10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

or

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

For the transition period from         to        

Commission File Number: 0-51891

INTERNATIONAL STEM CELL CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	20-4494098
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5950 Priestly Drive Carlsbad, CA	92008
(Address of Principal Executive Offices)	(Zip Code)

(760) 940-6383

(Registrant’s telephone number)

Indicated 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 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.

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 3, 2012 the Registrant had 87,238,815 shares of Common Stock outstanding.

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

INDEX TO FORM 10-Q

	Page Numbers
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock, Members’ Deficit and Stockholders’ Equity (Deficit)		5
Condensed Consolidated Statements of Cash Flows		9
Notes to Unaudited Condensed Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk		32
Item 4. Controls and Procedures		32
PART II—OTHER INFORMATION
Item 1. Legal Proceedings		32
Item 1A. Risk Factors		33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3. Defaults Upon Senior Securities		41
Item 4. Mine Safety Disclosures		41
Item 5. Other Information		41
Item 6. Exhibits		42
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101 INSTANCE DOCUMENT
Exhibit 101 SCHEMA DOCUMENT
Exhibit 101 CALCULATION LINKBASE DOCUMENT
Exhibit 101 DEFINITION LINKBASE DOCUMENT
Exhibit 101 LABELS LINKBASE DOCUMENT
Exhibit 101 PRESENTATION LINKBASE DOCUMENT

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

Condensed Consolidated Balance Sheets

(in thousands, except share data)

	June 30, 2012			December 31, 2011
	(Unaudited)
Assets
Cash and cash equivalents	$	4,285		$	1,337
Accounts receivable, net		210			140
Inventory, net		1,272			1,268
Prepaid expenses and other current assets		291			274
Total current assets		6,058			3,019
Property and equipment, net		1,246			1,420
Intangible assets, net		1,589			1,282
Deposits and other assets		16			16
Total assets	$	8,909		$	5,737
Liabilities, Redeemable Preferred Stock and Stockholders’ Equity
Accounts payable	$	995		$	777
Accrued liabilities		781			752
Deferred revenue		134			189
Related party payable		77			108
Advances		250			250
Warrants to purchase common stock		—			38
Total current liabilities		2,237			2,114
Convertible Redeemable Series G Preferred stock, $0.001 par value, 5,000,000 shares and 0 were authorized, issued and outstanding at June 30, 2012 and December 31, 2011, respectively, liquidation preferences of $5,092 and $0 at June 30, 2012 and December 31, 2011, respectively		5,033			—
Commitments and contingencies
Stockholders’ Equity
Series D Preferred stock, $0.001 par value, 50 shares authorized, 43 issued and outstanding at June 30, 2012 and December 31, 2011,		—			—
Series A Preferred stock, $0.001 par value, 0 and 5,000,000 shares authorized at June 30, 2012 and December 31, 2011, respectively, 0 and 500,000 issued and outstanding at June 30, 2012 and December 31, 2011, respectively, liquidation preferences of $0 and $615 at June 30, 2012 and December 31, 2011, respectively		0			1
Series B Preferred stock, $0.001 par value, 5,000,000 shares authorized, 300,000 issued and outstanding at June 30, 2012 and December 31, 2011, liquidation preferences of $376 and $367 at June 30, 2012 and December 31, 2011, respectively		0			0
Series C Preferred stock, $0.001 par value, 3,000,000 shares authorized, 2,000,000 issued and outstanding at June 30, 2012 and December 31, 2011, liquidation preferences of $2,447 and $2,387 at June 30, 2012 and December 31, 2011, respectively		2			2
Common stock, $0.001 par value, 300,000,000 shares authorized, 87,238,815 and 80,036,315 issued and outstanding at June 30, 2012 and December 31, 2011, respectively		87			80
Additional paid-in capital		68,755			63,995
Deficit accumulated during the development stage		(67,205	)		(60,455	)
Total stockholders’ equity		1,639			3,623
Total liabilities, redeemable preferred stock and stockholders’ equity	$	8,909		$	5,737

See accompanying notes to the unaudited condensed consolidated financial statements.

3

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,						Inception (August 17, 2001) through June 30,
	2012			2011			2012			2011			2012
Revenues
Product sales	$	1,056		$	1,114		$	2,133		$	2,629		$	9,764
Royalties and license		—			—			—			—			135
Total revenue		1,056			1,114			2,133			2,629			9,899
Development expenses
Cost of sales		313			362			637			791			3,971
Research and development		865			1,129			1,802			2,132			20,096
Marketing		548			346			1,044			664			4,918
General and administrative		1,755			2,135			3,794			4,369			35,478
Total development expenses		3,481			3,972			7,277			7,956			64,463
Loss from development activities		(2,425	)		(2,858	)		(5,144	)		(5,327	)		(54,564	)
Other income (expense)
Settlement with related company		—			—			—			—			(93	)
Miscellaneous expense		(56	)		(12	)		(54	)		(11	)		(235	)
Dividend income		—			—			—			—			94
Interest expense		—			—			—			—			(2,225	)
Sublease income		4			2			7			5			316
Change in market value of warrants		—			479			38			1,349			(1,357	)
Total other income (expense), net		(52	)		469			(9	)		1,343			(3,500	)
Loss before income taxes		(2,477	)		(2,389	)		(5,153	)		(3,984	)		(58,064	)
Provision for income taxes		—			—			—			—			7
Net loss	$	(2,477	)	$	(2,389	)	$	(5,153	)	$	(3,984	)	$	(58,071	)
Deemed dividend on preferred stock	$	—		$	—		$	(1,375	)	$	—		$	(1,375	)
Dividends on preferred stock	$	(139	)	$	(107	)	$	(222	)	$	(213	)	$	(8,189	)
Net loss attributable to common stockholders	$	(2,616	)	$	(2,496	)	$	(6,750	)	$	(4,197	)	$	(67,635	)
Net loss per common share-basic and diluted	$	(0.03	)	$	(0.03	)	$	(0.08	)	$	(0.06	)
Weighted average shares-basic and diluted		87,106			76,340			84,446			75,842

See accompanying notes to the unaudited condensed consolidated financial statements.

4

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock, Members’ Deficit and Stockholders’ Equity (Deficit)

From Inception to June 30, 2012

(in thousands)

(Unaudited)

																																			Sub- scrip-					Deficit accumula-
	Convertible Redeemable Series G				Common				Convertible Preferred Stock																								Note Subscrip- tion on Perpetual		tion Receiv- able on		Addi- tional Paid-in			ted during the Develop- ment			Total Stock- holders’			Mem- bers’
	Preferred Stock				Stock				Series A				Series B				Series C				Series D				Series E				Series F						Common
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Preferred		Stock		Capital			Stage			Equity			Deficit
Balance at August 17, 2001		—	$	—		—	$	—		—	$	—		—	$	—		—	$	—		—	$	—		—	$	—		—	$	—	$	—	$	—	$	—		$	—		$	—		$	—
Members contribution																																															100
Net loss for the period from inception																																															(141	)
Balance at December 31, 2001																																															(41	)
Members contributions																																															250
Net loss for the year ended																																															(391	)
Balance at December 31, 2002																																															(182	)
Members contributions																																															195
Net loss for the year ended																																															(519	)
Balance at December 31, 2003																																															(506	)
Members contribution																																															1,110
Net loss for the year ended																																															(854	)
Activity through December 31, 2004																																															(250	)
Members contributions																																															780
Net loss for the year ended December 31, 2005																																															(1,386	)
Balance at December 31, 2005																																															(856	)
Members contribution																																															250
Effect of the Reorganization Transactions						20,000		20																														2,665			(3,291	)		(606	)		606
BTHC transactions						2,210		2																														(2	)					—
Offering costs																																						(2,778	)					(2,778	)
Warrants issued for equity placement services																																						1,231						1,231
Warrants issued for services																																						222						222
Warrants issued with promissory note																																						638						638
Common stock issued for services						1,350		1																														1,349						1,350
Issuance of common stock						10,437		11																														10,371						10,382
Stock-based compensation																																						842						842
Net loss for the year ended December 31, 2006																																									(6,584	)		(6,584	)
Balance at December 31, 2006						33,997	$	34		—	$	—		—	$	—		—	$	—		—	$	—		—	$	—		—	$	—	$	—	$	—	$	14,538		$	(9,875	)	$	4,697		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

5

																																					Sub- scrip- tion Receiv- able on		Addi- tional			Deficit accumula- ted during the Develop-			Total Stock-			Mem-
	Convertible Redeemable Series G		Common				Convertible Preferred Stock																											Note Subscrip- tion on
	Preferred Stock		Stock				Series A					Series B						Series C				Series D				Series E				Series F				Perpetual			Common		Paid-in			ment			holders’			bers’
	Shares	Amount	Shares		Amount		Shares			Amount		Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Preferred			Stock		Capital			Stage			Equity			Deficit
Offering costs																																							$	(382	)				$	(382	)
Warrants issued for equity placement services																																								169						169
Issuance of common stock				1,370		1																																		1,369						1,370
Warrants exercised				3		—																																		3						3
Stock-based compensation																																								427						427
Net loss for the year ended December 31, 2007																																											(6,072	)		(6,072	)
Balance at December 31, 2007				35,370		35		—			—		—			—			—		—		—		—		—		—		—		—		—			—		16,124			(15,947	)		212			—
Issuance of Preferred Stock								1,000			1		550			1			2,000		2																			4,546						4,550
Warrants issued and beneficial conversion feature																																								911						911
Issuance of Common Stock for services				3,041		3																																		593						596
Stock-based compensation																																								735						735
Deemed Dividend																																								1,582			(1,582	)		—
Net loss for the year ended December 31, 2008																																											(6,571	)		(6,571	)
Balance at December 31, 2008				38,411		38		1,000			1		550			1			2,000		2		—		—		—		—		—		—		—			—		24,491			(24,100	)		433			—
Issuance of Preferred Stock																																								3,682						3,682
Preferred Stock Subscription																																														—
Issuance of Common Stock																																														—
For services				1,208		1																																		941						942
From conversion of preferred stock				3,727		4		(400	)		—		(150	)		(1	)																							(3	)					—
From conversion of debt				2,000		2																																		498						500
From exercise of warrants				4,392		4																													(2,700	)				3,659						963
From cashless exercise of warrants				3,510		4																																		279						283
For cash				2,787		3																																		1,397						1,400
Stock-based compensation																																								410						410
Warrants issued for services																																								281						281
Options issued for services																																								106						106
Deemed Dividend																																								3,163			(4,032	)		(869	)
Cumulative effect adjustment-warrant liabilities																																								(1,704	)		430			(1,274	)
Equity placement shares																																								(250	)					(250	)
Dividend on preferred stock																																											(364	)		(364	)
Net loss for the year ended December 31, 2009																																			(9	)							(8,504	)		(8,513	)
Balance at December 31, 2009				56,035		56		600			1		400			—			2,000		2		—		—		—		—		—		—		(2,709	)		—		36,950			(36,570	)		(2,270	)	$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

