencement Incentive Plan in accordance with NASDAQ Listing Rule 5635(c)(4) concerning inducement grants to new employees. Outstanding awards are restricted stock units.

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Item 6. SELECTED FINANCIAL DATA

The following selected financial and operating data are derived from our audited consolidated financial statements. The selected financial and operating data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” and the consolidated financial statements and notes thereto contained elsewhere in this Form 10-K.

	Year Ended December 31,
	2013			2012			2011			2010			2009
	(In thousands, except per share amounts)
Consolidated Statements of Operations
Revenue from licensing agreements and grants	$	205		$	512		$	558		$	928		$	608
Revenue from product sales		998			856			663			499			385
Research and development expenses		20,534			15,847			19,938			21,019			19,930
General and administrative expenses		8,897			7,447			8,202			9,377			9,530
Wind-down expenses(1)		62			356			287			222			650
Impairment of intangible asset(2)		—			—			655			—			—
Gain (loss) on change in fair value of warrant liabilities(3)		3,253			(5,945	)		6,612			3,005			1,899
Net loss		(26,439	)		(28,491	)		(21,329	)		(25,244	)		(27,026	)
Basic and diluted loss per share	$	(0.61	)	$	(0.99	)	$	(1.50	)	$	(2.05	)	$	(2.55	)
Shares used in computing basic and diluted loss per share amounts		43,422			28,824			14,188			12,330			10,605
	December 31,
	2013			2012			2011			2010			2009
	(In thousands)
Consolidated Balance Sheets
Cash and cash equivalents	$	30,585		$	8,471		$	13,311		$	19,708		$	38,618
Marketable securities		—			13,901			3,281			191			197
Total assets		41,557			30,170			25,205			30,602			51,190
Accrued wind-down expenses(1)		—			1,103			2,135			3,300			4,506
Fair value of warrant liabilities(3)		5,542			9,265			6,042			6,672			9,677
Long-term debt, including capital leases(4)		9,274			138			331			540			785
Stockholders’ equity		14,954			13,985			10,725			15,481			30,495

(1) Relates to wind-down and exit expenses in respect of our Rhode Island facility. See Note 11 “Wind-down and exit costs” in the Notes to the Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

(2) Relates to the impairment of our in-process research and development (IPR&D) intangible asset related to our Assay Development Program. See Note 5 “Goodwill and Other Intangible assets” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

(3) Relates to the fair value of warrants issued as part of our financings in November 2008, November 2009 and December 2011. See Note 13 “Warrant Liability” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

(4) Data for 2013 relates to the loan agreements with Silicon Valley Bank and the California Institute for Regenerative Medicine. See Note 14 “Loan Payable” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward looking statements that involve substantial risks and uncertainties. Such statements include, without limitation, all statements as to expectation or belief and statements as to our future results of operations; the progress of our research, product development and clinical programs; the need for, and timing of, additional capital and capital expenditures; partnering prospects; costs of manufacture of products; the protection of, and the need for, additional intellectual property rights; effects of regulations; the need for additional facilities; and potential market opportunities. Our actual results may vary materially from those contained in such forward-looking statements because of risks to which we are subject, including the fact that additional trials will be required to confirm the safety and demonstrate the efficacy of our HuCNS-SC cells for the treatment of any disease or disorder; uncertainty as to whether the U.S. Food and Drug Administration (FDA), Swissmedic, Health Canada or other regulatory authorities will permit us to proceed with clinical testing of proposed products despite the novel and unproven nature of our technologies; the risk that our clinical trials or studies could be substantially delayed beyond their expected dates or cause us to incur substantial unanticipated costs; uncertainties in our ability to obtain the capital resources needed to continue our current research and development operations and to conduct the research, preclinical development and clinical trials necessary for regulatory approvals; the uncertainty regarding our ability to obtain a corporate partner or partners, if needed, to support the development and commercialization of our potential cell-based therapeutics products; the uncertainty regarding the outcome of our clinical trials or studies we may conduct in the future; the uncertainty regarding the validity and enforceability of our issued patents; the risk that we may not be able to manufacture additional master and working cell banks when needed; the uncertainty whether any products that may be generated in our cell-based therapeutics programs will prove clinically safe and effective; the uncertainty whether we will achieve significant revenue from product sales or become profitable; obsolescence of our technologies; competition from third parties; intellectual property rights of third parties; litigation risks; and other risks to which we are subject. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statements. All forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in “Risk Factors” in Part I, Item 1A of this Form 10-K.

Overview

The Company

We are engaged in researching, developing, and commercializing cell-based therapeutics and enabling tools and technologies for stem cell-based research and drug discovery and development. Our research and development (R&D) programs are primarily focused on identifying and developing potential cell-based therapeutics which can either restore or support organ function. In particular, since we relocated our operations to California in 1999, our R&D efforts have been directed at refining our methods for identifying, isolating, culturing, and purifying the human neural stem cell and developing this cell as potential cell-based therapeutics for the central nervous system (CNS). Our HuCNS-SC^® cells (purified human neural stem cells) are currently in clinical development for several indications — chronic spinal cord injury, dry age-related macular degeneration (AMD) and Pelizeaus-Merzbacher disease (PMD), which is a myelination disorder in the brain. We are also conducting preclinical research to evaluate HuCNS-SC cells in Alzheimer’s disease.

In October 2012, we published in Science Translational Medicine, a peer-reviewed journal, the data from our four-patient Phase I clinical trial in PMD, which showed preliminary evidence of durable and progressive donor-derived myelination in all four patients. In addition, there were measurable gains in neurological function in three of the four patients, with the fourth patient clinically stable. We are conducting a Phase I/II clinical trial for the treatment of chronic spinal cord injury, which represents the first time that neural stem cells have been transplanted as a potential therapeutic agent for spinal cord injury. To accelerate patient enrollment, we have expanded this trial from a single-site, single-country study to a multi-site, multi-country program. This trial is being conducted in Switzerland, Canada, and the United States. Data from the first three patients demonstrated a

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favorable safety profile and multi-segment gains in sensory function in two of the three patients 12 months after transplantation of HuCNS-SC cells compared to pre-transplant baselines; the third patient remained stable. As of February 2014, a total of eleven patients have been dosed with our HuCNS-SC cells in this trial and we expect to complete enrollment of the final patient in the first quarter of 2014. We plan to initiate by the middle of 2014, a controlled Phase II efficacy study to further investigate our HuCNS-SC cells as a treatment for spinal cord injury. We are also conducting a Phase I/II clinical trial in dry AMD at three trial sites in the United States, and as of February 2014, have completed enrollment of the first of two planned patient cohorts with our HuCNS-SC cells. This cohort consisted of eight subjects. We expect to complete enrollment of the second cohort consisting of eight patients by the end of the second quarter of 2014.

We previously completed a Phase I clinical trial in infantile and late infantile neuronal ceroid lipofuscinosis (NCL), which showed that our HuCNS-SC cells were well tolerated and non-tumorigenic, and that there was evidence of engraftment and long-term survival of the transplanted HuCNS-SC cells. In October 2013, the results of a four-year, long-term follow up study of the patients from the initial Phase I study showed there were no long-term safety or tolerability issues associated with the cells up to five years post-transplantation. For a brief description of our significant therapeutic research and development programs see Overview “Therapeutic Product Development Programs” in the Business Section of Part I, Item 1 of this Form 10-K.

In April 2013, we entered into an agreement with the California Institute for Regenerative Medicine (CIRM) under which CIRM will provide up to approximately $19.3 million as a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations. The CIRM loan will help fund preclinical development of our HuCNS-SC cells for Alzheimer’s disease. We received an initial disbursement of $3.8 million under the CIRM Loan Agreement in July 2013, and a subsequent disbursement of $3.8 million in January 2014. For a brief description of our significant therapeutic research and development programs see Overview “Research and Development Programs” in the Business Section of Part I, Item 1 of this Form 10-K.

We are also engaged in developing and commercializing applications of our technologies to enable research, which we believe represent current and nearer-term commercial opportunities. Our portfolio of technologies includes cell technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells; expertise and infrastructure for providing cell-based assays for drug discovery; a cell culture products and antibody reagents business; and an intellectual property portfolio with claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting and insertion. Many of these enabling technologies were acquired in April 2009 as part of our acquisition of the operations of Stem Cell Sciences Plc (SCS).

We have not derived any revenue or cash flows from the sale or commercialization of any products except for license revenue for certain of our patented technologies and sales of products for use in stem cell research. As a result, we have incurred annual operating losses since inception and expect to incur substantial operating losses in the future. Therefore, we are dependent upon external financing, such as from equity and debt offerings, to finance our operations. Before we can derive revenue or cash inflows from the commercialization of any of our therapeutic product candidates, we will need to: (i) conduct substantial in vitro testing and characterization of our proprietary cell types, (ii) undertake preclinical and clinical testing for specific disease indications; (iii) develop, validate and scale-up manufacturing processes to produce these cell-based therapeutics, and (iv) obtain required regulatory approvals. These steps are risky, expensive and time consuming.

Overall, we expect our R&D expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future product candidates. However, expenditures on R&D programs are subject to many uncertainties, including whether we develop our product candidates with a partner or independently. We cannot forecast with any degree of certainty which of our current product candidates will be subject to future collaboration, when such collaboration agreements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. In addition, there are numerous factors associated with the successful commercialization of any of our cell-based

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therapeutics, including future trial design and regulatory requirements, many of which cannot be determined with accuracy at this time given the stage of our development and the novel nature of stem cell technologies. The regulatory pathways, both in the United States and internationally, are complex and fluid given the novel and, in general, clinically unproven nature of stem cell technologies. At this time, due to such uncertainties and inherent risks, we cannot estimate in a meaningful way the duration of, or the costs to complete, our R&D programs or whether, when or to what extent we will generate revenues or cash inflows from the commercialization and sale of any of our therapeutic product candidates. While we are currently focused on advancing each of our product development programs, our future R&D expenses will depend on the determinations we make as to the scientific and clinical prospects of each product candidate, as well as our ongoing assessment of the regulatory requirements and each product candidate’s commercial potential.

Given the early stage of development of our therapeutic product candidates, any estimates of when we may be able to commercialize one or more of these products would not be meaningful. Moreover, any estimate of the time and investment required to develop potential products based upon our proprietary HuCNS-SC technologies will change depending on the ultimate approach or approaches we take to pursue them, the results of preclinical and clinical studies, and the content and timing of decisions made by the FDA, Swissmedic, Health Canada, and other regulatory authorities. There can be no assurance that we will be able to develop any product successfully, or that we will be able to recover our development costs, whether upon commercialization of a developed product or otherwise. We cannot provide assurance that any of these programs will result in products that can be marketed or marketed profitably. If certain of our development-stage programs do not result in commercially viable products, our results of operations could be materially adversely affected.

The research markets served by our tools and technologies products are highly competitive, complex and dynamic. Technological advances and scientific discoveries have accelerated the pace of change in biological research, and stem cell technologies have been evolving particularly fast. We compete mainly by focusing on specialty media and antibody reagent products and human cell lines where we believe our expertise, intellectual property and reputation give us competitive advantage. We believe that, in this particular market niche, our products and technologies offer customers specific advantages over those offered by our competitors. We compete by offering innovative, quality-controlled products, consistently made and designed to produce reproducible results. For the year ended December 31, 2013, we generated revenues from the sale of specialty cell culture products of approximately $998,000. We can give no assurances that we will be able to continue to generate such revenues in the future.

Significant Events

Therapeutic Product Development

In February 2013, the first patient cohort in our Phase I/II clinical trial of our proprietary HuCNS-SC cells for chronic spinal cord injury completed the trial. The data from this first cohort continued to demonstrate a favorable safety profile, and showed that the considerable gains in sensory function observed at the six month assessment in two of the three patients had persisted to the 12 month assessment. The third patient remained stable.

In April 2013, we added the Byers Eye Institute at Stanford, located in Palo Alto, California, as a second site for our Phase I/II clinical trial of our proprietary HuCNS-SC cells in dry AMD.

In April 2013, we entered into an agreement with CIRM under which CIRM will provide up to approximately $19.3 million to help fund preclinical development and IND-enabling activities of our HuCNS-SC cells for Alzheimer’s disease. The funding, which will be in the form of a forgivable loan, was awarded under CIRM’s Disease Team Therapy Development Award program (RFA 10-05) in September 2012. The goal of the research will be to file an Investigational New Drug application with the U.S. Food and Drug Administration within four years.

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In June 2013, Health Canada authorized us to expand our Phase I/II clinical trial for chronic spinal cord injury into Canada. The Phase I/II trial is designed to evaluate the safety and preliminary efficacy of our proprietary HuCNS-SC cells as a treatment for chronic spinal cord injury.

In July 2013, we formally launched our Alzheimer’s disease program, which is being supported by CIRM. The goal of the project is to file, within four years, an Investigational New Drug (IND) application with the U.S. Food and Drug Administration to evaluate our HuCNS-SC cells as a potential therapeutic for Alzheimer’s disease. CIRM has agreed to provide approximately $19.3 million in the form of a forgivable loan to help fund our preclinical development and IND-enabling activities, and in July we received an initial disbursement of $3.8 million from CIRM. The funding was awarded under CIRM’s Disease Team Therapy Development Award program (RFA 10-05) in September 2012. In January 2014, we received a second disbursement of $3.8 million.

In August 2013, we presented data which show that, two years after transplantation of our HuCNS-SC cells into patients with PMD, the evidence of myelination, by magnetic resonance imaging (MRI), is more pronounced compared to one year post-transplantation, the gains in neurological function reported after one year were maintained, and there were no safety concerns. The neurological and MRI changes suggest a departure from the natural history of the disease and may represent signals of a clinical effect.

In September 2013, we published a comprehensive overview of the therapeutic potential and results from early clinical trials of our HuCNS-SC cells. The paper was published in Stem Cell Research & Therapy, an international peer-reviewed journal considered to be the major forum for translational research into stem cell therapies.

In September 2013, we dosed the first high-dose patient in our Phase I/II clinical trial in dry AMD. The patient, the fifth overall in the 16-patient trial, was transplanted with one million of our HuCNS-SC cells. The first four patients each received a dose of 200,000 cells. An independent Data Safety Monitoring Committee conducted a review of the trial data related to the first four patients, and found no safety issues to preclude the trial from proceeding to the high dose.

In September 2013, we published preclinical data confirming that our HuCNS-SC cells preserve photoreceptor cells and visual function in a widely used model of retinal degeneration. The data show not only that HuCNS-SC cells preserve the number of photoreceptors that would otherwise be lost, but also that the surviving photoreceptors appear healthy and normal, and maintain their synaptic connection to other important cells necessary for visual function. The study was published in Investigative Ophthalmology and Visual Science (IVOS), the peer-reviewed journal of the Association for Research in Vision and Ophthalmology.

In October 2013, the FDA authorized our IND application for clinical testing of our HuCNS-SC cells as a treatment for spinal cord injury. In October 2013, we presented the results of a four-year observation study in patients with NCL, who had been transplanted with our HuCNS-SC cells in our initial Phase I study. Key results include long-term evidence of safety, up to five years post transplantation, for the surgical transplantation of the HuCNS-SC cells into multiple sites in the brain and at doses of up to one billion cells. The study results represent the first, and thus far only, multi-year data set following transplantation of neural stem cells into human subjects, and support the feasibility of our approach in multiple neurological disorders. The data was presented by our co-principal investigator in the studies, at the Congress of Neurological Surgeons Annual Meeting in San Francisco, California.

In January 2014, a team at the University of Calgary successfully transplanted its first subject in our Phase I/II clinical trial in chronic spinal cord injury, with our HuCNS-SC cells. The ninth subject to enroll in the trial, which was initiated in Switzerland, is the first spinal cord injury patient to have undergone transplantation in North America. This expansion from a single-site, single-country study to a multi-site, multi-country program accelerates the current trial, which should complete enrollment of the remaining patients in the first quarter of 2014.

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In February 2014, we completed enrollment of the first of two planned patient cohorts in our clinical trial of our proprietary HuCNS-SC cells for AMD. This cohort consisted of eight subjects, four of whom each received 200,000 cells and four of whom each received 1,000,000 cells. We expect to complete enrollment of the second cohort consisting of eight patients by the end of the second quarter of 2014, and we expect to initiate a controlled phase II efficacy proof-of-concept study by year end.

Financing and Other Business-related Activities

In March 2013, we acquired certain patents and patent applications from NsGene A/S, a Danish company. These patents and patent applications claim a purified population of GFAP+ Nestin+ precursor cells in which one or more of the cells are capable of differentiating into neurons.

In April 2013, we closed a $10 million loan from Silicon Valley Bank (SVB). The loan has a three-year term and the loan funds will be used for general corporate purposes.

In June 2013, we entered into an agreement with an institutional investor, under which we have the right to sell up to $30.0 million of common stock to the institutional investor. Proceeds from any sales of stock under this agreement will be used for general corporate purposes. Under the terms of the agreement, we immediately sold 1,645,639 in shares of our common stock to the institutional investor at a purchase price of $1.823 per share and received gross proceeds of $3.0 million. We terminated this agreement in October 2013.

In October 2013, we sold a total of 12,845,500 units in an underwritten public offering at a price of $1.45 per unit and received total proceeds, net of offering expenses, underwriting discounts and commissions, of approximately $17.3 million. Each unit sold consisted of one share of common stock, par value $.01 per share, and a warrant to purchase one half share of common stock. The warrants have an exercise price of $1.80 per share, are exercisable immediately, and will expire five years from the date of issuance.

In October 2013, we acquired from NeuroSpheres the patents we had licensed on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we will issue 139,548 shares of unregistered common stock to NeuroSpheres. In connection with the acquisition, all preexisting agreements were terminated, including the license agreements, which thereby relieved us of further milestone and royalty payments to NeuroSpheres.

In November 2013, we announced that Greg Schiffman will join our executive team as Chief Financial Officer and Executive Vice President of Finance, effective January 1, 2014. In his new role, Mr. Schiffman will be responsible for all aspects of the Company’s financing activities, financial reporting and controls, corporate communications, and investor relations.

Critical Accounting Policies and the Use of Estimates

The accompanying discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these Consolidated Financial Statements requires management to make estimates, assumptions, and judgments that affect the reported amounts in our Consolidated Financial Statements and accompanying notes. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and we have established internal controls related to the preparation of these estimates. Actual results and the timing of the results could differ materially from these estimates.

Warrant Liability

We account for our warrants in accordance with U.S. GAAP which defines how freestanding contracts that are indexed to and potentially settled in a company’s own stock should be measured and classified. Authoritative

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accounting guidance prescribes that only warrants issued by us under contracts that cannot be net-cash settled, and are both indexed to and settled in our common stock, can be classified as equity. As part of both our November 2008 and November 2009 financings, we issued warrants with five year terms to purchase 1,034,483 and 400,000 shares of our common stock at $23.00 and $15.00 per share, respectively. As part of our December 2011 financing, we issued Series A Warrants with a five year term to purchase 8,000,000 shares at $1.40 per share and Series B Warrants with a ninety trading day term to purchase 8,000,000 units at $1.25 per unit. Each unit underlying the Series B Warrants consisted of one share of our common stock and one Series A Warrant. In the first and second quarter of 2012, an aggregate of 2,700,000 Series B Warrants were exercised. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. As terms of the warrants issued in 2008 and 2009, as well as the Series A and Series B Warrants, do not meet the specific conditions for equity classification, we are required to classify the fair value of these warrants as a liability, with subsequent changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The fair value of the warrants issued in the 2008 and 2009 financings is determined using the Black-Scholes-Merton (Black-Scholes) option pricing model and the fair value of the Series A and Series B Warrants is determined using a Monte Carlo simulation model (see Note 13, “Warrant Liability”). The fair value is affected by changes in inputs to these models including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. The use of a Monte Carlo simulation model requires input of additional assumptions including the progress of our R&D programs and its affect on potential future financings. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability. The estimated fair value of our warrant liability at December 31, 2013, was approximately $5,542,000.

Stock-Based Compensation

U.S. GAAP requires us to recognize expense related to the fair value of our stock-based compensation awards, including employee stock options and restricted stock units. Employee stock-based compensation is estimated at the date of grant based on the award’s fair value using the Black-Scholes option pricing model and is recognized as expense ratably over the requisite service period. The Black-Scholes option pricing model requires the use of certain assumptions, the most significant of which are our estimates of the expected volatility of the market price of our stock, the expected term of the award, and the risk-free interest rate. Our estimate of the expected volatility is based on historical volatility. The expected term represents the period during which our stock-based awards are expected to be outstanding. In 2013, we estimated this amount based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations. Our estimate of the risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant. We review our valuation assumptions at each grant date and, as a result, our assumptions in future periods may change. At the end of each reporting period we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust stock-based compensation expense accordingly. For the year ended December 31, 2013, employee and external services stock-based compensation expense (stock options, restricted stock units and 401(k) Plan employer match in form of shares) was approximately $2,609,000. As of December 31, 2013, total compensation cost related to unvested stock options and restricted stock units not yet recognized was approximately $4,275,000, which is expected to be recognized as expense over a weighted-average period of 3.0 years.

Wind-down expenses

In connection with exiting our research and manufacturing operations in Lincoln, Rhode Island, and the relocation of our corporate headquarters and remaining research laboratories to California in October 1999, we provided a reserve for our estimate of the exit cost obligation. The reserve was for the estimated costs of our former research and administrative facility in Lincoln, which we held on a lease that terminated on June 30, 2013. We periodically re-evaluated and adjusted the reserve after considering various factors such as our lease payments through to the end of the lease, operating expenses, the real estate market in Rhode Island, and

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estimated subtenant income based on actual and projected occupancy. We have closed this reserve as our lease and related obligations terminated on June 30, 2013. See Note 11 “Wind-down and exit costs” in the Notes to the Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

Goodwill and Other Intangible Assets (Patent and License Costs)

Goodwill of approximately $2,139,000 at December 31, 2013, relates to the acquisition of SCS operations. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. We test goodwill for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations, and it is possible, even likely, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. We completed our annual impairment testing during the fourth quarter of 2013, and determined that there was no impairment of goodwill.

Other intangible assets, net were approximately $1,836,000 at December 31, 2013. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Prior to fiscal year 2001, we capitalized certain patent costs, which are being amortized over the estimated life of the patent and would be expensed at the time such patents are deemed to have no continuing value. Since 2001, all patent costs are expensed as incurred. License costs are capitalized and amortized over the estimated life of the license agreement. In December 2011, in part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays technology, we determined that we could not predict the future cash flows from the intangible IPR&D asset related to the assays technology. Therefore, we determined that the intangible asset was impaired and wrote off the approximately $655,000 carrying value of the asset.

Impairment of Long-Lived Tangible Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property, plant, and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its estimated fair market value. No such impairment was recognized during the year 2013.

Loan Payable

In April 2013, we entered into a Loan Agreement with Silicon Valley Bank (SVB) and received loan proceeds of $9,900,000, net of a $100,000 cash discount. The loan has a three-year term and bears interest at an annual rate of 6%. The loan obligations are secured by a first priority security interest on substantially all of our assets excluding intellectual property. There is also a final $1,000,000 fee payable at the end of the term which is being expensed over the term of the loan using the effective interest method. In conjunction with the Loan Agreement, we issued to SVB a ten year warrant to acquire 293,531 shares of common stock at an exercise price of $1.7034 per share. The warrant is immediately exercisable and expires in April 2023. We estimated the fair value of the warrant to be approximately $388,000 using the Black-Scholes option pricing model. We applied the relative fair value method to allocate the $9,900,000 net proceeds between the loan and warrant. The approximately $388,000 fair value allocated to the warrant was recorded as an increase to additional paid-in capital and as a discount to loan payable. Approximately $9,512,000 was assigned to the loan and was recorded as the initial carrying amount of the loan payable, net of discount. The approximately $388,000 fair value of the

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warrant and the $100,000 cash discount are both being amortized as additional interest expense over the term of the loan using the effective interest rate method. We also incurred loan issuance costs of approximately $117,000, which are recorded as deferred financing costs on the accompanying consolidated balance sheet and are being amortized to interest expense over the term of the Loan Agreement using the effective interest rate method. The effective interest rate used to amortize the deferred financing costs and the discount (including the fair value of the warrant and the cash discount), and for the accretion of the final payment, is 9.0%.

In April 2013, we entered into an agreement with the California Institute for Regenerative Medicine (CIRM) (the CIRM Loan Agreement) under which CIRM will provide up to approximately $19.3 million to help fund preclinical development and IND-enabling activities of our HuCNS-SC cells for Alzheimer’s disease. The funding is in the form of a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations, and is expected to be disbursed periodically by CIRM over the four-year project period subject to a number of preconditions, including the achievement of certain progress milestones and compliance with certain financial covenants. The loan is unsecured and the term of the loan is ten years and may be extended under certain circumstances. Initially, the loan will bear interest at the one year LIBOR rate plus two percent and will increase by 1% each year after year five. Interest will accrue with the first disbursement of loan funds, but we will not begin paying interest until year six. Repayment of the principal and any accrued and unpaid interest will be due and payable at the end of the term. We can prepay the CIRM loan at our election, either in whole or in part at any time and without a prepayment fee. In addition, the loan is forgivable so that our obligation to repay will be contingent upon the success of our HuCNS-SC cells as a treatment for Alzheimer’s disease. In July 2013, we received approximately $3.8 million as initial disbursement of the loan provided under the CIRM Loan Agreement, and a second disbursement of approximately $3.8 million in January 2014.

We classified our loan obligations with SVB and CIRM as loan payable, net of discount, current and non-current on our Consolidated Balance Sheet. See Note 14 “Loan payable” in the Notes to the Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

Income Taxes

When accounting for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities.

Developing our provision for income taxes and analyzing our tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, any valuation allowances that may be required for deferred tax assets.

We assess the likelihood of realizing our deferred tax assets to determine whether an income tax valuation allowance is required. Based on such evidence that can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:

• cumulative losses in recent years;

• income/losses expected in future years; and

• the applicable statute of limitations.

Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are reversed in the period in which the more likely than not recognition threshold is no longer satisfied.

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We concluded that the realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

Results of Operations

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future due to the occurrence of material recurring and nonrecurring events, including without limitation the receipt and payment of recurring and nonrecurring licensing payments, the initiation or termination of clinical studies, research collaborations and development programs for both cell-based therapeutic products and research tools, unpredictable or unanticipated manufacturing and supply costs, unanticipated capital expenditures necessary to support our business, developments in on-going patent prosecution and litigation, the on-going expenses to maintain our Rhode Island facilities, and the costs associated with operating our California and Cambridge, U.K. facilities.

Revenue

Revenue totaled approximately $1,203,000 in 2013, $1,368,000 in 2012, and $1,221,000 in 2011.

							Change in 2013 Versus 2012						Change in 2012 Versus 2011
	2013		2012		2011		$			%			$			%
Revenue
Revenue from licensing agreements, grants and other	$	205,302	$	511,558	$	557,880	$	(306,256	)		(60	)%	$	(46,322	)		(8	)%
Product sales		997,968		856,397		662,790		141,571			17	%		193,607			29	%
Total revenue		1,203,270		1,367,955		1,220,670		(164,685	)		(12	)%		147,285			12	%
Cost of product sales		316,628		263,188		214,811		53,440			20	%		48,377			23	%
Gross profit	$	886,642	$	1,104,767	$	1,005,859	$	(218,125	)		(20	)%	$	98,908			10	%

Total revenue in 2013 was approximately $1,203,000, which was 12% lower than total revenue in 2012. In 2013, revenue from product sales increased 17%, or approximately $142,000, compared to 2012. This increase was primarily attributable to increased unit volumes in our SC Proven line of media and reagents. In 2013, approximately 42% of our product sales were in Europe, 39% were in Asia, 15% were in North America, and 4% were in other geographies. Aggregate licensing, grant and other revenue in 2013 were approximately $205,000 which was 60% or approximately $306,000 lower than aggregate licensing, grant and other revenue in 2012. The decrease was primarily attributable to lower licensing revenue in 2013. The 2012 licensing revenue includes a one-time fee from a license agreement with genOway, under which we granted genOway a worldwide, exclusive license to our IRES technology for use in the development and commercialization of genetically engineered mice. Grant revenue in 2013 and 2012 were not significant.

Total revenue in 2012 was approximately $1,368,000, which was 12% higher than total revenue in 2011. In 2012, revenue from product sales increased 29%, or approximately $194,000, compared to 2011. This increase was primarily attributable to increased unit volumes in our SC Proven line of media and reagents. In 2012, approximately 70% of our product sales were in Europe, 13% were in North America, and 17% were in Asia. Aggregate licensing, grant and other revenue in 2012 were relatively flat in 2012 as compared to 2011. Grant revenue in 2012 was not significant and licensing fees in 2012 was primarily from a license agreement with genOway, under which we granted genOway a worldwide exclusive license to our IRES technology for use in the development and commercialization of genetically engineered mice.

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Operating Expenses

Operating expense totaled approximately $29,492,000 in 2013, $23,650,000 in 2012, and $29,082,000 in 2011.

							Change in 2013 Versus 2012						Change in 2012 Versus 2011
	2013		2012		2011		$			%			$			$
Operating Expenses
Research & development	$	20,533,713	$	15,846,829	$	19,937,764	$	4,686,884			30	%	$	(4,090,935	)		(21	)%
Selling, general & administrative		8,896,537		7,447,235		8,202,375		1,449,302			19	%		(755,140	)		(9	)%
Wind-down expenses		61,837		356,379		287,122		(294,542	)		(83	)%		69,257			24	%
Impairment of intangible asset		—		—		654,961		—			—			(654,961	)		(100	)%
Total operating expenses	$	29,492,087	$	23,650,443	$	29,082,222	$	5,841,644			25	%	$	(5,431,779	)		(19	)%

Research and Development Expenses

Our R&D expenses consist primarily of salaries and related personnel expenses, costs associated with clinical trials and regulatory submissions, costs associated with preclinical activities such as toxicology studies, costs associated with cell processing and process development, certain patent-related costs such as licensing, facilities related costs such as depreciation, lab equipment, and supplies. Clinical trial expenses include payments to vendors such as clinical research organizations, contract manufacturers, clinical trial sites, laboratories for testing clinical samples and consultants. Cumulative R&D costs incurred since we refocused our activities on developing cell-based therapeutics (fiscal years 2000 through 2013) were approximately $188 million. Over this period, the majority of these cumulative costs were related to: (i) characterization of our proprietary HuCNS-SC cells, (ii) expenditures for toxicology and other preclinical studies, preparation and submission of applications to regulatory agencies to conduct clinical trials and obtaining regulatory clearance to initiate such trials, all with respect to our HuCNS-SC cells, (iii) preclinical studies and development of our human liver engrafting cells, (iv) costs associated with cell processing and process development, and (v) costs associated with our clinical studies.

We use and manage our R&D resources, including our employees and facilities, across various projects rather than on a project-by-project basis for the following reasons. The allocations of time and resources change as the needs and priorities of individual projects and programs change, and many of our researchers are assigned to more than one project at any given time. Furthermore, we are exploring multiple possible uses for each of our proprietary cell types, so much of our R&D effort is complementary to and supportive of each of these projects. Lastly, much of our R&D effort is focused on manufacturing processes, which can result in process improvements useful across cell types. We also use external service providers to assist in the conduct of our clinical trials, to manufacture certain of our product candidates and to provide various other R&D related products and services. Many of these costs and expenses are complementary to and supportive of each of our programs. Because we do not have a development collaborator for any of our product programs, we are currently responsible for all costs incurred with respect to our product candidates.

R&D expense totaled approximately $20,534,000 in 2013, as compared to $15,847,000 in 2012 and $19,938,000 in 2011. At December 31, 2013, we had 47 full-time employees working in research and development and laboratory support services as compared to 39 at December 31, 2012 and 40 at December 31, 2011.

2013 versus 2012. R&D expenses increased by approximately $4,687,000, or 30%, in 2013 compared to 2012. The increase was primarily attributable to (i) an increase of approximately $817,000 in expenses related to

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our clinical studies; primarily our Phase I/II clinical trial for the treatment of chronic spinal cord injury and our Phase I/II clinical trial in dry AMD, (ii) an increase in personnel costs of approximately $1,315,000 due to the addition of key personnel to strengthen our product development and clinical operations capabilities, (iii) an increase of approximately $1,361,000 in external services primarily related to preclinical studies of our HuCNS-SC cells, (iv) an increase of approximately $1,035,000 in supplies and validation expenses primarily related to manufacturing, quality control and process development activities to support our preclinical and clinical studies, and (v) an increase in other expenses of approximately $159,000. The increased R&D spending in 2013, reflects our on-going preparation to initiate a Phase II efficacy study in two indications (cervical spinal cord injury and AMD) in the second half of 2014.

2012 versus 2011. R&D expenses decreased by approximately $4,091,000, or 21%, in 2012 compared to 2011. This decrease was primarily attributable to (i) a decrease of approximately $1,143,000 in personnel expenses primarily due to the reduction in force effected in May 2011, (ii) a decrease of approximately $310,000 in operating expenses at our U.K. operations as we consolidated our activities at the site, (iii) a decrease in facilities expense of approximately $1,050,000 attributable to the relocation of our corporate headquarters and core research activities in July 2011; the 2011 period includes facilities expense from the previous lease which expired on August 31, 2011, (iv) a decrease of approximately $784,000 in external services and clinical studies; the 2011 period includes higher external services expenses primarily related to the preclinical studies of our HuCNS-SC cells for retinal disorders, other potential indications and quality tests of our cell banks, (v) a decrease of approximately $295,000 in expenses related to the clinical development within our CNS program, and (vi) a decrease in supplies and other operating expenses of approximately $509,000.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses are primarily comprised of salaries, benefits and other staff-related costs associated with sales and marketing, finance, legal, human resources, information technology, and other administrative personnel, facilities and overhead costs, and external legal, audit and other general and administrative services.

SG&A expenses totaled approximately $8,897,000 in 2013, compared with $7,447,000 in 2012 and $8,202,000 in 2011.

2013 versus 2012. SG&A expenses increased by approximately $1,449,000, or 19%, in 2013 compared to 2012. This increase was primarily attributable to (i) an increase of approximately $1,020,000 in external services, primarily legal fees, and (ii) an increase in personnel costs of approximately $462,000. The increase was partially offset by a decrease of approximately $33,000 in net other expenses.

2012 versus 2011. SG&A expenses decreased by approximately $755,000, or 9%, in 2012 compared to 2011. This decrease was primarily attributable to (i) a decrease of approximately $500,000 in external services, primarily legal fees, (ii) a decrease in facilities expense of approximately $194,000 attributable to the relocation of our corporate headquarters in July 2011; the lease on our previous corporate headquarters expired on August 31, 2011, and (iii) a net decrease of approximately $61,000 in other operating expenses.

Wind-down Expenses

In connection with our wind-down of our research and manufacturing operations in Lincoln, Rhode Island, and the relocation of our corporate headquarters and remaining research laboratories to California in October 1999, we provided a reserve for our exit cost obligation. The reserve was for the estimated costs of our former research and administrative facility in Lincoln, which we held on a lease that terminated on June 30, 2013. We periodically re-evaluated and adjusted the reserve after considering various factors such as our lease payments through to the end of the lease, operating expenses, the real estate market in Rhode Island, and estimated subtenant income based on actual and projected occupancy. The reserve was approximately $854,000 at December 31, 2012. In the first and second quarter of 2013, aggregate payments net of subtenant income of approximately $916,000 were recorded against this reserve and approximately $62,000 in aggregate was

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expensed as additional wind-down expenses. We have closed this reserve as the lease and our related obligations terminated on June 30, 2013. See Note 11 “Wind-down and exit costs,” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

Other Income (Expense)

Other income totaled approximately $2,166,000 in 2013, compared with other expense of approximately $5,945,000 in 2012 and other income of $6,748,000 in 2011.

										Change in 2013 Versus 2012						Change in 2012 Versus 2011
	2013			2012			2011			$			%			$			%
Other income (expense)
Realized gain on sale of marketable securities	$	—		$	—		$	83,750		$	—			—		$	(83,750	)		(100	)%
Change in fair value of warrant liability		3,253,253			(5,944,571	)		6,612,092			9,197,824			(155	)%		(12,556,663	)		(190	)%
Interest income		11,318			15,594			13,942			(4,276	)		(27	)%		1,652			12	%
Interest expense		(1,166,782	)		(50,193	)		(71,363	)		(1,116,589	)		*			21,170			(30	)%
Other income (expense), net		68,497			33,693			109,404			34,804			103	%		(75,711	)		(69	)%
Total other income (expense), net	$	2,166,286		$	(5,945,477	)	$	6,747,825		$	8,111,763			(136	)%	$	(12,693,302	)		(188	)%

* Calculation is not meaningful.

Change in Fair Value of Warrant Liability

We record changes in fair value of warrant liability as income or loss in our Consolidated Statements of Operations. We have warrants outstanding which were issued as part of several transactions since 2008 and have classified all these warrants as a liability. The fair value of the outstanding warrants is determined using various option pricing models, such as the Black-Scholes-Merton (Black-Scholes) option pricing model and a Monte Carlo simulation model, and is affected by changes in inputs to the various models, including our stock price, expected stock price volatility, the contractual term and the risk-free interest rate. The use of a Monte Carlo simulation model requires input of additional subjective assumptions including the progress of our R&D programs and its affect on potential future financings. The fair value of the warrant liability is revalued at the end of each reporting period. See Note 13 “Warrant Liability,” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information on this transaction.

Interest Income

Interest income totaled approximately $11,000 in 2013, $16,000 in 2012, and $14,000 in 2011. Interest income in 2013 was not significant and is from the investment of our cash balances in money market accounts and short-term money market instruments that are highly liquid and that preserves capital.

Interest Expense

Interest expense was approximately $1,167,000 in 2013, $50,000 in 2012, and $71,000 in 2011. Interest expense for 2013 was primarily from the accretion of discount, amortization of deferred financing costs and accrual of interest related to our loan agreement with SVB, and accrued interest related to our loan agreement

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with CIRM. See Note 14 “Loan Payable,” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information. The decrease in interest expense from 2011 to 2012 was primarily attributable to lower outstanding debt and capital lease balances.

Other Income (Expense), net

Other income, net totaled approximately $68,000 in 2013, $34,000 in 2012, and $109,000 in 2011.

Other income in 2013 includes approximately $61,000 of R&D tax credits due to our wholly-owned subsidiary Stem Cell Sciences (U.K.) Ltd. (SCS) and approximately $38,000 from a net gain on sale and disposal of equipment. The above income was offset by state franchise taxes of approximately $31,000. Other income, net in 2012 includes approximately $118,000 of R&D tax credits due to our wholly-owned subsidiary SCS. The above income was offset by state franchise taxes of approximately $35,000 and a loss on disposal of fixed assets of approximately $49,000. Other income, net in 2011 includes the receipt of approximately $150,000 as a break-up fee paid to us upon the expiration of an exclusivity period granted to a potential licensee. Other income, net was partially offset in 2011 by other expenses, primarily state franchise taxes.

Liquidity and Capital Resources

Since our inception, we have financed our operations through the sale of common and preferred stock, the issuance of long-term debt and capitalized lease obligations, revenue from research grants, license fees, product sales and interest income.

										Change in 2013 Versus 2012						Change in 2012 Versus 2011
	2013			2012			2011			$			%			$			%
At December 31:
Cash and highly liquid investments(1)	$	30,585,424		$	22,371,953		$	16,591,852		$	8,213,471			37	%	$	5,780,101			35	%
Year ended December 31:
Net cash used in operating activities	$	(23,286,001	)	$	(19,869,344	)	$	(22,058,283	)	$	(3,416,657	)		17	%	$	2,188,939			(10	)%
Net cash provided by (used in) investing activities	$	8,999,906		$	(10,691,831	)	$	(3,422,012	)	$	19,691,737			(184	)%	$	(7,269,819	)		212	%
Net cash provided by financing activities	$	36,402,277		$	25,737,110		$	19,129,484		$	10,665,167			41	%	$	6,607,626			35	%

(1) Cash and highly liquid investments include unrestricted cash, cash equivalents, and short-term and long-term marketable debt securities. See Note 2, “Financial Instruments,” in the Notes to the Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

Total cash and highly liquid investments were approximately $30,585,000 at December 31, 2013, compared with approximately $22,372,000 at December 31, 2012, and $16,592,000 at December 31, 2011.

Net Cash Used in Operating Activities

Cash used in operating activities was approximately $23,286,000 in 2013, $19,869,000 in 2012, and $22,058,000 in 2011. Cash used in operating activities is primarily driven by our net loss as adjusted for non-cash charges and differences in the timing of operating cash flows.

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Net Cash Used in Investing Activities

Net cash from investing activities increased by approximately $19,692,000 in 2013 compared to 2012. The increase was primarily attributable to maturities of marketable debt securities in 2013. In 2013 we had net maturities of marketable debt securities of approximately $13,742,000 compared to net purchases of marketable securities of approximately $10,619,000 in 2012. This cash-inflow in 2013 was partially offset by an increase in net investment in leasehold improvements, equipment and other assets of approximately $4,669,000 in 2013 as compared to 2012. Net cash used in investing activities increased by approximately $7,270,000, or 212%, in 2012 compared to 2011. The increase was primarily attributable to an increase in net purchases of marketable debt securities in 2012 as compared to 2011. Our investment portfolio is comprised primarily of U.S. Treasury debt securities, which are classified as cash equivalents.

Net Cash Provided by Financing Activities

The increases in cash provided by financing activities from 2011 to 2013 were primarily attributable to higher net proceeds from sales of our common stock.

Listed below are key financing transactions entered into by us in 2013, 2012 and 2011:

• In April 2013, we entered into a Loan Agreement with SVB and received loan proceeds of $9,900,000, net of a $100,000 cash discount. The loan has a three-year term and bears interest at an annual rate of 6%. We incurred loan issuance costs of approximately $117,000 and there is also a final $1,000,000 fee payment at the end of the term.

• In 2013, sale of 1,733,771 shares of our common stock at an average price of $1.9134 per share for gross proceeds of approximately $3,317,000. These sales were made under the 2012 amended sales agreement and the sales agent is paid compensation up to 3% of gross proceeds pursuant to the terms of the agreement. The shares were offered under our shelf registration statement previously filed with, and declared effective by, the SEC.

• In June 2013, we entered into an agreement with an institutional investor, under which we have the right to sell up to $30.0 million of common stock to the institutional investor. Under the terms of the agreement, we immediately sold 1,645,639 in shares of our common stock to the institutional investor at a purchase price of $1.823 per share, and received gross proceeds of $3,000,000. In consideration for entering into the agreement, we issued 329,131 shares of our common stock to the institutional investor. We did not receive any cash proceeds from the issuance of these 329,131 shares. Under this agreement, we had the right for a period of three years and at our sole discretion, to sell additional amounts up to $27.0 million of our common stock to the institutional investor subject to certain limitations. No warrants were issued in connection with this transaction. All shares sold were offered under our shelf registration statement previously filed with, and declared effective by, the SEC. The agreement was terminated by us in October 2013.

• In July 2013, we received approximately $3,820,000 as the initial disbursement of the loan provided under the CIRM Loan Agreement.

• In October 2013, we sold a total of 12,845,500 units in an underwritten public offering at a price of $1.45 per unit and received total proceeds, net of offering expenses, underwriting discounts and commissions, of approximately $17.3 million. Each unit sold consisted of one share of common stock, par value $.01 per share, and a warrant to purchase one- half share of common stock. The warrants have an exercise price of $1.80 per share, are exercisable immediately, and will expire five years from the date of issuance.

• In 2012, we sold an aggregate of 9,647,471 shares of our common stock at an average price per share of $2.12 for gross proceeds of approximately $20,452,000. These sales were made under a sales agreement entered into in June 2009 (2009 sales agreement) and the sales agent was paid compensation equal to 3% of gross proceeds. The shares were offered under our shelf registration statement previously filed with, and declared effective by, the SEC.

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• In 2012, an aggregate of 2,700,000 Series B Warrants were exercised and we received gross proceeds of $3,375,000. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants.

• In 2012, an aggregate of 2,198,571 Series A Warrants were exercised. For the exercise of these warrants, we issued 2,198,571 shares of our common stock and received gross proceeds of approximately $3,078,000.

• In December 2011, we raised gross proceeds of $10 million through a public offering of 8,000,000 Units and 8,000,000 Series B Warrants. The combination of Units and Series B Warrants were sold at a public offering price of $1.25 per Unit. Each Series B Warrant gave the holder the right to purchase one Unit at an exercise price of $1.25 per Unit and was exercisable until May 2, 2012, the 90th trading day after the date of issuance. Each Unit consists of one share of our common stock and one Series A Warrant. Each Series A Warrant gives the holder the right to purchase one share of our common stock at an initial exercise price of $1.40 per share. The Series A warrants are immediately exercisable upon issuance and will expire in December 2016. The shares were offered under our effective shelf registration statement previously filed with, and declared effective by, the SEC.

• In January 2011, we sold 1,000,000 shares of our common stock to selected institutional investors at a price of $10.00 per share. We received net proceeds, after deducting offering expenses and fees, of approximately $9,400,000. The investors were also granted an option to purchase an additional 6,000,000 shares at $10.00 per share. The option was not exercised and expired on February 18, 2011. The shares were offered under a shelf registration previously filed with, and declared effective by, the SEC.

• In 2011, we sold a total of 525,116 shares of our common stock under the 2009 sales agreement at an average price per share of $2.47 for gross proceeds of approximately $1,297,000. The sales agent was paid compensation equal to 3.0% of gross proceeds pursuant to the terms of the agreement. The shares were offered under a shelf registration previously filed with, and declared effective by, the SEC.

We have incurred significant operating losses and negative cash flows since inception. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. We have limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses and other working capital requirements. We rely on cash balances and proceeds from equity and debt offerings, proceeds from the transfer or sale of our intellectual property rights, equipment, facilities or investments, and government grants and funding from collaborative arrangements, if obtainable, to fund our operations.

We intend to pursue opportunities to obtain additional financing in the future through equity and debt financings, grants and collaborative research arrangements. In December 2013, we filed with the SEC, and the SEC declared effective, a universal shelf registration statement which permits us to issue up to $100 million worth of registered debt and equity securities. Under this effective shelf registration, we have the flexibility to issue registered securities, from time to time, in one or more separate offerings or other transactions with the size, price and terms to be determined at the time of issuance. Registered securities issued using this shelf may be used to raise additional capital to fund our working capital and other corporate needs, for future acquisitions of assets, programs or businesses, and for other corporate purposes.

The source, timing and availability of any future financing will depend principally upon market conditions, interest rates and, more specifically, on our progress in our exploratory, preclinical and future clinical

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development programs. Funding may not be available when needed — at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and/or our capital expenditures or to license our potential products or technologies to third parties. In addition, the decline in economic activity, together with the deterioration of the credit and capital markets, could have an adverse impact on potential sources of future financing.

Commitments

See Note 12, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

Off-Balance Sheet Arrangements

We have certain contractual arrangements that create potential risk for us and are not recognized in our Consolidated Balance Sheets. Discussed below are those off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Operating Leases

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance, and minimum lease payments. Some of our leases have options to renew.

Operating Leases — California

In September 2010, we entered into a two-year sublease agreement with Caliper Life Sciences, Inc., for office and research space in a facility located in Mountain View, California. In June 2012, the sublease term was extended to and expired on September 30, 2013. We paid approximately $1,081,000 in aggregate as rent over the term of the lease.

In December 2010, we entered into a commercial lease agreement with BMR-Gateway Boulevard LLC (BMR), as landlord, for office and research space at BMR’s Pacific Research Center in Newark, California. The initial term of the lease is approximately eleven and one-half years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $17,869,000 in aggregate as rent over the term of the lease to BMR. Deferred rent for this facility was approximately $1,434,000 as of December 31, 2013, and approximately $1,389,000 as of December 31, 2012.

In March 2013, we entered into a commercial lease agreement with Prologis, L.P. (Prologis), as landlord, for office and research space in Sunnyvale, California. The facility is for operations that support our clinical development activities. The initial term of the lease is ten years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $3,497,000 in aggregate rent over the term of the lease. As part of the lease, Prologis has agreed to provide us financial allowances to build initial tenant improvements, subject to customary terms and conditions relating to landlord-funded tenant improvements. The tenant improvements are recorded as leasehold improvement assets and amortized over the term of the lease. The financial allowances are treated as a lease incentive and recorded as deferred rent which is amortized as reductions to lease expense over the lease term. Deferred rent for this facility was approximately $391,000 as of December 31, 2013.

Operating Leases — Rhode Island

We entered into a fifteen-year lease agreement for a scientific and administrative facility (SAF) in Rhode Island in connection with a sale and leaseback arrangement in 1997. The lease term expired on June 30, 2013.

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For the year 2013, we paid approximately $1,165,000 in operating lease payments and operating expenses net of sub-tenant income.

Operating Leases — United Kingdom

In January 2011, we amended the existing lease agreements of our wholly-owned subsidiary, Stem Cell Sciences (U.K.) Ltd, effectively reducing our leased office and lab space. The lease by its terms was extended to September 30, 2013. In October 2013, we signed a new three-year lease agreement for the leased space and expect to pay rent of approximately GBP 53,000 per annum. StemCells, Inc. is the guarantor of Stem Cell Sciences (U.K.) Ltd’s obligations under the existing lease. The lease gives SCS an option for early termination of the lease agreement.

With the exception of the operating leases discussed above, we have not entered into any significant off balance sheet financial arrangements and have not established any special purpose entities. We have not guaranteed any debts or commitments of other entities or entered into any options on non-financial assets. See Note 11, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

Contractual Obligations

In the table below, we set forth our legally binding and enforceable contractual cash obligations at December 31, 2013:

	Total Obligations at 12/31/13		Payable in 2014		Payable in 2015		Payable in 2016		Payable in 2017		Payable in 2018		Payable in 2019 and Beyond
Operating lease payments	$	18,070,975	$	1,917,423	$	1,912,217	$	1,968,459	$	2,014,706	$	2,061,260	$	8,196,910
Capital lease equipment (principal & interest)		55,329		24,284		21,591		9,454		—		—		—
Loan payable (principal & interest)(1)		10,084,748		4,322,035		4,322,035		1,440,678		—		—		—
Bonds Payable (principal & interest)(2)		136,852		136,852		—		—		—		—		—
Total contractual cash obligations	$	28,347,904	$	6,400,594	$	6,255,843	$	3,418,591	$	2,014,706	$	2,061,260	$	8,196,910

(1) See Note 14, “Loan Payable” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

(2) See Note 12, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K for further information.

We periodically enter into licensing agreements with third parties to obtain exclusive or non-exclusive licenses for certain technologies. The terms of certain of these agreements require us to pay future milestone payments based upon achievement of certain developmental, regulatory or commercial milestones. We do not anticipate making any milestone payments under any of our licensing agreements for 2014. Milestone payments beyond fiscal year 2014 cannot be predicted or estimated, due to the uncertainty of achieving the required developmental, regulatory or commercial milestones.

We do not have any material unconditional purchase obligations or commercial commitments related to capital expenditures, clinical development, clinical manufacturing, or other external services contracts at December 31, 2013.

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Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (FASB) issued ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, an update to Topic 740, Income Taxes. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this Update are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This update is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013. The adoption of the amended standard is not expected to have a material impact on our consolidated financial statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate and Credit Risks

Our interest-bearing assets, or interest-bearing portfolio, consist of cash, cash equivalents, and marketable debt securities. The balance of our interest-bearing portfolio was approximately $30,585,000, or 74%, of total assets at December 31, 2013 and $22,372,000, or 74%, of total assets at December 31, 2012. Interest income earned on these assets was approximately $11,000 in 2013 and $16,000 in 2012. Our interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. At December 31, 2013, our cash equivalents were primarily composed of money market accounts comprised of U.S. Treasury debt securities and repurchase agreements. Our short-term marketable debt securities at December 31, 2012 were composed primarily of commercial paper and corporate debt securities. Generally, corporate obligations must have senior credit ratings of A2/A or the equivalent. See Note 1, “Summary of Significant Accounting Policies — Financial Instruments” and Note 2 “Financial Instruments” section in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for further information.

Equity Security and Foreign Exchange Risks

Our foreign exchange risk is an exposure to foreign currency exchange rates on the earnings, cash flows and financial position of our foreign subsidiary in the United Kingdom. Financial statements of our foreign subsidiary are translated into U.S. dollars from U.K. pounds (GBP), using period-end exchange rates for assets and liabilities and average exchange rates for revenues and expenses. Adjustments resulting from translating net assets are reported as a separate component of “Accumulated other comprehensive income (loss)” within shareholders’ equity under the caption “Unrealized gain (loss) on foreign currency translation”. A hypothetical 10% weakening of the U.S. dollar in relation to the GBP would have resulted in an approximate $29,000 increase in our net loss reported for the year ended December 31, 2013. Because we are currently not subject to material foreign currency exchange risk with respect to revenue transactions and cash balances, we have not to date entered into any hedging contracts.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

STEMCELLS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		62
Consolidated Balance Sheets		63
Consolidated Statements of Operations		64
Consolidated Statements of Comprehensive Loss		65
Consolidated Statement of Stockholders’ Equity		66
Consolidated Statements of Cash Flows		67
Notes to Consolidated Financial Statements		69

61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

StemCells, Inc.

We have audited the accompanying consolidated balance sheets of StemCells, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of StemCells, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

San Francisco, California

March 12, 2014

62

StemCells, Inc.

Consolidated Balance Sheets

	December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	30,585,424		$	8,471,275
Marketable securities, current		—			13,900,678
Trade receivables		108,815			110,159
Other receivables		486,222			200,788
Prepaid assets		530,037			537,590
Deferred financing costs, current		46,420			—
Other current assets		83,537			820,827
Total current assets		31,840,455			24,041,317
Property, plant and equipment, net		5,304,684			1,375,329
Other assets, non-current		413,717			947,301
Goodwill		2,139,294			1,983,426
Other intangible assets, net		1,835,717			1,822,904
Deferred financing costs, non-current		23,307			—
Total assets	$	41,557,174		$	30,170,277
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,151,903		$	999,365
Accrued expenses and other current liabilities		4,067,916			2,707,441
Accrued wind-down expenses, current		—			1,102,762
Deferred revenue, current		67,245			74,426
Capital lease obligation, current		21,316			6,888
Deferred rent, current		34,366			—
Bonds payable, current		125,000			206,250
Loan payable net of discount, current		3,664,370			—
Total current liabilities		9,132,116			5,097,132
Capital lease obligation, non-current		29,422			12,646
Bonds payable, non-current		—			125,000
Fair value of warrant liability		5,541,809			9,265,365
Other long-term liabilities		801,388			216,439
Loan payable net of discount, non-current		9,244,874			—
Deferred rent, non-current		1,790,943			1,389,342
Deferred revenue, non-current		62,910			79,736
Total liabilities		26,603,462			16,185,660
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value; 225,000,000 shares authorized; issued and outstanding 55,138,311 at December 31, 2013 and 37,506,305 at December 31, 2012		551,383			375,063
Additional paid-in capital		401,680,562			374,507,552
Accumulated deficit		(387,530,334	)		(361,091,175	)
Accumulated other comprehensive income		252,101			193,177
Total stockholders’ equity		14,953,712			13,984,617
Total liabilities and stockholders’ equity	$	41,557,174		$	30,170,277

See Notes to Consolidated Financial Statements.

63

StemCells, Inc.

Consolidated Statements of Operations

	Year Ended December 31,
	2013			2012			2011
Revenue:
Revenue from licensing agreements, grants and other	$	205,302		$	511,558		$	557,880
Revenue from product sales		997,968			856,397			662,790
Total revenue		1,203,270			1,367,955			1,220,670
Cost of product sales		316,628			263,188			214,811
Gross profit		886,642			1,104,767			1,005,859
Operating expenses:
Research and development		20,533,713			15,846,829			19,937,764
Selling, general and administrative		8,896,537			7,447,235			8,202,375
Wind-down expenses		61,837			356,379			287,122
Impairment of intangible asset		—			—			654,961
Total operating expenses		29,492,087			23,650,443			29,082,222
Operating loss		(28,605,445	)		(22,545,676	)		(28,076,363	)
Other income (expense):
Realized gain on sale of marketable securities		—			—			83,750
Change in fair value of warrant liability		3,253,253			(5,944,571	)		6,612,092
Interest income		11,318			15,594			13,942
Interest expense		(1,166,782	)		(50,193	)		(71,363	)
Other income		68,497			33,693			109,404
Total other income (expense), net		2,166,286			(5,945,477	)		6,747,825
Net loss	$	(26,439,159	)	$	(28,491,153	)	$	(21,328,538	)
Basic and diluted net loss per share	$	(0.61	)	$	(0.99	)	$	(1.50	)
Shares used to compute basic and diluted loss per share		43,422,001			28,824,417			14,187,885

See Notes to Consolidated Financial Statements.

64

StemCells, Inc.

Consolidated Statements of Comprehensive Loss

	Year Ended December 31,
	2013			2012			2011
Net loss	$	(26,439,159	)	$	(28,491,153	)	$	(21,328,536	)
Other comprehensive income (loss)
Foreign currency translation adjustments		57,568			151,125			40,032
Unrealized gains (losses) on marketable securities		1,356			1,339			(119,041	)
Other comprehensive income (loss)		58,924			152,464			(79,009	)
Comprehensive loss	$	(26,380,235	)	$	(28,338,689	)	$	(21,407,545	)

See Notes to Consolidated Financial Statements.

65

StemCells, Inc.

Consolidated Statement of Stockholders’ Equity

	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares		Amount
Balances, December 31, 2010		12,731,287	$	127,313	$	326,505,080		$	(311,271,486	)	$	119,722		$	15,480,629
Net loss		—		—		—			(21,328,536	)		—			(21,328,536	)
Unrealized gain on foreign currency translation		—		—		—			—			40,032			40,032
Change in unrealized loss on securities available-for-sale		—		—		—			—			(119,041	)		(119,041	)
Issuance of common stock and warrants, net of issuance cost of $1,522,083		9,525,116		95,251		13,697,089			—			—			13,792,340
Common stock issued pursuant to employee benefit plan		35,164		352		164,544			—			—			164,896
Compensation expense from grant of options, restricted stock units and stock (fair value)		32,631		326		3,095,717			—			—			3,096,043
Exercise of employee and director stock options		1,692		17		2,369			—			—			2,386
Exercise and net settlement of restricted stock units		102,065		1,021		(404,646	)		—			—			(403,625	)
Balances, December 31, 2011		22,427,955		224,280		343,060,153			(332,600,022	)		40,713			10,725,124
Net loss		—		—		—			(28,491,153	)		—			(28,491,153	)
Unrealized gain on foreign currency translation		—		—		—			—			151,125			151,125
Change in unrealized loss on securities available-for-sale		—		—		—			—			1,339			1,339
Issuance of common stock and warrants, net of issuance cost of $900,992		14,546,042		145,460		28,580,047			—			—			28,725,507
Common stock for external services		102,058		1,021		174,214			—			—			175,235
Common stock issued pursuant to employee benefit plan		129,893		1,299		95,718			—			—			97,017
Compensation expense from grant of options, restricted stock units and stock (fair value)		182,502		1,825		2,654,059			—			—			2,655,884
Exercise of director stock options		3,629		36		3,593			—			—			3,629
Exercise and net settlement of restricted stock units		114,226		1,142		(60,232	)		—			—			(59,090	)
Balances, December 31, 2012		37,506,305		375,063		374,507,552			(361,091,175	)		193,177			13,984,617
Net loss		—		—		—			(26,439,159	)		—			(26,439,159	)
Unrealized gain on foreign currency translation		—		—		—			—			57,568			57,568
Change in unrealized loss on securities available-for-sale		—		—		—			—			1,356			1,356
Issuance of common stock and warrants, net of issuance cost of $2,051,699		16,938,575		169,385		24,710,188			—			—			24,879,573
Common stock issued for external services		104,911		1,049		153,062			—			—			154,111
Common stock issued pursuant to employee benefit plan		82,863		829		131,242			—			—			132,071
Compensation expense from grant of options and restricted stock units (fair value)						2,322,489			—			—			2,322,489
Exercise of director stock options		3,452		35		3,417			—			—			3,452
Exercise and net settlement of restricted stock units		362,657		3,627		(345,993	)		—			—			(342,366	)
Common stock issued as consideration in the acquisition of a patent portfolio		139,548		1,395		198,605			—			—			200,000
Balances, December 31, 2013		55,138,311	$	551,383	$	401,680,562		$	(387,530,334	)	$	252,101		$	14,953,712

See Notes to Consolidated Financial Statements.

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StemCells, Inc.

Consolidated Statements of Cash Flows

	Year Ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Net loss	$	(26,439,159	)	$	(28,491,153	)	$	(21,328,536	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,058,725			991,721			1,207,911
Amortization of debt discount and issuance costs		288,951			—			—
Stock-based compensation for employees and external services		2,608,670			2,878,134			3,260,937
Loss (gain) on disposal of fixed assets		(38,854	)		20,883			32,145
Write-down of fixed assets		—			27,500			—
Impairment of intangible asset		—			—			654,961
Gain on sale of marketable securities		—			—			(83,750	)
Change in fair value of warrant liability		(3,253,253	)		5,944,571			(6,612,092	)
Changes in operating assets and liabilities:
Other receivables		(298,734	)		39,825			(78,503	)
Trade receivables		3,606			(50,451	)		67,974
Prepaid and other current assets		801,611			22,232			495,662
Other assets		493,584			89,790			76,187
Accounts payable and accrued expenses		2,143,917			(409,333	)		130,766
Accrued wind-down expenses		(1,102,762	)		(1,032,024	)		(1,165,585	)
Deferred revenue		(24,270	)		13,389			(18,903	)
Deferred rent		435,967			85,572			1,302,543
Net cash used in operating activities		(23,322,001	)		(19,869,344	)		(22,058,283	)
Cash flows from investing activities:
Purchases of marketable debt securities		(687,798	)		(16,380,748	)		(10,188,285	)
Sales or maturities of marketable debt securities		14,430,000			5,762,000			6,905,000
Proceeds from sales of marketable equity securities		—			—			158,206
Purchases of property, plant and equipment		(4,680,796	)		(73,083	)		(296,933	)
Proceeds from sale of property, plant and equipment		38,500			—			—
Acquisition of other assets		(64,000	)		—			—
Net cash provided by (used) in investing activities		9,035,906			(10,691,831	)		(3,422,012	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		23,491,597			19,747,550			19,774,820
Proceeds from the exercise of warrants		530,097			6,256,438			—
Proceeds from the exercise of stock options		3,452			3,629			2,386
Proceeds from loan payable, net of issuance costs		13,558,358			—			—
Payments related to net share issuance of stock based awards		(342,366	)		(59,090	)		(403,625	)
Repayments of capital lease obligations		(12,396	)		(20,167	)		(67,847	)
Repayments of debt obligations		(826,465	)		(191,250	)		(176,250	)
Net cash provided by financing activities		36,402,277			25,737,110			19,129,484
Increase (decrease) in cash and cash equivalents		22,116,182			(4,824,065	)		(6,350,811	)
Cash and cash equivalents at beginning of year		8,471,275			13,311,261			19,707,821
Effects of foreign currency rate changes on cash		(2,033	)		(15,921	)		(45,749	)
Cash and cash equivalents at end of the year	$	30,585,424		$	8,471,275		$	13,311,261
Supplemental disclosure of cash flow information:
Interest paid	$	427,040		$	50,193		$	71,363
Supplemental schedule of non-cash investing and financing activities:
Fair value of 329,131 shares issued as consideration under an equity financing agreement(1)	$	600,006		$	—		$	—
Stock issued for an option agreement(2)	$	—		$	50,000		$	—
Fair value of 139,548 shares issued as consideration in the acquisition of a patent portfolio(3)	$	200,000		$	—		$	—
Equipment acquired under a capital lease(4)	$	43,600		$	21,721		$	—

67

(1) In June 2013, we entered into an agreement with an institutional investor, under which we have the right to sell up to $30.0 million of common stock to the institutional investor. In consideration for entering into the agreement, we issued 329,131 shares of our common stock to the institutional investor. We will not receive any cash proceeds from the issuance of these 329,131 shares. All shares sold or to be sold under this agreement are offered under our shelf registration statement previously filed with, and declared effective by, the SEC. In October 2013, we terminated the agreement without any cost or penalty.

(2) In September 2012, we issued 24,753 shares of restricted common stock under the terms of an agreement with a developer of biological materials in return for certain product rights including an exclusive right of first offer to commercialize the developer’s products as may be developed on or before April 18, 2017.

(3) In October, 2013, we acquired from NeuroSpheres a patent portfolio we licensed on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we issued 139,548 shares of unregistered common stock with a fair value of $200,000 to NeuroSpheres. In connection with the patent acquisition, all preexisting agreements were terminated. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres.

(4) Represents the present value of future minimum capital lease payments for equipment leased.

See Notes to Consolidated Financial Statements.

68

StemCells, Inc.

Notes to Consolidated Financial Statements

December 31, 2013

Note 1. Summary of Significant Accounting Policies

Nature of Business

StemCells, Inc., a Delaware corporation, is a biopharmaceutical company that operates in one segment, the research, development, and commercialization of cell-based therapeutics and related technologies.

The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern. Since inception, we have incurred annual losses and negative cash flows from operations and have an accumulated deficit of approximately $388 million at December 31, 2013. We have not derived significant revenue from the sale of products, and do not expect to receive significant revenue from product sales for at least several years. We may never be able to realize sufficient revenue to achieve or sustain profitability in the future.

We expect to incur additional operating losses over the foreseeable future. We have limited liquidity and capital resources and must obtain significant additional capital and other resources in order to sustain our product development efforts, to provide funding for the acquisition of technologies and intellectual property rights, preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, general and administrative expenses and other working capital requirements. We rely on our cash reserves, proceeds from equity and debt offerings, proceeds from the transfer or sale of intellectual property rights, equipment, facilities or investments, government grants and funding from collaborative arrangements, to fund our operations. Funding may not be available when needed — at all or on terms acceptable to us. If we exhaust our cash reserves and are unable to obtain adequate financing, we may be unable to meet our operating obligations and we may be required to initiate bankruptcy proceedings. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Principles of Consolidation

The consolidated financial statements include the accounts of StemCells, Inc., and our wholly-owned subsidiaries, including StemCells California, Inc., Stem Cell Sciences Holdings Ltd, and Stem Cell Sciences (UK) Ltd. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Significant estimates include the following:

• the fair value of share-based awards recognized as compensation (see Note 10, “Stock-Based Compensation”);

• valuation allowance against net deferred tax assets (see Note 18, “Income Taxes”);

• the fair value of warrants recorded as a liability (see Note 13, “Warrant Liability”); and

• the fair value of intangible assets acquired (see Note 5, “Goodwill and Other Intangible Assets”).

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Financial Instruments

Cash Equivalents and Marketable Securities

All money market and highly liquid investments with a maturity of 90 days or less at the date of purchase are classified as cash equivalents. Highly liquid investments with maturities of 365 days or less not previously classified as cash equivalents are classified as marketable securities, current. Investments with maturities greater than 365 days are classified as marketable securities, non-current. Our marketable debt and equity securities are accounted for as available-for-sale. Management determines the appropriate classification of its investments in marketable debt and equity securities at the time of purchase and reevaluates the available-for-sale designations as of each balance sheet date. These securities are carried at fair value (see Note 2, “Financial Instruments,” below), with the unrealized gains and losses reported as a component of stockholders’ equity. The cost of securities sold is based upon the specific identification method.

If the estimated fair value of a security is below its carrying value, we evaluate whether we have the intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery to the cost of the investment, and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Other-than-temporary declines in estimated fair value of all marketable securities are charged to “Other income (expense), net.”

Trade and Other Receivables

Our receivables generally consist of interest income on our financial instruments, revenue from licensing agreements and grants, revenue from product sales, and rent from our sub-lease tenants. Because dollar amounts for individual transactions related to our product sales are not material and because we have a broad customer base, we regard the associated credit risk to be minimal.

Estimated Fair Value of Financial Instruments

The estimated fair values of cash and cash equivalents, receivables, accounts payable, and the current portion of the bonds payable approximates their carrying values due to the short maturities of these instruments. The long-term portion of the bonds payable approximates its carrying value as the interest rate for the bond series approximates our current borrowing rate.

Property, Plant and Equipment

Property, plant and equipment, including those held under capital lease, are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, or the lease term if shorter, as follows:

Building and improvements	3 - 20 years
Machinery and equipment	3 - 10 years
Furniture and fixtures	3 - 10 years

Repairs and maintenance costs are expensed as incurred.

Business Combinations

The operating results of acquired companies or operations are included in our consolidated financial statements starting on the date of acquisition. Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including in-process research and development (IPR&D).

70

Goodwill and Other Intangible Assets (Patent and License Costs)

Goodwill of approximately $2,139,000 at December 31, 2013, relates to the acquisition of SCS operations. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. We test goodwill for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations, and it is possible, even likely, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. We completed our annual impairment testing during the fourth quarter of 2013, and determined that there was no impairment of goodwill.

Other intangible assets, net were approximately $1,836,000 at December 31, 2013. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In December 2011, in part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays technology, we determined that we could not predict the future cash flows from the intangible IPR&D asset related to the assays technology. Therefore, we determined that the intangible asset was impaired and wrote off the approximately $655,000 carrying value of the asset.

Prior to fiscal year 2001, we capitalized certain patent costs, which are being amortized over the estimated life of the patent and would be expensed at the time such patents are deemed to have no continuing value. Since 2001, all patent costs are expensed as incurred. License costs are capitalized and amortized over the estimated life of the license agreement.

Impairment of Long-Lived Tangible Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property, plant, and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its estimated fair market value. In 2012, we recorded a charge of approximately $28,000 to adjust the fair value of certain lab equipment we expect to dispose. No such impairment was recognized during the year 2011 and 2013.

Warrant Liability

We account for our warrants in accordance with U.S. GAAP which defines how freestanding contracts that are indexed to and potentially settled in a company’s own stock should be measured and classified. Authoritative accounting guidance prescribes that only warrants issued by us under contracts that cannot be net-cash settled, and are both indexed to and settled in our common stock, can be classified as equity. As part of both our November 2008 and November 2009 financings, we issued warrants with five year terms to purchase 1,034,483 and 400,000 shares of our common stock at $23.00 and $15.00 per share, respectively. As part of our December 2011 financing, we issued Series A Warrants with a five year term to purchase 8,000,000 shares at $1.40 per share and Series B Warrants with a ninety trading day term to purchase 8,000,000 units at $1.25 per unit. Each unit underlying the Series B Warrants consisted of one share of our common stock and one Series A Warrant. In the first and second quarter of 2012, an aggregate of 2,700,000 Series B Warrants were exercised. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. As terms of the warrants issued in 2008 and 2009, as well as the Series A and Series B Warrants, do not meet the specific

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conditions for equity classification, we are required to classify the fair value of these warrants as a liability, with subsequent changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The fair value of the warrants issued in the 2008 and 2009 financings is determined using the Black-Scholes-Merton (Black-Scholes) option pricing model and the fair value of the Series A and Series B Warrants is determined using a Monte Carlo simulation model (see Note 13, “Warrant Liability”). The fair value is affected by changes in inputs to these models including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. The use of a Monte Carlo simulation model requires input of additional assumptions including the progress of our R&D programs and its affect on potential future financings. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability. The estimated fair value of our warrant liability at December 31, 2013, was approximately $5,542,000.

Revenue Recognition

We recognize revenue resulting from licensing agreements, government grants, and product sales.

Licensing agreements — We currently recognize revenue resulting from the licensing and use of our technology and intellectual property. Such licensing agreements may contain multiple elements, such as up-front fees, payments related to the achievement of particular milestones and royalties. Revenue from up-front fees for licensing agreements that contain multiple elements are generally deferred and recognized on a straight-line basis over the term of the agreement. Fees associated with substantive at risk performance-based milestones are recognized as revenue upon completion of the scientific or regulatory event specified in the agreement, and royalties received are recognized as earned. Revenue from licensing agreements is recognized net of a fixed percentage due to licensors as royalties.

Government grants — Grant revenue from government agencies are funds received to cover specific expenses and are recognized as earned upon either the incurring of reimbursable expenses directly related to the particular research plan or the completion of certain development milestones as defined within the terms of the relevant collaborative agreement or grant.

Product sales — We currently recognize revenue from the sale of products when the products are shipped, title to the products are transferred to the customer, when no further contingencies or material performance obligations are warranted, and thereby earning the right to receive reasonably assured payments for products sold and delivered. Cost of product sales includes labor, raw materials and shipping supplies. Product sales are presented net of any sales or value-added taxes.

Research and Development Costs

Our research and development expenses consist primarily of salaries and related personnel expenses; costs associated with clinical trials and regulatory submissions; costs associated with preclinical activities such as toxicology studies; certain patent-related costs such as licensing; facilities-related costs such as depreciation; lab equipment and supplies. Clinical trial expenses include payments to vendors such as clinical research organizations, contract manufacturers, clinical trial sites, laboratories for testing clinical samples and consultants. All research and development costs are expensed as incurred.

Stock-Based Compensation

We expense the estimated fair value of our stock-based compensation awards. The estimated fair value is calculated using the Black-Scholes model. The compensation cost we record for these awards are based on their grant-date fair value as estimated and amortized over their vesting period. At the end of each reporting period we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust stock-based compensation expense accordingly. See Note 10, “Stock-Based Compensation” for further information.

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Income Taxes

When accounting for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities.

Developing our provision for income taxes and analyzing our uncertain tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, any valuation allowances that may be required for deferred tax assets.

We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on such evidence that can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:

• cumulative losses in recent years;

• income/losses expected in future years; and

• the applicable statute of limitations.

Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.

We concluded that the realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. Deferred tax liabilities related to indefinite-lived assets that cannot be used as a source of taxable income to support the realization of deferred tax assets are reported as a net deferred tax liability. We reported as a long-term liability on our balance sheet, a net deferred tax liability of approximately $118,000 that is related to an indefinite-lived intangible acquired as part of the SCS operations.

Net Loss per Share

Basic net loss per share is computed based on the weighted-average number of shares of our common stock outstanding during the period. Diluted net loss per share is computed based on the weighted-average number of shares of our common stock and other dilutive securities.

The following are the basic and dilutive net loss per share computations for the last three fiscal years:

	2013			2012			2011
Net loss	$	(26,439,159	)	$	(28,491,153	)	$	(21,328,536	)
Weighted average shares outstanding used to compute basic and diluted net loss per share		43,422,001			28,824,417			14,187,885
Basic and diluted net loss per share	$	(0.61	)	$	(0.99	)	$	(1.50	)

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Outstanding options, warrants and restricted stock units were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive for all periods presented below:

	2013		2012		2011
Outstanding options		428,258		447,359		875,498
Restricted stock units		3,326,282		1,534,200		357,541
Outstanding warrants		16,267,659		9,935,912		17,434,483
Total		20,022,199		11,917,471		18,667,522

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net losses and other comprehensive income (or “OCI”). OCI includes certain changes in stockholders’ equity that are excluded from net losses. Specifically, we include in OCI changes in unrealized gains and losses on our marketable securities and unrealized gains and losses on foreign currency translations.

The components of our accumulated OCI, as of December 31 of each year shown, are as follows:

	2013		2012
Net unrealized gain (loss) on marketable securities	$	—	$	(1,356	)
Unrealized gain on foreign currency translation		252,101		194,533
Accumulated other comprehensive income	$	252,101	$	193,177

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (FASB) issued ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, an update to Topic 740, Income Taxes. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this Update are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This update is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013. The adoption of the amended standard is not expected to have a material impact on our consolidated financial statements.

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Note 2. Financial Instruments

Cash, cash equivalents and marketable securities

The following table summarizes the fair value of our cash, cash equivalents and available-for-sale securities held in our investment portfolio:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2013
Cash	$	1,355,281	$	—	$	—		$	1,355,281
Cash equivalents (money market accounts)		29,230,143		—		—			29,230,143
Total cash, cash equivalents, and marketable securities	$	30,585,424	$	—	$	—		$	30,585,424
December 31, 2012
Cash	$	254,267	$	—	$	—		$	254,267
Cash equivalents (money market accounts)		8,217,259		—		(252	)		8,217,007
Marketable debt securities, current		13,901,782		—		(1,104	)		13,900,678
Total cash, cash equivalents, and marketable securities	$	22,373,308	$	—	$	(1,356	)	$	22,371,952

At December 31, 2013, our investments in money market accounts are through a money market fund that invests in high quality, short-term money market instruments which are classified as cash equivalents in the accompanying Consolidated Balance Sheet due to their short maturities. The investment seeks to provide the highest possible level of current income while still maintaining liquidity and preserving capital. From time to time, we carry cash balances in excess of federally insured limits. Our cash balance at December 31, 2013 includes approximately $146,000 held by our U.K. subsidiary.

We do not hold any investments that were in a material unrealized loss position as of December 31, 2013.

Note 3. Fair Value Measurement

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, we are required to apply a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. The three levels of the fair value hierarchy are:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Directly or indirectly observable inputs other than in Level 1, that include quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 — Unobservable inputs which are supported by little or no market activity that reflects the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets measured at fair value as of December 31, 2013 and 2012 are classified below based on the three fair value hierarchy tiers described above.

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Our cash equivalents are classified as Level 1 because they are valued primarily using quoted market prices.

Our bonds payable, marketable securities, and liability for warrants issued in our 2008 and 2009 financing, are classified as Level 2 as they are valued using alternative pricing sources and models utilizing market observable inputs.