6

																																					Sub- scription Receiv- able on			Addi- tional			Deficit accumula- ted during theDevelop-			Total Stock-			Mem-
	Convertible Redeemable Series G Preferred Stock						Convertible Preferred Stock																											Note Subscrip- tion on
			Common Stock				Series A					Series B					Series C				Series D				Series E				Series F					Perpetual			Common			Paid-in			ment			holders’			bers’
	Shares	Amount	Shares		Amount		Shares			Amount		Shares			Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares			Amount		Preferred			Stock			Capital			Stage			Equity			Deficit
Preferred Stock Subscription																														1			0
Issuance of Common Stock																																															—
For services				749		1																																			1,084						1,085
From conversion of preferred stock and options				800		1		(100	)		—		(100	)		—														(1	)		—								(1	)					—
From conversion of debt																																															—
From exercise of warrants				5,063		5																													(3,254	)		(5	)		4,747						1,493
From cashless exercise of warrants and options				1,531		2																																			1,536						1,538
For cash				10,593		10																																			10,181						10,190
Stock-based compensation																																									2,068						2,068
Warrants issued for services																																															—
Options issued for services																																															—
Warrants reclassified to equity																																									805						805
Deemed dividend on preferred stock																																												(1,037	)		(1,037	)
Accrued and paid dividend on preferred stock																																												(524	)		(524	)
Swap notes Receivable and Perpetual																																															—
Preferred Stock																																			5,963						(1,200	)					4,763
Net loss for the year ended																																															—
December 31, 2010																																												(12,723	)		(12,723	)
Balance at December 31, 2010				74,771		75		500			1		300			—		2,000		2		—		—		—		—		—			0		—			(5	)		56,170			(50,854	)		5,389			—
Issuance of common stock
For services				150		—																																			303						303
From cashless exercise of warrants				55		—																																			26						26
From exercise of options and warrants				1,060		1																																			526						527
For cash				4,000		4																																			3,354						3,358
Stock-based compensation																																									3,541						3,541
Warrants issued for services																																									75						75
Stock subscription																																						5									5
Accrued dividend on preferred stock																																												(430	)		(430	)
Net loss for the year ended December 31, 2011																																												(9,171	)		(9,171	)
Balance at December 31, 2011				80,036	$	80		500		$	1		300		$	—		2,000	$	2		—	$	—		—	$	—		—		$	0	$	—		$	—		$	63,995		$	(60,455	)	$	3,623		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

7

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock, Members’ Deficit and Stockholders’ Equity (Deficit)

From Inception to June 30, 2012

(in thousands)

(Unaudited)

	Convertible Redeemable Series G					Common				Convertible Preferred Stock																										Note Sub- scrip- tion on Per- petual		Sub- scrip- tion Receiv- able on Com-		Addi- tional			Deficit accu -mula- ted during the Develop-			Total Stock-			Mem-
	Preferred Stock					Stock				Series A						Series B				Series C				Series D				Series E				Series F				Pre-		mon		Paid-in			ment			holders’			bers’
	Shares		Amount			Shares		Amount		Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		ferred		Stock		Capital			Stage			Equity			Deficit
Issuance of convertible redeemable Series G preferred stock, net of issuance costs of $59		5,000		4,941
Beneficial conversion feature for Series G preferred stock				(1,375	)																																				1,375						1,375
Issuance of common stock
From conversion of Series A preferred stock							2,000		2		(500	)		(1	)																										(1	)					—
For cash							5,000		5																																2,079						2,084
For services							185		—																																5						5
From exercise of options							18		—																																4						4
Stock-based compensation																																									1,225						1,225
Warrants issued for services																																									73						73
Accrued dividend on preferred stock				92																																								(222	)		(222	)
Deemed dividend on preferred stock				1,375																																								(1,375	)		(1,375	)
Net loss for the period ended June 30, 2012																																												(5,153	)		(5,153	)
Balance at June 30, 2012		5,000	$	5,033			87,239	$	87		—		$	—			300	$	—		2,000	$	2		—	$	—		—	$	—		—	$	—	$	—	$	—	$	68,755		$	(67,205	)	$	1,639		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

8

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six						Inception (August 17, 2001) through
	Months Ended June 30,						June 30,
	2012			2011			2012
Cash flows from operating activities
Net loss	$	(5,153	)	$	(3,984	)	$	(58,070	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		247			247			1,689
Accretion of discount on notes payable		—			—			103
Accretion of discount on bridge loans		—			—			638
Warrants issued for services		73			—			370
Non-cash compensation expense		1,225			1,788			9,635
Common stock issued for services		5			303			4,302
Change in market value of warrants		(38	)		(1,350	)		1,357
Amortization of discount on convertible debt		—			—			1,081
Allowance for inventory obsolescence		(34	)		(2	)		42
Interest on perpetual preferred stock notes receivable		—			—			(35	)
Loss on disposal of fixed assets		50			—			74
Impairment of intangible assets		18			—			21
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(70	)		397			(210	)
(Increase) decrease in inventory, net		29			(471	)		(1,315	)
(Increase) decrease in prepaid assets		(17	)		(62	)		(291	)
(Increase) decrease in deposits and other assets		—			24			(16	)
Increase (decrease) in accounts payable		218			450			1,103
Increase (decrease) in accrued expenses		29			311			1,066
Increase (decrease) in deferred revenue		(55	)		(622	)		134
Increase (decrease) in related party payable		13			—			(152	)
Net cash used in operating activities		(3,460	)		(2,971	)		(38,474	)
Investing activities
Purchases of property and equipment		(99	)		(404	)		(2,588	)
Proceeds from sale of property and equipment		7			—			7
Payments for patent licenses and trademarks		(357	)		(114	)		(2,038	)
Net cash used in investing activities		(449	)		(518	)		(4,619	)
Financing activities
Proceeds from Members’ contributions		—			—			2,685
Proceeds from issuance of common stock		2,089			1,164			28,887
Proceeds from issuance of preferred stock		4,941			—			17,202
Proceeds from issuance of convertible promissory notes		—			—			2,100
Proceeds from exercise of warrants and options		—			339			988
Payment of preferred stock dividends		(173	)		(214	)		(1,256	)
Payment of promissory notes		—			—			(2,203	)
Payment of offering costs		—			—			(1,760	)
Proceeds from convertible debt, advances and loan payable		—			—			1,360
Payment of loan payable		—			—			(625	)
Net cash provided by financing activities		6,857			1,289			47,378
Net (decrease) increase in cash and cash equivalents		2,948			(2,200	)		4,285
Cash and cash equivalents, beginning of period		1,337			5,782			—
Cash and cash equivalents, end of period	$	4,285		$	3,582		$	4,285
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—		$	—		$	372
Cash paid for income taxes	$	—		$	—		$	11
Non-cash financing activities:
Discount on convertible debt from beneficial conversion feature	$	—		$	—		$	641
Discount on convertible debt from warrants	$	—		$	—		$	270
Accretion of preferred stock dividends	$	92		$	—		$	92
Deemed dividend on preferred stock	$	1,375		$	—		$	8,058
Conversion of debt to common stock	$	—		$	—		$	500
Warrants issued for placement agent services	$	—		$	—		$	1,231
Warrants issued with promissory notes	$	—		$	—		$	638
Non-cash sale of preferred stock	$	—		$	—		$	382
Dividend on preferred stock exchanged for note receivable	$	—		$	—		$	95
Conversion of preferred stock	$	—		$	—		$	2
Cashless exercise of warrants	$	—		$	23		$	1,847

See accompanying notes to the unaudited condensed consolidated financial statements.

9

International Stem Cell Corporation and Subsidiaries

(A Development Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Business Combination and Corporate Restructure

BTHC III, Inc. (“BTHC III” or the “Company”) was organized in Delaware in June 2005 as a shell company to effect the reincorporation of BTHC III, LLC, a Texas limited liability company. On December 28, 2006, the Company effected a Share Exchange pursuant to which it acquired all of the stock of International Stem Cell Corporation, a California corporation (“ISC California”). After giving effect to the Share Exchange, the stockholders of ISC California owned 93.7% of issued and outstanding shares of common stock. As a result of the Share Exchange, ISC California is now the wholly-owned subsidiary, though for accounting purposes it was deemed to have been the acquirer in a “reverse merger.” In the reverse merger, BTHC III is considered the legal acquirer and ISC California is considered the accounting acquirer. On January 29, 2007, the Company changed its name from BTHC III, Inc. to International Stem Cell Corporation.

Lifeline Cell Technology, LLC (“Lifeline”) was formed in the State of California on August 17, 2001. Lifeline is in the business of developing and manufacturing purified primary human cells and optimized reagents for cell culture. Lifeline’s scientists have used a technology, called basal medium optimization to systematically eliminate animal proteins from cell culture systems. Lifeline distinguishes itself in the industry by having in place scientific and manufacturing staff with the experience and knowledge to set up systems and facilities to produce a source of consistent, standardized, non-human animal protein free cell products, some of which are suitable for FDA approval.