We estimated the fair value of our loan payable using the net present value of the payments discounted at an effective interest rate. We believe the estimates used to measure the fair value of our loan payable constitute Level 3 inputs.

Our liability for warrants issued in our 2011 financing is classified as Level 3 as the liability is valued using a Monte Carlo simulation model. Some of the significant inputs used to calculate the fair value of warrant liability include our stock price on the valuation date, expected volatility of our common stock as traded on NASDAQ, and risk-free interest rates that are derived from the yield on U.S. Treasury debt securities, all of which are observable from active markets. However, the use of a Monte Carlo simulation model requires the input of additional subjective assumptions including management’s assumptions regarding the likelihood of a re-pricing of these warrants pursuant to anti-dilution provisions and the progress of our R&D programs and its affect on potential future financings.

The following table presents our financial assets and liabilities measured at fair value:

	Fair Value Measurement at Reporting Date Using				Unobservable Inputs (Level 3)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)				As of December 31, 2013
Financial assets
Cash equivalents:
Money market funds	$	821,335	$	—	$	—	$	821,335
U.S. Treasury debt obligations		28,408,808		—		—		28,408,808
Total financial assets	$	29,230,143	$	—	$	—	$	29,230,143
Financial liabilities
Bond obligation	$	—	$	125,000	$	—	$	125,000
Loan payable net of discounts		—		—		12,909,244		12,909,244
Warrant liabilities		—		—		5,541,810		5,541,810
Total financial liabilities	$	—	$	125,000	$	18,451,054	$	18,576,054

Level 2 Reconciliation

The following table presents a roll forward for financial assets and liabilities measured at fair value using significant other observable inputs (Level 2) for 2013.

	Level 2 Beginning Balance 12/31/12 $		Net transfers (to) from Level 1 $			Change included in earnings $			Settled $			Level 2 Ending Balance 12/31/13 $
Marketable debt securities		13,900,678		(13,900,678	)		—			—			—
Bond obligation		331,250		—			—			(206,250	)		125,000
Warrant liabilities		107,968		—			(107,968	)		—			—

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Transfers from Level 2 to Level 1 for marketable debt securities are maturities of short term marketable debt securities into cash and cash equivalents.

Level 3 Reconciliation

The following table presents a roll forward for liabilities measured at fair value using significant unobservable inputs (Level 3) for 2013.

	Warrant Liabilities
Balance at December 31, 2012	$	9,157,397
Less fair value of warrants exercised		(470,303	)
Add change in fair value of warrants		(3,145,285	)
Balance at December 31, 2013	$	5,541,809

	Loan Payable
Balance at December 31, 2012	$	—
Add loan proceeds		13,820,264
Less discount		(487,576	)
Initial carrying value	$	13,332,688
Less repayments of principal		(620,215	)
Add accretion of discount		196,771
Balance at December 31, 2013	$	12,909,244
Current portion	$	3,664,370
Non-current portion		9,244,874
Balance at December 31, 2013	$	12,909,244

Note 4. Property, Plant and Equipment

Property, plant and equipment balances at December 31 are summarized below:

	2013			2012
Building and improvements	$	6,751,393		$	3,441,192
Machinery and equipment		7,837,140			6,671,866
Furniture and fixtures		602,599			595,619
		15,191,132			10,708,677
Less accumulated depreciation and amortization		(9,886,448	)		(9,333,348	)
Property, plant and equipment, net	$	5,304,684		$	1,375,329

Depreciation and amortization expense was approximately $789,000 in 2013, $728,000 in 2012, and $842,000 in 2011.

Note 5. Goodwill and Other Intangible Assets

On April 1, 2009, we acquired the operations of Stem Cell Sciences Plc (SCS) for an aggregate purchase price of approximately $5,135,000. The acquired operations includes proprietary cell technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells; expertise and

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infrastructure for providing cell-based assays for drug discovery; a cell culture products business; and an intellectual property portfolio with claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting and insertion.

At April 1, 2009, the purchase price has been allocated as follows:

	Allocated Purchase Price		Estimated Life of Intangible Assets in Years
Net tangible assets	$	36,000
Intangible assets:
Customer relationships and developed technology		1,310,000		6 to 9
In process research and development		1,340,000		N/A
Trade name		310,000		15
Goodwill		2,139,000		N/A
Total	$	5,135,000

In-process research and development assets relate to: 1) the acquisition of certain intellectual property rights not expected to expire until 2027 related to our program focused on developing genetically engineered rat models of human disease (our “Transgenic Rat Program”); and 2) the acquisition of certain technology related to the commercialization of our SC Proven cell culture products and the development and commercialization of cell-based assay platforms for use in drug discovery and development (our “Assay Development Program”).

At the time of valuation (April 2009), our Transgenic Rat Program was in its nascent stage and our Assay Development Program was expected to achieve proof of concept by 2012. Neither program was expected to begin generating revenue until 2011-2012. In December 2011, in part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays technology, we determined that we could not predict the future cash flows from the intangible IPR&D asset related to the Assay Development Program. Therefore, at December 31, 2011, we determined that the intangible asset was impaired and wrote off the entire approximately $655,000 carrying value of the asset.

Trade name relates to the “SC Proven” trademark of our cell culture products which we expect to market for 15 years from the date of acquisition, based on which, we estimated a remaining useful life of 15 years from the valuation date.

The following table represents changes in goodwill in 2013:

Balance as of December 31, 2012	$	1,983,426
Net deferred tax liability related to indefinite lived IPR&D		117,815
Foreign currency translation		38,053
Balance as of December 31, 2013	$	2,139,294

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The components of our other intangible assets at December 31, 2013 are summarized below:

Other Intangible Asset Class	Cost		Acquisition		Impairment			Accumulated Amortization			Foreign Currency Translation		Net Carrying Amount		Weighted- Average Amortization Period
Customer relationships and developed technology	$	1,310,000	$	—	$	—		$	(876,535	)	$	156,966	$	590,431		8.0 years
In-process research and development		1,340,000		—		(654,961	)		(270,687	)		146,672		561,024		Indefinite
Trade name		310,000		—		—			(107,944	)		41,748		243,804		15.0 years
Patents		979,612		264,000		—			(803,154	)		—		440,458		17.0 years
Total other intangible assets	$	3,939,612	$	264,000	$	(654,961	)	$	(2,058,320	)	$	345,386	$	1,835,717		12.7 years

Amortization expense was approximately $269,000 in 2013, $264,000 in 2012, and $366,000 in 2011.

The expected future annual amortization expense for each of the next five years based on current balances of our intangible assets is as follows:

For the year ending December 31:
2014	$	300,434
2015	$	242,588
2016	$	215,639
2017	$	195,066
2018	$	80,851

Note 6. Other Assets

Other assets, non-current at December 31 are summarized below:

	2013		2012
Prepaid royalties	$	—	$	614,488
Security deposit (buildings and equipment lease)		413,717		332,813
Total other non-current assets	$	413,717	$	947,301

Note 7. Accounts Payable

Accounts payable at December 31 are summarized below:

	2013		2012
External services	$	863,030	$	678,813
Supplies		263,866		216,900
Other		25,007		103,652
Total accounts payable	$	1,151,903	$	999,365

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Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses at December 31 are summarized below:

	2013		2012
External services	$	1,191,048	$	900,580
Employee compensation		2,655,242		1,577,322
Other		221,626		229,539
Total accrued expenses and other current liabilities	$	4,067,916	$	2,707,441

Note 9. Other Long-Term Liabilities

	2013		2012
Accrued interest on loan payable	$	497,134	$	—
Employee compensation		186,439		216,439
Net deferred tax liability		117,815		—
Total accrued expenses and other current liabilities	$	801,388	$	216,439

Note 10. Stock-Based Compensation

We currently grant stock-based compensation under three equity incentive plans (2004, 2006 and 2013 Equity Incentive Plans) approved by the Company’s stockholders and one plan adopted in 2012 pursuant to NASDAQ Listing Rule 5635(c)(4) concerning inducement grants for new employees (our “2012 Commencement Incentive Plan”). As of December 31, 2013, we had 8,553,608 shares available to grant under the above mentioned plans. At our annual stockholders meeting held on June 12, 2007, our stockholders approved an amendment to our 2006 Equity Incentive Plan to provide for an annual increase in the number of shares of common stock available for issuance under the plan each January 1 (beginning January 1, 2008) equal to 4% of the outstanding common shares as of that date. The amendment further provided an aggregate limit of 3,000,000 shares issuable pursuant to incentive stock option awards under the plan. At our annual stockholders meeting held on December 20, 2013, our stockholders approved our 2013 Equity Incentive Plan to grant stock-based compensation of up to an initial 6,000,000 shares, plus an increase of 4% per year of the outstanding number of shares of our common stock beginning in January 1, 2015. Under the three stockholder-approved plans we may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, 401(k) Plan employer match in form of shares and performance-based shares to our employees, directors and consultants, at prices determined by our Board of Directors. Incentive stock options may only be granted to employees under these plans with a grant price not less than the fair market value on the date of grant. Under our 2012 Commencement Inducement Plan, we may only award options, restricted stock units and other equity awards to newly hired employees and newly engaged directors, in each case as allowed by NASDAQ listing requirements.

Generally, stock options and restricted stock units granted to employees have a maximum term of ten years, and vest over a four year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three-year service period. We may grant options and restricted stock units with different vesting terms from time to time. Upon employee termination of service, any unexercised vested option will be forfeited three months following termination or the expiration of the option, whichever is earlier.

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Our stock-based compensation expense for the last three fiscal years was as follows:

	2013		2012		2011
Research and development expense	$	1,219,308	$	1,280,298	$	1,680,431
General and administrative expense		1,389,362		1,597,836		1,580,506
Total stock-based compensation expense and effect on net loss	$	2,608,670	$	2,878,134	$	3,260,937

As of December 31, 2013, we have approximately $4,275,000 of total unrecognized compensation expense related to unvested awards granted under our various share-based plans that we expect to recognize over a weighted-average period of 3.0 years.

The fair value of options granted is estimated as of the date of grant using the Black-Scholes option pricing model and expensed on a pro-rata straight-line basis over the period in which the stock options vest. The Black-Scholes option pricing model requires certain assumptions as of the date of grant. The weighted-average assumptions used for the last three fiscal years are as follows:

	2013			2012			2011
Expected term (years)(1)		5.1			6.4			7.4
Risk-free interest rate(2)		1.2	%		1.4	%		2.7	%
Expected volatility(3)		89.3	%		78.4	%		79.7	%
Expected dividend yield(4)		0	%		0	%		0	%

(1) The expected term represents the period during which our stock-based awards are expected to be outstanding. We estimated this amount based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations.

(2) The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant.

(3) Expected volatility is based on historical volatility over the most recent historical period equal to the length of the expected term of the option as of the date of grant.

(4) We have neither declared nor paid dividends on any share of common stock and we do not expect to do so in the foreseeable future.

At the end of each reporting period, we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust the stock-based compensation expense accordingly.

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A summary of our stock option activity and related information for the last three fiscal years is as follows:

	Outstanding Options
	Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual  Term		Aggregate Intrinsic Value(1)
Balance at December 31, 2010		1,098,241		$	20.20		6.1	$	398,219
Granted		3,750		$	7.30
Exercised		(1,692	)	$	1.41			$	11,293
Cancelled (forfeited and expired)		(224,801	)	$	20.22
Balance at December 31, 2011		875,498		$	20.13		5.5	$	—
Granted		—
Exercised		(3,629	)	$	1.00			$	4,319
Cancelled (forfeited and expired)		(424,510	)	$	20.86
Balance at December 31, 2012		447,359		$	19.59		5.1	$	2,175
Granted		—
Exercised		(3,452	)	$	1.00			$	2,214
Cancelled (forfeited and expired)		(15,649	)	$	13.06
Balance at December 31, 2013		428,258		$	19.97		4.3	$	—
Exercisable at December 31, 2013		409,792		$	20.42		4.2	$	—
Vested and expected to vest(2)		426,027		$	20.02		4.3	$	—

(1) Aggregate intrinsic value represents the value of the closing price per share of our common stock on the last trading day of the fiscal period in excess of the exercise price multiplied by the number of options outstanding or exercisable, except for the “Exercised” line, which uses the closing price on the date exercised.

(2) Number of shares includes options vested and those expected to vest net of estimated forfeitures.

No options were granted in 2013 and 2012.The estimated weighted average fair value per share of options granted was approximately $5.31 in 2011, based on the assumptions in the Black-Scholes model discussed above. Total intrinsic value of options exercised at time of exercise was approximately $2,000 in 2013, $4,000 in 2012, and $11,000 in 2011.

The following is a summary of changes in unvested options:

Unvested Options	Number of Options			Weighted Average Grant Date Fair Value
Unvested options at December 31, 2012		64,503		$	8.67
Granted		—			—
Vested		(45,564	)	$	8.91
Cancelled		(473	)	$	7.82
Unvested options at December 31, 2013		18,466		$	8.11

The estimated fair value of options vested were approximately $406,000 in 2013, $627,000 in 2012 and $1,545,000 in 2011.

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The following table presents weighted average exercise price and remaining term information about significant option groups outstanding at December 31, 2013:

Options Outstanding at December 31, 2013
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Term (Yrs.)		Weighted Average Exercise Price		Aggregate Intrinsic Value at December 31, 2013
Less than $10.00		4,050		7.3	$	7.42	$	—
$10.00 - $19.99		250,949		5.3	$	12.65		—
$20.00 - $29.99		117,459		3.1	$	23.22		—
$30.00 - $39.99		19,800		1.9	$	36.46		—
$40.00 - $49.99		5,500		1.7	$	46.51		—
$50.00 - $59.99		30,500		1.7	$	53.94		—
		428,258		4.3	$	19.97	$	—

Vested Options Outstanding at December 31, 2013
Range of Exercise Prices	Number Outstanding		Weighted Average Exercise Price
Less than $10.00		2,677	$	7.45
$10.00 - $19.99		233,856	$	12.81
$20.00 - $29.99		117,459	$	23.22
$30.00 - $39.99		19,800	$	36.46
$40.00 - $49.99		5,500	$	46.51
$50.00 - $59.99		30,500	$	53.94
		409,792	$	20.42

Restricted Stock Units

We have granted restricted stock units (RSUs) to our directors and to certain employees which entitle the holders to receive shares of our common stock upon vesting of the RSUs. The fair value of restricted stock units granted are based upon the market price of the underlying common stock as if it were vested and issued on the date of grant.

A summary of our restricted stock unit activity for the year ended December 31, 2013 is as follows:

	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013		1,534,200		$	2.10
Granted(1)		2,421,965		$	1.80
Vested and exercised		(565,883	)	$	3.37
Cancelled		(64,000	)	$	1.61
Outstanding at December 31, 2013		3,326,282		$	1.68

(1) 11,765 of these restricted stock units vested on the date of grant. 55,000 of these restricted stock units vest and convert into shares of our common stock after one year from the date of grant. 2,355,200 of these restricted stock units vest and convert into shares of our common stock over a four year period from the date of grant: one-fourth of the award will vest on each grant date anniversary following the grant.

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Stock Appreciation Rights

In July 2006, we granted cash-settled Stock Appreciation Rights (SARs) to certain employees that give the holder the right, upon exercise, to the difference between the price per share of our common stock at the time of exercise and the exercise price of the SARs.

The SARs have a maximum term of ten years with an exercise price of $20.00, which is equal to the market price of our common stock at the date of grant. The SARs vest 25% on the first anniversary of the grant date and 75% vest monthly over the remaining three-year service period. All of the outstanding SARs as of December 31, 2013 are fully vested. Compensation expense is based on the fair value of SARs which is calculated using the Black-Scholes option pricing model.

The stock-based compensation expense and liability are re-measured at each reporting date through the earlier of date of settlement or forfeiture of the SARs.

The following is a summary of the changes in our outstanding SARs for the last three fiscal years:

	2013				2012					2011
	Number		Weighted Average Exercise Price		Number			Weighted Average Exercise Price		Number			Weighted Average Exercise Price
Outstanding at January 1,		110,593	$	20.00		115,187		$	20.00		135,409		$	20.00
Granted		—		—		—			—		—			—
Exercised		—		—		—			—		—			—
Forfeited		—				(4,594	)				(20,222	)
Outstanding at December 31,		110,593	$	20.00		110,593		$	20.00		115,187		$	20.00
Exercisable at December 31,		110,593	$	20.00		110,593		$	20.00		115,187		$	20.00

For the year ended December 31, 2013, the re-measured liability related to the SARs reduced compensation expense by approximately $11,000.The total compensation expense related to SARs was approximately $18,000 in 2012 and for the year ended December 31, 2011, the re-measured liability related to the SARs reduced compensation expense by approximately $344,000. The resulting effect on net loss and net loss per share attributable to common stockholders is not likely to be representative of the effects in future periods, due to changes in the fair value calculation which is dependent on the stock price, volatility, interest and forfeiture rates, additional grants and subsequent periods of vesting. We will continue to recognize compensation cost each period, which will be the change in fair value from the previous period through the earlier date of settlement or forfeiture of the SARs.

Note 11. Wind-down and exit costs

Rhode Island

In connection with our wind-down of our research and manufacturing operations in Lincoln, Rhode Island, and the relocation of our corporate headquarters and remaining research laboratories to California in October 1999, we provided a reserve for our exit cost obligation. The reserve was for the estimated costs of our former research and administrative facility in Lincoln, which we held on a lease that terminated on June 30, 2013. We periodically re-evaluated and adjusted the reserve after considering various factors such as our lease payments through to the end of the lease, operating expenses, the real estate market in Rhode Island, and estimated subtenant income based on actual and projected occupancy. The reserve was approximately $854,000 at March 31, 2013. In 2013, payments net of subtenant income of approximately $916,000 were recorded against this reserve and approximately $62,000 as additional wind-down expenses. We have closed this reserve as the lease and our obligations related to it terminated on June 30, 2013.

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The summary of the changes to our wind-down reserve related to this facility for 2013 and 2012 were as follows:

The components of our wind-down reserve at December 31 are as follows:

	2013			2012
Accrued wind-down reserve at beginning of period	$	854,000		$	1,683,000
Less actual expenses recorded against estimated reserve during the period		(916,000	)		(1,185,000	)
Additional expense recorded to revise estimated reserve		62,000			356,000
Revised reserve at period-end		—			854,000
Add deferred rent at period end		—			249,000
Total accrued wind-down expenses at period-end (current)	$	—		$	1,103,000

Note 12. Commitments and Contingencies

Bonds Payable

We entered into direct financing transactions with the State of Rhode Island and received proceeds from the issuance of industrial revenue bonds totaling $5,000,000 to finance the construction of Rhode Island’s pilot manufacturing facility. The related lease agreements are structured such that lease payments fully fund all semiannual interest payments and annual principal payments through maturity in August 2014. Interest rate for the remaining bond series is 9.5%. The outstanding principal was approximately $125,000 at December 31, 2013 and $331,000 at December 31, 2012. The bonds contain certain restrictive covenants which limit, among other things, the payment of cash dividends and the sale of the related assets.

Operating leases

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance, and minimum lease payments. Some of our leases have options to renew.

Operating Leases — California

In September 2010, we entered into a two-year sublease agreement with Caliper Life Sciences, Inc., for office and research space in a facility located in Mountain View, California. In June 2012, the sublease term was extended to and expired on September 30, 2013. We paid approximately $1,081,000 in aggregate as rent over the term of the lease.

In December 2010, we entered into a commercial lease agreement with BMR-Gateway Boulevard LLC (BMR), as landlord, for office and research space at BMR’s Pacific Research Center in Newark, California. The initial term of the lease is approximately eleven and one-half years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $17,869,000 in aggregate as rent over the term of the lease to BMR. Deferred rent for this facility was approximately $1,434,000 as of December 31, 2013, and approximately $1,389,000 as of December 31, 2012.

In March 2013, we entered into a commercial lease agreement with Prologis, L.P. (Prologis), as landlord, for office and research space in Sunnyvale, California. The facility is for operations that support our clinical development activities. The initial term of the lease is ten years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $3,497,000 in aggregate rent over the term of the lease. As part of the lease, Prologis has agreed to provide us financial allowances to build initial tenant improvements, subject to customary terms and conditions relating to landlord-funded tenant improvements. The tenant improvements are recorded as leasehold improvement assets and amortized over the

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term of the lease. The financial allowances are treated as a lease incentive and recorded as deferred rent which is amortized as reductions to lease expense over the lease term. Deferred rent for this facility was approximately $391,000 as of December 31, 2013.

Operating Leases — Rhode Island

We entered into a fifteen-year lease agreement for a scientific and administrative facility (SAF) in Rhode Island in connection with a sale and leaseback arrangement in 1997. The lease term expired on June 30, 2013. For the year 2013, we paid approximately $1,165,000 in operating lease payments and operating expenses net of sub-tenant income.

Operating Leases — United Kingdom

In January 2011, we amended the existing lease agreements of our wholly-owned subsidiary, Stem Cell Sciences (U.K.) Ltd, effectively reducing our leased office and lab space. The lease by its terms was extended to September 30, 2013. In October 2013, we signed a new three-year lease agreement for the leased space and expect to pay rent of approximately GBP 53,000 per annum. StemCells, Inc. is the guarantor of Stem Cell Sciences (U.K.) Ltd’s obligations under the existing lease. The lease includes an option for early termination of the lease agreement.

With the exception of the operating leases discussed above, we have not entered into any significant off balance sheet financial arrangements and have not established any special purpose entities. We have not guaranteed any debts or commitments of other entities or entered into any options on non-financial assets.

The table below summarizes the components of rent expense for the fiscal year ended December 31, as follows:

	2013			2012			2011
Rent expense	$	2,612,899		$	2,932,104		$	4,193,433
Sublease income		(53,726	)		(411,885	)		(424,847	)
Rent expense, net	$	2,559,173		$	2,520,219		$	3,768,586

Future minimum payments under all leases, bond payable and loan payable at December 31, 2013 are as follows:

	Bonds Payable		Loan(1) Payable		Capital Leases		Operating Leases
2014	$	136,852	$	4,322,035	$	24,284	$	1,917,423
2015		—		4,322,035		21,591		1,912,217
2016		—		1,440,678		9,454		1,968,459
2017		—		—		—		2,014,706
2018		—		—		—		2,061,260
Thereafter		—		—		—		8,196,910
Total minimum lease payments		136,852		10,084,748		55,329	$	18,070,975
Less amounts representing interest		11,852		704,963		4,591
Principal amounts of bond payable, loan payable and capital lease obligations		125,000		9,379,785		50,738
Less current maturities		125,000		3,857,971		20,936
Bond payable, loan payable and capital lease obligations, less current maturities	$	—	$	5,521,814	$	29,802

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(1) Approximately $3.8 million received as initial disbursement of the loan provided under the CIRM Loan Agreement is not included. In April 2013, we entered into an agreement with CIRM under which CIRM will provide up to approximately $19.3 million to help fund preclinical development and IND-enabling activities of our HuCNS-SC cells for Alzheimer’s disease. The funding is in the form of a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations, and is expected to be disbursed periodically by CIRM over the four-year project period subject to a number of preconditions, including the achievement of certain progress milestones and compliance with certain financial covenants. The loan is unsecured and the term of the loan is ten years and may be extended under certain circumstances.

Contingencies

In July 2006, we filed suit against Neuralstem, Inc. in the Federal District Court for the District of Maryland, alleging that Neuralstem’s activities violate claims in four of the patents we exclusively licensed from NeuroSpheres Holdings Ltd. and NeuroSpheres Ltd. (NeuroSpheres), specifically U.S. Patent No. 6,294,346 (claiming the use of human neural stem cells for drug screening), U.S. Patent No. 7,101,709 (claiming the use of human neural stem cells for screening biological agents), U.S. Patent No. 5,851,832 (claiming methods for proliferating human neural stem cells), and U.S. Patent No. 6,497,872 (claiming methods for transplanting human neural stem cells). In May 2008, we filed a second patent infringement suit against Neuralstem and its two founders, Karl Johe and Richard Garr. In this suit, which we filed in the Federal District Court for the Northern District of California, we allege that Neuralstem’s activities infringe claims in two patents we exclusively license from NeuroSpheres, specifically U.S. Patent No. 7,361,505 (claiming composition of matter of human neural stem cells derived from any source material) and U.S. Patent No. 7,115,418 (claiming methods for proliferating human neural stem cells). In addition, we allege various state law causes of action against Neuralstem arising out of its repeated derogatory statements to the public about our patent portfolio. Also in May 2008, Neuralstem filed suit against us and NeuroSpheres in the Federal District Court for the District of Maryland seeking a declaratory judgment that the ‘505 and ‘418 patents are either invalid or are not infringed by Neuralstem and that Neuralstem has not violated California state law. In August 2008, the California court transferred our lawsuit against Neuralstem to Maryland for resolution on the merits. In July 2009, the Maryland District Court granted our motion to consolidate these two cases with the litigation we initiated against Neuralstem in 2006. Discovery is ongoing in these cases.

In addition to the actions described above, in April 2008, we filed an opposition to Neuralstem’s European Patent No. 0 915 968 (methods of isolating, propagating and differentiating CNS stem cells), because the claimed invention is believed by us to be unpatentable over prior art, including the patents exclusively licensed by us from NeuroSpheres. In December 2010, the European Patent Office ruled that all composition claims in Neuralstem’s ‘968 European patent were invalid and unpatentable over prior art including several of the NeuroSpheres patents licensed to us. Neuralstem has appealed this decision.

In October, 2013, we acquired from NeuroSpheres a patent portfolio consisting of the patents we licensed from NeuroSpheres on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we issued 139,548 shares of unregistered common stock to NeuroSpheres. In connection with the patent acquisition, all preexisting agreements were terminated. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres.

Note 13. Warrant Liability

We use various option pricing models, such as the Black-Scholes option pricing model and a Monte Carlo simulation model, to estimate fair value of warrants issued. In using these models, we make certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions.

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Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.

In November 2008, we sold 1,379,310 units to institutional investors at a price of $14.50 per unit, for gross proceeds of $20,000,000. The units, each of which consisted of one share of common stock and a warrant to purchase 0.75 shares of common stock at an exercise price of $23.00 per share, were offered as a registered direct offering under a shelf registration statement previously filed with, and declared effective by, the SEC. We received total proceeds, net of offering expenses and placement agency fees, of approximately $18,637,000. We recorded the fair value of the warrants to purchase 1,034,483 shares of our common stock as a liability. The fair value of the warrant liability is revalued at the end of each reporting period, with the change in fair value of the warrant liability recorded as a gain or loss in our consolidated statements of operations. The fair value of the warrants will continue to be classified as a liability until such time as the warrants are exercised, expire or an amendment of the warrant agreement renders these warrants to be no longer classified as a liability.

The assumptions used for the Black-Scholes option pricing model are as follows:

	To Calculate Fair Value of Warrant Liability at December 31,
	2013			2012
Expected life (years)		0.4			1.4
Risk-free interest rate		0.1	%		0.2	%
Expected volatility		46.1	%		108.2	%
Expected dividend yield		0	%		0	%

	At December 31, 2013		At December 31, 2012		Change in Fair Value of Warrant Liability in Year 2013
Fair value of warrant liability	$	—	$	44,628	$	(44,628	)

In November 2009, we sold 1,000,000 units to institutional investors at a price of $12.50 per unit, for gross proceeds of $12,500,000. The units, each of which consisted of one share of common stock and a warrant to purchase 0.40 shares of common stock at an exercise price of $15.00 per share, were offered as a registered direct offering under a shelf registration statement previously filed with, and declared effective by, the SEC. We received total proceeds, net of offering expenses and placement agency fees, of approximately $11,985,000. We recorded the fair value of the warrants to purchase 400,000 shares of our common stock as a liability. The fair value of the warrant liability is revalued at the end of each reporting period, with the change in fair value of the warrant liability recorded as a gain or loss in our consolidated statements of operations. The fair value of the warrants will continue to be classified as a liability until such time as the warrants are exercised, expire or an amendment of the warrant agreement renders these warrants to be no longer classified as a liability.

The assumptions used for the Black-Scholes option pricing model are as follows:

	To Calculate Fair Value of Warrant Liability at
	December 31, 2013			December 31, 2012
Expected life (years)		1.3			2.3
Risk-free interest rate		0.2	%		0.3	%
Expected volatility		48.2	%		94.5	%
Expected dividend yield		0	%		0	%

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	At December 31, 2013		At December 31, 2012		Change in Fair Value of Warrant Liability in Year 2013
Fair value of warrant liability	$	—	$	63,340	$	(63,340	)

In December 2011, we raised gross proceeds of $10,000,000 through a public offering of 8,000,000 units and 8,000,000 Series B Warrants. The combination of units and Series B Warrants were sold at a public offering price of $1.25 per unit. Each Series B Warrant gave the holder the right to purchase one unit at an exercise price of $1.25 per unit and was exercisable until May 2, 2012, the 90th trading day after the date of issuance. Each unit consists of one share of our common stock and one Series A Warrant. Each Series A Warrant gives the holder the right to purchase one share of our common stock at an initial exercise price of $1.40 per share. The Series A Warrants are immediately exercisable upon issuance and will expire in December 2016. In 2012, an aggregate of 2,700,000 Series B Warrants were exercised. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. In 2012 and 2013, an aggregate of 2,198,571 and 384,534 Series A Warrants were exercised, respectively. For the exercise of these warrants, in 2012 and 2013, we issued 2,198,571 and 384,534 shares of our common stock and received gross proceeds of approximately $3,078,000 and $538,000, respectively. The shares were offered under our shelf registration statement previously filed with previously filed with, and declared effective by, the SEC.

The fair value of the warrant liability will be revalued at the end of each reporting period, with the change in fair value of the warrant liability recorded as a gain or loss in our consolidated statements of operations. The fair value of the warrants will continue to be classified as a liability until such time as the warrants are exercised, expire or an amendment of the warrant agreement renders these warrants to be no longer classified as a liability.

The assumptions used for the Monte Carlo simulation model to value the outstanding Series A Warrants at December 31, 2013 are as follows:

Risk-free interest rate per year	0.8	%
Expected volatility per year	85.2	%
Expected dividend yield	0	%
Expected life (years)	3.0

The use of the Monte Carlo simulation model requires the input of additional subjective assumptions including the progress of our R&D programs and its affect on potential future financings.

The following table is a summary of the changes in fair value of warrant liability for the Series A Warrants in 2013:

	Series A
	Number of Warrants			Fair value $
Balance at December 31, 2012		8,501,429		$	9,157,397
Less exercised		(384,534	)		(470,303	)
Changes in fair value		—			(3,145,285	)
Balance at December 31, 2013		8,116,895		$	5,541,809

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The following table is a summary of our warrant liability as of December 31, 2013:

Warrants	Number Outstanding		Exercise Price ($) per share		Fair value
Warrants issued in 2008		1,034,483		23.00	$	—
Warrants issued in 2009		400,000		15.00		—
Series A Warrants		8,116,895		1.40		5,541,809
Total		9,551,378			$	5,541,809

Note 14. Loan Payable

Loan Agreement with Silicon Valley Bank

In April 2013, we entered into a Loan Agreement with Silicon Valley Bank (SVB) and received loan proceeds of $9,900,000, net of a $100,000 cash discount. The loan proceeds will be used for research and development and general corporate purposes. The loan has a three-year term and bears interest at an annual rate of 6%. The loan obligations are secured by a first priority security interest on substantially all of our assets excluding intellectual property. For the first six months, payments will be interest only followed by repayment of principal and interest over a period of 30 months. There is also a final $1,000,000 fee payable at the end of the term which is being expensed over the term of the loan using the effective interest method. In conjunction with the Loan Agreement, we issued to SVB a ten year warrant to acquire 293,531 shares of common stock at an exercise price of $1.7034 per share. The warrant is immediately exercisable and expires in April 2023. We estimated the fair value of the warrant to be approximately $388,000 using the Black-Scholes option pricing model with the following assumptions:

Expected life (years)	10
Risk-free interest rate	1.9	%
Expected volatility	88.1	%
Expected dividend yield	0	%

We applied the relative fair value method to allocate the $9,900,000 net proceeds between the loan and warrant. The approximately $388,000 fair value allocated to the warrant was recorded as an increase to additional paid-in capital and as a discount to loan payable. Approximately $9,512,000 was assigned to the loan and was recorded as the initial carrying amount of the loan payable, net of discount. The approximately $388,000 fair value of the warrant and the $100,000 cash discount are both being amortized as additional interest expense over the term of the loan using the effective interest rate method.

We also incurred loan issuance costs of approximately $117,000, which are recorded as deferred financing costs on the accompanying consolidated balance sheet and are being amortized to interest expense over the term of the Loan Agreement using the effective interest rate method.

The effective interest rate used to amortize the deferred financing costs and the discount (including the fair value of the warrant and the cash discount), and for the accretion of the final payment, is 9.0%.

Loan Agreement with California Institute for Regenerative Medicine

In April 2013, we entered into an agreement with the California Institute for Regenerative Medicine (CIRM) (the CIRM Loan Agreement) under which CIRM will provide up to approximately $19.3 million to help fund preclinical development and IND-enabling activities of our HuCNS-SC cells for Alzheimer’s disease. This funding was awarded in September 2012 under CIRM’s Disease Team Therapy Development Award program (RFA 10-05), and the goal of the research is to file an Investigational New Drug application with the U.S. Food and Drug Administration within four years. The funding is in the form of a forgivable loan, in accordance with

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mutually agreed upon terms and conditions and CIRM regulations, and is expected to be disbursed periodically by CIRM over the four-year project period subject to a number of preconditions, including the achievement of certain progress milestones and compliance with certain financial covenants. The loan is unsecured and the term of the loan is ten years and may be extended under certain circumstances. Initially, the loan will bear interest at the one year LIBOR rate plus two percent and will increase by 1% each year after year five. Interest will accrue with the first disbursement of loan funds, but we will not begin paying interest until year six. Repayment of the principal and any accrued and unpaid interest will be due and payable at the end of the term. We can prepay the CIRM loan at our election, either in whole or in part at any time and without a prepayment fee. In addition, the loan is forgivable so that our obligation to repay will be contingent upon the success of our HuCNS-SC cells as a treatment for Alzheimer’s disease. In July 2013 and January 2014, we received approximately $3.8 million in each month as initial and subsequent disbursement respectively of the loan provided under the CIRM Loan Agreement.

The following table is a summary of the changes in the carrying value of our loan payable:

	Silicon Valley Bank Loan			CIRM Loan		Total
Loan proceeds	$	10,000,000		$	3,820,264	$	13,820,264
Cash discount		(100,000	)				(100,000	)
Fair value of warrants issued		(387,576	)		—		(387,576	)
Initial carrying value		9,512,424			3,820,264		13,332,688
Repayment of principal		(620,215	)		—		(620,215	)
Accretion of discount		196,771			—		196,771
Carrying value of loan payable at 12/31/2013 (current and non-current)	$	9,088,980		$	3,820,264	$	12,909,244
Carrying value of loan payable, current portion	$	3,664,370		$	—	$	3,664,370
Carrying value of loan payable, non-current portion		5,424,610			3,820,264		9,244,874
Total loan payable at 12/31/2013	$	9,088,980		$	3,820,264	$	12,909,244

Note 15. Common Stock

In December 2013, at our 2013 Annual Meeting of Stockholders, the proposal to amend our Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 225,000,000 was approved. We have neither declared nor paid dividends on any share of common stock and do not expect to do so in the foreseeable future.

Sale of common stock

Major transactions involving our common stock for the last three years include the following:

• In October 2013, we sold a total of 12,845,500 units in an underwritten public offering at a price of $1.45 per unit and received total proceeds, net of offering expenses, underwriting discounts and commissions, of approximately $17.3 million. Each unit sold consisted of one share of common stock, par value $.01 per share, and a warrant to purchase one-half share of common stock. The warrants have an exercise price of $1.80 per share, are exercisable immediately, and will expire five years from the date of issuance.

• In June 2013, we entered into an agreement with an institutional investor, under which we have the right to sell up to $30.0 million of our common stock to the institutional investor. Proceeds from the

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sale of our common stock will be used for general corporate purposes. Under the terms of the agreement, we immediately sold 1,645,639 in shares of our common stock to the institutional investor at a purchase price of $1.823 per share, which was the volume-weighted average price of the prior ten trading days, and received gross proceeds of $3.0 million. In consideration for entering into the agreement, we issued 329,131 shares of our common stock to the institutional investor. We did not receive any cash proceeds from the issuance of these 329,131 shares. Under this agreement, we have the right for a period of three years and at our sole discretion, to sell additional amounts up to $27.0 million of our common stock to the institutional investor subject to certain limitations. No warrants were issued in connection with this transaction. All shares were sold under our shelf registration statement previously filed with, and declared effective by, the SEC. In October 2013, we terminated the agreement without any cost or penalty.

• In 2013, we sold an aggregate of 1,733,771 shares of our common stock at an average price per share of $1.91 for gross proceeds of approximately $3,317,000. These sales were made under a sales agreement entered into in June 2009 (2009 sales agreement) and the sales agent was paid compensation equal to 3% of gross proceeds pursuant to the terms of the agreement. The shares were offered under our shelf registration statement previously filed with, and declared effective by, the SEC.

• In 2013, an aggregate of 384,534 Series A Warrants were exercised. For the exercise of these warrants, we issued 384,534 shares of our common stock and received gross proceeds of approximately $538,000.

• In 2012, we sold an aggregate of 9,647,471 shares of our common stock at an average price per share of $2.12 for gross proceeds of approximately $20,452,000. These sales were made under the 2009 sales agreement and the sales agent was paid compensation equal to 3% of gross proceeds pursuant to the terms of the agreement. The shares were offered under our shelf registration statement previously filed with, and declared effective by, the SEC.

• In 2012, an aggregate of 2,700,000 Series B Warrants were exercised and we received gross proceeds of $3,375,000. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants.

• In 2012, an aggregate of 2,198,571 Series A Warrants were exercised. For the exercise of these warrants, we issued 2,198,571 shares of our common stock and received gross proceeds of approximately $3,078,000.

• In December 2011, we raised gross proceeds of $10 million through a public offering of 8,000,000 Units and 8,000,000 Series B Warrants. The combination of Units and Series B Warrants were sold at a public offering price of $1.25 per Unit. Each Series B Warrant gave the holder the right to purchase one Unit at an exercise price of $1.25 per Unit and was exercisable until May 2, 2012, the 90th trading day after the date of issuance. Each Unit consists of one share of our common stock and one Series A Warrant. Each Series A Warrant gives the holder the right to purchase one share of our common stock at an initial exercise price of $1.40 per share. The Series A Warrants are immediately exercisable upon issuance and will expire on the fifth anniversary of the closing date of the initial financing transaction in December 2011. The shares were offered under our effective shelf registration statement previously filed with, and declared effective by, the SEC.

• In January 2011, we sold 1,000,000 shares of our common stock to selected institutional investors at a price of $10.00 per share. We received net proceeds, after deducting offering expenses and fees, of approximately $9,400,000. The investors were also granted an option to purchase an additional 6,000,000 shares at $10.00 per share. The option was not exercised and expired on February 18, 2011. The shares were offered under a shelf registration previously filed with, and declared effective by, the SEC.

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• In 2011, we sold a total of 525,116 shares of our common stock under the 2009 sales agreement at an average price per share of $2.47 for gross proceeds of approximately $1,297,000. The sales agent is paid compensation equal to 3.0% of gross proceeds pursuant to the terms of the agreement. The shares were offered under a shelf registration previously filed with, and declared effective by, the SEC.

Stock Issued For Technology Licenses

In October 2013, we acquired from NeuroSpheres a patent portfolio we licensed on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we issued 139,548 shares of unregistered common stock with a fair value of $200,000 to NeuroSpheres. In connection with the patent acquisition, all preexisting agreements were terminated. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres

Common Stock Reserved

We reserved the following shares of common stock for the exercise of options, warrants and other contingent issuances of common stock, as of December 31, 2013:

Shares reserved for share based compensation	12,308,148
Shares reserved for warrants related to financing transactions	16,267,659
Total	28,575,807

Note 16. Deferred Revenue

Deferred revenue includes unamortized upfront licensing fees received of approximately $107,000 and prepaid orders for our SC Proven products of approximately $23,000. The up-front license fee is being amortized and recognized as revenue over a period of twelve years. Revenue from sale of our SC Proven products is recognized when shipped.

Note 17. 401(k) Plan

Our 401(k) Plan covers substantially all of our employees. Participants in the plan are permitted to contribute a fixed percentage of their total annual cash compensation to the plan (subject to the maximum employee contribution defined by law). We match 50% of employee contributions, up to a maximum of 6% of each employee’s eligible compensation in the form of shares of our common stock. We recorded an expense of $132,000 in 2013, $130,000 in 2012, and $165,000 in 2011 for our contributions under our 401(k) Plan.

Note 18. Income Taxes

Loss before income taxes is attributed to the following geographic locations for the years ended December 31,

	2013		2012
United States	$	26,080,000	$	28,356,000
Foreign		359,000		133,000
Total loss before income taxes	$	26,439,000	$	28,489,000

We follow authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold a tax position is required to meet before being recognized in the financial statements. As of December 31, 2013 and 2012, we have not recorded any unrecognized tax benefits. Deferred income taxes reflect

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the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities at December 31 are as follows:

	2013			2012
Deferred tax assets:
Capitalized research and development costs	$	59,426,000		$	53,824,000
Net operating losses		56,906,000			53,687,000
Research and development credits		8,931,000			7,777,000
Accrued wind down cost		—			292,000
Stock-based compensation		1,063,000			853,000
Capital loss carryover		541,000			544,000
Fixed assets		452,000			430,000
Other		1,289,000			1,002,000
		128,608,000			118,409,000
Valuation allowance		(128,315,000	)		(118,045,000	)
Total deferred tax assets	$	293,000		$	364,000
Deferred tax liability:
Intangible assets		(293,000	)		(364,000	)
Total deferred tax liability	$	(293,000	)	$	(364,000	)
Net deferred tax assets	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $10,270,000 in 2013 and by approximately $864,000 in 2012.

As of December 31, 2013, we had the following:

• Net operating loss carry forwards for federal income tax purposes of approximately $154,541,000 which expire in the years 2018 through 2033. This includes $1,792,000 of excess deductions from the exercise of stock options, the benefit of which will be recorded in additional paid-in-capital when realized

• Federal research and development tax credits of approximately $5,656,000 which expire in the years 2018 through 2033.

• Net operating loss carry forwards for state income tax purposes of approximately $43,747,000 which expire in the years 2014 through 2033. This includes $1,362,000 of excess deductions from the exercise of stock options, the benefit of which will be recorded in additional paid-in-capital when realized.

• State research and development tax credits of approximately $4,962,000 ($3,275,000 net of federal tax effect) which do not expire.

• Net operating loss carry forwards in foreign jurisdictions of approximately $11,896,000 which do not expire.

• Capital loss carry forwards for federal and state income tax purposes of $1,592,000 which expire in the years 2014 through 2016.

Utilization of the federal and state net operating loss and federal and state research and development tax credit carry forwards may be subject to annual limitations due to the ownership percentage change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the inability

94

to fully offset future annual taxable income and could result in the expiration of the net operating loss carry forwards before utilization. Utilization of foreign net operating loss carry forwards may be limited or disallowed under similar foreign income tax provisions.

The effective tax rate as a percentage of income before income taxes differs from the statutory federal income tax rate (when applied to income before income taxes) for the years ended December 31 as follows:

	2013			2012			2011
Statutory federal income tax (benefit) rate		(34	)%		(34	)%		(34	)%
State income tax (benefit) rate		—			(3.3	)		(3.4	)
Increase resulting from:
Expenses not deductible for taxes		0.5			8.8			(6.7	)
Increase in valuation allowance		38.8			3.7			32.8
Change in state deferred tax rate		1.1			17.7			0
Change in foreign deferred tax rate		0.9			1.8			0
Expiration of tax attributes		0.5			5.3			11.3
Prior year true up		(0.7	)		—			—
Tax credits		(3.0	)		—			—
Warrant valuation		(4.1	)		—			—
Effective tax (benefit) rate		0	%		0	%		0	%

We did not have any unrecognized tax benefits at December 31, 2013. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. Because we have no tax liabilities, no tax-related interest and penalties have been expensed in our consolidated statements of operations during 2013 or accrued as a liability in our consolidated balance sheets at December 31, 2013. We do not anticipate any significant changes to total unrecognized tax benefits as a result of settlement of audits or the expiration of statute of limitations within the next twelve months.

We file U.S. federal income tax returns, as well as tax returns with the State of California and the State of Rhode Island. Due to the carry forward of unutilized net operating losses and research and development credits, our federal tax returns from 1998 forward remain subject to examination by the Internal Revenue Service, and our State of California tax returns from 2001 forward and our State of Rhode Island tax returns from 2009 forward remain subject to examination by the respective state tax authorities. We file income tax returns in various foreign jurisdictions. Tax years from 2007 forward remain subject to examination by the appropriate foreign governmental agencies.

95

Note 19. Accumulated Other Comprehensive Income

The following table sets forth the changes in accumulated other comprehensive loss by component for the year ended December 31, 2013:

	Unrealized Gain (loss) on Other Available-for-Sale Securities			Foreign Currency Translation		Total
Beginning balance	$	(1,356	)	$	194,533	$	193,177
Other comprehensive income before reclassifications		1,356			57,568		58,924
Amounts reclassified from accumulated other comprehensive loss		—			—		—
Net current-period other comprehensive income (loss)		1,356			57,568		58,924
Ending balance	$	—		$	252,101	$	252,101

*****

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QUARTERLY FINANCIAL DATA (unaudited)

	2013 Quarter Ended
	December 31		September 30		June 30		March 31
	(In thousands, except per share amounts)
Total revenue	$	313	$	325	$	282	$	284
Cost of Sales		86		86		78		67
Operating expenses		9,697		6,895		6,425		6,475
Other income (expense), net(1)		2,508		(536)		353		(159)
Net loss		(6,962)		(7,192)		(5,869)		(6,416)
Basic and diluted net loss per share	$	(0.13)	$	(0.17)	$	(0.15)	$	(0.17)

	2012 Quarter Ended
	December 31		September 30		June 30		March 31
	(In thousands, except per share amounts)
Total revenue	$	211	$	264	$	249	$	644
Cost of Sales		55		72		64		72
Operating expenses		6,949		5,269		5,534		5,898
Other income (expense), net(1)		4,034		(11,260)		6,183		(4,903)
Net income (loss)		(2,758)		(16,337)		833		(10,229)
Basic and diluted net income (loss) per share	$	(0.07)	$	(0.54)	$	0.03	$	(0.45)

(1) Other expense, net, for 2013 and 2012, includes the change in fair value of our warrant liability — see Note 13.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective.

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s management, including its principal executive officer and principal financial officer, assessed the effectiveness of its internal control over financial reporting based on the framework issued

97

by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The evaluation of the design and operating effectiveness of internal control over financial reporting include among others those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

During the fiscal year 2013, the Company periodically tested the design and operating effectiveness of its internal control over financial reporting. Among other matters, the Company sought in its evaluation to determine whether there were any “significant deficiencies” or “material weakness” in its internal control over financial reporting, or whether it had identified any acts of fraud involving management or other employees.

Based on the above evaluation, the Company’s chief executive officer and chief financial officer have concluded that as of December 31, 2013, the Company’s internal control over financial reporting were effective. Nonetheless, it is important to acknowledge that due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Item 9B. Other Information

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers

Below are the name, age and principal occupations for the last five years of each executive officer of StemCells, Inc., as of February 28, 2014. All such persons have been elected to serve until their successors are elected and qualified or until their earlier resignation or removal.

Martin M. McGlynn, President and Chief Executive Officer	67	Martin M. McGlynn joined the company in January 2001, when he was appointed President and Chief Executive Officer of the company and of its wholly-owned subsidiary, StemCells California, Inc. He was elected to the Board of Directors in February 2001.
Gregory Schiffman, Chief Financial Officer and Executive Vice President, Finance	56	Gregory Schiffman joined the company in January 2014 as Chief Financial Officer and Executive Vice President, Finance. He is responsible for functions that include Finance, Information Technology and Investor Relations. Mr. Schiffman was Executive Vice President and CFO of Dendreon Corporation since 2007, prior to which he served as Controller of Hewlett Packard’s European P.C. manufacturing and distribution operations in Grenoble, France, and as manufacturing manager and controller of its Netmetrix Division.
Ann Tsukamoto, Ph.D. Executive Vice President, Scientific and Strategic Alliances	61	Ann Tsukamoto, Ph.D., joined the company in November 1997 as Senior Director of Scientific Operations; was appointed Vice President, Scientific Operations in June 1998; Vice President, Research and Development in February 2002; and Chief Operating Officer, with responsibility for the company’s research and development efforts, in November 2006. In October 2008, Dr. Tsukamoto was appointed to the newly created position of Executive Vice President, Research and Development with responsibility for the Company’s scientific and clinical development programs.

99

Stewart Craig, Ph.D. Executive Vice President, Manufacturing Operations and Regulatory Affairs	52	Stewart Craig, Ph.D., joined the company in September 2008 with responsibilities for Development, Manufacturing, Regulatory, Quality Systems and Facilities. From 2005 to 2008, Dr. Craig was Chief Technology Officer and Vice President of Progenitor Cell Therapy, a contract services provider for research, development, manufacture and commercialization of cell-based therapies, prior to which he has held executive positions at Xcyte Therapies, Osiris Therapeutics and SyStemix.
Kenneth Stratton General Counsel	45	Kenneth Stratton joined the company in February 2007 as General Counsel, with responsibility for corporate compliance and legal affairs. In March 2008, he assumed responsibilities for the Human Resources function. Prior to StemCells, Mr. Stratton served as Deputy General Counsel for Threshold Pharmaceuticals and as Senior Legal Counsel for Medtronic’s Vascular business unit.

Directors

Below are the name, age and principal occupations for the last five years of each Director of StemCells, Inc., as of February 28, 2013. Directors are elected to staggered three year terms.

Eric H. Bjerkholt	54	Eric H. Bjerkholt was elected to the Board of Directors in March 2004. He joined Sunesis Pharmaceuticals, Inc., in 2004 as Senior Vice President and Chief Financial Officer. Since February 2007, he has served as Senior Vice President, Corporate Development and Finance, and Chief Financial Officer. From 2002 to 2004, Mr. Bjerkholt was Senior Vice President and Chief Financial Officer at IntraBiotics Pharmaceuticals, Inc.
R. Scott Greer	55	Mr. Greer was elected to the Board of Directors in June 2010. He is currently a Principal and Managing Director of Numenor Ventures LLC which he founded in 2002.
Ricardo B. Levy, Ph.D.	69	Ricardo B. Levy, Ph.D. was elected to the Board of Directors in September 2001. He currently serves on several boards of directors.
Martin M. McGlynn	67	Martin M. McGlynn was elected to the Board of Directors in February 2001. He is President and Chief Executive Officer of the Company, a position he has held since January 2001.

100

John J. Schwartz, Ph.D.	78	John J. Schwartz, Ph.D., was elected to the Board of Directors in December 1998 and was elected Chairman of the Board at the same time. He is currently President of Quantum Strategies Management Company.
Irving Weissman, M.D.	74	Irving L. Weissman, M.D., was elected to the Board of Directors in September 1997. He is the Virginia and Daniel K. Ludwig Professor of Cancer Research, Professor of Pathology and Professor of Developmental Biology at Stanford and the Director of the Institute of Stem Cell Biology and Regenerative Medicine at Stanford.

Certain other information required by this Item regarding our officers, directors, and corporate governance is incorporated herein by reference to the information appearing under the headings “Information About Our Directors” and “Information About Ownership of Our Common Stock” in our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 2014.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from Item 5 of this Annual Report on Form 10-K and our Proxy Statement for the 2014 Annual Meeting of Stockholders.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference from Item 5 of this Annual Report on Form 10-K and from our Proxy Statement for the 2014 Annual Meeting of Stockholders.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference from our Proxy Statement for the 2014 Annual Meeting of Stockholders.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated by reference from our Proxy Statement for the 2014 Annual Meeting of Stockholders.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are included as part of this Annual Report on Form 10-K.

(1) Financial Statements.

The financial statements filed as part of this Report are listed and indexed under Item 8 above.

(2) Financial Statement Schedules.

Schedules are not included herein because they are not applicable or the required information appears in the Financial Statements or Notes thereto.

(3) Exhibits.

The documents set forth below are filed herewith or incorporated by reference to the location indicated.

Exhibit No.	Title or Description
3.1	Restated Certificate of Incorporation of the Registrant(1)
3.2	Amended and Restated By-Laws of the Registrant(2)
4.1	Specimen Common Stock Certificate(3)
4.2	Form of Warrant Certificate issued to certain purchasers of the Registrant’s common stock in November 2008(4)
4.3	Form of Warrant Certificate issued to certain purchasers of the Registrant’s common stock in November 2009(5)
4.4	Form of Series A Warrant issued to certain purchasers of the Registrant’s common stock in December 2011(6)
10.1	Form of at-will Employment Agreement between the Registrant and most of its employees(7)
10.2	Form of Agreement for Consulting Services between the Registrant and the members of its Scientific Advisory Board(8)
10.3 #	Cytotherapeutics, Inc. 1992 Equity Incentive Plan(8)
10.4 #	1992 Stock Option Plan for Non-Employee Directors(8)
10.5	Lease Agreement, dated as of August 1, 1992, between the Registrant and the Rhode Island Industrial Facilities Corporation(9)
10.6	First Amendment to Lease Agreement, dated as of September 15, 1994, between Registrant and the Rhode Island Industrial Facilities Corporation(9)
10.7	Consulting Agreement, dated as of September 25, 1997, between Dr. Irving Weissman and the Registrant(10)
10.8	StemCells, Inc. 1996 Stock Option Plan(11)
10.9 #	Letter Agreement, dated January 2, 2001, between the Registrant and Martin McGlynn(12)
10.10 #	2001 Equity Incentive Plan(13)
10.11 #	StemCells, Inc. Amended and Restated 2004 Equity Incentive Plan(14)

102

Exhibit No.	Title or Description
10.12 &	License Agreement, dated as of July 1, 2005, between the Registrant and ReNeuron Limited(15)
10.13 #	Letter Agreement, effective as of February 2, 1998, between the Registrant and Ann Tsukamoto(16)
10.14 #	Memorandum of Agreement, effective as of July 17, 2000, between the Registrant and Ann Tsukamoto(16)
10.15 #	Letter Agreement, effective as of July 24, 2008, between the Registrant and Stewart Craig(16)
10.16 #	Letter Agreement, effective as of February 2, 2007, between the Registrant and Kenneth B. Stratton(16)
10.17 #	Letter Agreement, effective as of August 6, 2009, between the Registrant and Kenneth B. Stratton(16)
10.18 &	License Agreement, dated as of January 31, 2006, between Stem Cell Sciences (Australia) Pty Limited and The University of Edinburgh(16)
10.19	Lease agreement, dated December 2, 2010, between the Registrant and BMR-Gateway Boulevard LLC(17)
10.20 #	StemCells, Inc. Director’s Fee Plan(18)
10.21 #	Form of equity award under Registrant’s 2012 Commencement Incentive Plan(19)
10.22 #	Amended and Restated 2006 Equity Incentive Plan of StemCells, Inc.(20)
10.23 &	Loan and Security Agreement, dated April 8, 2013, between the Registrant and Silicon Valley Bank(21)
10.24 &	Loan Agreement, dated April 9, 2013, between the Registrant and the California Institute for Regenerative Medicine(21)
10.25 &	Notice of Loan Award, effective as of April 10, 2013, between the Registrant and the California Institute for Regenerative Medicine(21)
10.26 #	2013 Equity Incentive Plan(22)
10.27 *	Lease agreement, dated March 20, 2013, between the Registrant and Prologis L.P.
10.28 *#	Letter Agreement, dated June 5, 2013, between the Registrant and Ann Tsukamoto
10.29 *#	Letter Agreement, dated November 13, 2013, between the Registrant and Gregory Schiffman
21*	Subsidiaries of the Registrant
23.1*	Consent of Grant Thornton, LLP, Independent Registered Public Accounting Firm
31.1*	Certification Pursuant to Securities Exchange Act Rule 13(a)-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Martin McGlynn, Chief Executive Officer)
31.2*	Certification Pursuant to Securities Exchange Act Rule 13(a)-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Gregory Schiffman, Chief Financial Officer)
32.1**	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Martin McGlynn, Chief Executive Officer)
32.2**	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Gregory Schiffman, Chief Financial Officer)

103

Exhibit No.	Title or Description
101.1**	The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

# Indicates management compensatory plan, contract or arrangement.

& Confidential treatment requested as to certain portions. Material has been omitted and separately filed with the Commission.

* Filed herewith.

** Furnished herewith.

(1) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and filed on March 15, 2007.

(2) Incorporated by reference to the Registrant’s current report on Form 8-K filed on May 7, 2007.

(3) Incorporated by reference to the Registrant’s Registration Statement on Form S-3, File No. 333-151891.

(4) Incorporated by reference to the Registrant’s current report on Form 8-K filed on November 12, 2008.

(5) Incorporated by reference to the Registrant’s current report on Form 8-K filed on October 28, 2009.

(6) Incorporated by reference to the Registrant’s current report on Form 8-K filed on December 16, 2011.

(7) Incorporated by reference to the Registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2008 and filed on March 16, 2009.

(8) Incorporated by reference to the Registrant’s Registration Statement on Form S-1, File No. 33-45739.

(9) Incorporated by reference to the Registrant’s Registration Statement on Form S-1, File No. 33-85494.

(10) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and filed on November 14, 1997.

(11) Incorporated by reference to the Registrant’s Registration Statement on Form S-8, File No. 333-37313.

(12) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and filed on April 2, 2001.

(13) Incorporated by reference to the Registrant’s definitive proxy statement filed May 1, 2001.

(14) Incorporated by reference to the Registrants Registration Statement on Form S-8, File No. 333-118263.

(15) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.

(16) Incorporated by reference to the Registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2009 and filed on March 11, 2010.

(17) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and filed on March 11, 2011.

(18) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and filed on March 15, 2012.

(19) Incorporated by reference to the Registrant’s Registration Statement on Form S-8, File No. 333-183712.

(20) Incorporated by reference to the Registrant’s Registration Statement on Form S-8, File No. 333-144747.

(21) Incorporated by reference to the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012 and filed on October 11, 2013.

(22) Incorporated by reference to the Registrant’s definitive proxy statement filed October 31, 2013.

104

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

STEMCELLS, INC.
By:	/s/ MARTIN MCGLYNN
	Martin McGlynn
	PRESIDENT AND CHIEF EXECUTIVE OFFICER

Dated: March 13, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/ MARTIN MCGLYNN Martin McGlynn	President and Chief Executive Officer and Director (principal executive officer)	March 13, 2014
/s/ GREGORY SCHIFFMAN Gregory Schiffman	Chief Financial Officer (principal financial officer)	March 13, 2014
/s/ GEORGE KOSHY George Koshy	Chief Accounting Officer (principal accounting officer)	March 13, 2014
/s/ ERIC BJERKHOLT Eric Bjerkholt	Director	March 13, 2014
/s/ R. SCOTT GREER R. Scott Greer	Director	March 13, 2014
/s/ RICARDO B. LEVY, PH.D. Ricardo B. Levy, Ph.D.	Director	March 13, 2014
/s/ JOHN J. SCHWARTZ, PH.D. John J. Schwartz, Ph.D.	Director, Chairman of the Board	March 13, 2014
/s/ IRVING L. WEISSMAN, M.D. Irving L. Weissman, M.D.	Director	March 13, 2014

105

Exhibit Index

Exhibit No.	Title or Description
3.1	Restated Certificate of Incorporation of the Registrant(1)
3.2	Amended and Restated By-Laws of the Registrant(2)
4.1	Specimen Common Stock Certificate(3)
4.2	Form of Warrant Certificate issued to certain purchasers of the Registrant’s common stock in November 2008(4)
4.3	Form of Warrant Certificate issued to certain purchasers of the Registrant’s common stock in November 2009(5)
4.4	Form of Series A Warrant issued to certain purchasers of the Registrant’s common stock in December 2011(6)
10.1	Form of at-will Employment Agreement between the Registrant and most of its employees(7)
10.2	Form of Agreement for Consulting Services between the Registrant and the members of its Scientific Advisory Board(8)
10.3 #	Cytotherapeutics, Inc. 1992 Equity Incentive Plan(8)
10.4 #	1992 Stock Option Plan for Non-Employee Directors(8)
10.5	Lease Agreement, dated as of August 1, 1992, between the Registrant and the Rhode Island Industrial Facilities Corporation(9)
10.6	First Amendment to Lease Agreement, dated as of September 15, 1994, between Registrant and the Rhode Island Industrial Facilities Corporation(9)
10.7	Consulting Agreement, dated as of September 25, 1997, between Dr. Irving Weissman and the Registrant(10)
10.8	StemCells, Inc. 1996 Stock Option Plan(11)
10.9 #	Letter Agreement, dated January 2, 2001, between the Registrant and Martin McGlynn(12)
10.10 #	2001 Equity Incentive Plan(13)
10.11 #	StemCells, Inc. Amended and Restated 2004 Equity Incentive Plan(14)
10.12 &	License Agreement, dated as of July 1, 2005, between the Registrant and ReNeuron Limited(15)
10.13 #	Letter Agreement, effective as of February 2, 1998, between the Registrant and Ann Tsukamoto(16)
10.14 #	Memorandum of Agreement, effective as of July 17, 2000, between the Registrant and Ann Tsukamoto(16)
10.15 #	Letter Agreement, effective as of July 24, 2008, between the Registrant and Stewart Craig(16)
10.16 #	Letter Agreement, effective as of February 2, 2007, between the Registrant and Kenneth B. Stratton(16)
10.17 #	Letter Agreement, effective as of August 6, 2009, between the Registrant and Kenneth B. Stratton(16)
10.18 &	License Agreement, dated as of January 31, 2006, between Stem Cell Sciences (Australia) Pty Limited and The University of Edinburgh(16)
10.19	Lease agreement, dated December 2, 2010, between the Registrant and BMR-Gateway Boulevard LLC(17)

106

Exhibit No.	Title or Description
10.20 #	StemCells, Inc. Director’s Fee Plan(18)
10.21 #	Form of equity award under Registrant’s 2012 Commencement Incentive Plan(19)
10.22 #	Amended and Restated 2006 Equity Incentive Plan of StemCells, Inc.(20)
10.23 &	Loan and Security Agreement, dated April 8, 2013, between the Registrant and Silicon Valley Bank(21)
10.24 &	Loan Agreement, dated April 9, 2013, between the Registrant and the California Institute for Regenerative Medicine(21)
10.25 &	Notice of Loan Award, effective as of April 10, 2013, between the Registrant and the California Institute for Regenerative Medicine(21)
10.26 #	2013 Equity Incentive Plan(22)
10.27 *	Lease agreement, dated March 20, 2013, between the Registrant and Prologis L.P.
10.28 *#	Letter Agreement, dated June 5, 2013, between the Registrant and Ann Tsukamoto
10.29 *#	Letter Agreement, dated November 13, 2013, between the Registrant and Gregory Schiffman
21*	Subsidiaries of the Registrant
23.1*	Consent of Grant Thornton, LLP, Independent Registered Public Accounting Firm
31.1*	Certification Pursuant to Securities Exchange Act Rule 13(a)-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Martin McGlynn, Chief Executive Officer)
31.2*	Certification Pursuant to Securities Exchange Act Rule 13(a)-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Gregory Schiffman, Chief Financial Officer)
32.1**	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Martin McGlynn, Chief Executive Officer)
32.2**	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Gregory Schiffman, Chief Financial Officer)
101.1**	The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

# Indicates management compensatory plan, contract or arrangement.

& Confidential treatment requested as to certain portions. Material has been omitted and separately filed with the Commission.

* Filed herewith.

** Furnished herewith.

(1) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and filed on March 15, 2007.

(2) Incorporated by reference to the Registrant’s current report on Form 8-K filed on May 7, 2007.

(3) Incorporated by reference to the Registrant’s Registration Statement on Form S-3, File No. 333-151891.

(4) Incorporated by reference to the Registrant’s current report on Form 8-K filed on November 12, 2008.

(5) Incorporated by reference to the Registrant’s current report on Form 8-K filed on October 28, 2009.

(6) Incorporated by reference to the Registrant’s current report on Form 8-K filed on December 16, 2011.

(7) Incorporated by reference to the Registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2008 and filed on March 16, 2009.

(8) Incorporated by reference to the Registrant’s Registration Statement on Form S-1, File No. 33-45739.

107

(9) Incorporated by reference to the Registrant’s Registration Statement on Form S-1, File No. 33-85494.

(10) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and filed on November 14, 1997.

(11) Incorporated by reference to the Registrant’s Registration Statement on Form S-8, File No. 333-37313.

(12) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and filed on April 2, 2001.

(13) Incorporated by reference to the Registrant’s definitive proxy statement filed May 1, 2001.

(14) Incorporated by reference to the Registrants Registration Statement on Form S-8, File No. 333-118263.

(15) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.

(16) Incorporated by reference to the Registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2009 and filed on March 11, 2010.

(17) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and filed on March 11, 2011.

(18) Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and filed on March 15, 2012.

(19) Incorporated by reference to the Registrant’s Registration Statement on Form S-8, File No. 333-183712.

(20) Incorporated by reference to the Registrant’s Registration Statement on Form S-8, File No. 333-144747.

(21) Incorporated by reference to the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012 and filed on October 11, 2013.

(22) Incorporated by reference to the Registrant’s definitive proxy statement filed October 31, 2013.

108

EX-10.27

Exhibit 10.27

[Net Lease]

LEASE AGREEMENT

THIS LEASE AGREEMENT is made this 20th day of March, 2013, between Prologis, L.P., a Delaware limited partnership (“Landlord”), and the Tenant named below.

Tenant:	StemCells, Inc., a Delaware corporation
Tenant’s Representative, Address, and Telephone:	Stewart Craig, Ph.D. 7707 Gateway Boulevard, Suite 140 Newark, California 94560
	(510) 456-4000
	With a copy of any written correspondence to Tenant’s General Counsel at the same address.
Premises:	That portion of the Building, containing approximately 18,700 rentable square feet, commonly known as XXXXX, Sunnyvale, California 94089, as shown on Exhibit A-1 and Exhibit A-2.
Project:	The project commonly known as Prologis Sunnyvale, consisting of 2 buildings, including the Building and the building located and addressed at XXXXX, Sunnyvale, California 94089, as shown on Exhibit A-2, and the land upon which the above referenced buildings are situated, together with any other improvements used in connection therewith.
Building:	Humboldt Business Center
	XXXXX
	Sunnyvale, California 94089-1300
	(sba04901)
Tenant’s Proportionate Share of Project:	26.09 % (18,700 / 71,680 SF)
Tenant’s Proportionate Share of Building:	40.48 % (18,700 / 46,200 SF)
Lease Term:	Beginning on the Commencement Date and ending on the last day of the 120th full month following the Commencement Date.
Commencement Date:	March 31, 2013
Rent Commencement Date:	April 1, 2013, subject to adjustment for Landlord Delay as provided in Paragraph 12 below.
Termination Date:	March 31, 2023
Initial Monthly Base Rent:	See Addendum 1
Initial Estimated Monthly Operating Expense Payments: (estimates only and subject to adjustment to actual costs and expenses according to the provisions of this Lease)	1. Common Area Charges: 2. Taxes: 3. Insurance: 4. Management Fee:	$1,192.57 $2,756.23 $296.12 $909.75
Initial Estimated Monthly Operating Expense Payments:	$5,154.67
Initial Monthly Base Rent, and Estimated Operating Expense:	$31,334.67

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Security Deposit:	Initially $120,000.00, as further amended and subject to reduction as more fully described in Paragraph 5.
Brokers:	Landlord: Cassidy Turley Northern California Tenant: Cornish & Carey Commercial/Newmark Knight Frank
Addenda:	1. Base Rent Adjustments 2. HVAC Maintenance Contract 3. Move Out Conditions 4. One Renewal at 95% of Market 5. Storage and Use Permitted of Hazardous Materials 6. Satellite Dish and Air Handling Units
Exhibits:	A. Site Plan B. Project Rules and Regulations C. Commencement Date Certificate

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1. Granting Clause. In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease. The parties hereby stipulate to the square footage of the Premises and Building set forth in the summary of Lease terms, and agree that Tenant’s Proportionate Share of the Building, as well as all other amounts and percentages in this Lease which are based upon the square footage of the Premises and Building will not be changed at any time during the Lease Term, as the same may be extended, unless Landlord redevelops the Building in a manner that changes the Building’s square footage.

2. Acceptance of Premises. Except as otherwise expressly set forth in this Lease, Tenant shall accept the Premises in its condition as of the Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and restrictions. Except as otherwise expressly set forth in this Lease, Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises are suitable for Tenant’s intended purposes. Except for latent defects (defects not discoverable by a visual inspection of the interior of the Premises), in no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. Landlord represents and warrants that as of the execution date of this Lease the Building’s HVAC, electrical, plumbing and other mechanical systems, fire sprinkler system, loading docks, lighting, Building structure (including, without limitation, the roof, roof membrane and floor slab), parking lots, sidewalks, and the driveways are in good working order. No later than 10 days after written demand is made therefor by Landlord of Tenant, Tenant shall execute and deliver to Landlord a Commencement Date Certificate in the form of Exhibit C attached to and hereby made a part of this Lease.

Landlord shall allow Tenant access to the Premises, upon delivery to Landlord of a Certificate of Insurance which complies with the requirements of this Lease, for purposes of preparing the Premises for the commencement of Tenant’s normal business operations (including construction of Tenant-Made Alterations), subject to applicable ordinances and building codes governing Tenant’s right to occupy or perform in the Premises (“Early Occupancy”). During such Early Occupancy period prior to the Rent Commencement Date, Tenant shall be bound by its obligations under the Lease, including the obligation to provide evidence of insurance, but shall not be obligated to pay the Monthly Base Rent or Operating Expenses payable by Tenant to Landlord as set forth in the Lease.

3. Use. The Premises shall be used only for the purpose of office, sales and marketing, research and development, production, laboratory, testing, manufacturing (including manufacturing in compliance with GMP Compliance) storage and distribution of biotechnology products, specifically including cell based products and products which are derived from or include human stem cells or tissues, and for such other lawful purposes as may be incidental thereto. Subject to Legal Requirements (as hereinafter defined) during the Lease Term, Tenant shall be entitled to access of the Premises 24 hours per day, seven days per week, 365 days per year. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit physical waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any tenants of the Project. Except as to items expressly permitted by this Lease, outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord’s prior written consent; provided, however, Tenant shall have the right to park operable vehicles and trailers overnight at the truck loading docks and designated truck and trailer parking areas for the Premises and operable automobiles in the designated automobile parking areas, and further provided there is no interference with the access of other tenants to the Building and Project parking lots and truck courts. Tenant, at its sole expense, shall use and occupy the Premises in compliance with all laws, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to Tenant’s specific use of the Premises (collectively, “Legal Requirements”). The Premises shall not be used as a place of public accommodation under the Americans With Disabilities Act (“ADA”) or similar state statutes or local ordinances or any regulations promulgated thereunder, all as may be amended from time to time. As of the execution date of this Lease, no written notice has been received by Landlord of non-compliance with any Legal Requirements in connection with the Premises. In the event that Landlord receives notice that the Premises is not in compliance with ADA existing as of the execution date of this Lease and such non-compliance is not related to Tenant’s specific use of the Premises or Tenant-Made Alterations to the Premises performed by Tenant, Landlord shall make such modifications as may be required by order or directive of applicable governmental authority in order to bring the Premises into compliance with ADA applicable Legal Requirements as of the execution date of this Lease without cost or expense to Tenant and without including such cost or expense as an Operating Expense. Furthermore, in the event Landlord receives notice that the Premises is not in compliance with applicable Legal Requirements which come into effect after the execution date of this Lease and such non-compliance is not related to Tenant’s specific use of the Premises or Tenant-Made Alterations to the Premises, Landlord shall make such modifications as may be required by order or directive of applicable governmental authority in order to bring the Premises into compliance with applicable Legal Requirements (but at all times in accordance with the terms and conditions of Paragraph 19 below), the cost of which shall be amortized in accordance with Paragraph 6 below and chargeable to Tenant as an Operating Expense. Tenant shall, at its expense, make any alterations or modifications, within or without the Premises, that are required by Legal Requirements related to Tenant’s use or occupation of the Premises (i.e., additions or modifications required by Legal Requirements which would not be required for a typical general office or warehouse use of the Premises, but which are required due to the nature of Tenant’s use of the Premises). Landlord will be responsible for all work required by the Legal Requirements in order to ensure that areas outside the Premises comply with Legal Requirements, the cost of which shall be included in Operating Expenses to the extent permitted by this Lease; unless such work is due to Tenant’s use or occupation of the

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Premises (i.e., additions or modifications required by Legal Requirements which would not be required for a typical general office or warehouse use of the Premises, but which are required due to the nature of Tenant’s use of the Premises), in which case such work shall be at Tenant’s sole cost. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, or cause the disallowance of any sprinkler credits. If any increase in the cost of any insurance on the Premises or the Project is caused by Tenant’s use or occupation of the Premises, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord.

4. Base Rent. Tenant shall pay Base Rent in the amount set forth on Page 1 of this Lease or Addendum 1. The first month’s Base Rent, the Security Deposit, and the first monthly installment of estimated Operating Expenses (as hereafter defined) shall be due and payable on the date hereof, and Tenant promises to pay to Landlord in advance, without demand, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month succeeding the Rent Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated based on a 365 day year. All payments required to be made by Tenant to Landlord hereunder (or to such other party as Landlord may from time to time specify in writing) shall be made by check or by Electronic Fund Transfer (“EFT”) of immediately available federal funds before 11:00 a.m., Eastern Time at such place, within the continental United States, as Landlord may from time to time designate to Tenant in writing. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any rent due hereunder except as may be expressly provided in this Lease. If Tenant is delinquent in any monthly installment of Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of such delinquent sum. The provision for such late charge shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as a penalty.

5. Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenant’s obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Upon each occurrence of an Event of Default (hereinafter defined), Landlord may use all or part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. In the event of the foregoing, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to its then current required amount. Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee; no interest shall accrue thereon. The Security Deposit shall be the property of Landlord, but shall be paid to Tenant when Tenant’s obligations under this Lease have been completely fulfilled. Landlord shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Tenant waives any limitations set forth in California Civil Code Section 1950.7 limiting the use to which a security deposit may be applied. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease and the Premises to a person or entity assuming Landlord’s obligations under this Paragraph 5.

Provided no Event of Default exists or would exist but for the passage of time or the giving of notice, or both, effective on the first day of the 16th full calendar month following the Commencement Date of this Lease, the Security Deposit shall be reduced by $40,000.00 and effective on the first day of the 24th full calendar month following the Commencement Date of this Lease, the Security Deposit shall be reduced by an additional $40,000.00, so that as of such date and throughout the remainder of the Lease Term, the Security Deposit shall reflect a total amount of $40,000.00. Landlord shall have 30 days following the applicable reduction date to return the reduction in the Security Deposit to Tenant.

6. Operating Expense Payments. During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant’s Proportionate Share (hereinafter defined) of Operating Expenses for the Project. Payments thereof for any fractional calendar month shall be prorated based on a 365 day year. The term “Operating Expenses” means all costs and expenses incurred by Landlord with respect to the ownership, maintenance, and operation of the Project including, but not limited to costs of: Taxes (hereinafter defined) and fees payable to tax consultants and attorneys for consultation and contesting taxes; insurance; utilities; maintenance, repair and replacement of all portions of the Project, including without limitation, paving and parking areas, roads, non-structural components of the roofs (including the roof membrane), alleys, and driveways, mowing, landscaping, snow removal, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems and other mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Project is subject; property management fees payable to a property manager (not to exceed 3% of gross receipts), including any affiliate of Landlord, or if there is no property manager, an administration fee of 10 percent of Operating Expenses payable to Landlord; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with Legal Requirements (other than those expressly required herein to be made by Tenant) or to reduce Operating Expenses or that are appropriate to the continued operation of the Project or the Building as a bulk warehouse facility in the market area, provided that the cost of additions or alterations that are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes or 10 years. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Paragraph 10 of this Lease, capital expenditures which are primarily for aesthetic or beautification purposes, debt service under mortgages or ground rent under ground leases, costs of restoration (other than commercially reasonable insurance deductibles), leasing commissions, the costs of renovating space for tenants, or costs incurred to comply with laws relating to the removal of Hazardous Materials (as defined in Paragraph 30 below) or to remove, remedy, treat or contain any Hazardous Material, or the costs of repairs, replacement or maintenance of HVAC or other equipment exclusively serving another tenant’s premises when Tenant pays such costs directly.

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If Tenant’s total payments of Operating Expenses for any year are less than Tenant’s Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant’s next payments except that during the last calendar year of the Lease Term or any extension terms thereof, Landlord shall refund any such excess within 30 days following the termination of the Lease Term or any extension terms thereof, provided that Tenant is not in default of its obligations under this Lease. For purposes of calculating Tenant’s Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses which Landlord allocates to the entire Project, Tenant’s “Proportionate Share” shall be the percentage set forth on the first page of this Lease as Tenant’s Proportionate Share of the Project as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Project; and, with respect to Operating Expenses which Landlord allocates only to the Building, Tenant’s “Proportionate Share” shall be the percentage set forth on the first page of this Lease as Tenant’s Proportionate Share of the Building as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Building. Operating Expenses payable by Tenant will not include any Operating Expense item which exclusively benefitted the building in the Project not occupied by Tenant. Landlord may equitably increase Tenant’s Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project or Building that includes the Premises or that varies with occupancy or use; provided that Landlord makes such allocations on a consistent and uniform basis throughout the Project for all tenants. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate.