On July 1, 2006, Lifeline entered into an agreement among Lifeline, ISC California and the holders of membership units and warrants. Pursuant to the terms of the agreement, all the membership units in Lifeline were exchanged for 20,000,000 shares of ISC California Common Stock and for ISC California’s assumption of Lifeline’s obligations under the warrants. Lifeline became a wholly-owned subsidiary of ISC California.

Lifeline Skin Care, Inc. (“SkinCare”) was formed in the State of California on June 5, 2009 and is a wholly-owned subsidiary of ISC California. SkinCare develops, manufactures and distributes cosmeceutical products, utilizing human parthenogenetic stem cell technologies.

Going Concern

The Company continues in the development stage and as such has accumulated losses from inception and expects to incur additional losses in the near future. The Company needs to raise additional working capital. The timing and degree of any future capital requirements will depend on many factors. Currently, the Company’s burn rate is approximately $625,000 per month, excluding capital expenditures and patent costs averaging $75,000 per month. There can be no assurance that the Company will be successful in maintaining its normal operating cash flow, and that such cash flows will be sufficient to sustain the Company’s operations through 2013. Based on the above, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements were prepared assuming that the Company is a going concern. The consolidated 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. Management’s plans in regard to these matters are focused on managing its cash flow, the proper timing of its capital expenditures, and raising additional capital or financing in the future. In March 2012, to obtain funding for working capital purposes, the Company sold 5,000,000 shares of Series G Preferred Stock raising $5 million and during the first quarter of 2012 sold 5,000,000 shares of common stock to Aspire Capital Fund, LLC for $2.1 million. For further discussion, see Note 6, Capital Stock, and Series G Preferred Stock.

Basis of Presentation

International Stem Cell Corporation was formed in June 2006. BTHC III, Inc. was a shell company that had no operations and no net assets. For accounting purposes the acquisition has been treated as a recapitalization of BTHC III with ISC California as the accounting acquirer (reverse acquisition). The historical statements prior to June 2006 are those of Lifeline Cell Technology, LLC, the wholly-owned subsidiary of ISC California.

The Company is a development-stage company with limited and less predictable revenue stream from its Lifeline Skin Care and Lifeline Cell Technology business units. While the Company continued to expand its sales and marketing efforts to optimize revenue, to date it has generated limited revenue to support its core therapeutic research and development efforts.

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The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q.

They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the annual report on Form 10-K of International Stem Cell Corporation and Subsidiaries for the year ended December 31, 2011. When used in these notes, the terms “Company,” “we,” “us,” or “our” mean International Stem Cell Corporation and all entities included in our unaudited condensed consolidated financial statements.

In the opinion of management, the unaudited condensed consolidated financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated results of operations, financial position and cash flows. The unaudited condensed consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s annual report on Form 10-K. Operating results for interim periods are not necessarily indicative of the operating results for any interim period or an entire year.

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of International Stem Cell Corporation and its subsidiaries after intercompany balances and transactions have been eliminated.

The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Inventories

Inventories are accounted for using the first-in, first-out (FIFO) method for Lifeline Skin Care products, and specific identification method for Lifeline Cell Technology products. Inventory balances are stated at the lower of cost or market. Laboratory supplies used in the research and development process are expensed as consumed. Inventory is reviewed periodically for product expiration and obsolescence and is adjusted accordingly.

Accounts Receivable

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. Accounts receivable primarily consist of trade accounts receivable from the sales of Lifeline Cell Technology’s products, timing of cash receipts by the Company related to Skin Care credit card sales to customers, as well as Skin Care trade receivable amounts related to spa and distributor sales. The Company considers receivables past due based on the contractual payment terms. The Company reviews its exposure to amounts receivable and reserves specific amounts if collectability is no longer reasonably assured. As of June 30, 2012, the Company had an allowance for bad debt totaling $4,000. As of December 31, 2011, the Company did not have an allowance for bad debt as all accounts receivable were deemed collectible.

Property and Equipment

Property and equipment are stated at cost. The provision for depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally over five years. The costs of major remodeling and leasehold improvements are capitalized and amortized over the shorter of the remaining term of the lease or the life of the asset.

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Intangible Assets

Intangible assets consist of acquired research and development rights used in research and development, and capitalized legal fees related to the acquisition, filing, maintenance, and defense of patents. Patent or patent license amortization only begins once a patent license is acquired or a patent is issued by the appropriate authoritative bodies. In the period in which a patent application is rejected or efforts to pursue the patent are abandoned, all the related accumulated costs are expensed. Patents and patent licenses are recorded at cost of $2,016,000 and $1,677,000 at June 30, 2012 and December 31, 2011, respectively, and are amortized on a straight-line basis over the shorter of the lives of the underlying patents or the useful life of the license. Amortization expense for the three months ended June 30, 2012 and 2011 and six months ended June 30, 2012 and 2011 amounted to $16,000, $22,000, $33,000, and $44,000, respectively, and is included in research and development expense. Accumulated amortization as of June 30, 2012 and December 31, 2011 are $429,000 and $395,000, respectively. Additional information regarding patents and patent licenses is included in Note 4.

Long-lived Asset Impairment

The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, at least annually. The Company considers assets to be impaired and writes them down to fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows. None of the Company’s long-lived assets were considered impaired at June 30, 2012 and December 31, 2011.

Lifeline Product Sales

The Company recognizes revenue from product sales at the time of shipment to the customer, provided no significant obligations remain and collection of the receivable is reasonably assured. If the customer has a right of return, the Company recognizes product revenues upon shipment, provided that future returns can be reasonably estimated. In the case where returns cannot be reasonably estimated, revenue will be deferred until such estimates can be made or the right of return has expired.

Deferred Revenue

The Company recognizes revenue from its LifeLine Skin Care products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. However, the LifeLine Skin Care products have a 30-day right of return guarantee and therefore, the Company defers all revenue associated with these product sales until the 30-day guarantee has expired. In addition, all costs associated with these product sales are reclassified against the deferred revenue account so that the net deferred revenue balance is presented. At June 30, 2012 and December 31, 2011, net deferred revenue totaled $134,000 and $189,000, respectively.

Cost of Sales

Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products and include related direct materials, general laboratory supplies and allocation of overhead. Certain of the agreements under which the Company has licensed technology will require the payment of royalties based on the sale of its future products. Such royalties will be recorded as a component of cost of sales. Additionally, the amortization of license fees or milestone payments related to developed technologies used in the Company’s products will be classified as a component of cost of sales to the extent such payments become due in the future.

Research and Development Costs

Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits associated with research and development personnel, overhead and occupancy, contract services, and amortization of license costs for technology used in research and development with alternative future uses.

Registration Payment Arrangements

In accordance with applicable authoritative guidance, the Company is required to separately recognize and measure registration payment arrangements, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement. Such payments include penalties for failure to effect a registration of securities.

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Fair Value Measurements

On January 1, 2008, the Company adopted authoritative guidance for fair value measurements and fair value disclosures. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level  1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level  2	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level  3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of June 30, 2012 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	3,505	$	3,505	$	—	$	—

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of December 31, 2011 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	470	$	470	$	—	$	—
LIABILITIES:
Warrants to purchase common stock	$	38	$	—	$	—	$	38

The following table displays the rollforward activity of liabilities with inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity):

	Warrants to purchase common stock
Beginning balance at December 31, 2010	$	2,400
Issuances		—
Adjustments to estimated fair value		(2,362	)
Ending balance at December 31, 2011		38
Issuances		—
Adjustments to estimated fair value due to expiry		(38	)
Ending balance at June 30, 2012	$	—

Income Taxes

The Company accounts for income taxes in accordance with applicable authoritative guidance, which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements. Significant estimates include patent life (remaining legal life versus remaining useful life) and transactions using the Black-Scholes option pricing model, e.g., warrants and stock options, as well as Monte-Carlo valuation method for certain of the Company’s warrants. Actual results could differ from those estimates.

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Fair Value of Financial Instruments

The Company believes that the carrying value of its cash and cash equivalents, receivables, accounts payable and accrued liabilities as of June 30, 2012 and December 31, 2011 approximate their fair values because of the short-term nature of those instruments. The fair value of certain warrants was determined at each reporting date in 2011 using the Monte-Carlo valuation methodology; however, warrants requiring such valuations have expired in the first quarter of 2012.

Income (Loss) Per Common Share

The computation of net loss per common share is based on the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents, which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. At June 30, 2012, there were 185,000 non-vested restricted shares, 3,530,000 warrants, and 13,696,907 vested and 10,528,100 non-vested stock options outstanding; and at December 31, 2011, there were 6,569,550 warrants, and 11,842,841 vested and 11,141,598 non-vested stock options outstanding. These restricted shares, options and warrants were not included in the diluted loss per share calculation because the effect would have been anti-dilutive.

Comprehensive Income

Comprehensive income or loss includes all changes in equity except those resulting from investments by owners and distributions to owners. The Company did not have any items of comprehensive income or loss other than net loss from operations for the three and six months ended June 30, 2012 and 2011 or the period from inception through June 30, 2012.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation. The amounts reclassified had no effect on total assets, total liabilities, total stockholders’ equity and results of operations of the prior year consolidated financial statements.

Recent Accounting Pronouncements

There were no new accounting pronouncements during the three and six months ended June 30, 2012, as compared to the recent accounting pronouncements described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance, to the Company.

2. Inventory

Inventories are accounted for using the first-in, first-out (FIFO) method for Lifeline Skin Care products, and specific identification method for Lifeline Cell Technology products. Lab supplies used in the research and development process are expensed as consumed. Inventory is reviewed periodically for product expiration and obsolete inventory and adjusted accordingly. The components of inventories are as follows (in thousands):

	June 30, 2012			December 31, 2011
Raw materials	$	232		$	265
Work in process		299			285
Finished goods		783			794
Total		1,314			1,344
Less: allowance for inventory obsolescence		(42	)		(76	)
Inventory, net	$	1,272		$	1,268

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3. Property and Equipment

Property and equipment consists of the following (in thousands):

	June 30, 2012			December 31, 2011
Machinery and equipment	$	973		$	969
Computer equipment		362			358
Office equipment		224			217
Leasehold improvements		830			816
		2,389			2,360
Less: accumulated depreciation and amortization		(1,143	)		(940	)
Property and equipment, net	$	1,246		$	1,420

Depreciation expenses for the three and six months ended June 30, 2012 were $106,000 and $214,000, respectively. During the same periods in the prior year, depreciation expenses were $109,000 and $203,000, respectively.