No later than 90 days following the first day of each calendar year during the Lease Term, Landlord shall deliver to Tenant an Operating Expense Reconciliation Invoice (“Invoice”) and an Operating Expense Summary Report listing the Operating Expenses for the prior year of the Lease Term (“Report”). Provided (x) no Event of Default exists under this Lease, (y) no payments of Base Rent, Operating Expenses, or other amounts due under the Lease are outstanding, and (z) Tenant has a reasonable belief that the Invoice and Report contain an error to the detriment of Tenant, Tenant, at its sole cost and expense, shall have the right to examine property invoices evidencing such costs and expenses as provided in the Invoice and Report which Tenant believes to be in error as more specifically provided herein. Such review of Landlord’s property invoices may occur not more than once per year at Landlord’s local market office during reasonable business hours. Landlord agrees to make the property invoices pertaining to those items which Tenant reasonably believes to be in error, a copier and conference room available to Tenant for a period not to exceed one week to examine such property invoices. In the event Tenant desires to exercise the foregoing right, Tenant shall deliver written notice of Tenant’s intent to review the property invoices, and shall identify the item(s) contained in the Invoice and Report which Tenant believes to be in error, no later than one hundred twenty (120) days following Tenant’s receipt of the Invoice and Report. Time is of the essence with regards to the delivery of such notice. Upon Landlord’s receipt of Tenant’s notice, Landlord and Tenant shall work in good faith to schedule a time and date for such property invoice examination which shall be acceptable to both parties. In the event that Tenant accurately determines that the Invoice and Report contain an error to the detriment of Tenant, Landlord shall immediately provide a revised Invoice and Report to Tenant. If Tenant has already paid the Invoice, Landlord will provide a credit against Tenant’s obligations to pay Base Rent the amount overpaid by Tenant. Tenant shall keep any information gained from such examination confidential and shall not disclose it to any other party, except as required by law. If requested by Landlord, Tenant shall be required to sign a confidentiality agreement as a condition of Landlord making Landlord’s invoices available for inspection. Notwithstanding anything contained herein to the contrary, in no event shall Tenant retain any person paid on a contingency fee basis to act on behalf of Tenant with regards to the forgoing rights to review the property invoices and Landlord shall have no obligation to allow any such representative paid on a contingency fee basis access to Landlord’s records. Notwithstanding anything contained in this Lease to the contrary, Tenant hereby agrees that Tenant’s sole remedy pertaining to an error in the Invoice or Report shall be for the recovery from Landlord an amount equal to the amount overpaid by Tenant, and Tenant hereby waives any right to terminate this Lease as a result of any such error in the Invoice or Report which Tenant may have under law or equity. In the event Tenant’s review of property invoices reveals that Landlord’s determination of Tenant’s Proportionate Share of Operating Expenses as set forth in the Invoice was in error in Landlord’s favor by more than five percent (5%) of the amount charged by Landlord to Tenant pursuant to such Invoice, then Landlord agrees to pay the reasonable, third-party cost of such review of the property invoices incurred by Tenant; provided such cost shall not exceed the amount of the actual error in Landor’s favor.

7. Utilities. Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to utilities and services supplied to Tenant at the Premises. Water and sewer are not separately metered to the Premises; however, Tenant shall have the right, at Tenant’s sole option and expense, to install a separate meter for water. Tenant shall pay its share of all charges for such jointly metered utilities based upon Tenant’s Proportionate Share unless Landlord reasonably determines that one of the jointly metered parties is consuming more than its share of water, in which case Landlord may reasonably allocate the jointly metered cost of water based on consumption. Landlord may cause at Tenant’s expense the water utility to be separately metered or charged directly to Tenant by the provider in the event Landlord reasonably determines that Tenant’s use of such jointly metered utility materially exceeds the use of such jointly metered utility by other tenants in the Building. Electricity and gas are presently separately metered to the Premises. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent, except as set forth below.

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Landlord acknowledges that Tenant’s business operations will require Tenant to follow good manufacturing practices in accordance with industry standards and practices, the rules and regulations of state, federal and international governmental agencies as interpreted by Tenant and Tenant’s policies and standard operating procedures, as they exist from time to time (collectively, “GMP Compliance”). Except in the event of an emergency, any access to the Premises will be conducted in accordance with Paragraph 19, including the requirement that Tenant will have a representative of Tenant accompany Landlord, its agents or employees at any time when such parties are in the Premises. Landlord will reasonably cooperate with Tenant as reasonably required to maintain such GMP Compliance, and Landlord will make no changes to the electrical, gas or water supply to the Premises without coordinating the schedule and methodology for such change with Tenant. In the event the cost of any work to be performed by Landlord in accordance with the immediately preceding sentence is increased as a result of the need to comply with Tenant’s GMP Compliance requirements, then Tenant will be responsible for the portion of such increased costs attributable to such GMP Compliance, subject to Tenant’s prior approval of the amount of such costs.

Notwithstanding anything contained herein to the contrary, in the event that such interruption or cessation of utilities results from Landlord’s negligent or willful act or omission continues beyond five (5) business days from the date of such interruption or cessation, then, provided Tenant has delivered Landlord with prompt notice of such interruption, the rent under this Lease will abate, commencing on the fifth (5^th) business day the Premises remain untenantable, and continuing until the date on which the utilities are restored and the Premises are again tenantable. No abatement of rentals as hereinabove described will apply in the event such interruption of utilities is the result of Tenant’s alterations to the Premises, or any negligent act or omission of Tenant, its agents, employees or contractors. In the event any interruption or cessation of utilities continues for a period in excess of sixty (60) days, the casualty provisions set forth in Paragraph 15 below shall control.

Tenant shall be entitled to install, as a Tenant-Made Alteration, additional dedicated heating, ventilation and air conditioning units and specialized air handling and/or exhaust equipment (collectively “Air Handling Units”) on the roof of the Building at Tenant’s sole cost and expense (or as a charge against the TI Allowance). The plans and specifications for any Air Handling Units shall be subject to Landlord’s reasonable approval. Tenant shall be responsible for maintenance and repair of the Air Handling Units and shall have access to the roof of the Building as required to repair, maintain or replace such Air Handling Units 24 hours per day, seven days per week.

8. Taxes. Landlord shall pay all taxes, assessments and governmental charges (collectively referred to as “Taxes”) that accrue against the Project during the Lease Term, which shall be included as part of the Operating Expenses charged to Tenant. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens thereof. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord under this Lease and any franchise tax, any excise, use, margin, transaction, sales or privilege tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the Project or any portion thereof shall be paid by Tenant to Landlord monthly in estimated installments or upon demand, at the option of Landlord, as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder. If any such tax or excise is levied or assessed directly against Tenant or results from any Tenant-Made Alterations (defined below), then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant.

9. Insurance. Landlord shall maintain all risk or special form property insurance covering the full replacement cost of the Building and commercial general liability insurance on the Project in forms and amounts customary for properties substantially similar to the Project, subject to customary deductibles. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including but not limited to, rent loss insurance. All such insurance shall be included as part of the Operating Expenses charged to Tenant. The Project or Building may be included in a blanket policy (in which case the cost of such insurance allocable to the Project or Building will be determined by Landlord based upon the total insurance cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary to the extent arising as a result of Tenant’s specific and unique use of the Premises.

Tenant, at its expense, shall maintain during the Lease Term the following insurance, at Tenant’s sole cost and expense: (1) commercial general liability insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $2,000,000; and in the event property of Tenant’s invitees or customers are kept in, or about the, Premises, Tenant shall maintain warehouser’s legal liability or bailee customers insurance for the full value of the property of such invitees or customers as determined by the warehouse contract between Tenant and its customer; (2) all risk or special form property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant; (3) workers’ compensation insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute and shall include a waiver of subrogation in favor of Landlord; (4) employers liability insurance of at least $1,000,000, (5) business automobile liability insurance having a combined single limit of not less than $2,000,000 per occurrence insuring Tenant against liability arising out of the ownership maintenance or use of any owned, hired or nonowned automobiles, and (6) business interruption insurance with a limit of liability representing loss of at least approximately 6 months of income. Any company writing any of Tenant’s insurance shall have an A.M. Best rating of not less than A-VIII and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). All commercial general liability and, if applicable, warehouser’s legal liability or bailee customers insurance policies shall name Tenant as a named insured and Landlord, its property manager, and other designees of Landlord as the interest of

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such designees shall appear, as additional insureds. The limits and types of insurance maintained by Tenant shall not limit Tenant’s liability under this Lease. Tenant shall provide Landlord with certificates of such insurance as required under this Lease prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises, and thereafter upon renewals at least 15 days prior to the expiration of the insurance coverage. Acceptance by Landlord of delivery of any certificates of insurance does not constitute approval or agreement by Landlord that the insurance requirements of this section have been met, and failure of Landlord to identify a deficiency from evidence provided will not be construed as a waiver of Tenant’s obligation to maintain such insurance. In the event any of the insurance policies required to be carried by Tenant under this Lease shall be cancelled prior to the expiration date of such policy, or if Tenant receives notice of any cancellation of such insurance policies from the insurer prior to the expiration date of such policy, Tenant shall: (a) immediately deliver notice to Landlord that such insurance has been, or is to be, cancelled, (b) shall promptly replace such insurance policy in order to assure no lapse of coverage shall occur, and (c) shall deliver to Landlord a certificate of insurance for such policy. The insurance required to be maintained by Tenant hereunder are only Landlord’s minimum insurance requirements and Tenant agrees and understands that such insurance requirements may not be sufficient to fully meet Tenant’s insurance needs.

The all risk or special form property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, their officers, directors , employees, managers, agents, invitees and contractors, in connection with any loss or damage thereby insured against. Neither party nor its officers, directors, employees, managers, agents, invitees or contractors shall be liable to the other for loss or damage caused by any risk coverable by all risk or special form property insurance, and each party waives any claims against the other party, and its officers, directors, employees, managers, agents, invitees and contractors for such loss or damage. The failure of a party to insure its property shall not void this waiver. Tenant and its agents, employees and contractors shall not be liable for, and Landlord hereby waives all claims against such parties for losses resulting from an interruption of Landlord’s business, or any person claiming through Landlord, resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Tenant or its agents, employees or contractors. Landlord and its agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such parties for losses resulting from an interruption of Tenant’s business, or any person claiming through Tenant, resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Landlord or its agents, employees or contractors.

10. Landlord’s Repairs. Landlord shall repair, at its expense and without pass through as an Operating Expense, the structural soundness of the roof (which does not include the roof membrane), the structural soundness of the foundation, and the structural soundness of the exterior walls of the Building in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, its agents and contractors excluded. The term “walls” as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair.

In the event of an emergency (being defined as an imminent threat of personal injury to Tenant’s employees or material damage to Tenant’s equipment or other property at the Premises), Tenant shall have the right to make such temporary, emergency repairs to the roof, foundation, floors and exterior walls of the building of which the Premises are a part, or the roof membrane, skylights, roof vents, drains and downspouts of the Project, and the exterior and under slab utility systems for the Project or the common Building systems, as may be reasonably necessary to prevent such material damage to the equipment or property of Tenant situated in the Premises, or such personal injury to Tenant’s employees, provided Tenant has notified or attempted in good faith to notify Landlord’s representative of such emergency by telephone (with subsequent written notice as soon as practicable). The provisions of this paragraph do not constitute an authorization by Landlord for Tenant to enter the premises of any other tenant of the Project, and Tenant has not been designated as Landlord’s agent for the purposes of any such entry. Landlord shall reimburse Tenant for the reasonable, out-of-pocket costs incurred by Tenant in making such emergency repairs to the roof, foundation or exterior walls, as applicable, up to (but not to exceed) $30,000.00 with respect to each such occurrence, within thirty (30) days after submission by Tenant to Landlord of an invoice therefore, accompanied by reasonable supporting documentation for the costs so incurred. In the event Landlord fails or refuses to reimburse Tenant for such costs within such thirty (30) day period and Tenant brings an action for recovery of such amounts from Landlord as provided for in this Lease, then Tenant shall be entitled to recover, in addition to the amount of such costs, interest on such amounts from the date incurred by Tenant until recovered from Landlord, at the rate provided in Paragraph 37(j) of this Lease, and the reasonable attorneys’ fees and other costs of court incurred by Tenant in pursuing such action.

11. Tenant’s Repairs. Landlord, at Tenant’s expense as provided in Paragraph 6, shall maintain in good repair and condition the parking areas and other common areas of the Building, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises, the roof membrane, all base building systems serving multiple tenants (e.g., fire life/safety) up to the point of connection to the Premises and all utility services and equipment up to the point of connection to Tenant’s separate meter, or if no such separate meter exists, then up to the point of connection to the Premises. Subject to Landlord’s obligation in Paragraph 10, this Paragraph 11 and subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, truck doors, plumbing, water and sewer lines up to points of common connection, fire sprinklers and fire protection systems, entries, doors, ceilings, windows, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems exclusively serving the Premises. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond

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the Term. Heating, ventilation and air conditioning systems and other mechanical and building systems exclusively serving the Premises shall be maintained at Tenant’s expense pursuant to maintenance service contracts for the HVAC units entered into by Tenant or, if Tenant has failed to maintain such service contracts then at Landlord’s election, Landlord may maintain such contracts, in which case the costs of such contracts entered into by Landlord shall be included as an Operating Expense. The scope of services and contractors under such maintenance contracts shall be consistent with the requirements of Addendum 2 to this Lease. If Tenant fails to perform any repair or replacement for which it is responsible, Landlord may, after notice to Tenant and the expiration of a reasonable cure period, perform such work (provided any entry will be in strict accordance with Paragraph 19) and be reimbursed by Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or replacement to any part of the Building or Project that results from damage caused by Tenant, its agents, contractors, or invitees and any repair that benefits only the Premises.

12. Tenant-Made Alterations and Trade Fixtures. Tenant shall have the right to perform non-structural Tenant-Made Alterations (as defined below), the cost of which does not exceed $15,000 in each instance, without obtaining Landlord’s prior written consent, by providing a written notice of such Tenant-Made Alterations to Landlord containing sufficient and complete information regarding such Tenant-Made Alterations, provided that such alteration does not materially affect the structure or the roof of the Building, modify the exterior of the Building (other than as permitted for the rooftop equipment or Exterior Storage), or modify the common utility or mechanical systems of the Building. Any other alterations, additions, or improvements made by or on behalf of Tenant to the Premises (“Tenant-Made Alterations”) shall be subject to Landlord’s prior written consent, which consent will not be unreasonably, withheld, conditioned or delayed. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification within the Premises required by Legal Requirements as a result of any Tenant-Made Alterations. Any work required to comply with Legal Requirements outside the Premises will be performed by Landlord, subject to inclusion in Operating Expenses to the extent permitted by Paragraph 6. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval, which approval will be granted or denied (accompanied by a reasonably detailed list of objections) within ten (10) days after submittal to Landlord and in the event Landlord does not approve or deny such plans within the ten (10) day period above, then Landlord will be deemed to have approved such plans and specifications as to the initial Tenant-Made Alterations (and failure to respond will be deemed disapproval as to any future Tenant-Made Alterations). Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its reasonable, out-of-pocket costs in reviewing plans and specifications and in monitoring construction (provided that Tenant will not be required to pay any fees to Landlord or its affiliates in connection with any Tenant-Made Alterations) , and the total fees payable by Tenant for the initial Tenant-Made Alterations will in no event exceed $15,000 for third party consultant fees, and Landlord will provide reasonably detailed invoices in support of any such third party fees. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of its general contractor and all major subcontractors performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all work free and clear of liens (provided that no bond will be required for the initial Tenant-Made Alterations) and shall provide certificates of insurance for worker’s compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord’s property, except to the extent Landlord requires removal at Tenant’s expense of any such items or Landlord and Tenant have otherwise agreed in writing in connection with Landlord’s consent to any Tenant-Made Alterations. Notwithstanding the foregoing, in no event shall Tenant be required to remove customary lab improvements, clean rooms, Air Handling Units or to restore the electrical capacity upgrades made by Tenant, provided (i) all of the foregoing items are non-Tenant specific lab improvements that are reasonably reusable by other tenants, (ii) such items were made using building standard or better materials, (iii) all specialized equipment such as the lyophilizer, water injection and other water systems are removed and (iv) all systems, including, without limitation, the duct work and fume hoods, are in good working order and condition. Upon Tenant’s written request, Landlord shall provide Tenant, at the time of Tenant’s request for approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations Landlord will require Tenant to remove upon surrender of the Premises. Notwithstanding the foregoing, Tenant shall at all times have the right to remove its equipment and trade fixtures, even if such equipment and trade fixtures are attached to the Premises. Tenant shall repair any damage caused by the removal of such Tenant-Made Alterations upon surrender of the Premises.

Notwithstanding anything contained herein to the contrary, Landlord shall contribute up to a maximum amount of $280,500.00 (the “TI Allowance”), towards the initial Tenant-Made Alterations to the Premises, to include mutually agreeable interior tenant improvements and any upgrade or additional distribution of the power of the main breaker currently within the Premises. Landlord warrants that there is one 500 amp main breaker which is available, operational and permitted to be used (including any required consent or approval from the electrical service provider for the Building) solely for use by Tenant in the Premises. An additional 300 amps is available should Tenant, at Tenant’s sole cost and expense, desire to have it distributed so Tenant will have 800 amps. Such payment of the TI Allowance shall be made by Landlord to Tenant within 30 days following (i) completion of the initial Tenant-Made Alterations, (ii) Landlord’s receipt of Tenant’s invoice substantiating the costs related thereto, (iii) Landlord’s receipt of final lien waivers from all contractors and subcontractors who did

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work on the initial Tenant-Made Alterations, and (iv) Landlord’s receipt of a copy of the final permit approved by the applicable governing authority to the extent required for such Tenant-Made Alterations. Landlord shall be under no obligation to pay for any Tenant-Made Alterations to the Premises in excess of the TI Allowance. Further, such TI Allowance shall only be available for Tenant’s use through June 30, 2014, and Tenant hereby waives any and all rights to any unused portion of the TI Allowance remaining as of July 1, 2014. Tenant shall be allowed to use a contractor and architect of its choosing, provided that Landlord approves said contractor and architect prior to the start of construction (and Landlord hereby approves Rusciano Construction and a CAS Architects if they comply with all of the requirements of this Paragraph 12).

In the event there are any actual delays in the completion of the initial Tenant-Made Alterations which delays are caused by an act or omission of Landlord (e.g., a failure to approve or reasonably disapprove the construction drawings within the time period set forth above or a failure to provide access to the Building as required to complete the Tenant-Made Alterations), then after notice to Landlord of such delay and the expiration of a 48 hour cure period, any such additional delay shall be deemed a “Landlord Delay.” Landlord Delays shall be applied as follows: (i) the Rent Commencement Date will be pushed back by the same number of days of any Landlord Delay and (ii) the dates in the immediately preceding paragraph to use the TI Allowance will be extended by the same number of days of the Landlord Delay.

Tenant, at its own cost and expense, shall have the right to add an emergency generator external to the Building along with a small bulk liquid nitrogen storage tank and CO2 tank at the location shown on Exhibit A, the size, dimensions, location, and screening of which shall all be subject to Landlord’s approval in its sole discretion. Tenant shall also have the right to use the existing fenced and gated storage area at the approximate location shown on Exhibit A and labeled “Existing Shed” for Hazardous Materials and other storage uses. Landlord will ensure that the existing shed is delivered to Tenant empty and free of any Hazardous Materials or personal property as of the Lease Commencement Date. The generator, bulk air tanks and existing shed may be collectively referred to in this Lease as the “External Storage.” Any modifications made to the existing External Storage Area shall be considered a Tenant-Made Alteration, Tenant shall comply with the requirements of this Paragraph 12 and all Legal Requirements, including approval by the City of Sunnyvale, and the External Storage shall not interfere with the access of other tenants to the Building and Project parking lots and truck courts.

Tenant, at its own cost and expense and without Landlord’s prior approval, may erect such shelves, racking, bins, machinery, equipment, including laboratory equipment and trade fixtures (collectively “Trade Fixtures”) in the ordinary course of its business provided that such items do not alter the structure of the Premises, do not overload or damage the Premises, and may be removed without injury to the Premises (or Tenant agrees to repair any such damage cause by removal), and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord’s requirements set forth above. Tenant shall remove its Trade Fixtures and shall repair any damage caused by such removal upon surrender of the Premises.

Tenant shall have the right, at Tenant’s sole cost, to reasonably access and use the Building’s (i) roof pursuant to Addendum 6 and Paragraph 7 above, (ii) subject to Landlord’s reasonable prior approval, internal passageways, shafts, utility connections, risers and conduits in order to connect such rooftop equipment to the Premises, and (iii) subject to Landlord’s reasonable prior approval, common areas of the Project as required for the installation, repair and maintenance of any Tenant-Made Alterations. Tenant shall advise Landlord at least ten (10) days in advance of the planned installation of such devices, and Landlord will have the right to reasonably approve the specifications for any rooftop equipment and the method of installation thereof.

13. Signs. Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole discretion. Provided Tenant complies with the signage criteria for the Project, Tenant will be permitted to install Premises identification/window signage at the entry to the Premises and will be entitled to place a sign on the monument sign for the Project, at Tenant’s cost. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and repair, paint, and/or replace the building fascia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior treatments. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord’s approval and conform in all respects to Landlord’s requirements.

14. Parking. Tenant shall be entitled to park in common with other tenants of the Project in those areas designated for nonreserved parking. Landlord may allocate parking spaces among Tenant and other tenants in the Project if Landlord reasonably determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties. Notwithstanding the foregoing, Tenant will have the right to use at least 4 parking spaces for every 1,000 rentable square feet within the Premises at no cost throughout the Term of the Lease.

15. Restoration. If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days after such damage as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed 6 months, either Landlord or Tenant may elect to terminate this Lease upon notice to the other party given no later than 30 days after Landlord’s notice. If neither party elects to terminate this Lease or if Landlord estimates that restoration will take 6 months or less, then, Landlord shall promptly restore the Premises excluding the improvements installed by Tenant or by Landlord and paid by Tenant, subject to delays arising from the collection of insurance proceeds or from Force Majeure events. Tenant at Tenant’s expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events (as defined in Paragraph 33), all repairs or

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restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Base Rent and Operating Expenses shall be abated for the period of repair and restoration commencing on the date of such casualty event in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease by reason of damage or casualty loss. Notwithstanding the terms and conditions of this Paragraph 15, if the Premises are not restored by Landlord on, or prior to, the date which is the later of 6 months of the date of the casualty event (subject to Force Majeure and Tenant-caused delays) or the date Landlord estimated completion of the restoration as described above (subject to Force Majeure and Tenant-caused delays), Tenant may terminate the Lease upon thirty (30) days written notice to Landlord; provided, however, if Landlord completes the restoration in said thirty (30) day notice period, Tenant’s notice of termination shall be null and void and this Lease shall continue in full force and effect.

Notwithstanding anything contained in the Lease to the contrary, to the extent the damage to the Project is attributable to the negligence or willful misconduct of Tenant, Tenant shall pay to Landlord with respect to any damage to the Project an amount of the commercially reasonable deductible under Landlord’s insurance policy, not to exceed $10,000.00, within 30 days after presentment of Landlord’s invoice.

16. Condemnation. If any part of the Premises or the Project should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken”), and the Taking would materially interfere with or impair Landlord’s ownership or operation of the Project or Tenant’s use of the Premises, then upon written notice by Landlord or Tenant, this Lease shall terminate and Base Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s Trade Fixtures, if a separate award for such items is made to Tenant.

17. Assignment and Subletting. Without Landlord’s prior written consent, which shall not be unreasonably withheld conditioned or delayed, Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises and any attempt to do any of the foregoing shall be void and of no effect. It shall be reasonable for the Landlord to withhold, delay or condition its consent, where required, to any assignment or sublease in any of the following instances: (i) the assignee or sublessee does not have a net worth calculated according to generally accepted accounting principles at least equal to the greater of the net worth of Tenant immediately prior to such assignment or sublease or the net worth of the Tenant at the time it executed the Lease; (ii) occupancy of the Premises by the assignee or sublessee would, in Landlord’s opinion, violate any agreement binding upon Landlord or the Project with regard to the identity of tenants, usage in the Project, or similar matters; (iii) the identity or business reputation of the assignee or sublessee will, in the good faith judgment of Landlord, tend to damage the goodwill or reputation of the Project; (iv) the assignment or sublease is to another tenant in the Project and is at rates which are below those charged by Landlord for comparable space in the Project; or (v) in the case of a sublease, the subtenant has not acknowledged that the Lease controls over any inconsistent provision in the sublease. The foregoing criteria shall not exclude any other reasonable basis for Landlord to refuse its consent to such assignment or sublease. Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease. Tenant shall provide to Landlord all information concerning the assignee or sublessee as Landlord may reasonably request. Landlord may revoke its consent immediately and without notice if, as of the effective date of the assignment or sublease, there has occurred and is continuing any default under the Lease. For purposes of this paragraph, a transfer of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the foregoing, Tenant may, without Landlord’s prior written consent, assign this Lease to any entity into which Tenant is merged or consolidated, or to any entity to which substantially all of Tenant’s assets or stock are transferred, provided the following conditions are met: (x) such merger, consolidation, or transfer of assets or stock is not principally for the purpose of transferring Tenant’s leasehold estate, and (y) such merger, consolidation, or transfer of assets of Tenant does not reduce the tangible net worth of Tenant after giving effect to such transfer (“Permitted Transfer”). Tenant hereby agrees to give Landlord written notice thirty (30) days prior to such merger, consolidation, or transfer of assets along with any documentation reasonably requested by Landlord related to the required conditions as provided above; provided that if for confidentiality reasons Tenant cannot provide such prior notice, Tenant will notify Landlord as soon as possible after such Permitted Transfer. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a “Tenant Affiliate”), without the prior written consent of Landlord. Tenant shall reimburse Landlord for all of Landlord’s reasonable expenses in connection with any assignment or sublease not to exceed $1,500.00. This Lease shall be binding upon Tenant and its successors and permitted assigns. Any transfer of the stock of Tenant over a recognized exchange will not be deemed a Transfer for purposes of this Lease. In the event Tenant desires to assign or sublet 10 percent or more of the Premises to a party with whom Landlord has negotiated to lease space in the Project or has made a proposal to lease space in the Project within twelve (12) months prior to the date of Tenant’s request for consent (a “Competitive Assignment”), Landlord may, by giving written notice to Tenant within 30 days after receipt of Tenant’s request for Landlord’s consent to such Competitive Assignment, terminate this Lease, as of the date specified in Tenant’s notice for the commencement of the proposed assignment or sublease. Tenant may withdraw its notice of such Competitive Assignment by notifying Landlord within 10 days after Landlord has given Tenant notice of such termination, in which case the Lease shall not terminate but shall continue.

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Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully responsible and liable for the payment of the rent and for compliance with all of Tenant’s other obligations under this Lease (regardless of whether Landlord’s approval has been obtained for any such assignments or sublettings). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto) exceeds the rental payable under this Lease, then Tenant shall be bound and obligated to pay Landlord as additional rent hereunder 50% of such excess rental and other excess consideration within 10 days following receipt thereof by Tenant; provided in the event of a sublease which is less than 100% of the Premises such excess rental and other consideration shall be applied on a square foot basis.

If this Lease be assigned or if the Premises be subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant’s leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder Landlord may collect rent from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder.

18. Indemnification. Except for the negligence of Landlord, its agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord, and Landlord’s agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including attorneys’ fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant’s obligations under this Paragraph 18.

Except for the negligence of Tenant, its agents, employees or contractors, and to the extent permitted by law, Landlord agrees to indemnify, defend and hold harmless Tenant, and Tenant’s agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including attorneys’ fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from any activity, work, or thing done, permitted or suffered by Landlord in or about the Project or due to any other act or omission of Landlord, its assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Landlord’s obligations under this Paragraph 18.

If a claim under the foregoing indemnity is made against the indemnitee which the indemnitee believes to be covered by an indemnitor’s indemnification obligations hereunder, the indemnitee shall promptly notify the indemnitor of the claim and, in such notice shall offer to the indemnitor the opportunity to assume the defense of the claim within 10 business days after receipt of the notice (with counsel reasonably acceptable to the indemnitee). If the indemnitor timely elects to assume the defense of the claim, the indemnitor shall have the right to settle the claim on any terms it considers reasonable and without the indemnitee’s prior written consent, as long as the settlement shall not require the indemnitee to render any performance or pay any consideration and such settlement will not have a material adverse impact on the business reputation or establish a negative precedent which could affect the indemnitee’s ongoing business, and the indemnitee shall not have the right to settle any such claim. If the indemnitor fails timely to elect to assume the defense of the claim or fails to defend the claim with diligence, then the indemnitee shall have the right to take over the defense of the claim and to settle the claim on any terms the indemnitee considers reasonable. Any such settlement shall be valid as against the indemnitor. If the indemnitor assumes the defense of a claim, the indemnitee may employ its own counsel but such employment shall be at the sole expense of the indemnitee. If any such claim arises out of the negligence of both Landlord and Tenant, responsibility for such claim shall be allocated between Landlord and Tenant based on their respective degrees of negligence.

19. Inspection and Access. Landlord acknowledges that Tenant’s permitted use includes manufacturing in accordance with GMP Compliance and Landlord will coordinate any access to the Premises with Tenant so as to ensure that any such entry does not violate GMP Compliance or cause any interruption in Tenant’s business operations. Such requirements include prior approval of any party who will be accessing the Premises, the ability of Tenant to escort any third parties needing access to the Premises (which may include the need for proper protective clothing or similar precautions) and Tenant’s ability to designate certain areas of the Premises as areas where no entry is permitted absent emergency circumstances. Subject to strict compliance with the foregoing, except in the event of an emergency (i.e., an event which poses an imminent risk of personal injury or substantial property damage), Landlord and its agents, representatives, and contractors may enter the Premises at any time so long as such parties comply with Tenant’s safety and security protocols, to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other reasonably necessary business purpose. Subject to strict compliance with the foregoing GMP Compliance requirements, Landlord and Landlord’s representatives may enter the Premises during business hours for the purpose of showing the Premises to prospective purchasers and, during the last year of the Lease Term, to prospective tenants. Landlord may erect a suitable sign on

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the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate and modify common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation, modification or restriction materially interferes with Tenant’s use or occupancy of the Premises. At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions.

20. Quiet Enjoyment. If Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

21. Surrender. Upon termination of the Lease Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to the Tenant-Made Alterations provisions of Paragraph 12 above, ordinary wear and tear, casualty loss and condemnation covered by Paragraphs 15 and 16 excepted and otherwise in accordance with the Move Out Conditions Addendum attached hereto. Without limiting the foregoing, Tenant shall remove any odor which may exist in the Premises resulting from Tenant’s occupancy of the Premises upon the termination of the Lease Term or earlier termination of Tenant’s right of possession. Any Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and disposition of such property. All obligations of Landlord or Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises.

22. Holding Over. If Tenant retains possession of the Premises after the termination of the Lease Term, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a monthly basis for each month or part thereof during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over; provided, however, that Landlord provides Tenant with written notice that Landlord is in negotiations with another prospective tenant, and Tenant fails to thereafter surrender the Premises in accordance with this Lease on, or prior to, the date identified in Landlord’s notice. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises. For purposes of this Paragraph 22, “possession of the Premises” shall continue until, among other things, Tenant has delivered all keys to the Premises to Landlord, Landlord has the ability to exercise complete and total dominion and control over the Premises, and Tenant has fulfilled all obligations required of it upon termination of the Lease as set forth in this Lease, including, without limitation, those concerning the condition and repair of the Premises.

23. Events of Default. Each of the following events shall be an event of default (“Event of Default”) by Tenant under this Lease:

(i) Tenant shall fail to pay any installment of Base Rent or any other payment required herein when due, and such failure shall continue for a period of 5 days after written notice from Landlord to Tenant that such payment was due; provided, however, that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period, and the failure of Tenant to pay any third or subsequent installment of Base Rent or any other payment required herein when due in any consecutive 12-month period shall constitute an Event of Default by Tenant under this Lease without the requirement of notice or opportunity to cure; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under applicable law.

(ii) Tenant or any guarantor or surety of Tenant’s obligations hereunder shall (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “Proceeding for Relief”); (C) become the subject of any Proceeding for Relief which is not dismissed within 60 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

(iii) Any insurance required to be maintained by Tenant pursuant to this Lease shall be cancelled or terminated or shall expire or shall be reduced or materially changed, except, in each case, as permitted in this Lease and such insurance is not restored within ten (10) days with no lapse in coverage.

(iv) Tenant shall not occupy or shall vacate the Premises whether or not Tenant is in monetary or other default under this Lease. Tenant’s vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to (a) ensure that Tenant’s insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) ensure that the Premises are secured and not subject to vandalism, and (c) ensure that the Premises will be properly maintained after such vacation, including, but

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not limited to, keeping the heating, ventilation and cooling systems maintenance contracts required by this Lease in full force and effect and maintaining the utility services. In the event Tenant vacates the Premises, Tenant shall inspect the Premises at least once each quarter and report in writing to Landlord on the condition of the Premises.

(v) Tenant shall attempt or there shall occur any assignment, subleasing or other transfer of Tenant’s interest in or with respect to this Lease except as otherwise permitted in this Lease, and Tenant does not cure the same within ten (10) business days after notice from Landlord.

(vi) Tenant shall fail to discharge any lien placed upon the Premises in violation of this Lease within 20 days after any such lien or encumbrance is filed against the Premises.

(vii) Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided herein, such default shall continue for more than 30 days after Landlord shall have given Tenant written notice of such default (said notice being in lieu of, and not in addition to, any notice required as a prerequisite to a forcible entry and detainer or similar action for possession of the Premises); provided that if longer than 30 days is required to cure such default, Tenant will not be in default provided it commences such cure within the 30 day period and thereafter diligently pursues such cure to completion.

(viii) Tenant agrees that any notice given by Landlord pursuant to this Paragraph of the Lease shall satisfy the requirements for notice under California Code of Civil Procedure Section 1161, and Landlord shall not be required to give any additional notice in order to be entitled to commence an unlawful detainer proceeding.

24. Landlord’s Remedies. Upon each occurrence of an Event of Default and so long as such Event of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this Lease or Tenant’s right of possession, (but Tenant shall remain liable as hereinafter provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant’s right of possession, it shall be lawful for Landlord, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and to remove Tenant and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or remove and store, all of the furniture, fixtures and equipment at the Premises.

Except as otherwise provided in the next paragraph, if Tenant breaches this Lease and abandoned the Premises prior to the end of the term hereof, or if Tenant’s right to possession is terminated by Landlord because of an Event of Default by Tenant under this Lease, this Lease shall terminate. Upon such termination, Landlord may recover from Tenant the following, as provided in Section 1951.2 of the Civil Code of California: (i) the worth at the time of award of the unpaid Base Rent and other charges under this Lease that had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the reasonable value of the unpaid Base Rent and other charges under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award by which the reasonable value of the unpaid Base Rent and other charges under this Lease for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom. As used herein, the following terms are defined: (a) The “worth at the time of award” of the amounts referred to in Sections (i) and (ii) is computed by allowing interest at the lesser of 18 percent per annum or the maximum lawful rate. The “worth at the time of award” of the amount referred to in Section (iii) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent; (b) The “time of award” as used in clauses (i), (ii), and (iii) above is the date on which judgment is entered by a court of competent jurisdiction; (c) The “reasonable value” of the amount referred to in clause (ii) above is computed by determining the mathematical product of (1) the reasonable annual rental value and (2) the number of years, including fractional parts thereof, between the date of termination and the time of award. The “reasonable value” of the amount referred to in clause (iii) is computed by determining the mathematical product of (1) the annual Base Rent and other charges under this Lease and (2) the number of years including fractional parts thereof remaining in the balance of the term of this Lease after the time of award. Tenant acknowledges and agrees that the term “detriment proximately caused by Tenant’s failure to perform its obligations under this Lease” includes, without limitation, the value of any abated or free rent given to Tenant.

Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant’s right to possession, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover rent as it becomes due. This remedy is intended to be the remedy described in California Civil Code Section 1951.4, and the following provision from such Civil Code Section is hereby repeated: “The Lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign subject only to reasonable limitations).” Any such payments due Landlord shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due from time to time. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach.

Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, whether by agreement or by operation of law, it being understood that such surrender and/or termination can be

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effected only by the written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord and Tenant shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord or Tenant at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord or Tenant to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of such party’s right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord’s intention to re-enter as provided for in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. The terms “enter,” “re-enter,” “entry” or “re-entry,” as used in this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises shall be on such terms and conditions as Landlord in its reasonable discretion may determine (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or all other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or collect rent due in respect of such reletting. Notwithstanding anything in this Section 24, Landlord will have the obligation to act reasonably to mitigate any damages it may suffer as a result of a default by Tenant; provided, however, (a) Landlord shall not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall not be required to give preference to the Premises over any other available space controlled by Landlord, and (c) any proposed tenant shall meet all of Landlord’s leasing criteria.

25. Tenant’s Remedies/Limitation of Liability. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter; provided that any successor assumes in writing the Landlord’s obligations under this Lease. The term “Landlord” in this Lease shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner’s ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, including any proceeds or profits therefrom obtained after a law suit against Landlord has been filed, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord.

26. Intentionally Omitted.

27. Subordination. This Lease and Tenant’s interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any first mortgage, now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term “mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “holder” of a mortgage shall be deemed to include the beneficiary under a deed of trust.

Landlord represents to Tenant that as of the date hereof the Building is not subject to or encumbered by a mortgage. Notwithstanding the preceding provisions of this Paragraph 27, this Lease and Tenant’s interest in the Premises shall not be subordinate to any future mortgage or deed of trust on the Project, and Tenant shall not be obligated to execute an instrument subordinating this Lease or Tenant’s interest in the Premises to any future mortgage or deed of trust on the Project, unless concurrently with such subordination the holder of such mortgage or deed of trust agrees in such instrument of subordination not to disturb Tenant’s possession of the Premises (so long as no default exists under the Lease) in the event such holder acquires title to the Premises through foreclosure, deed in lieu of foreclosure or otherwise.

28. Mechanic’s Liens. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises and cause such lien or encumbrance to be discharged

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within 20 days of the filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such 20 day period.