4. Patent Licenses

On December 31, 2003, Lifeline entered into an Option to License Intellectual Property agreement with Advanced Cell Technology, Inc. (“ACT”) for patent rights and paid ACT $340,000 in option and license fees. On February 13, 2004, Lifeline and ACT amended the Option agreement and Lifeline paid ACT additional option fees of $22,500 for fees related to registering ACT’s patents in selected international countries.

On May 14, 2004, Lifeline amended the licensing agreement with ACT for the exclusive worldwide patent rights for the following ACT technologies: UMass IP, ACT IP and Infigen IP, which terms are summarized below. The additional license fees aggregate a total of $400,000 and were secured by separate convertible promissory notes. The notes bore no interest unless they were not repaid at maturity, in which event they shall thereafter bear interest at an annual rate equal the lesser of 10% or the maximum non-usurious rate legally allowed.

The notes could be converted at the option of ACT into the first equity financing of Lifeline with cash proceeds in excess of $5,000,000 under the following conditions: i) Upon the consummation of the First Equity Financing; or ii) Immediately prior to the closing of any merger, sale or other consolidation of the Company or of any sale of all or substantially all assets of the Company which occurs prior to the First Equity Financing (an “Acquisition Event”). Notwithstanding the above, and only in the event that a conversion resulting from such Acquisition Event would result in a security not traded on a national stock exchange (including NASDAQ and NASDAQ small cap), upon written notice to the Company not later than five days after the consummation of the Acquisition Event and notice of the Acquisition Event to the holder of the note, the holder may elect to receive payment in cash of the entire outstanding principal of this Note. On December 21, 2007 ACT, elected to receive payment and was paid in cash in-lieu of conversion of the notes. The Company still maintains an obligation to pay royalties and other fees in accordance with the following schedule (in thousands, except percentages and sales thresholds):

	UMass IP		ACT IP		Infigen IP
License fee	$	150	$	225	$	25
Royalty rates		3% to 12%		3% to 10%		3% to 10%
Minimum royalties
At 12 months	$	15	$	15	$	8
At 24 months	$	30	$	38	$	8
At 36 months	$	45	$	61	$	7
Annually thereafter	$	60	$	75	$	15
Milestone payments
First commercial product	$	250	$	250	$	250
Sales reaching $5,000,000	$	500	$	500	$	500
Sales reaching $10,000,000	$	1,000	$	1,000	$	1,000

As of June 30, 2012, the total amount capitalized related to the acquired ACT licenses was $747,000, and $1,102,000 related to the other patent acquisition costs.

15

At June 30, 2012, future amortization expense related to our intangible assets subject to amortization is expected to be as follows (in thousands):

	Amount
2012 (remaining six months)	$	31
2013		62
2014		62
2015		62
2016		62
Thereafter		1,250
Total	$	1,529

5. Advances

Advance

On June 18, 2008, the Company entered into an agreement with BioTime, Inc. (“Bio Time”), where Bio Time will pay an advance of $250,000 to Lifeline Cell Technology, a wholly-owned subsidiary of International Stem Cell Corporation, to produce, make, and distribute Joint Products. The $250,000 advance will be paid down with the first $250,000 of net revenues that otherwise would be allocated to Lifeline under the agreement. As of June 30, 2012 no revenues were realized from this agreement.

	June 30, 2012		December 31, 2011
BioTime, Inc. (in thousands)	$	250	$	250

6. Capital Stock

As of December 31, 2006, the Company was authorized to issue 200,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share. In May 2012, the Company amended its Certificate of Incorporation to increase the authorized number of shares of common stock to 300,000,000.

In October 2006, the board of directors of BTHC III approved a stock split of 4.42 shares to 1. As a result of the split, the outstanding common stock of BTHC III increased from 500,000 to 2,209,993 shares. Pursuant to the Share Exchange Agreement, each share of International Stem Cell Corporation common stock was exchanged for one share of BTHC III common stock. All numbers in the financial statements and notes to the financial statements have been adjusted to reflect the stock split for all periods presented.

On December 27, 2006, the Company’s Board of Directors and holders of a majority of the outstanding shares approved an increase in the authorized capital stock of the Company to 200,000,000 shares of Common Stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share.

In December 2006, the Company issued 1,350,000 shares of common stock, 350,000 of such shares in consideration for legal consulting services relating to the reverse merger and 1,000,000 shares in consideration for a contract to provide investor relations services which commenced September 1, 2006 for a period of one year.

In January and February 2007, ISC California completed the Brookstreet financing and issued 1,370,000 shares of common stock that was part of a private placement of securities by ISC California during the second half of 2006. The net proceeds from sale finalized in 2007 were $1,157,000 net of cash fees and expenses. In connection with the final settlement in 2007, the selling agent for the private placement received 274,000 additional warrants, which entitle the holder thereof to purchase that number of shares of common stock for $1.00 each.

Series A Preferred Stock

On January 15, 2008, to raise funds, the Company entered into a subscription agreement with accredited investors for the sale of between 1,000,000 and 5,000,000 of Series A Preferred Stock (“Series A Preferred”). Series A Units consist of one share of Series A Preferred and two Warrants (“Series A Warrants”) to purchase common stock for each $1.00 invested. The Series A Preferred was convertible into shares of common stock at market price on the date of the first finance closing, but not to exceed $1 per share and the Series A Warrants are exercisable at $0.50 per share. The Series A Preferred has an anti-dilution clause whereby, if the Company issues $1 million or more of equity securities or securities convertible into equity at a price below the respective exercise prices of the Series A Preferred or the Series A Warrant shall be adjusted downward to equal the price of the new securities. The Series A Preferred has priority on any sale or liquidation of the Company equal to the purchase price of the Series A Units, plus a liquidation premium of 6% per year. If the Company elects to declare a dividend in any year, it must first pay to the Series A Preferred a dividend of the amount of the dividend the Series A Preferred holder would receive if the shares were converted just prior to the dividend declaration.

16

Each share of Series A Preferred has the same voting rights as the number of shares of common stock into which it would be convertible on the record date. On March 30, 2012, the holder of the remaining 500,000 shares of Series A Preferred Stock, converted his shares to a total of 2,000,000 shares of common stock. As of June 30, 2012 and December 31, 2011, the Company had zero and 500,000 shares of the Series A Preferred Stock issued and outstanding, respectively. In May 2012, the Company filed a Certificate of Elimination for the Series A Preferred Stock to remove the powers, designations, preferences, privileges and other rights of the Series A Preferred Stock.

Series B Preferred Stock

On May 12, 2008, to obtain funding for working capital, the Company entered into a series of subscription agreements with five accredited investors for the sale of a total of 400,000 Series B Units, each Series B Unit consisting of one share of Series B Preferred Stock (“Series B Preferred”) and two Series B Warrants (“Series B Warrants”) to purchase common stock for each $1.00 invested.

The total purchase price received by the Company was $400,000. The Series B Preferred is convertible into shares of common stock at the initial conversion ratio of two shares of common stock for each share of Series B Preferred converted (which was established based on an initial conversion price of $0.50 per share), and the Series B Warrants were exercisable at $0.50 per share until five years from the issuance of the Series B Warrants. The Series B Preferred and Series B Warrants contained anti-dilution clauses whereby, (subject to the exceptions contained in those instruments) if the Company issues equity securities or securities convertible into equity at a price below the respective conversion price of the Series B Preferred or the exercise price of the Series B Warrant, such conversion and exercise prices shall be adjusted downward to equal the price of the new securities, which has been triggered and the new price of the warrants was set at $0.25. The Series B Preferred has a priority (senior to the shares of common stock, but junior to the shares of Series A Preferred Stock) on any sale or liquidation of the Company equal to the purchase price of the Series B Units, plus a liquidation premium of 6% per year. If the Company elects to declare a dividend in any year, it must first pay to the Series B Preferred holder a dividend equal to the amount of the dividend the Series B Preferred holder would receive if the Series B Preferred were converted just prior to the dividend declaration. Each share of Series B Preferred has the same voting rights as the number of shares of common stock into which it would be convertible on the record date. As of June 30, 2012 and December 31, 2011, the Company had 300,000 shares of the Series B Preferred Stock issued and outstanding.

Fair Value of Warrants Issued with Series A and B Preferred Stock

In accordance with the applicable authoritative guidance, the Company allocated the proceeds of the Series A and B preferred stock according to the value of the convertible preferred stock and the warrants based on their relative fair values. Fair value of the warrants issued with the Series A and Series B were determined using the Black-Scholes valuation model using risk-free interest rates of 3% and 3.37%, volatility rate of 65.0% and 57.9%, term of five years, and exercise price of $0.50.

In connection with the Series A and B rounds of financing, each investor received a warrant to purchase up to a number of shares of common stock for $1.00 per share. Subsequently, the exercise price for those warrants was adjusted down to $0.25 per share.

In August 2008, in accordance with the anti-dilution provisions of the securities, the conversion rates and exercise price were reduced to $0.25. Estimated adjusted fair value of the warrants was determined using the Black-Scholes valuation model using risk-free interest rate of 3%, volatility rate of 57.9%, term of five years, and exercise price of $0.25. For Series A and Series B, the beneficial conversion feature and warrants were adjusted to $553,000 and $193,000, and $308,000 and $110,000, respectively.

During the second quarter of 2010, the holders of the warrants issued to the purchasers of Series A and B Preferred Stock signed a waiver to give up their rights to the anti-dilution provisions related to the warrants and the exercise price is now fixed at $0.25. The modification to the warrants resulted in the change in classification from a liability to equity and the warrants were re-valued at the date of modification. The re-valuation of the warrants resulted in a reduction in the warrant value of $5,276,000 which was recorded as a credit to income. The adjusted value of the warrants of $804,971 was reclassified to Additional Paid-in Capital, thus eliminating any fair value of outstanding warrant liability as of June 30, 2010.

Series C Preferred Stock

On August 20, 2008, to obtain funding for working capital, the Company entered into a subscription agreement with an accredited investor (the “Series C Investor”) to sell for $3,000,000 up to 3,000,000 shares of Series C Preferred Stock (“Series C Preferred”) at a price of $1.00 per Series C Preferred share. The Series C Preferred will be convertible into shares of common stock at $0.25 per share. The Series C Preferred had an anti-dilution clause whereby, if the Company issues 250,000 shares or more of equity securities or securities convertible into equity at a price below the conversion price of the Series C Preferred, the conversion price of the Series C Preferred shall be adjusted downward to equal the price of the new securities. The Series C Preferred shall have priority over the common stock on any sale or liquidation of the Company equal to the purchase price of the Units, plus a liquidation premium of 6% per year. If the Company elects to declare a dividend in any year, it must first pay to the Series C Preferred a dividend in the amount of the dividend the Series C Preferred holder would receive if converted just prior to the dividend declaration. Each share of Series C Preferred shall have the same voting rights as the number of shares of common stock into which it would be convertible on the record date. 700,000 shares of Series C Preferred Stock were sold on August 20, 2008, and 1,300,000 shares of Series C Preferred Stock were sold on September 23, 2008. The beneficial conversion feature for the Series C preferred stock is $720,000. All the Series

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C Preferred Stock was issued to X-Master Inc., which is a related party and affiliated with our Chief Executive Officer and Co-Chairman of the Board of Directors Dr. Andrey Semechkin and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director. As of June 30, 2012 and December 31, 2011, we had 2,000,000 shares of the Series C Preferred Stock issued and outstanding.

Series D Preferred Stock

On December 30, 2008, to obtain funding for both working capital and the eventual repayment of the outstanding obligation under the OID Senior Secured Convertible Note with a principal amount of $1,000,000 issued in May 2008, the Company entered into a Series D Preferred Stock Purchase Agreement (the “Series D Agreement”) with accredited investors (the “Investors”) to sell for up to $5,000,000 or up to 50 shares of Series D Preferred Stock (“Series D Preferred”) at a price of $100,000 per Series D Preferred share. The sale of the Series D Preferred closed on the following schedule: (1) 10 shares were sold on December 30, 2008; (2) 10 shares were sold on February 5, 2009; and (3) 10 shares were sold on each of March 20, 2009, and June 30, 2009 and 3 shares on September 30, 2009. The Company raised a total of $4,700,000 in the Series D Preferred Stock round. The beneficial conversion feature from the Series D Preferred Stock is recognized as deemed dividend totaling $2,480,000. Of the Series D Preferred Stock issued, 10 shares of the Series D Preferred Stock was issued to X-Master Inc., which is a related party and affiliated with our Chief Executive Officer and Co-Chairman of the Board of Directors Dr. Andrey Semechkin and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director and 33 shares of the Series D Preferred Stock was issued to our Chief Executive Officer and Co-Chairman of the Board of Directors Dr. Andrey Semechkin. As of June 30, 2012 and December 31, 2011, we had 43 shares of the Series D Preferred Stock issued and outstanding. The Series D Preferred Stock earns cumulative dividends at a rate of 10% per annum through December 31, 2011 and 6% per annum effective January 1, 2012, payable 15 days after each quarter end. As of June 30, 2012 and December 31, 2011, Series D Preferred Stock dividends of $64,000 and $108,000 were accrued, respectively. During the three and six months ended June 30, 2012 and 2011, dividends of $64,000, $173,000, $107,000 and $213,000 were paid to the holders, respectively.

Series E Preferred Stock

On June 30, 2009, the Company entered into a definitive agreement with Optimus Capital Partners, LLC (“Investor”) for a $5 million investment commitment. The transaction was structured whereby the Company could draw down funds as needed, but had no obligations to make draws or use these funds if not needed. As funds were drawn down, the Company issued Series E Preferred Stock (the “Preferred Stock”). The Preferred Stock was not convertible into common stock and could be redeemed by the Company after one year. Each issue of Preferred Stock was accompanied by the issuance of five-year warrants to purchase common stock at 100% of the closing price of the company’s common stock on the day prior to the date the company gave notice of its election to draw funds. The total exercise value of warrants issued equaled 135% of the drawdown amount. Dividends on the Preferred Stock were payable in additional shares of non-convertible Preferred Stock at the rate of 10% per annum. A commitment fee of $250,000, payable in shares of common stock, was made to the Investor. As part of the agreement, the Company filed a registration statement on July 31, 2009, which was declared effective on September 30, 2009. The investment was used to fund operations and working capital needs of the Company and expand its scientific research.

On July 31, 2009, the Company filed a registration statement with the Securities and Exchange Commission as part of the Preferred Stock Purchase Agreement the Company signed on June 30, 2009, between International Stem Cell Corporation and Optimus Capital Partners. Per the agreement, the Company was required to use its best efforts to promptly file (but in no event later than 30 days after the Effective Date) and cause to become effective as soon as possible a Registration Statement for the sale of all Common Shares. Each Registration Statement was required to comply when it became effective, and, as amended or supplemented, at the time of any Tranche Notice Date, Tranche Closing Date, or issuance of any Common Shares, and at all times during which a prospectus was required by the Act to be delivered in connection with any sale of Common Shares, to comply, in all material respects, with the requirements of the Act. The Company is and has been in compliance with all applicable requirements of that agreement.

To create the Series E Preferred sold to the Investor under the Agreement, on June 30, 2009, the Company amended its Certificate of Incorporation by filing a Certificate of Designation of Preferences, Rights and Limitations of the Series E Preferred. The Series E Preferred has priority over the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and common stock on the proceeds from any sale or liquidation of the Company in an amount equal to the purchase price of the Series E Preferred, plus any accrued but unpaid dividends. From the date of issuance of the Series E Preferred, dividends at the rate per annum of ten percent (10%) of the Purchase Price per share accrued on such shares of Series E Preferred. Following the first anniversary of the issuance date, the Company had the right at its option to redeem the Series E Preferred at an amount equal to the purchase price of the Series E Preferred, plus any accrued but unpaid dividends and plus a redemption premium that declines from 26% (for redemptions between the first and second anniversary of issuance) to zero (for redemptions after the fourth anniversary of issuance).

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During 2010, the Company drew $2.4 million of the private equity financing and issued 24 shares of the Series E Preferred Stock, as well as issued 3.7 million warrants which were immediately exercised to purchase 3.7 million shares of the Company’s common stock.

Exchange Agreement Series E Preferred Stock

On June 11, 2010, the Company entered into an Exchange Agreement (the “Optimus Exchange Agreement”) with Optimus Capital Partners, LLC (“Optimus”) under which the Company and Optimus agreed to exchange all of the Series E Preferred Stock previously issued to Optimus pursuant to the Preferred Stock Purchase Agreement dated June 30, 2009 (the “Optimus Preferred Stock Agreement”) for all of the promissory notes of Optimus (the “Optimus Notes”) issued to the Company in that transaction as payment for shares of the Company’s common stock. As part of the exchange transaction, the Company agreed to waive all accrued interest on the Optimus Notes and Optimus agreed to waive all accrued dividends and redemption premiums on the Series E Preferred Stock. The exchange was completed in June 2010 and is discussed in more detail below.

Series F Preferred Stock

On May 4, 2010, International Stem Cell Corporation entered into a Preferred Stock Purchase Agreement with Socius CG II, Ltd., a Bermuda exempted company (the “Investor”), to sell for up to $10,000,000 up to one thousand (1,000) shares of Series F Preferred Stock (“Series F Preferred”) at a price of $10,000 per Series F Preferred share. The Company was entitled to determine the time and amount of Series F Preferred to be purchased by the Investor and the Company intended to sell all 1,000 shares of Series F Preferred at a single time. The Series F Preferred could not be converted into common stock and was redeemable by the Company. Under the terms of the Agreement, the Company provided the Investor with a non-refundable fee of 250,000 shares of Company common stock (the “Fee Shares”) and issued the Investor a warrant to purchase up to 7,000,000 shares of the Company’s common stock, with the exercise price of $1.93 per share, subject to adjustment. The closing of the sale of the Series F Preferred took place in early June 2010.

Exchange Agreement Series F Preferred Stock

On June 11, 2010, the Company, entered into an Exchange Agreement (the “Socius Exchange Agreement”) with Socius CG II, Ltd. (“Socius”) under which the Company and Socius agreed to exchange all of the Series F Preferred Stock previously issued to Socius pursuant to the Preferred Stock Purchase Agreement dated May 4, 2010 (the “Socius Preferred Stock Agreement”) for all of the promissory notes of Socius (the “Socius Notes”) issued to the Company in that transaction as payment for shares of the Company’s common stock and a $2.5 million note issued in partial payment for the Socius Series F Preferred Stock. As part of the exchange transaction, the Company agreed to waive all accrued interest on the Socius Notes and Socius agreed to waive all accrued dividends and redemption premiums on the Socius Series F Preferred Stock. The exchange was completed in June 2010 and is discussed in more detail below.

Perpetual Preferred Stock

As part of the Series E financing agreement, the Company recorded a Perpetual Preferred Stock equal to the amount of financing received during the year, plus accrued dividends, and Note Receivable equal to 135% of financing received, which represents the amount of warrant coverage per the agreement, plus accrued interest. In accordance with applicable authoritative guidance on Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, the Company classified the Note Receivable as contra Equity (“Note subscription on Perpetual Preferred Stock”) and the Perpetual Preferred Stock as a liability (“Long Term Perpetual Preferred Stock”). The Note Receivable accrued interest at a rate of 2% per year and the Perpetual Preferred Stock accrued a 10% dividend per year. The Company allocated the proceeds of the Series E Preferred Stock according to the value of the preferred stock and the fair value of the warrants. Estimated adjusted fair value of the warrants was determined using the Black-Scholes valuation model using risk-free interest rates ranging from 2.40% to 2.65%, volatility rate ranging from 64.46% to 65.33%, term of five years, and exercise price ranging from $0.56 to $0.74.