29. Estoppel Certificates. Tenant agrees, from time to time, within 10 business days after request of Landlord, to execute and deliver to Landlord, or Landlord’s designee, any estoppel certificate requested by Landlord, stating that this Lease is in full force and effect, the date to which rent has been paid, that Landlord is not in default hereunder (or specifying in detail the nature of Landlord’s default), the termination date of this Lease and such other matters pertaining to this Lease as may be requested by Landlord. Tenant’s obligation to furnish each estoppel certificate in a timely fashion is a material inducement for Landlord’s execution of this Lease. No cure or grace period provided in this Lease shall apply to Tenant’s obligations to timely deliver an estoppel certificate.

30. Environmental Requirements. Except for Hazardous Material (i) contained in products used by Tenant in de minimis quantities for ordinary cleaning and office purposes and/or (ii) listed on and stored in compliance with Addendum 5, Tenant shall not permit or cause any party to bring any Hazardous Material upon the Premises or transport, store, use, generate, manufacture or release any Hazardous Material in or about the Premises without Landlord’s prior written consent. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements and shall remediate in a manner satisfactory to Landlord in light of applicable Legal Requirements any Hazardous Materials released on or from the Project by Tenant, its agents, employees, contractors, subtenants or invitees. Tenant shall complete and certify to disclosure statements as reasonably requested by Landlord from time to time relating to Tenant’s transportation, storage, use, generation, manufacture or release of Hazardous Materials on the Premises, which statements will set forth the name of the applicable Hazardous Materials used by Tenant, the typical use in general terms of such Hazardous Material and the approximate quantity used or stored by Tenant. The term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. The term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the “operator” of Tenant’s “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom. Any cure or grace period provided in this Lease applicable to Tenant’s obligations to comply with the terms and conditions of this Paragraph 30 shall be limited to 30 days (provided that in the event more than 30 days are required to remedy such default, Tenant will be permitted additional time not to exceed a total of 90 days so long as Tenant is diligently pursuing such cure).

Notwithstanding anything to the contrary in this Paragraph 30, Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Premises caused or permitted by (i) Landlord, its agents, employees, contractors or invitees; or (ii) any other tenants in the Project or third parties not controlled by Tenant or their agents, employees, contractors, subtenants, assignees or invitees or (ii) any Hazardous Materials which pre-existed Tenant’s occupancy of the Premises. Landlord will be obligated to remediate any asbestos in the Building to the extent such remediation is required by applicable Environmental Requirements and such asbestos pre-existed Tenant’s occupancy of the Premises or was brought upon the Building by Landlord, its agents, employees, contractors or invitees.

Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys’ fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the property by Tenant, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials for which Tenant is obligated to remediate as provided above or any other breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease.

Subject to the requirements of Paragraph 19 above, Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant’s compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises. Such inspections and tests shall be conducted at Landlord’s expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant.

Except as may be set forth in that certain Phase I Environmental Site Assessment, Project Number 17325385.00014C, dated April 29, 2003 and prepared by URS Corporation Americas, Landlord represents to Tenant that to the best of Landlord’s current, actual knowledge that there are no Hazardous Materials in reportable quantities on the Project. The phrase “current, actual knowledge of Landlord” shall mean and refer only to the best of the current, actual knowledge of the officers of Landlord having direct, operational responsibility for the Project, with the express limitations and qualifications that the knowledge of any contractor or consultant shall not be imputed to

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Landlord, and none of such officers has made any special investigation or inquiry, and none of such officers has any duty or obligation of diligent investigation or inquiry, or any other duty or obligation, to acquire or to attempt to acquire information beyond or in addition to the current, actual knowledge of such persons. In the event any Hazardous Material is discovered on the Project (other than any Hazardous Material which Tenant is required to remediate pursuant to this section), the terms and conditions of Paragraph 15 above will govern the restoration of the Building and Premises; provided that Tenant will not be obligated to restore or remediate any such Hazardous Material or incur any costs associated with such remediation.

31. Rules and Regulations. Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current Project rules and regulations are attached hereto as Exhibit B. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project, but Landlord shall enforce such in a non-discriminatory manner. All rules and regulations must be reasonable, uniformly enforced and applied to all tenants of the Project, and may not materially enlarge Tenant’s obligations under the Lease or materially limit Tenant’s rights and remedies under the Lease.

32. Security Service. Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises, except to the extent caused by the gross negligence or willful misconduct of Landlord, its agents or employees.

33. Force Majeure. Except for monetary obligations, neither Landlord nor Tenant shall be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or Tenant, as the case may be (“Force Majeure”).

34. Entire Agreement. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto.

35. Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

36. Brokers. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker, if any, set forth on the first page of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. Landlord will pay the brokers any commissions due for this Lease pursuant to a separate agreement between Landlord and the brokers.

37. Miscellaneous.

(a) Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease.

(b) If and when included within the term “Tenant,” as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant.

(c) All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to Landlord at 3353 Gateway Boulevard, Fremont, California 94538, with a copy sent to Landlord at 4545 Airport Way, Denver, Colorado 80239, Attention: General Counsel, and to Tenant at 7707 Gateway Boulevard, Suite 140, Newark, California 94560 Attention: General Counsel with a copy to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, 3580 Carmel Mountain Road, Suite 300, San Diego California 92130, Attention: Dawn Saunders, Esq. Either party may by notice given aforesaid change its address for all subsequent notices or add an additional party to be copied on all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery.

(b) Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval.

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(c) At Landlord’s request from time to time Tenant shall furnish Landlord with true and complete copies of its most recent annual and quarterly financial statements prepared by Tenant or Tenant’s accountants and any other financial information or summaries that Tenant typically provides to its lenders or shareholders. This subsection (e) shall not apply in the event Tenant is a public company traded on a stock exchange with publically available financial statements.

(d) Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record, except that Tenant may file this Lease or disclose the contents of this Lease in connection with any SEC or similar public company reporting requirements. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

(e) The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.

(f) The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

(g) Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

(h) Any amount not paid by Tenant within 5 days after its due date in accordance with the terms of this Lease shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 12 percent per year. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

(i) Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws.

(j) Time is of the essence as to the performance of Tenant’s and Landlord’s obligations under this Lease.

(k) All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, this Lease shall control unless such exhibit or addendum specifically references that it supersedes a particular provision of this Lease.

(n) In the event either party hereto initiates litigation to enforce the terms and provisions of this Lease, the non-prevailing party in such action shall reimburse the prevailing party for its reasonable attorney’s fees, filing fees, and court costs.

(o) Tenant agrees and understands that Landlord shall have the right (provided that the exercise of Landlord’s rights does not adversely affect Tenant’s use and occupancy of the Premises, including Tenant’s GMP manufacturing operations, or subject Tenant to additional costs), without Tenant’s consent, to place a solar electric generating system on the roof of the Building or enter into a lease for the roof of the Building whereby such roof tenant shall have the right to install a solar electric generating system on the roof of the Building so long as such rooftop equipment does not interfere with Tenant’s equipment on the roof of the Building or interrupt or interfere with the utility services to the Premises. Upon receipt of written request from Landlord, Tenant, at Tenant’s sole cost and expense, shall deliver to Landlord data regarding the electricity consumed in the operation of the Premises (the “Energy Data”) for purposes of regulatory compliance, manual and automated benchmarking, energy management, building environmental performance labeling and other related purposes, including but not limited, to the Environmental Protection Agency’s Energy Star rating system and other energy benchmarking systems. Landlord shall use commercially reasonable efforts to utilize automated data transmittal services offered by utility companies to access the Energy Data. Landlord shall not publicly disclose Energy Data without Tenant’s prior written consent. Landlord may, however, disclose Energy Data that has been modified, combined or aggregated in a manner such that the resulting data is not exclusively attributable to Tenant.

(p) This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Lease. Execution copies of this Lease may be delivered by facsimile or email, and the parties hereto agree to accept and be bound by facsimile signatures or scanned signatures transmitted via email hereto, which signatures shall be considered as original signatures with the transmitted Lease having the same binding effect as an original signature on an original Lease. At the request of either party, any facsimile document or scanned document transmitted via email is to be re-executed in original form by the party who executed the original facsimile document or scanned document. Neither party may raise the use of a facsimile machine or scanned document or the fact that any signature was transmitted through the use of a facsimile machine or email as a defense to the enforcement of this Lease.

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(q) Within fifteen (15) days of Landlord’s written request, Tenant agrees to deliver to Landlord such information and/or documents as Landlord requires for Landlord to comply with California Public Resources Code Section 25402.10, or successor statute(s), and related California Code of Regulation, relating to commercial building energy ratings.

38. Limitation of Liability of Trustees, Shareholders, and Officers of Landlord. Any obligation or liability whatsoever of Landlord which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise.

39. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT:		LANDLORD:
STEMCELLS, INC.		PROLOGIS, L.P.
a Delaware corporation		a Delaware limited partnership
		By:	Prologis, Inc., a Maryland
			corporation, its general partner
By:	/s/ Ken Stratton
Name:	Ken Stratton
Title:	General Counsel	By:	/s/ Bradon J. Page
		Name:	Brandon J. Page
		Title:	Vice President, Market Officer

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ADDENDUM 1

BASE RENT ADJUSTMENTS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED March 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

Base Rent shall equal the following amounts for the respective periods set forth below, beginning on the Rent Commencement Date (provided that in the event the Rent Commencement Date does not occur on the first day of a month, then the period set forth below as Month 01 shall include the remainder of the month in which the Rent Commencement Date occurs as well as the first full calendar month following the month in which the Rent Commencement Date occurs, and each successive month will refer to the next full calendar month):

Period	Monthly Base Rent
3/31/2013 through Rent Commencement Date	$	0	*
Month 01 through Month 04	$	0	**
Month 05 through Month 12	$	26,180.00
Month 13 through Month 24	$	26,965.40
Month 25 through Month 36	$	27,774.36
Month 37 through Month 48	$	28,607.59
Month 49 through Month 60	$	29,465.82
Month 61 through Month 72	$	30,349.80
Month 73 through Month 84	$	31,260.29
Month 85 through Month 96	$	32,198.10
Month 97 through Month 108	$	33,164.04
Month 109 through Month 120	$	34,158.96

* During this free Base Rent period, Tenant shall not be responsible for Operating Expenses or utilities as set forth in the Lease.

** During this free Base Rent period, Tenant shall be responsible for Operating Expenses and utilities as set forth in the Lease.

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ADDENDUM 2

HVAC MAINTENANCE CONTRACT

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

Paragraph 11, captioned “TENANT REPAIRS,” is revised to include the following:

Tenant agrees to enter into and maintain through the term of the Lease, a regularly scheduled preventative maintenance/service contract for servicing all hot water, heating and air conditioning systems within the Premises. Landlord requires a qualified HVAC contractor perform this work. A certificate must be provided to the Landlord upon occupancy of the leased Premises.

The service contract must become effective within thirty (30) days of occupancy, and service visits shall be performed on at least a quarterly basis. Landlord suggests that Tenant send the following list to a qualified HVAC contractor to be assured that these items are included in the maintenance contract:

1. Adjust belt tension;

2. Lubricate all moving parts, as necessary;

3. Inspect and adjust all temperature and safety controls;

4. Check refrigeration system for leaks and operation;

5. Check refrigeration system for moisture;

6. Inspect compressor oil level and crank case heaters;

7. Check head pressure, suction pressure and oil pressure;

8. Inspect air filters and replace when necessary;

9. Check space conditions;

10. Check condensate drains and drain pans and clean, if necessary;

11. Inspect and adjust all valves;

12. Check and adjust dampers;

13. Run machine through complete cycle.

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ADDENDUM 3

MOVE-OUT CONDITIONS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

With respect to Paragraph 21 of the Lease, Tenant shall surrender the Premises in the same condition as received, ordinary wear and tear, casualty loss, and condemnation covered by Paragraphs 15 and 16 excepted.

Before surrendering the Premises, Tenant shall remove all of its personal property and trade fixtures and such alterations or additions to the Premises made by Tenant as may be specified for removal thereof pursuant to the terms of the Lease. If Tenant fails to remove its personal property and fixtures upon the expiration or earlier termination of this Lease, the same shall be deemed abandoned and shall become the property of the Landlord. The following list is designed to assist Tenant in the move-out procedures but is not intended to be all inclusive:

1.	Lights:	Office, warehouse, emergency and exit lights will be fully operational with all bulbs and ballasts functioning.
2.	Dock Levelers, Service Doors and Roll Up Doors:	All truck doors, service doors, roll up doors and dock levelers shall be serviced and placed in good operating order. This would include the necessary replacement of any dented truck door panels and adjustment of door tension to insure property operation. All door panels which are replaced need to be painted to match the building standard.
3.	Dock Seals/Dock Bumpers:	Free of tears and broken backboards repaired. All dock bumpers must be left in place and well secured.
4.	Structural Columns	All structural steel columns in the warehouse and office shall be inspected for damage caused by Tenant. Repairs of this nature should be pre-approved by Landlord prior to implementation.
5.	Warehouse Floor:	Free of stains caused by Tenant or its assignees or subtenants and swept with no racking bolts and other protrusions left in floor. Cracks should be repaired with an epoxy or polymer to match concrete color. All floor striping in the Premises shall be removed with no residual staining or other indication that such striping existed.
6.	Tenant-Installed Equipment and Wiring:	Subject to the Tenant-Made Alterations provisions in Paragraph 12, including those applicable to the initial Tenant-Made Alterations, all Tenant-installed equipment and wiring shall be removed and space turned to original condition when originally leased. (Remove air lines, junction boxes, conduit, etc.)
7.	Walls:	Sheetrock (drywall) damage should be patched and fire-taped so that there are no holes in either office or warehouse.
8.	Carpet and Tile	The carpet and vinyl tiles should be in a clean condition and should not have any holes or chips in them. Landlord will accept normal wear on these items provided they appear to be in a maintained condition.
9.	Roof:	Any Tenant-installed equipment which is required to be removed pursuant to the terms and conditions of the Lease must be removed and roof penetrations properly repaired by licensed roofing contractor. Active leaks caused by Tenant’s roof penetrations must be fixed. Tenant must check with Landlord’s property manager to determine if specific roofing contractor is required to perform work.
10.	Signs:	All exterior signs must be removed and holes patched and paint touched-up as necessary. All window signs should likewise be removed.

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11.	Heating and Air Conditioning System:	Heating/air conditioning systems exclusively serving the Premises should be placed in good working order, including the necessary replacement of any parts to return the unit to a well maintained condition. This includes warehouse heaters and exhaust fans. Upon move out, Landlord will have an exit inspection performed by a certified mechanical contractor to determine the condition.
12.	Electrical & Plumbing:	All electrical and plumbing equipment to be returned in good condition and repair.
13.	Overall Cleanliness:	Clean windows, sanitize bathroom(s), vacuum carpet, and remove any and all debris from office and warehouse. Remove all pallets and debris from exterior of Premises. All trade fixtures, dumpsters, racking, trash, vending machines and other personal property to be removed.
14.	Upon Completion:	Contact Landlord’s property manager to coordinate turning in of keys, utility changeover and obtaining of final Landlord inspection of Premises which, in turn, will facilitate refund of Security Deposit.

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ADDENDUM 4

ONE RENEWAL OPTION AT 95% OF MARKET

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

(a) Provided that as of the time of the giving of the Extension Notice and the Commencement Date of the Extension Term, (x) Tenant is the Tenant originally named herein or a Tenant Affiliate or a successor to Tenant’s interest pursuant to a Permitted Transfer, (y) Tenant actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term for an additional term of five (5) years (such additional term is hereinafter called the “Extension Term”) commencing on the day following the expiration of the Lease Term (hereinafter referred to as the “Commencement Date of the Extension Term”). Tenant shall give Landlord notice (hereinafter called the “Extension Notice”) of its election to extend the term of the Lease Term at least eight (8) months, but not more than twelve (12) months, prior to the scheduled expiration date of the Lease Term.

(b) The Base Rent payable by Tenant to Landlord during the Extension Term shall be ninety-five percent (95%) of the then prevailing market rate for comparable space in the Project and comparable buildings in the vicinity of the Project, taking into account the size of the Lease, the length of the renewal term, market escalations and the credit of Tenant. The Base Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord’s not having to find a new tenant for such premises (including, without limitation, brokerage commissions, costs of improvements, rent concessions or lost rental income during any vacancy period).

(c) The determination of Base Rent does not reduce the Tenant’s obligation to pay or reimburse Landlord for Operating Expenses and other reimbursable items as set forth in the Lease, and Tenant shall reimburse and pay Landlord as set forth in the Lease with respect to such Operating Expenses and other items with respect to the Premises during the Extension Term without regard to any cap on such expenses set forth in the Lease.

(d) Except for the Base Rent as determined above, Tenant’s occupancy of the Premises during the Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to any allowances, credits or abatements or any options to expand, contract, renew or extend the Lease.

(e) If Tenant does not give the Extension Notice within the period set forth in paragraph (a) above, Tenant’s right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the Extension Notice.

(f) Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Extension Term. The Premises shall be tendered on the Commencement Date of the Extension Term in “as-is” condition.

(g) If the Lease is extended for the Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto (the “Amendment”).

(h) If Tenant exercises its right to extend the term of the Lease for the Extension Term pursuant to this Addendum, the term “Lease Term” as used in the Lease, shall be construed to include, when practicable, the Extension Term except as provided in (d) above.

(i) Landlord, after receipt of Tenant’s Extension Notice shall deliver notice (the “Option Rent Notice”) to Tenant setting forth Landlord’s determination of the prevailing market rent for the applicable option term; and Tenant will have thirty (30) days within which to either (i) withdraw Tenant’s Extension Notice, in which case the Lease Term will not be extended for the option term or (ii) accept the rent set forth in Landlord’s Option Rent Notice, or (iii) object to the prevailing market rent determined by Landlord. If Tenant objects to the prevailing market rent contained in the Option Rent Notice, the prevailing market rent shall be determined as set forth in Section (j) below.

(j) Determination of Prevailing Market Rent. In the event Tenant exercises an option to extend but objects to Landlord’s determination of the prevailing market rent set forth in the Option Rent Notice, Landlord and Tenant shall attempt to agree in good faith upon the prevailing market rent for the applicable extension period. If Landlord and Tenant fail to reach agreement within thirty (30) days following Tenant’s delivery of its objection to the Option Rent Notice (the “Outside Agreement Date”), then each party shall make a separate determination of the prevailing market rent, and within ten (10) business days after the Outside Agreement Date the parties will concurrently exchange such determinations and such determinations shall be submitted to arbitration in accordance with Sections 1 through 5 below.

1. Landlord and Tenant shall mutually agree upon and appoint one arbitrator who shall by profession be a real estate appraiser who shall have been active over the five (5) year period ending on the

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date of such appointment in the leasing of comparable research and development (R&D) properties in the vicinity of the Project. The determination of the arbitrator shall be limited solely to the issue area of whether Landlord’s or Tenant’s submitted prevailing market rent is the closest to the actual prevailing market rent, as determined by the arbitrator, taking into account the requirements of this Addendum 4. The arbitrator shall be appointed within fifteen (15) business days after the applicable Outside Agreement Date, and in the event the parties are unable to agree on an arbitrator, then either party may petition to the presiding judge of the Alameda County Superior Court to appoint an arbitrator meeting the requirements set forth above.

2. The arbitrator shall within ten (10) business days of his or her appointment reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted prevailing market rent and shall notify Landlord and Tenant thereof. The arbitrator must choose between the Landlord’s proposal and the Tenant’s proposal and may not compromise between the two, average or select some other amount.

3. The decision of the arbitrator shall be binding upon Landlord and Tenant.

4. The arbitration will be conducted pursuant to the provisions of the American Arbitration Association, but subject to the instructions set forth in this Addendum 4.

5. The cost of arbitration shall be paid by Landlord and Tenant equally.

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ADDENDUM 5

STORAGE AND USE OF PERMITTED HAZARDOUS MATERIALS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

1. Permitted Hazardous Materials and Use.

Tenant has requested Landlord’s consent to use the Hazardous Materials listed below in its business at the Premises (the “Permitted Hazardous Materials”). Subject to the conditions set forth herein, Landlord hereby consents to the Use (hereinafter defined) of the Permitted Hazardous Materials. Any Permitted Hazardous Materials on the Premises will be generated, used, received, maintained, treated, stored, or disposed in a manner consistent with good engineering practice and in compliance with all Environmental Requirements.

Permitted Hazardous Materials (including maximum quantities):

[See attached table]

The storage, uses or processes involving the Permitted Hazardous Materials (the “Use”) are generally described below.

Use [If limited to receiving and storage, so specify]:

[See attached table]

2. No Current Investigation. Tenant represents and warrants that it is not currently subject to an inquiry, regulatory investigation, enforcement order, or any other proceeding regarding the generation, use, treatment, storage, or disposal of a Hazardous Material.

3. Notice and Reporting. Tenant shall promptly notify Landlord in writing of any spill, release, discharge, or disposal of any Hazardous Material in, on or under the Premises or the Project. All reporting obligations imposed by Environmental Requirements are strictly the responsibility of Tenant. Tenant shall supply to Landlord within 5 business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to Tenant’s use of the Premises.

4. Disposal Upon Lease Termination. At the expiration or earlier termination of the Lease, Tenant, at its sole cost and expense, shall: (i) remove and dispose off-site any drums, containers, receptacles, structures, or tanks storing or containing Permitted Hazardous Materials (or which have stored or contained Permitted Hazardous Materials) and the contents thereof; (ii) remove, empty, and purge all underground and above ground storage tank systems, including connected piping, of all vapors, liquids, sludges and residues; and (iii) restore the Premises as required to remove Tenant’s Permitted Hazardous Materials and leave the Premises in a condition which complies with Paragraph 30 of the Lease. Such activities shall be performed in compliance with all Environmental Requirements and to the reasonable satisfaction of Landlord. Landlord’s satisfaction with such activities or the condition of the Premises does not waive, or release Tenant from, any obligations hereunder.

5. Nothing herein is intended or will be construed to impose any liability or responsibility on Tenant for any Hazardous Materials which preexisted Tenant’s use or occupancy of the Premises or any Hazardous Materials not brought onto the Premises or Project by or on behalf of Tenant, its contractors or employees.

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HAZARDOUS CHEMICALS
Chemical Name	Name	State Fire Code	Hazard Class	Amount	Use
ACETIC ACID	ACETIC ACID	CL2, CORR, OHH	3	1 gal	QC testing
ACETONE	ACETONE	FL1B, IRR	3	2 gal	QC testing
AMMONIUM HYDROXIDE	AMMONIUM HYDROXIDE	CORR, TOX,	8	1/2 gal	QC testing
BOVINE ALBUMIN	BSA		0	1/2 lbs	QC testing
BUFFER, pH 4	POTASSIUM HYDROGEN PHTHALATE	IRR		0.1 gal	QC testing
CALCIUM CHLORIDE	CALCIUM CHLORIDE	OHH, IRR	9	2 lbs	QC testing
CARBON DIOXIDE	CARBON DIOXIDE, LIQUID		3	279 gal	Incubation
CARBON DIOXIDE	CARBON DIOXIDE, DRY ICE		3	50 lbs	Sample transport
CARBON DIOXIDE, 5%	CALIBRATION GAS		1	20 cu. ft.	Calibration
CIPROFLOXACIN	CIPROFLOXACIN		9	1/2 gal	Cell culture
CITRIC ACID	CITRIC ACID	IRR, CORR	8	2 lbs	QC testing
COLLAGENASE	COLLAGENASE	IRR, SEN	9	0.5 lbs	QC testing
COOMASSIE STAIN KIT	COOMASSIE STAIN		9	1 lb	QC testing
COVERAGE PLUS NPD	DI-N-ALKYL DIMETHYL AMMONIUM CHLORIDE N-ALKYL DIMETHYL BENZYL AMMONIUM CHLORIDE	IRR	3	10 gal	Cleaning
D-GLUCOSE	DEXTROSE	IRR	9	1 lbs	QC testing
DIESEL FUEL #2	DIESEL FUEL #2	CL2	3	200 gal	Generator
DIMETHYL SULFOXIDE	DMSO	CL3B, IRR, SEN	3	1/2 gal	Freezing
DITHIOTHREITOL MOLCEULAR BIOLOGY REAGENT	DTT	TOX, IRR	0	0.1 gal	QC testing
ETHANOL	REAGENT ALCOHOL	FL1B, IRR, OHH	3	2 gal	QC testing
ETHYLENEDIAMINETETRAACETIC ACID DISODIUM SALT	EDTA	IRR	9	1/2 gal	Cell culture
FYRITE, CO2	POTASSIUM HYDROXIDE ISOOCTYL ALCOHOL	CORR	3	1 gal	Calibration
FYRITE, O2	HCL ISOOCTYL ALCOHOL CHROMIUM CHLORIDE	CORR	3	1 gal	Calibration
GENTAMICIN	GENTAMICIN		6.1	1/2 gal	QC testing
GLUTAMINE	GLUTAMINE		8	1/2 gal	QC testing
GLUTARALDEHYDE	GLUTARALDEHYDE	CORR, TOX, SEN	8	1/2 gal	QC testing

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HAZARDOUS CHEMICALS

Chemical Name	Name	State Fire Code	Hazard Class	Amount	Use
GLYCEROL	GLYCEROL	CL3B, IRR, OHH	0	2 gal	QC testing
GRAM CRYSTAL VIOLET	GRAM CRYSTAL VIOLET		9	1/2 gal	QC testing
GRAM DECOLORIZER	GRAM DECOLORIZER	FL1B	3	1/2 gal	QC testing
GRAM IODINE	GRAM IODINE		9	1/2 gal	QC testing
GRAM SAFRANIN	GRAM SAFRANIN		9	1/2 gal	QC testing
HEPES	HEPES	IRR	9	1 gal	QC testing
HUMAN SERUM ALBUMIN	HUMAN SERUM ALBUMIN		0	1/2 lbs	Cell culture
HYDROCHLORIC ACID	HYDROCHLORIC ACID	CORR, OHH	8	1/2 gal	QC testing
ISOPROPANOL	ISOPROPANOL	FL1B, IRR	3	15 gal	Cleaning
LAURYL SULFATE	LAURYL SULFATE	IRR	9	1 lbs	QC testing
LPHst	PHENOL PHOSPHORIC ACID ISOPROPANOL DODECYLBENZENE SULPHONIC ACID		3	10 gal	Cleaning
LYSOL	LYSOL	FL1B, IRR	3	2 gal	Cleaning
MAGNESIUM CHLORIDE	MAGNESIUM CHLORIDE	IRR	9	1/2 gal	QC testing
METHANOL	METHANOL	FL1B, IRR, OHH	3	2 gal	QC testing
MICRO BCA ASSAY KIT	BICINCHONINIC ACID COPPER SULFATE PENTAHYDRATE		2	0.1 gal	QC testing
MICROORGANISMS	MICROORGANISMS			0.1 lbs	QC testing
N-ACETYL-L-CYSTEINE	N-ACETYL-L-CYSTEINE		0	1/2 gal	Cell culture
NITRO CELLULOSE	NITRO CELLULOSE	CL2	3	1/2 lbs	QC testing
NITROGEN, LIQUID	LIQUID NITROGEN	CRY	2.2	770 gal	Freezers, Incubation
PARAFORMALDEHYDE	PARAFORMALDEHYDE	CORR, FS	4.1	1/2 gal	QC testing
PENICILLIN G	PENICILLIN G	ORM	9	1/2 lbs	QC testing
PERCOLL	PERCOLL		0	1/2 gal	QC testing
POLY-L-ORNITHINE	ORNITHINE HYDROCHLORIDE		9	1/2 lbs	QC testing
PROPIDIUM IODIDE	PROPIDIUM IODIDE	IRR	2.3	0.1 gal	QC testing
RUST INHIBITOR	M-640-L			1 gal	Incubation
SILVER NITRATE	SILVER NITRATE	CORR, TOX,	8	0.1 gal	QC testing
SODIUM HYDROXIDE	SODIUM HYDROXIDE	CORR, TOX,	8	1/2 gal	QC testing
SODIUM AZIDE	SODIUM AZIDE	HTOX, UR3, OHH	6.1	0.1 lbs	QC testing
SODIUM BICARBONATE	SODIUM BICARBONATE	IRR, OHH	0	1/2 gal	QC testing

- 28 -

HAZARDOUS CHEMICALS

Chemical Name	Name	State Fire Code	Hazard Class	Amount	Use
SODIUM CHLORIDE	SODIUM CHLORIDE	IRR, OHH	9	10 lbs	QC testing
SODIUM DODECYL SULFATE	SODIUM DODECYL SULFATE	IRR	9	1 gal	QC testing
SODIUM HEPARIN	HEPARIN	TOX, IRR	0	1 gal	Cell culture
SODIUM HYPOCHLORITE >5% - 12.5%	BLEACH	CORR, IRR	0	10 gal	Cleaning
SODIUM PHOSPHATE, DIBASIC	SODIUM PHOSPHATE, DIBASIC	IRR	9	10 lbs	QC testing
SPORICIDIN	SPORICIDIN	IRR	6.1	1/2 gal	Cleaning
SPOR-KLENZ	HYDROGEN PEROXIDE PERACETIC ACID ACETIC ACID	CORR, IRR	3	10 gal	Cleaning
SPILL KIT, X-A AGENT	MAGNESIUM OXIDE MAGNESIUM ALUMINUM SILICATE SODIUM CARBONATE SODIUM ALKYLNAPHTHALENE SULFONATE			10 lbs	Lab Safety
SPILL KIT, X-C AGENT	CITRIC ACID FUMARIC ACID ACRYLATE POLYMER MAGNESIUM ALUMINUM SILICATE SODIUM ALKYLNAPHTHALENE SULFONATE			10 lbs	Lab Safety
SPILL KIT, X-FP	UREA CALCIUM CHLORIDE CITRIC ACID			10 lbs	Lab Safety
THERMOLYSIN	THERMOLYSIN	IRR	2	0.5 lbs	QC testing
TRIIODO-L-THYRONINE	TRIIODO-L-THYRONINE SODIUM SALT	IRR	2	0.1 lbs	QC testing
TRIS	TRIS	IRR	9	2 lbs	QC testing
TRITON X-100	TRITON X-100	CL3B, IRR	3	0.1 gal	QC testing
TRYPAN BLUE	TRYPAN BLUE	OHH, CAR	6.1	0.25 gal	QC testing
TRYPSIN	TRYPSIN	IRR	9	1/2 gal	QC testing
TWEEN 20	TWEEN 20	IRR, OHH, CL3B	3	0.1 gal	QC testing
VESPHENE	PHENOL KOH / NAOH	IRR	3	10 gal	Cleaning

- 29 -

ADDENDUM 6

SATELLITE DISH AND AIR HANDLING UNITS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

Landlord hereby grants Tenant the right to install, maintain and replace from time to time a satellite dish or similar antennae device (hereinafter “Satellite Dish”) and the Air Handling Units (as defined in Paragraph 7 of the Lease) on the roof of the Premises, subject to the following: (a) applicable governmental laws; (b) the right of Landlord to supervise any roof penetrations; (c) compliance with the conditions of any roof bond maintained by Landlord on the Premises; (d) the Satellite Dish and Air Handling Units not being visible at street level; and (e) Landlord’s rights to use or lease the roof for the placement of a solar electric generating system; provided such system is installed and maintained in a manner which does not interfere with Tenant’s Satellite Dish or Air Handling Units. Tenant shall be responsible for the repair of any damage to any portion of the Premises caused by Tenant’s installation, use or removal of the Satellite Dish and Air Handling Units. The Satellite Dish and Air Handling Units shall remain the exclusive property of Tenant, and Tenant shall have the right to remove same at any time during the term of the Lease so long as Tenant is not in default under the Lease. Tenant shall protect, defend, indemnify and hold harmless Landlord from and against any and all claims, damages, liabilities, costs or expenses of every kind and nature (including without limitation reasonable attorney fees) imposed upon or incurred by or asserted against Landlord arising out of Tenant’s installation, maintenance, use or removal of the Satellite Dish or the Air Handling Units.

- 30 -

EXHIBIT A-1

SITE PLAN

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

Notwithstanding the drawing above, the generator and bulk tanks shall not be located beyond the extended line that represents the location of the south demising wall of the Premises, i.e., the generator and bulk tanks cannot be located along the outside wall of another premises; provided that to the extent the existing concrete pad extends beyond such southern demising wall of the Premises, the screening wall/fence may extend beyond such southern boundary to the code required distance.

- 31 -

EXHIBIT A-2

PROJECT

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

- 32 -

EXHIBIT B

PROJECT RULES AND REGULATIONS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

Rules and Regulations

1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises.

1. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

2. Except for seeing-eye dogs, no animals shall be allowed in the offices, halls, or corridors in the Project.

3. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

4. If Tenant desires telegraphic, telephonic or other electric connections to the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant’s expense.

5. The use of oil, gas or inflammable liquids (other than Permitted Hazardous Materials) for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.

6. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Further, parking any type of trucks, trailers or other vehicles in the Building is specifically prohibited. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no “For Sale” or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord or in the Lease.

7. Tenant shall maintain the Premises free from rodents, insects and other pests.

8. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

9. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

10. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

11. Except as expressly permitted by the Lease, Tenant shall not permit storage outside the Premises, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

12. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

13. No auction, public or private, will be permitted on the Premises or the Project.

14. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

15. The Premises shall not be used for lodging, sleeping or cooking or for any illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.

16. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity (Landlord hereby agrees that the existing 500 amp main breaker service is available, operational, permitted to be used, and Tenant is

- 33 -

permitted to upgrade the service to include the additional 300 amps referenced in the Lease). Landlord’s consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

17. Landlord is not responsible for protecting the Premises from theft, robbery and pilferage.

18. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises and cause a nuisance (e.g., generator may be operated during periods of testing and servicing and during power outages, but it will be operated within applicable Legal Requirements for sound).

19. Tenant shall not permit smoking in the office areas of the Premises.

- 34 -

EXHIBIT C

FORM OF COMMENCEMENT DATE CERTIFICATE

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED MARCH 20, 2013 BETWEEN

Prologis, L.P.

and

StemCells, Inc.

COMMENCEMENT DATE CERTIFICATE

            , 2013

StemCells, Inc.

Attention:                     

7707 Gateway Boulevard, Suite 140

Newark, California 94560

RE: Lease dated                      between StemCells, Inc., and Prologis, L.P. for

XXXXX, Sunnyvale, CA 94089-1300

Dear                     :

Welcome to your new facility. We would like to confirm the terms of the above referenced lease agreement:

Lease Commencement Date:

Lease Termination Date:

Rent Commencement Date:

Premises square footage:

Tenant’s Proportionate Share:

We are pleased to welcome you as a customer of Prologis and look forward to working with you. Please indicate your agreement with the above changes to your lease by signing and returning the enclosed copy of this letter to me. If I can be of service, please do not hesitate to contact me.

Sincerely,

Anna Torres

Senior Property Manager

Accepted by:	StemCells, Inc., a Delaware corporation	Date:
	By:
	Printed:
	Title:

- 35 -

EX-10.28

Exhibit 10.28

June 5, 2013

Ann Tsukamoto, Ph.D.

XXXXX

XXXXX

Dear Ann:

I am delighted to now formally offer you the newly created position of Executive Vice President, Scientific and Strategic Alliances of StemCells, Inc., with effect beginning June 6, 2013 (your “appointment date”), and subject to the following. For your convenience, I have attached a copy of the document previously shared with you describing the duties and responsibilities attached to this position.

Upon receipt of your written acceptance of this employment offer, your salary would increase from $335,000 to $350,000 per annum beginning on the appointment date. A target bonus of 40% of your base salary would still apply consistent with the Company’s practices. You would also receive, as of your appointment date, a new equity award under the Company’s 2006 Equity Plan in the form of 280,000 restricted stock units (RSUs) vesting in four equal installments over the next four years. As of today’s date, the current market value of this new award would be approximately $501,200 (280,000 x $1.79 per share). Furthermore, I am confirming our understanding that, if you accept this new appointment, any involuntary termination of your employment associated with a change of control of the Company will trigger immediate vesting of any unvested stock award held by you on the date of termination. All other terms and conditions of your employment would remain unchanged. In this new position, you would continue to report directly to me.

Ann, as I have said many times before, your leadership of the R&D function here at the Company, from its founding days to the present, has been instrumental in STEM’s emergence as the leading stem cell therapy company focused on diseases and disorders of the CNS. I firmly believe that the combination of your expertise and knowledge in the field of stem cell science, combined with the very valuable experience you have gained over the past 15 years at STEM, has prepared you well for the new and exciting challenges that await you in the new position of EVP, Scientific and Strategic Alliances.

I look forward to working with you in this new role, as you help position STEM for the exciting road ahead!

With kind regards,

/S/ Martin

Martin

Acknowledged and agreed:

/s/ Ann Tsukamoto

Ann Tsukamoto

Date: 6/5/2013

EX-10.29

Exhibit 10.29

November 13, 2013

Mr. Gregory Schiffman

XXXXXXXXX

XXXXXXXXX

Dear Greg,

On behalf of StemCells, Inc., I am pleased to offer you the position of Chief Financial Officer and Executive Vice President of Finance on the following terms and conditions:

(1) Job Responsibilities. Unless otherwise agreed in writing, your first day of employment will be January 1, 2014. You will report directly to me and work at our offices located at 7707 Gateway Blvd in Newark, California. Initially your duties and responsibilities will include, but will not be limited to: (1) management of the Company’s Finance Department, (2) financial reporting and controls, (3) economic strategy and forecasting, (4) investor relations, (5) corporate communications, (6) budgeting and financial analysis, and (7) information technology oversight.

(2) Salary. Beginning on your first day of employment, your base salary will be at the rate of $450,000 per year, paid bi-weekly, every other Friday. In addition, you will be eligible for a bonus of up to 50% of your annual base salary (calculated as of January 1 of the year for which bonuses are awarded). Funding of the bonus program is at the discretion of the Company’s Board of Directors and is based upon their evaluation of the Company’s performance versus previously determined goals for the year. You will be eligible for inclusion in the Bonus Plan for the 2014 fiscal year, based upon your performance consistent with Company practices.

(3) Restricted Stock Units. You will be granted three hundred fifty thousand (350,000) Restricted Stock Units (“RSUs”), pursuant to the Company’s 2012 Commencement Incentive Plan (the “2012 Plan”). This RSU grant will vest over four years, with 1/4 vesting on each of the first four anniversaries of your employment. Upon hire, you will receive an “Equity Award Agreement” under the 2012 Plan to confirm the terms and conditions of these grants, including the fact that grants under the 2012 Plan are subject in their entirety to the provisions of the 2006 Equity Plan such as continued employment to receive vested shares. A copy of the Prospectus for the 2006 Equity Plan will be provided to you when your employment begins. All grants under the “2012 Plan” are subject to shareholder notification through a press release.