As a result of the exchange transactions for the Series E and Series F Preferred stock, all of the Company’s obligations under the previously outstanding Series E Preferred Stock and Series F Preferred Stock, which collectively had liquidation preferences of $15 million senior to the shares of the Company’s common stock and redemption premiums that started at 26% of the liquidation preference were retired and the Company no longer held any promissory notes of either Socius or Optimus. Because the parties to these exchange transactions determined that the instruments and rights being exchanged were of equivalent value, neither party paid any cash to the other party to the exchange transaction. Therefore, as of June 30, 2010, the Company reversed out all of the Perpetual Preferred Stock and the Notes Receivable related to the Perpetual Preferred Stock.

Series G Preferred Stock

On March 9, 2012, the Company entered into a Series G Preferred Stock Purchase Agreement (the “Series G Agreement”) with AR Partners, LLC (the “Purchaser”) to sell five million (5,000,000) shares of Series G Preferred Stock (“Series G Preferred”) at a price of $1.00 per Series G Preferred share, for a total purchase price of $5,000,000. The Purchaser is an affiliate of Dr. Andrey Semechkin, the Company’s Co-Chairman and Chief Executive Officer, and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director.

The Series G Preferred is convertible into shares of common stock at $0.40 per share, resulting in an initial conversion ratio of 2.5 shares of common stock for every share of Series G Preferred. The conversion price may be adjusted for stock splits and other combinations, dividends and distributions, recapitalizations and reclassifications, exchanges or substitutions and is subject to a weighted-average adjustment in the event of the issuance of additional shares of common stock below the conversion price. The Series G Preferred shares have priority over the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock on the proceeds from any sale or liquidation of the Company in an amount equal to the purchase price of the Series G Preferred, plus any accrued but unpaid dividends, but such payment may be made only after payment in full of the liquidation preferences payable to holders of any shares of Series D Preferred Stock then outstanding. From the date of issuance of the Series G Preferred, dividends at the rate per annum of six percent (6%) of the Purchase Price per share accrue on such shares of Series G Preferred. Dividends accrue quarterly and are cumulative. Each share of Series G Preferred has the same voting rights as the number of shares of Common Stock into which it would be convertible on the record date. As long as there are at least 1,000,000 shares of Series G Preferred outstanding, the holders of Series G Preferred have (i) the initial right to propose the nomination of two members of the Board, at least one of which nominees shall be subject to the approval of the Company’s independent directors, for election by the stockholder’s at the Company next annual meeting of stockholders, or, elected by the full board of directors to fill a vacancy, as the case may be, and (ii) the right to approve any amendment to the certificate of incorporation, certificates of designation or bylaws, in manner adverse to the Series G Preferred, alter the percentage of board seats held by the Series G directors or increase the authorized number of shares of Series G Preferred. At least one of the two directors nominated by holders of the Series G Preferred shares shall be independent based on the NASDAQ listing requirements. As of June 30, 2012, Series G Preferred Stock dividend of $92,000 was accrued compared to none as of December 31, 2011. Such dividends were accreted to the carrying value of the Series G preferred stock. No dividend was paid to the holders during the three and six months ended June 30, 2012 and 2011.

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The Company determined that the Series G convertible preferred shares have a contingent redemption feature. As the event that may trigger the redemption of the convertible preferred stock is not solely within the Company’s control, the convertible preferred stock has been classified as mezzanine equity (outside of permanent equity) on the Company’s condensed consolidated balance sheet. Additionally, legal costs related to the Series G financing in the amount of $59,000 were recorded in the mezzanine equity as well.

The Company determined that as the initial conversion price at the date of close of the Series G transaction was lower than the closing market price on that day (March 9, 2012) that a beneficial conversion feature existed in the amount of $1,375,000. Such amount was recorded as a discount on the Series G convertible preferred stock with a corresponding increase in additional paid-in capital. Based on the appropriate accounting guidance, the Company is required to recognize the discount over the period of time from the issuance of preferred shares until the convertible preferred shares can be first converted. As the Series G convertible shares are convertible immediately following their issuance, the discount amount of $1,375,000 was recognized in March 2012 as deemed dividend with a corresponding increase in accumulated deficit.

Common Stock Purchase Agreement

On December 9, 2010, International Stem Cell Corporation (“ISCO” or the “Company”) entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $25.0 million of shares of ISCO common stock (the “Purchase Shares”) over the term of the Purchase Agreement. In connection with the execution of the Purchase Agreement, ISCO sold Aspire 333,333 shares of common stock for a total of $500,000. Under the Purchase Agreement, the Company also agreed to pay Aspire Capital a commitment fee of 500,000 shares of its common stock. The Company is not obligated to pay any additional expense reimbursement or any placement agent fees in connection with the transaction.

The Purchase Agreement is intended to provide the Company with a source of capital of up to $25 million over a term of up to three years. The sales price of any shares the Company elects to sell will be known by the Company at the time it makes the decision to sell and will be determined by a formula (described below) based on the price of the Company’s stock over the preceding 12 days. As a result, the Company will be able to sell shares on whatever schedule it believes best suits its needs and is not required to sell any shares unless it deems such sales to be beneficial to the Company.

Once the Registration Statement (referred to below) is effective, on any day on which the principal market for shares of ISCO common stock is open for trading, over the three-year term of the Purchase Agreement, the Company has the right, in its sole discretion, to provide Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire Capital to purchase the number of shares of ISCO common stock specified in the Purchase Notice. The number of shares the Company may designate in the Purchase Notice varies based on the closing price of the ISCO common stock on the date of the Purchase Notice. The Company may direct Aspire Capital to purchase up to: (1) 100,000 shares of common stock so long as the closing price is above $0.25; (2) 150,000 shares of common stock so long as the closing price is above $1.25; (3) 200,000 shares of common stock so long as the closing price is above $1.75 and (4) 300,000 shares of common stock so long as the closing price is above $2.25. The purchase price per share (the “Purchase Price”) for each Purchase Notice is the lower of (i) the lowest sale price for the common stock on the date of sale or (ii) the arithmetic average of the three lowest closing sale prices for the common stock during the 12 consecutive business days ending on the business day immediately preceding the purchase date of those securities.

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The timing and the number of shares covered by each Purchase Notice are determined in the Company’s sole discretion, and the applicable Purchase Price will be determined prior to delivery of any Purchase Notice. The Company may deliver multiple Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed. There are no trading volume requirements or restrictions under the Purchase Agreement. Aspire Capital has no right to require any sales by the Company, but is obligated to make purchases as directed in accordance with the Purchase Agreement.

The Purchase Agreement contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions. The Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost or penalty. Aspire Capital has agreed not to cause, or engage in any manner whatsoever, any direct or indirect short selling or hedging of ISCO common stock. The Company did not pay any additional amounts to reimburse or otherwise compensate Aspire Capital in connection with the transaction. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.

The Company’s net proceeds will depend on the Purchase Price and volume and frequency of the Company’s sales of shares to Aspire Capital; provided, however, that the maximum aggregate proceeds from sales of shares to Aspire Capital under the Purchase Agreement is $25 million. The Company anticipates that delivery of Purchase Notices will be made subject to market conditions, in light of the Company’s capital needs from time to time and under the limitations contained in the Purchase Agreement. The Company expects to use proceeds from sales of shares to Aspire Capital for funding its research and development activities and for general corporate purposes and working capital requirements.

Registration Rights

In connection with the Purchase Agreement, the Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Aspire Capital, dated December 9, 2010. The Registration Rights Agreement provides, among other things, that the Company will register the resale of the commitment fee shares and the shares that have been or may be sold to Aspire Capital (collectively, the “Securities”) by Aspire Capital. The Company further agreed to keep the Registration Statement effective and to indemnify Aspire Capital for certain liabilities in connection with the sale of the Securities under the terms of the Registration Rights Agreement.

During the three and six months ended June 30, 2012 and 2011, the Company has issued 5,000,000, 5,000,000, 600,000 and 1,050,000, respectively, shares of common stock to Aspire Capital, raising $2.1 million, $2.1 million, $587,000 and $1,164,000, respectively, which was used to fund its operational activities.

Reserved Shares

At June 30, 2012, the Company had shares reserved for future issuance as follows:

Options outstanding	24,225,007
Options available for future grant	16,147,105
Convertible preferred stock	38,973,200
Warrants	3,530,000
	82,875,312

7. Related Party Transactions

The Company’s related party transactions were for related party dividends and for a facility lease.

Dividend amounts related to Series D and Series G financing, of $156,000 and $108,000 were accrued at June 30, 2012 and December 31, 2011 respectively, to be payable to X-Master, Inc. and AR Partners LLC, entities affiliated with our Chief Executive Officer and Co-Chairman of the Board of Directors, Dr. Andrey Semechkin and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director. The Series D dividends are payable to both X-Master, Inc. and our Chief Executive Officer and Co-Chairman of the Board of Directors, Dr. Andrey Semechkin, while Series G Preferred Stock dividends are cumulative and are payable upon conversion of the Series G shares or upon certain Series G deemed liquidation events to AR Partners, LLC.

In addition, during the first quarter of 2011, the Company executed an operating lease for our corporate offices with S Real Estate Holdings LLC. S Real Estate Holdings LLC is owned by Dr. Andrey Semechkin, the Company’s Chief Executive Officer and Co-Chairman of the Board of Directors. The lease agreement was negotiated at arm’s length and was reviewed by the Company’s outside legal counsel. The terms of the lease were reviewed by a committee of independent directors, and the Company believes that, in total, those terms are at least as favorable to the Company as could be obtained for comparable facilities from an unaffiliated party. For the three months ended June 30, 2012 and 2011, the Company recorded $29,000 and $23,000, respectively, in rent expense that was related to the facility lease arrangement with related parties. Additionally, during the six months ended June 30, 2012 and 2011, the Company recorded $57,000 and $30,000, respectively, related to the same arrangement with the related party.

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8. Income Taxes

The Company estimated Federal and state tax losses for the current year and recorded a full valuation allowance against all net deferred tax assets. As such, no income tax provision has been recorded for the current period. The Company may be subject to IRC code section 382 which could limit the amount of the net operating loss and tax credit carryovers that can be used in future years.

9. Stock Options and Warrants

Stock Options

The Company has adopted the 2006 Equity Participation Plan (the “2006 Plan”). The options granted under the 2006 Plan may be either qualified or non-qualified options. Up to 15,000,000 options may be granted to employees, directors and consultants under this Plan. Options may be granted with different vesting terms and expire no later than 10 years from the date of grant.

In April 2010, the Company adopted the 2010 Equity Participation Plan (the “2010 Plan”). The options granted under the 2010 Plan may be either qualified or non-qualified options. Up to 18,000,000 options may be granted to employees, directors and consultants under the 2010 Plan. Options may be granted with different vesting terms and expire no later than 10 years from the date of grant.

In November and December of 2009, the Company issued outside the 2006 and 2010 option plans non-qualified stock options to purchase 10,257,593 shares of common stock to certain employees and consultants. These options vest over 50 months and expire no later than 10 years from the date of grant.

In accordance applicable authoritative guidance, the Company is required to establish assumptions and estimates of the weighted-average fair value of stock options granted, as well as using a valuation model to calculate the fair value of stock-based awards. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. All options are amortized over the requisite service periods. During the three months ended June 30, 2012 and 2011, and the six months ended June 30, 2012 and 2011, the Company recognized $541,000, $899,000, $1.2 million, and $1.8 million, as stock-based compensation expense, respectively. Unrecognized compensation expense related to stock options as of June 30, 2012 and 2011 was $5.1 million and $9.4 million, respectively, which is expected to be recognized over a weighted average period of approximately 2.6 years and 3.2 years, respectively.

Stock-based compensation for stock options granted to non-employees has been determined using the estimated fair value of the stock options issued, based on the Black-Scholes Option Pricing Model. These options are revalued at each reporting period until fully vested, with any change in fair value recognized in the consolidated statements of operations.

The fair value of options granted is estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended June 30, 2012			Six Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Significant assumptions (weighted-average):
Risk-free interest rate at grant date		0.91	%		0.94	%		2.35	%		2.35	%
Expected stock price volatility		124.20	%		124.68	%		60.11	%		69.76	%
Expected dividend payout		0	%		0	%		0	%		0	%
Expected option life-years based on management’s estimate		5.6 yrs			5.6 yrs			6.2 yrs			6.2 yrs

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Options Outstanding							Options Exercisable and vested
Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$0.22-$0.50		4,423,600		7.89	$	0.41		1,986,200		6.08	$	0.44
$0.51-$0.75		9,469,368		7.46	$	0.62		5,772,368		7.41	$	0.62
$0.76-$1.00		2,838,339		3.95	$	0.99		2,674,339		3.63	$	1.00
$1.01-$1.25		375,000		8.65	$	1.10		223,300		8.53	$	1.10
$1.26-$1.50		1,268,700		7.66	$	1.31		697,500		7.30	$	1.33
$1.51-$3.20		5,850,000		8.32	$	1.94		2,343,200		8.08	$	2.00
		24,225,007		7.37	$	0.99		13,696,907		6.61	$	0.95

Transactions involving stock options issued to employees, directors and consultants under the 2006 Plan, the 2010 Plan and outside the plans are summarized below. Options issued have a maximum life of 10 years. The following table summarizes the changes in options outstanding and the related exercise prices for the Company’s common stock options issued as of June 30, 2012:

	Number of Shares issued under 2006 Plan and 2010 Plan			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2010		10,009,937		$	0.92
Granted		6,997,500		$	1.69
Exercised		(300,820	)	$	0.50
Canceled or expired		(1,976,410	)	$	1.17
Outstanding at December 31, 2011		14,730,207		$	1.26
Granted		2,398,000		$	0.38
Exercised		(17,500	)	$	0.22
Canceled or expired		(1,139,932	)	$	0.76
Outstanding at June 30, 2012		15,970,775		$	1.16
	Number of Shares issued outside the Plan			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2010		10,708,939		$	0.64
Granted		—		$	—
Exercised		(454,170	)	$	0.59
Canceled or expired		(2,000,537	)	$	0.62
Outstanding at December 31, 2011		8,254,232		$	0.65
Granted		—		$	—
Exercised		—		$	—
Canceled or expired		—		$	—
Outstanding at June 30, 2012		8,254,232		$	0.65

Warrants

Brookstreet Securities Corporation

As of December 31, 2006, Brookstreet Securities Corporation (“Brookstreet”) had earned 1,976,190 warrants as partial compensation for its services as placement agent for the raising of equity capital. An additional 274,000 warrants were earned by Brookstreet in the first quarter of 2007, for a total of 2,250,190 warrants related to the Company’s private placement. In addition, 426,767 warrants were granted to a number of individuals as compensation for services rendered to the Company. Each Warrant entitles the holder thereof to purchase the number of shares of common stock that could be purchased by the dollar amount of the Warrant being exercised at $1.00 in the case of the Brookstreet warrants and $0.80 in the case of the individuals’ warrants. The Company recognized the value attributable to the individuals’ warrants in the amount of $222,000 and applied it to general and administrative expense. The Company recognized the value attributable to the Brookstreet warrants in the amount of $1.2 million. The Company recognized the Brookstreet warrants as a component of additional paid-in capital with a corresponding reduction in additional paid-in capital to reflect this as a non-cash cost of the offering. Proceeds from the private equity placement totaled $9.9 million and are offset by cash offering costs of $1.5 million as well as the non-cash offering cost of $1.2 million related to the fair value of the Brookstreet warrants. The Company

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valued the Brookstreet warrants and the warrants issued to the individuals using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years and 3 years, an average risk free interest rate of 4.58% and 5.13%, a dividend yield of 0% and 0%, and volatility of 71% and 63%, respectively.

The number of warrants converted into common stock by Brookstreet was 484,675 for the completion of the Brookstreet financing and issued 1,370,000 shares of common stock that was part of a private placement of securities by ISC California during the second half of 2006. The net proceeds from the shares whose sale was finalized in 2007 was $1.2 million net of cash fees and expenses. In connection with the final settlement in 2007, the selling agent for the private placement received 274,000 additional warrants, which entitle the holder thereof to purchase that number of shares of common stock for $1.00 each.

During 2008, the Company raised additional capital by issuing Preferred Series A, B, C and D stock. This issuance of the Preferred Series C triggered an anti-dilutive clause in the Brookstreet warrant agreement, where Brookstreet would receive an adjustment downward in the price it pays for converting its warrants and resulted in a deemed dividend of $337,000. Brookstreet earned a total of 2,250,190 warrants in 2006 and 2007 in connection with the Company’s private placement. Each Warrant entitles the holder thereof to purchase one share of common stock for $1.00, revalued to $0.56 per warrant. The Company recognized the value attributable to the warrants in the amount of $1.2 million in 2006 and $169,000 in 2007 as a component of additional paid-in capital with a corresponding reduction in additional paid-in capital to reflect the issuance as a non-cash cost of the offering. Prior to 2009, the Company valued the Brookstreet warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 4.58%, a dividend yield of 0%, and volatility of 70.57%. During 2009, the Company issued a total of 3,510,206 shares of common stock which related to warrants originally issued to Brookstreet. Brookstreet converted a total of 612,267 warrants into 484,675 shares of common stock at an average cashless conversion price of $0.56 per share.

Implementation of Accounting Standards Code (ASC) 815-40-15, (formerly known as EITF 07-5 “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock Price”)

The Accounting Standards Code (ASC) 815-40-15, with an effective date of December 15, 2008, should have been implemented as of January 1, 2009, and in future periods. This Issue applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative as described in ASC 815-10-15-83, (previously paragraphs 6–9 of Statement 133) for purposes of determining whether that instrument or embedded feature qualifies for the first part of the scope exception in ASC 815-10-74 (previously paragraph 11(a) of Statement 133). This Issue also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock, regardless of whether the instrument has all the characteristics of a derivative for purposes of determining whether the instrument is within the scope of ASC 875-40.

During 2008, the Company issued a Series C Preferred round of financing which triggered the anti-dilution clause in the Brookstreet warrant agreement (“Brookstreet Warrants”). From issuing the Series C Preferred Stock, the exercise prices of the Brookstreet Warrants were revalued down to $0.56 per warrant. Based on the anti-dilution clause being triggered and the exercise price of the Brookstreet Warrants being revalued downward to $0.56, ASC 815-40-15 should have caused the Brookstreet Warrants to be treated and accounted for as a liability.

The anti-dilution provisions of the Brookstreet Warrants failed the criteria set by this ASC and therefore required reclassification from equity to liability. The reclassification resulted in the requirement to revaluate the Brookstreet Warrants at each reporting period with a corresponding charge or credit to the statement of operations. Valuation of the warrants was estimated using the Monte-Carlo simulation method using the following assumptions: stock price and warrant price as of the valuation date, the Company’s historical stock price, interest rate on U.S. treasury notes, dividend rate derived from the Series D Preferred Stock, warrant expiration; simulated as a daily interval and anti-dilution impact if the Company had to raise capital below $0.25 per share. The reclassification and valuation of the warrants resulted in warrant liabilities of zero and $38,000 as of March 31, 2012 and December 31, 2011, respectively. In addition, in the three months ended March 31, 2012 and 2011, we recorded income of $38,000 and $871,000, respectively, in our consolidated condensed statements of operations related to the change in the fair value of warrants.