Mr. Gregory Schiffman

November 13, 2013

Page 2

(4) Benefits. As an employee of StemCells, you will be eligible to participate in a comprehensive benefits program which currently includes: medical, dental and vision benefits for you and your dependents; term life insurance equivalent to two times your annual base salary up to $800,000; short and long-term disability insurance; and a 401(k) savings plan and employer match, which is currently made in Company stock. You will be eligible to participate in these plans on the first of the month following your start date, except that you may elect to participate in the 401(k) plan immediately. Details of these benefit plans will be provided to you upon your employment. Your paid time off (PTO) as a full-time employee will be 25 days (200 hours) per year, accrued at a rate of 7.69 hours per pay period, up to the maximum accrual permitted by Company policy. In addition, the Company currently offers eight paid holidays per year.

(5) Temporary Housing Allowance. Commencing on your first day of employment, the Company will provide you with a temporary housing allowance, for a period not to exceed sixty (60) days without my prior written authorization, equal to your reasonable housing expenses here in the San Francisco Bay Area. You may submit receipts or other evidence of these expenses as they come due for reimbursement. This allowance will be subject to applicable withholding taxes.

(6) Employment Documentation; Fitness to Work. As a condition of employment with StemCells, you will be required to: (1) sign and return both a copy of this letter and a copy of the enclosed Employment Agreement, which prohibits among other things the unauthorized use or disclosure of Company proprietary information and requires the assignment of intellectual property (IP) rights to any invention made by you as part of your work at StemCells; and (2) on or before the first day of your employment, provide documents from the enclosed List of Acceptable Documents which prove your identity and right to work in the United States. You will also be expected to (i) abide by Company rules and regulations, (ii) sign and comply with the Company’s Code of Ethics and Conduct, Harassment Policy and Publication Policy, and (iii) acknowledge in writing that you will read and comply with the Company’s Employee Handbook. You also must sign and return at least one week before your first day of employment the enclosed employment application and release authorization for a background check. This offer is contingent on satisfactory completion of reference checking by the Company.

You have an option to receive the Hepatitis B vaccine which is paid for by the Company. A form to elect or decline the vaccine is enclosed. Please fill out the form, sign and return it to Human Resources.

(7) Confidentiality. As a Company employee, you will be expected not to use or disclose any confidential information, including trade secrets, of any former or current employer or any other person to whom you have an obligation of confidentiality. Rather, you will be expected to use only that information which is generally known and used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. You agree that you will not bring onto Company premises any unpublished documents or property belonging to any former or current employer or

Mr. Gregory Schiffman

November 13, 2013

Page 3

other person to whom you have an obligation of confidentiality. During our discussions about your proposed job duties, you assured us that you would be able to perform your responsibilities within the guidelines just described.

(8) At-Will Employment; Termination and Termination Benefits. As set forth in your Employment Agreement, your employment with StemCells will be on an at-will basis and for an unspecified duration, which means that neither this Letter Agreement nor any policy or procedure of StemCells (including the stock vesting and other payments made to you by the Company over time based on your continued employment with the Company), nor any verbal representation, shall confer any right to continuing employment. Either you or StemCells may terminate your employment relationship at any time with or without cause. In addition, the Company expressly reserves the right to modify your compensation and benefits from time to time as it deems necessary or advisable. In the event of termination of your employment, you will not be entitled to any severance pay or other benefits, damages or compensation of any kind, except as provided in this Letter Agreement.

If your employment with StemCells is involuntarily terminated without cause at any time, you will be provided with salary continuation and benefits continuation under COBRA from the date of termination until the date twelve (12) months after the effective date of termination equal to the salary which you were receiving at the time of such termination; payments shall be paid in accordance with the Company’s standard payroll practices upon the Company’s receipt of a signed general release of any claims, whether known or unknown, against the Company and its agents.

In the event of a Company change of control and either (i) your employment is involuntarily terminated, or (ii) you voluntarily terminate your employment because your job responsibilities have been materially and adversely impacted as a result of the change of control, you will be provided with salary continuation and benefits continuation under COBRA from the date of termination until the date twelve (12) months after the effective date of termination equal to the salary which you were receiving at the time of such termination; payments shall be paid in accordance with the Company’s standard payroll practices upon the Company’s receipt of a signed general release of any claims, whether known or unknown, against the Company and its agents.

If your employment is terminated for cause or you choose to resign without good cause, you will not be entitled to any severance payments or other benefits.

This letter, which includes your Employment Agreement, supersedes all prior discussions, agreements and writings with regard to your employment and any related matters. The terms of this conditional offer can only be amended in a written document signed by you and an officer of the Company. Also, final terms of your employment must be approved by the Company’s Compensation Committee.

Mr. Gregory Schiffman

November 13, 2013

Page 4

Please indicate your acceptance of the terms and conditions of this conditional employment offer by signing this letter and the enclosed Employment Agreement and returning them both to me.

On behalf of the entire Company, I am delighted at the prospect of your joining us as Chief Financial Officer and EVP of Finance, as we work together to deliver the promise of this exciting technology to physicians and patients, while at the same time creating value for our employees and shareholders alike. We truly believe that you will greatly contribute to the success of StemCells, and we all look forward to working with you.

Sincerely,

/s/ Martin McGlynn

Martin McGlynn

President and CEO

Enclosures: Employment Agreement

List of Acceptable Documents

Form to elect or decline Hepatitis B vaccine

Code of Ethics and Conduct

Release Authorization

Employment Application

I accept the foregoing conditional offer of employment on the terms and conditions outlined above.

/s/ Greg Schiffman	11-13-13
Mr. Gregory Schiffman	Date

EX-21

Exhibit 21

Legal Name of Subsidiary	Place of Organization
Stem Cell Sciences Holdings Limited	Private limited company registered in U.K. (Reg. No. SC 247746)
Stem Cells Sciences (UK) Limited	Private limited company registered in Scotland (Reg. No. SC 209852)
StemCells California, Inc.	California corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 12, 2014, with respect to the consolidated financial statements included in the Annual Report of StemCells, Inc. and subsidiaries on Form 10-K for the year ended December 31, 2013. We hereby consent to the incorporation by reference of said report in the previously filed Registration Statements of StemCells, Inc. and subsidiaries on Form S-1 (File No. 333-61726, effective May 25, 2001 and amended on June 29, 2001 and July 2, 2011), on Forms S-3 (File Nos. 333-193100, effective December 27, 2013, 333-170300, effective November 16, 2010, 333-159604, effective May 29, 2009, 333-151891, effective June 24, 2008 and amended on July 18, 2008, 333-117360, effective July 14, 2004, 333-105664, effective May 29, 2003 and amended on June 3, 2003, 333-83992, effective on March 8, 2002 and amended on July 2, 2002, 333-75806, effective December 21, 2001 and amended on January 1, 2009, and 333-66692, effective August 3, 2001 and amended on August 8, 2001) and on Forms S-8 (File Nos. 333-66700, effective August 3, 2001, 333-118263, effective August 16, 2004, 333-144747, effective July 20, 2007, 333-183712, effective September 4, 2012, and 333-190386, effective August 6, 2013) and in the Registration Statements of CytoTherapeutics, Inc. on Forms S-3 (File Nos. 33-91228, effective April 14, 1995, and 33-68900, effective September 15, 1993).

San Francisco, California

March 13, 2014

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

under Section 302 of the Sarbanes-Oxley Act

I, Martin McGlynn, certify that:

(1) I have reviewed this annual report on Form 10-K of StemCells, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2014

/s/ Martin McGlynn

Martin McGlynn

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

under Section 302 of the Sarbanes-Oxley Act

I, Gregory Schiffman, certify that:

(1) I have reviewed this annual report on Form 10-K of StemCells, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2014

/s/ Gregory Schiffman

Gregory Schiffman

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the StemCells, Inc. (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin McGlynn, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 13, 2014

 /s/ Martin McGlynn

Martin McGlynn

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the StemCells, Inc. (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory Schiffman, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 13, 2014

 /s/ Gregory Schiffman

Gregory Schiffman

Chief Financial Officer

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Other Long-Term Liabilities (Tables)

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Schedule of Other Long-Term Liabilities

	2013		2012
Accrued interest on loan payable	$	497,134	$	—
Employee compensation		186,439		216,439
Net deferred tax liability		117,815		—
Total accrued expenses and other current liabilities	$	801,388	$	216,439

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Financial Instruments - Available for Sale Securities Held in Investment Portfolio (Detail) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 30,585,424	$ 22,373,308
Gross Unrealized Gains
Gross Unrealized Losses		(1,356)
Fair Value	30,585,424	22,371,952
Cash [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,355,281	254,267
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value	1,355,281	254,267
Cash equivalents (money market accounts) [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	29,230,143	8,217,259
Gross Unrealized Gains
Gross Unrealized Losses		(252)
Fair Value	29,230,143	8,217,007
Marketable debt securities, current [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		13,901,782
Gross Unrealized Gains
Gross Unrealized Losses		(1,104)
Fair Value		$ 13,900,678

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Quarterly Financial Data (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

Summary of Quarterly Financial Data

	2013 Quarter Ended
	December 31		September 30		June 30		March 31
	(In thousands, except per share amounts)
Total revenue	$	313	$	325	$	282	$	284
Cost of Sales		86		86		78		67
Operating expenses		9,697		6,895		6,425		6,475
Other income (expense), net(1)		2,508		(536)		353		(159)
Net loss		(6,962)		(7,192)		(5,869)		(6,416)
Basic and diluted net loss per share	$	(0.13)	$	(0.17)	$	(0.15)	$	(0.17)

	2012 Quarter Ended
	December 31		September 30		June 30		March 31
	(In thousands, except per share amounts)
Total revenue	$	211	$	264	$	249	$	644
Cost of Sales		55		72		64		72
Operating expenses		6,949		5,269		5,534		5,898
Other income (expense), net(1)		4,034		(11,260)		6,183		(4,903)
Net income (loss)		(2,758)		(16,337)		833		(10,229)
Basic and diluted net income (loss) per share	$	(0.07)	$	(0.54)	$	0.03	$	(0.45)

(1) Other expense, net, for 2013 and 2012, includes the change in fair value of our warrant liability — see Note 13.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Mar. 03, 2014	Jun. 30, 2013
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Trading Symbol	STEM
Entity Registrant Name	STEMCELLS INC
Entity Central Index Key	0000883975
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		55,419,116
Entity Public Float			$ 66,836,311

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Other Long-Term Liabilities

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Other Long-Term Liabilities

Note 9. Other Long-Term Liabilities

	2013		2012
Accrued interest on loan payable	$	497,134	$	—
Employee compensation		186,439		216,439
Net deferred tax liability		117,815		—
Total accrued expenses and other current liabilities	$	801,388	$	216,439

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Wind-Down and Exit Costs - Components of Wind-Down Reserve (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2013
Restructuring Cost and Reserve [Line Items]
Accrued wind-down reserve at beginning of period				$ 854,000
Less actual expenses recorded against estimated reserve during the period	916,000
Revised reserve at period-end				854,000
Add deferred rent at period end	(435,967)	(85,572)	(1,302,543)
Facility Closing In Rhode Island [Member]
Restructuring Cost and Reserve [Line Items]
Accrued wind-down reserve at beginning of period	854,000	1,683,000
Less actual expenses recorded against estimated reserve during the period	(916,000)	(1,185,000)
Additional expense recorded to revise estimated reserve	62,000	356,000
Revised reserve at period-end		854,000
Add deferred rent at period end		249,000
Total accrued wind-down expenses at period-end (current)		$ 1,103,000

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Warrant Liability - Summary of Warrant Liability (Detail) (USD $)	Dec. 31, 2013	Oct. 31, 2013
Class of Warrant or Right [Line Items]
Number Outstanding	9,551,378
Exercise Price per share		1.80
Series A Warrants [Member]
Class of Warrant or Right [Line Items]
Number Outstanding	8,116,895
Exercise Price per share	1.40
November 2008 Financing [Member]
Class of Warrant or Right [Line Items]
Number Outstanding	1,034,483
Exercise Price per share	23.00
November 2009 Financing [Member]
Class of Warrant or Right [Line Items]
Number Outstanding	400,000
Exercise Price per share	15.00
Outstanding warrants [Member]
Class of Warrant or Right [Line Items]
Fair Value	$ 5,541,809
Outstanding warrants [Member] | Series A Warrants [Member]
Class of Warrant or Right [Line Items]
Fair Value	5,541,809
Outstanding warrants [Member] | November 2008 Financing [Member]
Class of Warrant or Right [Line Items]
Fair Value
Outstanding warrants [Member] | November 2009 Financing [Member]
Class of Warrant or Right [Line Items]
Fair Value

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Consolidated Statements of Operations (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Revenue:
Revenue from licensing agreements, grants and other	$ 205,302	$ 511,558	$ 557,880
Revenue from product sales	997,968	856,397	662,790
Total revenue	1,203,270	1,367,955	1,220,670
Cost of product sales	316,628	263,188	214,811
Gross profit	886,642	1,104,767	1,005,859
Operating expenses:
Research and development	20,533,713	15,846,829	19,937,764
Selling, general and administrative	8,896,537	7,447,235	8,202,375
Wind-down expenses	61,837	356,379	287,122
Impairment of intangible asset			654,961
Total operating expenses	29,492,087	23,650,443	29,082,222
Operating loss	(28,605,445)	(22,545,676)	(28,076,363)
Other income (expense):
Realized gain on sale of marketable securities			83,750
Change in fair value of warrant liability	3,253,253	(5,944,571)	6,612,092
Interest income	11,318	15,594	13,942
Interest expense	(1,166,782)	(50,193)	(71,363)
Other income	68,497	33,693	109,404
Total other income (expense), net	2,166,286	(5,945,477)	6,747,825
Net loss	$ (26,439,159)	$ (28,491,153)	$ (21,328,538)
Basic and diluted net loss per share	$ (0.61)	$ (0.99)	$ (1.50)
Shares used to compute basic and diluted loss per share	43,422,001	28,824,417	14,187,885

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Fair Value Measurement

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurement

Note 3. Fair Value Measurement

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, we are required to apply a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. The three levels of the fair value hierarchy are:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Directly or indirectly observable inputs other than in Level 1, that include quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 — Unobservable inputs which are supported by little or no market activity that reflects the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets measured at fair value as of December 31, 2013 and 2012 are classified below based on the three fair value hierarchy tiers described above.

Our cash equivalents are classified as Level 1 because they are valued primarily using quoted market prices.

Our bonds payable, marketable securities, and liability for warrants issued in our 2008 and 2009 financing, are classified as Level 2 as they are valued using alternative pricing sources and models utilizing market observable inputs.

We estimated the fair value of our loan payable using the net present value of the payments discounted at an effective interest rate. We believe the estimates used to measure the fair value of our loan payable constitute Level 3 inputs.

Our liability for warrants issued in our 2011 financing is classified as Level 3 as the liability is valued using a Monte Carlo simulation model. Some of the significant inputs used to calculate the fair value of warrant liability include our stock price on the valuation date, expected volatility of our common stock as traded on NASDAQ, and risk-free interest rates that are derived from the yield on U.S. Treasury debt securities, all of which are observable from active markets. However, the use of a Monte Carlo simulation model requires the input of additional subjective assumptions including management’s assumptions regarding the likelihood of a re-pricing of these warrants pursuant to anti-dilution provisions and the progress of our R&D programs and its affect on potential future financings.

The following table presents our financial assets and liabilities measured at fair value:

	Fair Value Measurement at Reporting Date Using				Unobservable Inputs (Level 3)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)				As of December 31, 2013
Financial assets
Cash equivalents:
Money market funds	$	821,335	$	—	$	—	$	821,335
U.S. Treasury debt obligations		28,408,808		—		—		28,408,808
Total financial assets	$	29,230,143	$	—	$	—	$	29,230,143
Financial liabilities
Bond obligation	$	—	$	125,000	$	—	$	125,000
Loan payable net of discounts		—		—		12,909,244		12,909,244
Warrant liabilities		—		—		5,541,810		5,541,810
Total financial liabilities	$	—	$	125,000	$	18,451,054	$	18,576,054

Level 2 Reconciliation

The following table presents a roll forward for financial assets and liabilities measured at fair value using significant other observable inputs (Level 2) for 2013.

	Level 2 Beginning Balance 12/31/12 $		Net transfers (to) from Level 1 $			Change included in earnings $			Settled $			Level 2 Ending Balance 12/31/13 $
Marketable debt securities		13,900,678		(13,900,678	)		—			—			—
Bond obligation		331,250		—			—			(206,250	)		125,000
Warrant liabilities		107,968		—			(107,968	)		—			—

Transfers from Level 2 to Level 1 for marketable debt securities are maturities of short term marketable debt securities into cash and cash equivalents.

Level 3 Reconciliation

The following table presents a roll forward for liabilities measured at fair value using significant unobservable inputs (Level 3) for 2013.

	Warrant Liabilities
Balance at December 31, 2012	$	9,157,397
Less fair value of warrants exercised		(470,303	)
Add change in fair value of warrants		(3,145,285	)
Balance at December 31, 2013	$	5,541,809

	Loan Payable
Balance at December 31, 2012	$	—
Add loan proceeds		13,820,264
Less discount		(487,576	)
Initial carrying value	$	13,332,688
Less repayments of principal		(620,215	)
Add accretion of discount		196,771
Balance at December 31, 2013	$	12,909,244
Current portion	$	3,664,370
Non-current portion		9,244,874
Balance at December 31, 2013	$	12,909,244

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Financial Instruments

12 Months Ended

Dec. 31, 2013

Investments Debt And Equity Securities [Abstract]

Financial Instruments

Note 2. Financial Instruments

Cash, cash equivalents and marketable securities

The following table summarizes the fair value of our cash, cash equivalents and available-for-sale securities held in our investment portfolio:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2013
Cash	$	1,355,281	$	—	$	—		$	1,355,281
Cash equivalents (money market accounts)		29,230,143		—		—			29,230,143
Total cash, cash equivalents, and marketable securities	$	30,585,424	$	—	$	—		$	30,585,424
December 31, 2012
Cash	$	254,267	$	—	$	—		$	254,267
Cash equivalents (money market accounts)		8,217,259		—		(252	)		8,217,007
Marketable debt securities, current		13,901,782		—		(1,104	)		13,900,678
Total cash, cash equivalents, and marketable securities	$	22,373,308	$	—	$	(1,356	)	$	22,371,952

At December 31, 2013, our investments in money market accounts are through a money market fund that invests in high quality, short-term money market instruments which are classified as cash equivalents in the accompanying Consolidated Balance Sheet due to their short maturities. The investment seeks to provide the highest possible level of current income while still maintaining liquidity and preserving capital. From time to time, we carry cash balances in excess of federally insured limits. Our cash balance at December 31, 2013 includes approximately $146,000 held by our U.K. subsidiary.

We do not hold any investments that were in a material unrealized loss position as of December 31, 2013.

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Loan Payable

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Loan Payable

Note 14. Loan Payable

Loan Agreement with Silicon Valley Bank

In April 2013, we entered into a Loan Agreement with Silicon Valley Bank (SVB) and received loan proceeds of $9,900,000, net of a $100,000 cash discount. The loan proceeds will be used for research and development and general corporate purposes. The loan has a three-year term and bears interest at an annual rate of 6%. The loan obligations are secured by a first priority security interest on substantially all of our assets excluding intellectual property. For the first six months, payments will be interest only followed by repayment of principal and interest over a period of 30 months. There is also a final $1,000,000 fee payable at the end of the term which is being expensed over the term of the loan using the effective interest method. In conjunction with the Loan Agreement, we issued to SVB a ten year warrant to acquire 293,531 shares of common stock at an exercise price of $1.7034 per share. The warrant is immediately exercisable and expires in April 2023. We estimated the fair value of the warrant to be approximately $388,000 using the Black-Scholes option pricing model with the following assumptions:

Expected life (years)	10
Risk-free interest rate	1.9	%
Expected volatility	88.1	%
Expected dividend yield	0	%

We applied the relative fair value method to allocate the $9,900,000 net proceeds between the loan and warrant. The approximately $388,000 fair value allocated to the warrant was recorded as an increase to additional paid-in capital and as a discount to loan payable. Approximately $9,512,000 was assigned to the loan and was recorded as the initial carrying amount of the loan payable, net of discount. The approximately $388,000 fair value of the warrant and the $100,000 cash discount are both being amortized as additional interest expense over the term of the loan using the effective interest rate method.

We also incurred loan issuance costs of approximately $117,000, which are recorded as deferred financing costs on the accompanying consolidated balance sheet and are being amortized to interest expense over the term of the Loan Agreement using the effective interest rate method.

The effective interest rate used to amortize the deferred financing costs and the discount (including the fair value of the warrant and the cash discount), and for the accretion of the final payment, is 9.0%.

Loan Agreement with California Institute for Regenerative Medicine

In April 2013, we entered into an agreement with the California Institute for Regenerative Medicine (CIRM) (the CIRM Loan Agreement) under which CIRM will provide up to approximately $19.3 million to help fund preclinical development and IND-enabling activities of our HuCNS-SC cells for Alzheimer’s disease. This funding was awarded in September 2012 under CIRM’s Disease Team Therapy Development Award program (RFA 10-05), and the goal of the research is to file an Investigational New Drug application with the U.S. Food and Drug Administration within four years. The funding is in the form of a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations, and is expected to be disbursed periodically by CIRM over the four-year project period subject to a number of preconditions, including the achievement of certain progress milestones and compliance with certain financial covenants. The loan is unsecured and the term of the loan is ten years and may be extended under certain circumstances. Initially, the loan will bear interest at the one year LIBOR rate plus two percent and will increase by 1% each year after year five. Interest will accrue with the first disbursement of loan funds, but we will not begin paying interest until year six. Repayment of the principal and any accrued and unpaid interest will be due and payable at the end of the term. We can prepay the CIRM loan at our election, either in whole or in part at any time and without a prepayment fee. In addition, the loan is forgivable so that our obligation to repay will be contingent upon the success of our HuCNS-SC cells as a treatment for Alzheimer’s disease. In July 2013 and January 2014, we received approximately $3.8 million in each month as initial and subsequent disbursement respectively of the loan provided under the CIRM Loan Agreement.

The following table is a summary of the changes in the carrying value of our loan payable:

	Silicon Valley Bank Loan			CIRM Loan		Total
Loan proceeds	$	10,000,000		$	3,820,264	$	13,820,264
Cash discount		(100,000	)				(100,000	)
Fair value of warrants issued		(387,576	)		—		(387,576	)
Initial carrying value		9,512,424			3,820,264		13,332,688
Repayment of principal		(620,215	)		—		(620,215	)
Accretion of discount		196,771			—		196,771
Carrying value of loan payable at 12/31/2013 (current and non-current)	$	9,088,980		$	3,820,264	$	12,909,244
Carrying value of loan payable, current portion	$	3,664,370		$	—	$	3,664,370
Carrying value of loan payable, non-current portion		5,424,610			3,820,264		9,244,874
Total loan payable at 12/31/2013	$	9,088,980		$	3,820,264	$	12,909,244

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

Note 10. Stock-Based Compensation

We currently grant stock-based compensation under three equity incentive plans (2004, 2006 and 2013 Equity Incentive Plans) approved by the Company’s stockholders and one plan adopted in 2012 pursuant to NASDAQ Listing Rule 5635(c)(4) concerning inducement grants for new employees (our “2012 Commencement Incentive Plan”). As of December 31, 2013, we had 8,553,608 shares available to grant under the above mentioned plans. At our annual stockholders meeting held on June 12, 2007, our stockholders approved an amendment to our 2006 Equity Incentive Plan to provide for an annual increase in the number of shares of common stock available for issuance under the plan each January 1 (beginning January 1, 2008) equal to 4% of the outstanding common shares as of that date. The amendment further provided an aggregate limit of 3,000,000 shares issuable pursuant to incentive stock option awards under the plan. At our annual stockholders meeting held on December 20, 2013, our stockholders approved our 2013 Equity Incentive Plan to grant stock-based compensation of up to an initial 6,000,000 shares, plus an increase of 4% per year of the outstanding number of shares of our common stock beginning in January 1, 2015. Under the three stockholder-approved plans we may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, 401(k) Plan employer match in form of shares and performance-based shares to our employees, directors and consultants, at prices determined by our Board of Directors. Incentive stock options may only be granted to employees under these plans with a grant price not less than the fair market value on the date of grant. Under our 2012 Commencement Inducement Plan, we may only award options, restricted stock units and other equity awards to newly hired employees and newly engaged directors, in each case as allowed by NASDAQ listing requirements.

Generally, stock options and restricted stock units granted to employees have a maximum term of ten years, and vest over a four year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three-year service period. We may grant options and restricted stock units with different vesting terms from time to time. Upon employee termination of service, any unexercised vested option will be forfeited three months following termination or the expiration of the option, whichever is earlier.

Our stock-based compensation expense for the last three fiscal years was as follows:

	2013		2012		2011
Research and development expense	$	1,219,308	$	1,280,298	$	1,680,431
General and administrative expense		1,389,362		1,597,836		1,580,506
Total stock-based compensation expense and effect on net loss	$	2,608,670	$	2,878,134	$	3,260,937

As of December 31, 2013, we have approximately $4,275,000 of total unrecognized compensation expense related to unvested awards granted under our various share-based plans that we expect to recognize over a weighted-average period of 3.0 years.

The fair value of options granted is estimated as of the date of grant using the Black-Scholes option pricing model and expensed on a pro-rata straight-line basis over the period in which the stock options vest. The Black-Scholes option pricing model requires certain assumptions as of the date of grant. The weighted-average assumptions used for the last three fiscal years are as follows:

	2013			2012			2011
Expected term (years)(1)		5.1			6.4			7.4
Risk-free interest rate(2)		1.2	%		1.4	%		2.7	%
Expected volatility(3)		89.3	%		78.4	%		79.7	%
Expected dividend yield(4)		0	%		0	%		0	%

(1) The expected term represents the period during which our stock-based awards are expected to be outstanding. We estimated this amount based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations.

(2) The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant.

(3) Expected volatility is based on historical volatility over the most recent historical period equal to the length of the expected term of the option as of the date of grant.

(4) We have neither declared nor paid dividends on any share of common stock and we do not expect to do so in the foreseeable future.

At the end of each reporting period, we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust the stock-based compensation expense accordingly.

A summary of our stock option activity and related information for the last three fiscal years is as follows:

	Outstanding Options
	Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual  Term		Aggregate Intrinsic Value(1)
Balance at December 31, 2010		1,098,241		$	20.20		6.1	$	398,219
Granted		3,750		$	7.30
Exercised		(1,692	)	$	1.41			$	11,293
Cancelled (forfeited and expired)		(224,801	)	$	20.22
Balance at December 31, 2011		875,498		$	20.13		5.5	$	—
Granted		—
Exercised		(3,629	)	$	1.00			$	4,319
Cancelled (forfeited and expired)		(424,510	)	$	20.86
Balance at December 31, 2012		447,359		$	19.59		5.1	$	2,175
Granted		—
Exercised		(3,452	)	$	1.00			$	2,214
Cancelled (forfeited and expired)		(15,649	)	$	13.06
Balance at December 31, 2013		428,258		$	19.97		4.3	$	—
Exercisable at December 31, 2013		409,792		$	20.42		4.2	$	—
Vested and expected to vest(2)		426,027		$	20.02		4.3	$	—

(1) Aggregate intrinsic value represents the value of the closing price per share of our common stock on the last trading day of the fiscal period in excess of the exercise price multiplied by the number of options outstanding or exercisable, except for the “Exercised” line, which uses the closing price on the date exercised.

(2) Number of shares includes options vested and those expected to vest net of estimated forfeitures.

No options were granted in 2013 and 2012.The estimated weighted average fair value per share of options granted was approximately $5.31 in 2011, based on the assumptions in the Black-Scholes model discussed above. Total intrinsic value of options exercised at time of exercise was approximately $2,000 in 2013, $4,000 in 2012, and $11,000 in 2011.

The following is a summary of changes in unvested options:

Unvested Options	Number of Options			Weighted Average Grant Date Fair Value
Unvested options at December 31, 2012		64,503		$	8.67
Granted		—			—
Vested		(45,564	)	$	8.91
Cancelled		(473	)	$	7.82
Unvested options at December 31, 2013		18,466		$	8.11

The estimated fair value of options vested were approximately $406,000 in 2013, $627,000 in 2012 and $1,545,000 in 2011.

The following table presents weighted average exercise price and remaining term information about significant option groups outstanding at December 31, 2013:

Options Outstanding at December 31, 2013
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Term (Yrs.)		Weighted Average Exercise Price		Aggregate Intrinsic Value at December 31, 2013
Less than $10.00		4,050		7.3	$	7.42	$	—
$10.00 - $19.99		250,949		5.3	$	12.65		—
$20.00 - $29.99		117,459		3.1	$	23.22		—
$30.00 - $39.99		19,800		1.9	$	36.46		—
$40.00 - $49.99		5,500		1.7	$	46.51		—
$50.00 - $59.99		30,500		1.7	$	53.94		—
		428,258		4.3	$	19.97	$	—

Vested Options Outstanding at December 31, 2013
Range of Exercise Prices	Number Outstanding		Weighted Average Exercise Price
Less than $10.00		2,677	$	7.45
$10.00 - $19.99		233,856	$	12.81
$20.00 - $29.99		117,459	$	23.22
$30.00 - $39.99		19,800	$	36.46
$40.00 - $49.99		5,500	$	46.51
$50.00 - $59.99		30,500	$	53.94
		409,792	$	20.42

Restricted Stock Units

We have granted restricted stock units (RSUs) to our directors and to certain employees which entitle the holders to receive shares of our common stock upon vesting of the RSUs. The fair value of restricted stock units granted are based upon the market price of the underlying common stock as if it were vested and issued on the date of grant.

A summary of our restricted stock unit activity for the year ended December 31, 2013 is as follows:

	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013		1,534,200		$	2.10
Granted(1)		2,421,965		$	1.80
Vested and exercised		(565,883	)	$	3.37
Cancelled		(64,000	)	$	1.61
Outstanding at December 31, 2013		3,326,282		$	1.68

(1) 11,765 of these restricted stock units vested on the date of grant. 55,000 of these restricted stock units vest and convert into shares of our common stock after one year from the date of grant. 2,355,200 of these restricted stock units vest and convert into shares of our common stock over a four year period from the date of grant: one-fourth of the award will vest on each grant date anniversary following the grant.

Stock Appreciation Rights

In July 2006, we granted cash-settled Stock Appreciation Rights (SARs) to certain employees that give the holder the right, upon exercise, to the difference between the price per share of our common stock at the time of exercise and the exercise price of the SARs.

The SARs have a maximum term of ten years with an exercise price of $20.00, which is equal to the market price of our common stock at the date of grant. The SARs vest 25% on the first anniversary of the grant date and 75% vest monthly over the remaining three-year service period. All of the outstanding SARs as of December 31, 2013 are fully vested. Compensation expense is based on the fair value of SARs which is calculated using the Black-Scholes option pricing model.

The stock-based compensation expense and liability are re-measured at each reporting date through the earlier of date of settlement or forfeiture of the SARs.

The following is a summary of the changes in our outstanding SARs for the last three fiscal years:

	2013				2012					2011
	Number		Weighted Average Exercise Price		Number			Weighted Average Exercise Price		Number			Weighted Average Exercise Price
Outstanding at January 1,		110,593	$	20.00		115,187		$	20.00		135,409		$	20.00
Granted		—		—		—			—		—			—
Exercised		—		—		—			—		—			—
Forfeited		—				(4,594	)				(20,222	)
Outstanding at December 31,		110,593	$	20.00		110,593		$	20.00		115,187		$	20.00
Exercisable at December 31,		110,593	$	20.00		110,593		$	20.00		115,187		$	20.00

For the year ended December 31, 2013, the re-measured liability related to the SARs reduced compensation expense by approximately $11,000.The total compensation expense related to SARs was approximately $18,000 in 2012 and for the year ended December 31, 2011, the re-measured liability related to the SARs reduced compensation expense by approximately $344,000. The resulting effect on net loss and net loss per share attributable to common stockholders is not likely to be representative of the effects in future periods, due to changes in the fair value calculation which is dependent on the stock price, volatility, interest and forfeiture rates, additional grants and subsequent periods of vesting. We will continue to recognize compensation cost each period, which will be the change in fair value from the previous period through the earlier date of settlement or forfeiture of the SARs.

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Commitments and Contingencies - Future Minimum Payments Under All Leases and Bond Payable (Parenthetical) (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended		12 Months Ended
	Apr. 30, 2013	Sep. 30, 2012	Dec. 31, 2013
Loss Contingencies [Line Items]
Loan term			3 years
CIRM Loan Agreement [Member]
Loss Contingencies [Line Items]
Proceeds from initial disbursement of the loan			$ 3.8
Approval of fund by California Institute for Regenerative Medicine (CIRM)	$ 19.3
Approval of fund by California Institute for Regenerative Medicine (CIRM) maximum period		4 years	4 years
Loan term		10 years	10 years

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Other Assets

12 Months Ended

Dec. 31, 2013

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Other Assets

Note 6. Other Assets

Other assets, non-current at December 31 are summarized below:

	2013		2012
Prepaid royalties	$	—	$	614,488
Security deposit (buildings and equipment lease)		413,717		332,813
Total other non-current assets	$	413,717	$	947,301

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Property, Plant and Equipment - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property Plant And Equipment [Abstract]
Depreciation expense	$ 789,000	$ 728,000	$ 842,000

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Property, Plant and Equipment

12 Months Ended

Dec. 31, 2013

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

Note 4. Property, Plant and Equipment

Property, plant and equipment balances at December 31 are summarized below:

	2013			2012
Building and improvements	$	6,751,393		$	3,441,192
Machinery and equipment		7,837,140			6,671,866
Furniture and fixtures		602,599			595,619
		15,191,132			10,708,677
Less accumulated depreciation and amortization		(9,886,448	)		(9,333,348	)
Property, plant and equipment, net	$	5,304,684		$	1,375,329

Depreciation and amortization expense was approximately $789,000 in 2013, $728,000 in 2012, and $842,000 in 2011.

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Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Note 5. Goodwill and Other Intangible Assets

On April 1, 2009, we acquired the operations of Stem Cell Sciences Plc (SCS) for an aggregate purchase price of approximately $5,135,000. The acquired operations includes proprietary cell technologies relating to embryonic stem cells, induced pluripotent stem (iPS) cells, and tissue-derived (adult) stem cells; expertise and infrastructure for providing cell-based assays for drug discovery; a cell culture products business; and an intellectual property portfolio with claims relevant to cell processing, reprogramming and manipulation, as well as to gene targeting and insertion.

At April 1, 2009, the purchase price has been allocated as follows:

	Allocated Purchase Price		Estimated Life of Intangible Assets in Years
Net tangible assets	$	36,000
Intangible assets:
Customer relationships and developed technology		1,310,000		6 to 9
In process research and development		1,340,000		N/A
Trade name		310,000		15
Goodwill		2,139,000		N/A
Total	$	5,135,000

In-process research and development assets relate to: 1) the acquisition of certain intellectual property rights not expected to expire until 2027 related to our program focused on developing genetically engineered rat models of human disease (our “Transgenic Rat Program”); and 2) the acquisition of certain technology related to the commercialization of our SC Proven cell culture products and the development and commercialization of cell-based assay platforms for use in drug discovery and development (our “Assay Development Program”).

At the time of valuation (April 2009), our Transgenic Rat Program was in its nascent stage and our Assay Development Program was expected to achieve proof of concept by 2012. Neither program was expected to begin generating revenue until 2011-2012. In December 2011, in part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays technology, we determined that we could not predict the future cash flows from the intangible IPR&D asset related to the Assay Development Program. Therefore, at December 31, 2011, we determined that the intangible asset was impaired and wrote off the entire approximately $655,000 carrying value of the asset.

Trade name relates to the “SC Proven” trademark of our cell culture products which we expect to market for 15 years from the date of acquisition, based on which, we estimated a remaining useful life of 15 years from the valuation date.

The following table represents changes in goodwill in 2013:

Balance as of December 31, 2012	$	1,983,426
Net deferred tax liability related to indefinite lived IPR&D		117,815
Foreign currency translation		38,053
Balance as of December 31, 2013	$	2,139,294

The components of our other intangible assets at December 31, 2013 are summarized below:

Other Intangible Asset Class	Cost		Acquisition		Impairment			Accumulated Amortization			Foreign Currency Translation		Net Carrying Amount		Weighted- Average Amortization Period
Customer relationships and developed technology	$	1,310,000	$	—	$	—		$	(876,535	)	$	156,966	$	590,431		8.0 years
In-process research and development		1,340,000		—		(654,961	)		(270,687	)		146,672		561,024		Indefinite
Trade name		310,000		—		—			(107,944	)		41,748		243,804		15.0 years
Patents		979,612		264,000		—			(803,154	)		—		440,458		17.0 years
Total other intangible assets	$	3,939,612	$	264,000	$	(654,961	)	$	(2,058,320	)	$	345,386	$	1,835,717		12.7 years

Amortization expense was approximately $269,000 in 2013, $264,000 in 2012, and $366,000 in 2011.

The expected future annual amortization expense for each of the next five years based on current balances of our intangible assets is as follows:

For the year ending December 31:
2014	$	300,434
2015	$	242,588
2016	$	215,639
2017	$	195,066
2018	$	80,851

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Accounts Payable

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Accounts Payable

Note 7. Accounts Payable

Accounts payable at December 31 are summarized below:

	2013		2012
External services	$	863,030	$	678,813
Supplies		263,866		216,900
Other		25,007		103,652
Total accounts payable	$	1,151,903	$	999,365

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Goodwill and Other Intangible Assets - Components of Other Intangible Assets (Detail) (USD $)	12 Months Ended		12 Months Ended	1 Months Ended	12 Months Ended	0 Months Ended	1 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Customer relationships and developed technology [Member]	Mar. 31, 2009 In-process research and development [Member]	Dec. 31, 2013 In-process research and development [Member]	Apr. 30, 2009 Trade name [Member]	Mar. 31, 2009 Trade name [Member]	Dec. 31, 2013 Trade name [Member]	Dec. 31, 2013 Patents [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Cost	$ 3,939,612		$ 1,310,000		$ 1,340,000			$ 310,000	$ 979,612
Acquisition	264,000								264,000
Impairment	(654,961)				(654,961)
Accumulated Amortization	(2,058,320)		(876,535)		(270,687)			(107,944)	(803,154)
Foreign Currency Translation	345,386		156,966		146,672			41,748
Net Carrying Amount	$ 1,835,717	$ 1,822,904	$ 590,431		$ 561,024			$ 243,804	$ 440,458
Weighted- Average Amortization Period	12 years 8 months 12 days		8 years			15 years	15 years	15 years	17 years

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Warrant Liability - Additional Information (Detail) (USD $)	1 Months Ended			12 Months Ended		1 Months Ended	6 Months Ended	12 Months Ended	1 Months Ended			1 Months Ended		1 Months Ended	12 Months Ended
	Oct. 31, 2013	Oct. 31, 2013 Outstanding warrants [Member]	Nov. 30, 2008 Outstanding warrants [Member]	Dec. 31, 2013 Series A Warrants [Member]	Dec. 31, 2012 Series A Warrants [Member]	Oct. 31, 2013 Common Stock [Member]	Jun. 30, 2012 Common Stock [Member]	Dec. 31, 2012 Common Stock [Member]	Nov. 30, 2008 November 2008 Financing [Member]	Dec. 31, 2013 November 2008 Financing [Member]	Nov. 30, 2008 November 2008 Financing [Member] Common Stock [Member]	Nov. 30, 2009 November 2009 Financing [Member]	Dec. 31, 2013 November 2009 Financing [Member]	Nov. 30, 2009 November 2009 Financing [Member] Common Stock [Member]	Dec. 31, 2011 December 2011 Financing [Member]	Dec. 31, 2013 December 2011 Financing [Member] Series A Warrants [Member]	Dec. 31, 2012 December 2011 Financing [Member] Series A Warrants [Member]	Dec. 31, 2011 December 2011 Financing [Member] Series A Warrants [Member]	Dec. 31, 2013 December 2011 Financing [Member] Series B Warrant [Member]	Dec. 31, 2012 December 2011 Financing [Member] Series B Warrant [Member]	Dec. 31, 2011 December 2011 Financing [Member] Series B Warrant [Member]	Dec. 31, 2013 December 2011 Financing [Member] Common Stock [Member]	Dec. 31, 2012 December 2011 Financing [Member] Common Stock [Member]	Dec. 31, 2011 December 2011 Financing [Member] Common Stock [Member] Series A Warrants [Member]	Dec. 31, 2011 December 2011 Financing [Member] Capital Units [Member] Series A Warrants [Member]	Dec. 31, 2011 December 2011 Financing [Member] Capital Units [Member] Series B Warrant [Member]
Class of Warrant or Right [Line Items]
Number of units sold to investors									1,379,310
Price per unit									$ 14.50			$ 12.50			$ 1.25
Gross proceeds from units sold to investors									$ 20,000,000			$ 12,500,000
Number of securities callable by each warrant or right warrants						0.5					0.75			0.40								1			1	1
Exercise price of warrants	1.80			1.40						23.00	23.00		15.00	15.00										1.40
Proceeds from sale of stock				$ 538,000	$ 3,078,000				$ 18,637,000			$ 11,985,000
Number of shares of common stock in each unit sold to institutional investors		1	1			1
Number of securities callable by warrants											1,034,483			400,000				8,000,000			8,000,000
Number of units sold to investors												1,000,000			10,000,000
Number of warrants in each unit sold to institutional investors														1
Term of warrant																					90 days
Warrant expiration																	December 2016	2012-May-02
Number of Series A warrants in each unit issued in public offering															1
Number of warrants exercised																384,534	2,198,571			2,700,000
Number of shares issued upon warrants exercise	12,845,500																					384,534	2,700,000
Number of shares issued upon warrants exercise							2,700,000	2,198,571									2,700,000					384,534	2,198,571
Number of warrants expired																			5,300,000

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Other Assets - Summary of Other Assets, Non-Current (Detail) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Summary Other assets
Prepaid royalties		$ 614,488
Security deposit (buildings and equipment lease)	413,717	332,813
Total other non-current assets	$ 413,717	$ 947,301

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Accumulated Other Comprehensive Income - Summary of Changes in Accumulated Other Comprehensive Loss by Component (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Accumulated Other Comprehensive Income [Line Items]
Beginning balance	$ 193,177
Other comprehensive income before reclassifications	58,924
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income (loss)	58,924	152,464	(79,009)
Ending balance	252,101	193,177
Unrealized Gain (Loss) on Other Available-for-Sale Securities [Member]
Accumulated Other Comprehensive Income [Line Items]
Beginning balance	(1,356)
Other comprehensive income before reclassifications	1,356
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income (loss)	1,356
Ending balance
Foreign Currency Translation [Member]
Accumulated Other Comprehensive Income [Line Items]
Beginning balance	194,533
Other comprehensive income before reclassifications	57,568
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income (loss)	57,568
Ending balance	$ 252,101

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Goodwill and Other Intangible Assets - Changes in Goodwill (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Acquired Finite-Lived Intangible Assets [Line Items]
Balance as of December 31, 2012	$ 1,983,426
Net deferred tax liability	293,000	364,000
Foreign currency translation	38,053
Balance as of December 31, 2013	2,139,294
In-process research and development [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Net deferred tax liability	$ 117,815

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Loan Payable - Assumptions Used for Black-Scholes Option Pricing Model (Detail) (Silicon Valley Bank Loan Agreement Warrant [Member])	12 Months Ended
	Dec. 31, 2013
Silicon Valley Bank Loan Agreement Warrant [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Expected life (years)	10 years
Risk-free interest rate	1.90%
Expected volatility	88.10%
Expected dividend yield	0.00%

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Property, Plant and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Property Plant And Equipment [Abstract]

Summary of Property, Plant and Equipment Balances

Property, plant and equipment balances at December 31 are summarized below:

	2013			2012
Building and improvements	$	6,751,393		$	3,441,192
Machinery and equipment		7,837,140			6,671,866
Furniture and fixtures		602,599			595,619
		15,191,132			10,708,677
Less accumulated depreciation and amortization		(9,886,448	)		(9,333,348	)
Property, plant and equipment, net	$	5,304,684		$	1,375,329

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Summary of Significant Accounting Policies - Basic and Dilutive Net Loss per Share Computations (Detail) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Accounting Policies [Abstract]
Net loss	$ (6,962,000)	$ (7,192,000)	$ (5,869,000)	$ (6,416,000)	$ (2,758,000)	$ (16,337,000)	$ 833,000	$ (10,229,000)	$ (26,439,159)	$ (28,491,153)	$ (21,328,538)
Weighted average shares outstanding used to compute basic and diluted net loss per share									43,422,001	28,824,417	14,187,885
Basic and diluted net loss per share	$ (0.13)	$ (0.17)	$ (0.15)	$ (0.17)	$ (0.07)	$ (0.54)	$ 0.03	$ (0.45)	$ (0.61)	$ (0.99)	$ (1.50)

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 12. Commitments and Contingencies

Bonds Payable

We entered into direct financing transactions with the State of Rhode Island and received proceeds from the issuance of industrial revenue bonds totaling $5,000,000 to finance the construction of Rhode Island’s pilot manufacturing facility. The related lease agreements are structured such that lease payments fully fund all semiannual interest payments and annual principal payments through maturity in August 2014. Interest rate for the remaining bond series is 9.5%. The outstanding principal was approximately $125,000 at December 31, 2013 and $331,000 at December 31, 2012. The bonds contain certain restrictive covenants which limit, among other things, the payment of cash dividends and the sale of the related assets.

Operating leases

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance, and minimum lease payments. Some of our leases have options to renew.

Operating Leases — California

In September 2010, we entered into a two-year sublease agreement with Caliper Life Sciences, Inc., for office and research space in a facility located in Mountain View, California. In June 2012, the sublease term was extended to and expired on September 30, 2013. We paid approximately $1,081,000 in aggregate as rent over the term of the lease.

In December 2010, we entered into a commercial lease agreement with BMR-Gateway Boulevard LLC (BMR), as landlord, for office and research space at BMR’s Pacific Research Center in Newark, California. The initial term of the lease is approximately eleven and one-half years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $17,869,000 in aggregate as rent over the term of the lease to BMR. Deferred rent for this facility was approximately $1,434,000 as of December 31, 2013, and approximately $1,389,000 as of December 31, 2012.

In March 2013, we entered into a commercial lease agreement with Prologis, L.P. (Prologis), as landlord, for office and research space in Sunnyvale, California. The facility is for operations that support our clinical development activities. The initial term of the lease is ten years and includes escalating rent payments which we recognize as lease operating expense on a straight-line basis. We will pay approximately $3,497,000 in aggregate rent over the term of the lease. As part of the lease, Prologis has agreed to provide us financial allowances to build initial tenant improvements, subject to customary terms and conditions relating to landlord-funded tenant improvements. The tenant improvements are recorded as leasehold improvement assets and amortized over the term of the lease. The financial allowances are treated as a lease incentive and recorded as deferred rent which is amortized as reductions to lease expense over the lease term. Deferred rent for this facility was approximately $391,000 as of December 31, 2013.

Operating Leases — Rhode Island

We entered into a fifteen-year lease agreement for a scientific and administrative facility (SAF) in Rhode Island in connection with a sale and leaseback arrangement in 1997. The lease term expired on June 30, 2013. For the year 2013, we paid approximately $1,165,000 in operating lease payments and operating expenses net of sub-tenant income.

Operating Leases — United Kingdom

In January 2011, we amended the existing lease agreements of our wholly-owned subsidiary, Stem Cell Sciences (U.K.) Ltd, effectively reducing our leased office and lab space. The lease by its terms was extended to September 30, 2013. In October 2013, we signed a new three-year lease agreement for the leased space and expect to pay rent of approximately GBP 53,000 per annum. StemCells, Inc. is the guarantor of Stem Cell Sciences (U.K.) Ltd’s obligations under the existing lease. The lease includes an option for early termination of the lease agreement.

With the exception of the operating leases discussed above, we have not entered into any significant off balance sheet financial arrangements and have not established any special purpose entities. We have not guaranteed any debts or commitments of other entities or entered into any options on non-financial assets.

The table below summarizes the components of rent expense for the fiscal year ended December 31, as follows:

	2013			2012			2011
Rent expense	$	2,612,899		$	2,932,104		$	4,193,433
Sublease income		(53,726	)		(411,885	)		(424,847	)
Rent expense, net	$	2,559,173		$	2,520,219		$	3,768,586

Future minimum payments under all leases, bond payable and loan payable at December 31, 2013 are as follows:

	Bonds Payable		Loan(1) Payable		Capital Leases		Operating Leases
2014	$	136,852	$	4,322,035	$	24,284	$	1,917,423
2015		—		4,322,035		21,591		1,912,217
2016		—		1,440,678		9,454		1,968,459
2017		—		—		—		2,014,706
2018		—		—		—		2,061,260
Thereafter		—		—		—		8,196,910
Total minimum lease payments		136,852		10,084,748		55,329	$	18,070,975
Less amounts representing interest		11,852		704,963		4,591
Principal amounts of bond payable, loan payable and capital lease obligations		125,000		9,379,785		50,738
Less current maturities		125,000		3,857,971		20,936
Bond payable, loan payable and capital lease obligations, less current maturities	$	—	$	5,521,814	$	29,802

(1) Approximately $3.8 million received as initial disbursement of the loan provided under the CIRM Loan Agreement is not included. In April 2013, we entered into an agreement with CIRM under which CIRM will provide up to approximately $19.3 million to help fund preclinical development and IND-enabling activities of our HuCNS-SC cells for Alzheimer’s disease. The funding is in the form of a forgivable loan, in accordance with mutually agreed upon terms and conditions and CIRM regulations, and is expected to be disbursed periodically by CIRM over the four-year project period subject to a number of preconditions, including the achievement of certain progress milestones and compliance with certain financial covenants. The loan is unsecured and the term of the loan is ten years and may be extended under certain circumstances.

Contingencies

In July 2006, we filed suit against Neuralstem, Inc. in the Federal District Court for the District of Maryland, alleging that Neuralstem’s activities violate claims in four of the patents we exclusively licensed from NeuroSpheres Holdings Ltd. and NeuroSpheres Ltd. (NeuroSpheres), specifically U.S. Patent No. 6,294,346 (claiming the use of human neural stem cells for drug screening), U.S. Patent No. 7,101,709 (claiming the use of human neural stem cells for screening biological agents), U.S. Patent No. 5,851,832 (claiming methods for proliferating human neural stem cells), and U.S. Patent No. 6,497,872 (claiming methods for transplanting human neural stem cells). In May 2008, we filed a second patent infringement suit against Neuralstem and its two founders, Karl Johe and Richard Garr. In this suit, which we filed in the Federal District Court for the Northern District of California, we allege that Neuralstem’s activities infringe claims in two patents we exclusively license from NeuroSpheres, specifically U.S. Patent No. 7,361,505 (claiming composition of matter of human neural stem cells derived from any source material) and U.S. Patent No. 7,115,418 (claiming methods for proliferating human neural stem cells). In addition, we allege various state law causes of action against Neuralstem arising out of its repeated derogatory statements to the public about our patent portfolio. Also in May 2008, Neuralstem filed suit against us and NeuroSpheres in the Federal District Court for the District of Maryland seeking a declaratory judgment that the ‘505 and ‘418 patents are either invalid or are not infringed by Neuralstem and that Neuralstem has not violated California state law. In August 2008, the California court transferred our lawsuit against Neuralstem to Maryland for resolution on the merits. In July 2009, the Maryland District Court granted our motion to consolidate these two cases with the litigation we initiated against Neuralstem in 2006. Discovery is ongoing in these cases.

In addition to the actions described above, in April 2008, we filed an opposition to Neuralstem’s European Patent No. 0 915 968 (methods of isolating, propagating and differentiating CNS stem cells), because the claimed invention is believed by us to be unpatentable over prior art, including the patents exclusively licensed by us from NeuroSpheres. In December 2010, the European Patent Office ruled that all composition claims in Neuralstem’s ‘968 European patent were invalid and unpatentable over prior art including several of the NeuroSpheres patents licensed to us. Neuralstem has appealed this decision.

In October, 2013, we acquired from NeuroSpheres a patent portfolio consisting of the patents we licensed from NeuroSpheres on an exclusive worldwide basis, including the six patents that are the subject of our patent infringement litigation against Neuralstem. As consideration for the patents, we issued 139,548 shares of unregistered common stock to NeuroSpheres. In connection with the patent acquisition, all preexisting agreements were terminated. The acquisition relieves us from further milestone and royalty payments to NeuroSpheres.

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401(k) Plan

12 Months Ended

Dec. 31, 2013

Compensation And Retirement Disclosure [Abstract]

401(k) Plan

Note 17. 401(k) Plan

Our 401(k) Plan covers substantially all of our employees. Participants in the plan are permitted to contribute a fixed percentage of their total annual cash compensation to the plan (subject to the maximum employee contribution defined by law). We match 50% of employee contributions, up to a maximum of 6% of each employee’s eligible compensation in the form of shares of our common stock. We recorded an expense of $132,000 in 2013, $130,000 in 2012, and $165,000 in 2011 for our contributions under our 401(k) Plan.

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Common Stock - Reserved Shares of Common Stock for Exercise of Options, Warrants and Other Contingent Issuances of Common Stock (Detail)	Dec. 31, 2013
Class of Stock [Line Items]
Share reserved for share-based compensation	28,575,807
Outstanding warrants [Member]
Class of Stock [Line Items]
Share reserved for share-based compensation	16,267,659
Stock Compensation Plan [Member]
Class of Stock [Line Items]
Share reserved for share-based compensation	12,308,148

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	1 Months Ended	12 Months Ended					12 Months Ended			12 Months Ended		1 Months Ended	12 Months Ended			1 Months Ended	12 Months Ended				1 Months Ended				1 Months Ended
	Oct. 31, 2013	Dec. 31, 2013 Segment	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Outstanding warrants [Member]	Oct. 31, 2013 Common Stock [Member]	Dec. 31, 2013 Marketable debt securities, current [Member] Minimum [Member]	Dec. 31, 2013 Marketable securities, non-current [Member] Maximum [Member]	Dec. 31, 2013 Indefinite-lived intangible acquired [Member]	Dec. 31, 2013 December 2011 Financing [Member] Common Stock [Member]	Dec. 31, 2012 December 2011 Financing [Member] Common Stock [Member]	Dec. 31, 2011 December 2011 Financing [Member] Series A Warrants [Member]	Dec. 31, 2012 December 2011 Financing [Member] Series A Warrants [Member]	Dec. 31, 2013 December 2011 Financing [Member] Series A Warrants [Member]	Dec. 31, 2011 December 2011 Financing [Member] Series A Warrants [Member] Common Stock [Member]	Dec. 31, 2011 December 2011 Financing [Member] Series B Warrants [Member]	Dec. 31, 2012 December 2011 Financing [Member] Series B Warrants [Member]	Dec. 31, 2013 November 2008 Financing [Member]	Dec. 31, 2013 November 2008 Financing [Member] Outstanding warrants [Member]	Nov. 30, 2008 November 2008 Financing [Member] Common Stock [Member]	Nov. 30, 2008 November 2008 Financing [Member] Outstanding warrants [Member]	Dec. 31, 2013 November 2009 Financing [Member]	Dec. 31, 2013 November 2009 Financing [Member] Outstanding warrants [Member]	Nov. 30, 2009 November 2009 Financing [Member] Common Stock [Member]	Nov. 30, 2009 November 2009 Financing [Member] Outstanding warrants [Member]
Class of Warrant or Right [Line Items]
Number of segments		1
Accumulated deficit		$ (387,530,334)	$ (361,091,175)
Maturity period for money market and highly liquid investments		90 days
Investments with maturities							365 days or less	Greater than 365 days
Goodwill		2,139,294	1,983,426
Impairment of goodwill		0
Intangible assets with finite useful lives		1,836,000
Intangible asset impaired and wrote off carrying value of the asset				654,961
Value of patent		0
Fair value of certain lab equipment		0	28,000	0
Warrant component						0.5				1				1						0.75				0.40
Number of securities callable by warrants												8,000,000				8,000,000				1,034,483				400,000
Exercise price of warrants	1.80														1.40	1.25		23.00		23.00		15.00		15.00
Term of warrant												5 years				90 days					5 years				5 years
Common stock per unit			$ 1
Warrants issued per unit			$ 1
Number of warrants exercised																	2,700,000
Number of shares issued upon Series B warrants exercise	12,845,500									384,534	2,700,000
Number of warrants issued upon Series B warrants exercise													2,700,000
Number of warrants expired																	5,300,000
Fair value of derivative liability					5,541,809
Net deferred tax liability		$ 293,000	$ 364,000						$ 118,000

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Wind-Down and Exit Costs (Tables)

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Components of Wind-Down Reserve

The components of our wind-down reserve at December 31 are as follows:

	2013			2012
Accrued wind-down reserve at beginning of period	$	854,000		$	1,683,000
Less actual expenses recorded against estimated reserve during the period		(916,000	)		(1,185,000	)
Additional expense recorded to revise estimated reserve		62,000			356,000
Revised reserve at period-end		—			854,000
Add deferred rent at period end		—			249,000
Total accrued wind-down expenses at period-end (current)	$	—		$	1,103,000

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Consolidated Statements of Comprehensive Loss (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement Of Comprehensive Income [Abstract]
Net loss	$ (26,439,159)	$ (28,491,153)	$ (21,328,538)
Other comprehensive income (loss)
Foreign currency translation adjustments	57,568	151,125	40,032
Unrealized gains (losses) on marketable securities	1,356	1,339	(119,041)
Other comprehensive income (loss)	58,924	152,464	(79,009)
Comprehensive loss	$ (26,380,235)	$ (28,338,689)	$ (21,407,545)

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Warrant Liability - Assumptions Used for Monte Carlo Simulation Model (Detail) (Series A Warrants [Member])	12 Months Ended
	Dec. 31, 2013
Series A Warrants [Member]
Class of Warrant or Right [Line Items]
Risk-free interest rate per year	0.80%
Expected volatility per year	85.20%
Expected dividend yield	0.00%
Expected life (years)	3 years

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Nature of Business

StemCells, Inc., a Delaware corporation, is a biopharmaceutical company that operates in one segment, the research, development, and commercialization of cell-based therapeutics and related technologies.

The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern. Since inception, we have incurred annual losses and negative cash flows from operations and have an accumulated deficit of approximately $388 million at December 31, 2013. We have not derived significant revenue from the sale of products, and do not expect to receive significant revenue from product sales for at least several years. We may never be able to realize sufficient revenue to achieve or sustain profitability in the future.

We expect to incur additional operating losses over the foreseeable future. We have limited liquidity and capital resources and must obtain significant additional capital and other resources in order to sustain our product development efforts, to provide funding for the acquisition of technologies and intellectual property rights, preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, general and administrative expenses and other working capital requirements. We rely on our cash reserves, proceeds from equity and debt offerings, proceeds from the transfer or sale of intellectual property rights, equipment, facilities or investments, government grants and funding from collaborative arrangements, to fund our operations. Funding may not be available when needed — at all or on terms acceptable to us. If we exhaust our cash reserves and are unable to obtain adequate financing, we may be unable to meet our operating obligations and we may be required to initiate bankruptcy proceedings. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Principles of Consolidation

The consolidated financial statements include the accounts of StemCells, Inc., and our wholly-owned subsidiaries, including StemCells California, Inc., Stem Cell Sciences Holdings Ltd, and Stem Cell Sciences (UK) Ltd. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Significant estimates include the following:

• the fair value of share-based awards recognized as compensation (see Note 10, “Stock-Based Compensation”);

• valuation allowance against net deferred tax assets (see Note 18, “Income Taxes”);

• the fair value of warrants recorded as a liability (see Note 13, “Warrant Liability”); and

• the fair value of intangible assets acquired (see Note 5, “Goodwill and Other Intangible Assets”).

Financial Instruments

Cash Equivalents and Marketable Securities

All money market and highly liquid investments with a maturity of 90 days or less at the date of purchase are classified as cash equivalents. Highly liquid investments with maturities of 365 days or less not previously classified as cash equivalents are classified as marketable securities, current. Investments with maturities greater than 365 days are classified as marketable securities, non-current. Our marketable debt and equity securities are accounted for as available-for-sale. Management determines the appropriate classification of its investments in marketable debt and equity securities at the time of purchase and reevaluates the available-for-sale designations as of each balance sheet date. These securities are carried at fair value (see Note 2, “Financial Instruments,” below), with the unrealized gains and losses reported as a component of stockholders’ equity. The cost of securities sold is based upon the specific identification method.

If the estimated fair value of a security is below its carrying value, we evaluate whether we have the intent and ability to retain our investment for a period of time sufficient to allow for any anticipated recovery to the cost of the investment, and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Other-than-temporary declines in estimated fair value of all marketable securities are charged to “Other income (expense), net.”

Trade and Other Receivables

Our receivables generally consist of interest income on our financial instruments, revenue from licensing agreements and grants, revenue from product sales, and rent from our sub-lease tenants. Because dollar amounts for individual transactions related to our product sales are not material and because we have a broad customer base, we regard the associated credit risk to be minimal.

Estimated Fair Value of Financial Instruments

The estimated fair values of cash and cash equivalents, receivables, accounts payable, and the current portion of the bonds payable approximates their carrying values due to the short maturities of these instruments. The long-term portion of the bonds payable approximates its carrying value as the interest rate for the bond series approximates our current borrowing rate.

Property, Plant and Equipment

Property, plant and equipment, including those held under capital lease, are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, or the lease term if shorter, as follows:

Building and improvements	3 - 20 years
Machinery and equipment	3 - 10 years
Furniture and fixtures	3 - 10 years

Repairs and maintenance costs are expensed as incurred.

Business Combinations

The operating results of acquired companies or operations are included in our consolidated financial statements starting on the date of acquisition. Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including in-process research and development (IPR&D).

Goodwill and Other Intangible Assets (Patent and License Costs)

Goodwill of approximately $2,139,000 at December 31, 2013, relates to the acquisition of SCS operations. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. We test goodwill for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations, and it is possible, even likely, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. We completed our annual impairment testing during the fourth quarter of 2013, and determined that there was no impairment of goodwill.

Other intangible assets, net were approximately $1,836,000 at December 31, 2013. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In December 2011, in part because of management’s decision to focus on our therapeutic product development programs and not to allocate time and resources to the assays technology, we determined that we could not predict the future cash flows from the intangible IPR&D asset related to the assays technology. Therefore, we determined that the intangible asset was impaired and wrote off the approximately $655,000 carrying value of the asset.

Prior to fiscal year 2001, we capitalized certain patent costs, which are being amortized over the estimated life of the patent and would be expensed at the time such patents are deemed to have no continuing value. Since 2001, all patent costs are expensed as incurred. License costs are capitalized and amortized over the estimated life of the license agreement.

Impairment of Long-Lived Tangible Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property, plant, and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its estimated fair market value. In 2012, we recorded a charge of approximately $28,000 to adjust the fair value of certain lab equipment we expect to dispose. No such impairment was recognized during the year 2011 and 2013.

Warrant Liability

We account for our warrants in accordance with U.S. GAAP which defines how freestanding contracts that are indexed to and potentially settled in a company’s own stock should be measured and classified. Authoritative accounting guidance prescribes that only warrants issued by us under contracts that cannot be net-cash settled, and are both indexed to and settled in our common stock, can be classified as equity. As part of both our November 2008 and November 2009 financings, we issued warrants with five year terms to purchase 1,034,483 and 400,000 shares of our common stock at $23.00 and $15.00 per share, respectively. As part of our December 2011 financing, we issued Series A Warrants with a five year term to purchase 8,000,000 shares at $1.40 per share and Series B Warrants with a ninety trading day term to purchase 8,000,000 units at $1.25 per unit. Each unit underlying the Series B Warrants consisted of one share of our common stock and one Series A Warrant. In the first and second quarter of 2012, an aggregate of 2,700,000 Series B Warrants were exercised. For the exercise of these warrants, we issued 2,700,000 shares of our common stock and 2,700,000 Series A Warrants. The remaining 5,300,000 Series B Warrants expired unexercised by their terms on May 2, 2012. As terms of the warrants issued in 2008 and 2009, as well as the Series A and Series B Warrants, do not meet the specific conditions for equity classification, we are required to classify the fair value of these warrants as a liability, with subsequent changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The fair value of the warrants issued in the 2008 and 2009 financings is determined using the Black-Scholes-Merton (Black-Scholes) option pricing model and the fair value of the Series A and Series B Warrants is determined using a Monte Carlo simulation model (see Note 13, “Warrant Liability”). The fair value is affected by changes in inputs to these models including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. The use of a Monte Carlo simulation model requires input of additional assumptions including the progress of our R&D programs and its affect on potential future financings. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability. The estimated fair value of our warrant liability at December 31, 2013, was approximately $5,542,000.

Revenue Recognition

We recognize revenue resulting from licensing agreements, government grants, and product sales.

Licensing agreements — We currently recognize revenue resulting from the licensing and use of our technology and intellectual property. Such licensing agreements may contain multiple elements, such as up-front fees, payments related to the achievement of particular milestones and royalties. Revenue from up-front fees for licensing agreements that contain multiple elements are generally deferred and recognized on a straight-line basis over the term of the agreement. Fees associated with substantive at risk performance-based milestones are recognized as revenue upon completion of the scientific or regulatory event specified in the agreement, and royalties received are recognized as earned. Revenue from licensing agreements is recognized net of a fixed percentage due to licensors as royalties.

Government grants — Grant revenue from government agencies are funds received to cover specific expenses and are recognized as earned upon either the incurring of reimbursable expenses directly related to the particular research plan or the completion of certain development milestones as defined within the terms of the relevant collaborative agreement or grant.

Product sales — We currently recognize revenue from the sale of products when the products are shipped, title to the products are transferred to the customer, when no further contingencies or material performance obligations are warranted, and thereby earning the right to receive reasonably assured payments for products sold and delivered. Cost of product sales includes labor, raw materials and shipping supplies. Product sales are presented net of any sales or value-added taxes.

Research and Development Costs

Our research and development expenses consist primarily of salaries and related personnel expenses; costs associated with clinical trials and regulatory submissions; costs associated with preclinical activities such as toxicology studies; certain patent-related costs such as licensing; facilities-related costs such as depreciation; lab equipment and supplies. Clinical trial expenses include payments to vendors such as clinical research organizations, contract manufacturers, clinical trial sites, laboratories for testing clinical samples and consultants. All research and development costs are expensed as incurred.

Stock-Based Compensation

We expense the estimated fair value of our stock-based compensation awards. The estimated fair value is calculated using the Black-Scholes model. The compensation cost we record for these awards are based on their grant-date fair value as estimated and amortized over their vesting period. At the end of each reporting period we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust stock-based compensation expense accordingly. See Note 10, “Stock-Based Compensation” for further information.

Income Taxes

When accounting for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities.

Developing our provision for income taxes and analyzing our uncertain tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, any valuation allowances that may be required for deferred tax assets.

We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on such evidence that can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:

• cumulative losses in recent years;

• income/losses expected in future years; and

• the applicable statute of limitations.

Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.

We concluded that the realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. Deferred tax liabilities related to indefinite-lived assets that cannot be used as a source of taxable income to support the realization of deferred tax assets are reported as a net deferred tax liability. We reported as a long-term liability on our balance sheet, a net deferred tax liability of approximately $118,000 that is related to an indefinite-lived intangible acquired as part of the SCS operations.

Net Loss per Share

Basic net loss per share is computed based on the weighted-average number of shares of our common stock outstanding during the period. Diluted net loss per share is computed based on the weighted-average number of shares of our common stock and other dilutive securities.

The following are the basic and dilutive net loss per share computations for the last three fiscal years:

	2013			2012			2011
Net loss	$	(26,439,159	)	$	(28,491,153	)	$	(21,328,536	)
Weighted average shares outstanding used to compute basic and diluted net loss per share		43,422,001			28,824,417			14,187,885
Basic and diluted net loss per share	$	(0.61	)	$	(0.99	)	$	(1.50	)

Outstanding options, warrants and restricted stock units were excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive for all periods presented below:

	2013		2012		2011
Outstanding options		428,258		447,359		875,498
Restricted stock units		3,326,282		1,534,200		357,541
Outstanding warrants		16,267,659		9,935,912		17,434,483
Total		20,022,199		11,917,471		18,667,522

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net losses and other comprehensive income (or “OCI”). OCI includes certain changes in stockholders’ equity that are excluded from net losses. Specifically, we include in OCI changes in unrealized gains and losses on our marketable securities and unrealized gains and losses on foreign currency translations.

The components of our accumulated OCI, as of December 31 of each year shown, are as follows:

	2013		2012
Net unrealized gain (loss) on marketable securities	$	—	$	(1,356	)
Unrealized gain on foreign currency translation		252,101		194,533
Accumulated other comprehensive income	$	252,101	$	193,177

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (FASB) issued ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, an update to Topic 740, Income Taxes. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this Update are expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This update is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013. The adoption of the amended standard is not expected to have a material impact on our consolidated financial statements.

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Fair Value Measurement - Roll Forward for Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Add loan proceeds	$ 13,820,264
Initial carrying value	13,332,688
Less repayments of principal	(620,215)
Add accretion of discount	196,771
Outstanding warrants [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance at December 31, 2012	9,157,397
Less fair value of warrants exercise	(470,303)
Add change in fair value of warrants	(3,145,285)
Balance at December 31, 2013	5,541,809
Loan Payable [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Add loan proceeds	13,820,264
Less discount	(487,576)
Initial carrying value	13,332,688
Less repayments of principal	(620,215)
Add accretion of discount	196,771
Balance at December 31, 2013	12,909,244
Current portion	3,664,370
Non-current portion	$ 9,244,874

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Commitments and Contingencies - Summary of Components of Rent Expense (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Leases [Abstract]
Rent expense	$ 2,612,899	$ 2,932,104	$ 4,193,433
Sublease income	(53,726)	(411,885)	(424,847)
Rent expense, net	$ 2,559,173	$ 2,520,219	$ 3,768,586

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Other Long-Term Liabilities - Schedule of Other Long-Term Liabilities (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Other Long Term Liabilities [Abstract]
Accrued interest on loan payable	$ 497,134
Employee compensation	186,439	216,439
Net deferred tax liability	117,815
Total accrued expenses and other current liabilities	$ 801,388	$ 216,439

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Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Note 18. Income Taxes

Loss before income taxes is attributed to the following geographic locations for the years ended December 31,

	2013		2012
United States	$	26,080,000	$	28,356,000
Foreign		359,000		133,000
Total loss before income taxes	$	26,439,000	$	28,489,000

We follow authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold a tax position is required to meet before being recognized in the financial statements. As of December 31, 2013 and 2012, we have not recorded any unrecognized tax benefits. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities at December 31 are as follows:

	2013			2012
Deferred tax assets:
Capitalized research and development costs	$	59,426,000		$	53,824,000
Net operating losses		56,906,000			53,687,000
Research and development credits		8,931,000			7,777,000
Accrued wind down cost		—			292,000
Stock-based compensation		1,063,000			853,000
Capital loss carryover		541,000			544,000
Fixed assets		452,000			430,000
Other		1,289,000			1,002,000
		128,608,000			118,409,000
Valuation allowance		(128,315,000	)		(118,045,000	)
Total deferred tax assets	$	293,000		$	364,000
Deferred tax liability:
Intangible assets		(293,000	)		(364,000	)
Total deferred tax liability	$	(293,000	)	$	(364,000	)
Net deferred tax assets	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $10,270,000 in 2013 and by approximately $864,000 in 2012.

As of December 31, 2013, we had the following:

• Net operating loss carry forwards for federal income tax purposes of approximately $154,541,000 which expire in the years 2018 through 2033. This includes $1,792,000 of excess deductions from the exercise of stock options, the benefit of which will be recorded in additional paid-in-capital when realized

• Federal research and development tax credits of approximately $5,656,000 which expire in the years 2018 through 2033.

• Net operating loss carry forwards for state income tax purposes of approximately $43,747,000 which expire in the years 2014 through 2033. This includes $1,362,000 of excess deductions from the exercise of stock options, the benefit of which will be recorded in additional paid-in-capital when realized.

• State research and development tax credits of approximately $4,962,000 ($3,275,000 net of federal tax effect) which do not expire.

• Net operating loss carry forwards in foreign jurisdictions of approximately $11,896,000 which do not expire.

• Capital loss carry forwards for federal and state income tax purposes of $1,592,000 which expire in the years 2014 through 2016.

Utilization of the federal and state net operating loss and federal and state research and development tax credit carry forwards may be subject to annual limitations due to the ownership percentage change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the inability to fully offset future annual taxable income and could result in the expiration of the net operating loss carry forwards before utilization. Utilization of foreign net operating loss carry forwards may be limited or disallowed under similar foreign income tax provisions.

The effective tax rate as a percentage of income before income taxes differs from the statutory federal income tax rate (when applied to income before income taxes) for the years ended December 31 as follows:

	2013			2012			2011
Statutory federal income tax (benefit) rate		(34	)%		(34	)%		(34	)%
State income tax (benefit) rate		—			(3.3	)		(3.4	)
Increase resulting from:
Expenses not deductible for taxes		0.5			8.8			(6.7	)
Increase in valuation allowance		38.8			3.7			32.8
Change in state deferred tax rate		1.1			17.7			0
Change in foreign deferred tax rate		0.9			1.8			0
Expiration of tax attributes		0.5			5.3			11.3
Prior year true up		(0.7	)		—			—
Tax credits		(3.0	)		—			—
Warrant valuation		(4.1	)		—			—
Effective tax (benefit) rate		0	%		0	%		0	%

We did not have any unrecognized tax benefits at December 31, 2013. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. Because we have no tax liabilities, no tax-related interest and penalties have been expensed in our consolidated statements of operations during 2013 or accrued as a liability in our consolidated balance sheets at December 31, 2013. We do not anticipate any significant changes to total unrecognized tax benefits as a result of settlement of audits or the expiration of statute of limitations within the next twelve months.

We file U.S. federal income tax returns, as well as tax returns with the State of California and the State of Rhode Island. Due to the carry forward of unutilized net operating losses and research and development credits, our federal tax returns from 1998 forward remain subject to examination by the Internal Revenue Service, and our State of California tax returns from 2001 forward and our State of Rhode Island tax returns from 2009 forward remain subject to examination by the respective state tax authorities. We file income tax returns in various foreign jurisdictions. Tax years from 2007 forward remain subject to examination by the appropriate foreign governmental agencies.

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Stock-Based Compensation - Summary of Changes in Unvested Options (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-Average Grant Date Fair Value, Granted	$ 0.00	$ 0.00	$ 5.31
Unvested stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Options, Beginning balance	64,503
Number of Options, Granted
Number of Options, Vested	(45,564)
Number of Options, Cancelled	(473)
Number of Options, Ending balance	18,466
Weighted-Average Grant Date Fair Value, Beginning balance	$ 8.67
Weighted-Average Grant Date Fair Value, Granted
Weighted-Average Grant Date Fair Value, Vested	$ 8.91
Weighted-Average Grant Date Fair Value, Cancelled	$ 7.82
Weighted-Average Grant Date Fair Value, Ending balance	$ 8.11

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Accrued Expenses and Other Current Liabilities (Tables)

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Summary of Accrued Expenses

Accrued expenses at December 31 are summarized below:

	2013		2012
External services	$	1,191,048	$	900,580
Employee compensation		2,655,242		1,577,322
Other		221,626		229,539
Total accrued expenses and other current liabilities	$	4,067,916	$	2,707,441

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Wind-Down and Exit Costs

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Wind-Down and Exit Costs

Note 11. Wind-down and exit costs

Rhode Island

In connection with our wind-down of our research and manufacturing operations in Lincoln, Rhode Island, and the relocation of our corporate headquarters and remaining research laboratories to California in October 1999, we provided a reserve for our exit cost obligation. The reserve was for the estimated costs of our former research and administrative facility in Lincoln, which we held on a lease that terminated on June 30, 2013. We periodically re-evaluated and adjusted the reserve after considering various factors such as our lease payments through to the end of the lease, operating expenses, the real estate market in Rhode Island, and estimated subtenant income based on actual and projected occupancy. The reserve was approximately $854,000 at March 31, 2013. In 2013, payments net of subtenant income of approximately $916,000 were recorded against this reserve and approximately $62,000 as additional wind-down expenses. We have closed this reserve as the lease and our obligations related to it terminated on June 30, 2013.

The summary of the changes to our wind-down reserve related to this facility for 2013 and 2012 were as follows:

The components of our wind-down reserve at December 31 are as follows:

	2013			2012
Accrued wind-down reserve at beginning of period	$	854,000		$	1,683,000
Less actual expenses recorded against estimated reserve during the period		(916,000	)		(1,185,000	)
Additional expense recorded to revise estimated reserve		62,000			356,000
Revised reserve at period-end		—			854,000
Add deferred rent at period end		—			249,000
Total accrued wind-down expenses at period-end (current)	$	—		$	1,103,000

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Income Taxes - Reconciliation of Federal Income Tax Rate (Detail)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Tax Disclosure [Abstract]
Statutory federal income tax (benefit) rate	(34.00%)	(34.00%)	(34.00%)
State income tax (benefit) rate		(3.30%)	(3.40%)
Increase resulting from:
Expenses not deductible for taxes	0.50%	8.80%	(6.70%)
Increase in valuation allowance	38.80%	3.70%	32.80%
Change in state deferred tax rate	1.10%	17.70%	0.00%
Change in foreign deferred tax rate	0.90%	1.80%	0.00%
Expiration of tax attributes	0.50%	5.30%	11.30%
Prior year true up	(0.70%)
Tax credits	(3.00%)
Warrant valuation	(4.10%)
Effective tax (benefit) rate	0.00%	0.00%	0.00%