The 1,721,629 Brookstreet Warrants outstanding as of December 31, 2011 expired on February 14, 2012, and the Company recorded $38,000 to reduce the fair market value of the warrants to zero as they are no longer outstanding as of June 30, 2012.

Warrants issued with other financings

During 2007 and 2008, the Company entered into various agreements to borrow working capital and as part of these agreements, the Company issued warrants to the holders to purchase common stock. The Company issued 1,629,623 warrants to various investors at an exercise price of $0.80 per share of which zero and 1,317,921 warrants remained outstanding at June 30, 2012 and December 31, 2011, respectively. In addition, 1,400,000 warrants were issued to YKA Partners, an affiliated company of our former Co-Chairman of the Board with an exercise price of $0.25 per share, all of which remain outstanding at June 30, 2012 and December 31, 2011.

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Warrants issued with Preferred Stock

During 2008, in connection with the Company’s fund raising efforts, two warrants were issued to purchase shares of common stock with the purchase of one Series A Preferred Stock, where an additional 2,000,000 common stock warrants were outstanding and two warrants to purchase shares of common stock with the purchase of one Series B Preferred Stock, where an additional 1,100,000 common stock warrants were outstanding. As of December 31, 2010, 400,000 warrants related to the Series A Preferred Stock were converted into 800,000 common shares.

As of June 30, 2012 and December 31, 2011, there were 1,600,000 warrants related to the Series A Preferred Stock and 300,000 warrants related to the Series B Preferred Stock, each at an exercise price of $0.25 per share.

Warrants issued to BioTime

During June 2008, the Company entered into an agreement with BioTime, Inc. (“Bio Time”). Based on the agreement, Bio Time agreed to pay the Company an advance of $250,000 to produce, make, and distribute joint products (as defined in that agreement). As part of the agreement, the Company issued warrants for Bio Time to purchase 30,000 shares of the Company’s common stock at $0.25 per share. These warrants expire in December 2012.

Warrants issued in connection with SkinCare Marketing Agreement

In September 2011, the Company signed a Marketing Agreement (“agreement”) with an effective date of June 30, 2011, with a third party marketing organization. According to the terms of the agreement as described in Note 10 below, Commitments and Contingencies, under Marketing Arrangement and Agreement, the third party marketing organization would provide assistance to SkinCare to sell its skin care products through various specific proprietary mailings. The agreement provides for two tranches of common stock warrants to be issued by the Company for the benefit of the third party marketing organization for 100,000 shares each, with strike prices of $1.50 and $2.00, respectively, vesting over four quarters, and a warrant term of five years.

Accordingly, there were warrants for 100,000 shares of common stock at a strike price of $1.50 vested as of December 31, 2011 in connection with the agreement. In addition, as of June 30, 2012, there were 100,000 warrants vested with a strike price of $2.00. The Company valued the warrants issued in connection with the SkinCare Marketing Agreement using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.94%, a dividend yield of 0%, and volatility of 134%.

Share data related to warrant transactions as of June 30, 2012 were as follows:

																						Price per Share
	Series A			Series B			YKA Loan		BioTime		Bridge Loan & non-cash Grants			Brookstreet			Skin Care Marketing		Shares			Range		Weighted average exercise price
Outstanding, December 31, 2009		2,000,000			1,100,000			1,400,000		30,000		1,629,623			3,405,929			—		9,565,552		$	0.25-0.80	$	0.45
2010
Issued																				—
Exercised		(400,000	)		(600,000	)						(248,902	)		(1,645,772	)				(2,894,674	)		0.25-0.80		0.47
Forfeited																				—
Outstanding, December 31, 2010		1,600,000			500,000			1,400,000		30,000		1,380,721			1,760,157			—		6,670,878		$	0.25-0.80	$	0.45
2011
Issued																		200,000		200,000			1.50-2.00		1.75
Exercised					(200,000	)						(62,800	)		(38,528	)				(301,328	)		0.25-0.80		0.40
Forfeited																				—
Outstanding, December 31, 2011		1,600,000			300,000			1,400,000		30,000		1,317,921			1,721,629			200,000		6,569,550		$	0.25-2.00	$	0.49
2012
Issued																				—
Exercised																				—
Forfeited												(1,317,921	)		(1,721,629	)				(3,039,550	)	$	0.56-0.80	$	0.66
Outstanding, June 30, 2012		1,600,000			300,000			1,400,000		30,000		—			—			200,000		3,530,000		$	0.25-2.00	$	0.33

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10. Commitments and Contingencies

Leases

We have established our primary research facility in 8,215 square feet of leased office and laboratory space in Oceanside, California. Our lease for this facility expires in August 2016. Our current base rent is $8,095 per month. The facility has leasehold improvements which include cGMP (current Good Manufacturing Practices) level clean rooms designed for the derivation of clinical-grade stem cells and their differentiated derivatives, research laboratories for our stem cell differentiation studies and segregated rooms for biohazard control and containment of human donor tissue. The monthly base rent will increase by 3% annually on the anniversary date of the agreement.

During 2010 we utilized a 3,240 square foot laboratory in Walkersville, Maryland. Our lease for this facility expired in March 2011, and we moved into a new manufacturing facility in Frederick, Maryland which we use for laboratory and administrative purposes. Our base rent in the new facilities is $6,143 per month for the first year, increasing to $11,236 in 2012. The initial lease term expires December 31, 2015 and there is an option for an additional five years.

On February 25, 2011, the Company entered into a lease agreement (the “Lease Agreement”) with S Real Estate Holdings LLC to allow the Company to expand into new corporate offices located at 5950 Priestly Drive, Carlsbad, California. The new building is used for administrative purposes, but could also be used for research and development purposes if such space is needed in the future. The lease covers approximately 4,653 square feet, which was occupied on or about March 1, 2011. The lease expires on February 29, 2016, subject to the Company’s right to extend the term for up to five additional years. The Company began rent payments in March 2011 once it occupied the facilities, at an initial rate of $5,118 per month. The lease was amended effective July 2011 to account for additional square footage occupied by Company personnel. As such, the initial monthly rate has increased to $9,018 per month. In addition, the monthly base rent will increase by 3% annually on the anniversary date of the agreement. The Company is also obligated to pay a portion of the utilities for the building and increases in property tax and insurance. In addition, the Company will pay its proportionate share of the CC&R fees.

S Real Estate Holdings LLC is owned by Dr. Andrey Semechkin, the Company’s Chief Executive Officer and Co-Chairman of the Board of Directors. The Lease Agreement was negotiated at arm’s length and was reviewed by the Company’s outside legal counsel. The terms of the lease were reviewed by a committee of independent directors, and the Company believes that, in total, those terms are consistent with the terms that could be obtained for comparable facilities from an unaffiliated party.

Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2012, are as follows (in thousands):

	Amount
2012 (remaining six months)	$	182
2013		364
2014		359
2015		370
2016		98
Total	$	1,373

Marketing Arrangement and Agreement

The Company signed a Term Sheet (“arrangement”) in late 2010 with a third party marketing organization that would serve as a consultant and assist in marketing for Lifeline Skin Care, Inc., a wholly-owned subsidiary of International Stem Cell, to sell its skin care products through various proprietary mailings. As part of the arrangement, there were various phases and objectives to accomplish, one of which was the potential formation of a joint venture in the future between the parties. Based on the arrangement, SkinCare paid 40% of net profits (as defined in the arrangement) generated from the proprietary mailings.

In September 2011, the Company signed a Marketing Agreement (“agreement”) with an effective date of June 30, 2011, superseding the terms of the arrangement with the third party marketing organization. According to the agreement, the third party marketing organization will continue to provide assistance to SkinCare to sell skin care products through various specific proprietary mailings. In exchange for such services, the Company will pay 20% of net revenues for Direct Sales (as defined in the agreement) generated from the proprietary mailings. In addition, the Company agreed to pay 10% of net revenues for Referral Sales. The agreement specifies that the parties do not intend to create a joint venture, and that either party may terminate the agreement upon 30-day written notice. In addition, the agreement provides for two tranches of common stock warrants to be issued by the Company for the benefit of the third

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party marketing organization for 100,000 shares each, with strike prices of $1.50 and $2.00, respectively, with vesting over four quarters, and warrant term of five years. The Company recognized $36,000 and $73,000 in stock-based compensation from warrants issued for services during the three and six months ended June 30, 2012 and 2011, respectively.

SkinCare incurred $46,000 and $84,000 as marketing expenses during the three and six months ended June 30, 2012, respectively, under the terms of this arrangement and agreement. For the same periods in 2011, we recorded $147,000 and $302,000, respectively, as marketing expenses related to this consultant.

Customer Concentration

During the three and six months ended June 30, 2012, a major customer accounted for 17% and 13% of our consolidated revenues, while during the three and six months ended June 30, 2011, a major customer accounted for approximately 13% and 11% of revenues, and during the six months ended June 30, 2011 another major customer accounted for approximately 16% of revenues. No other single customer accounted for more than 10% of our revenues for any period presented.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial information included elsewhere herein. This information should also be read in conjunction with our audited historical consolidated financial statements which are included in our Form 10-K for the fiscal year ended December 31, 2011. The discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, expectations and intentions. Our actual results may differ significantly from management’s expectations. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best assessment by our management.

Business Overview

We are a development-stage biotechnology company focused on therapeutic, biomedical and cosmeceutical product development with multiple long-term therapeutic opportunities and two revenue-generating businesses offering potential for increased future revenue.

Our products are based on multi-decade experience with human cell culture and a proprietary type of pluripotent stem cells, “human parthenogenetic stem cells” (“hpSCs”). Our hpSCs are comparable to human embryonic stem cells (“hESCs”) in that they have the potential to be differentiated into many different cells in the human body. However, the derivation of hpSCs does not require the use of fertilized eggs or the destruction of viable human embryos, and they offer potential for creation of immune-matched cells and tissues that are less likely to be rejected following transplantation into people across various ethnic groups. ISCO has facilities and manufacturing protocols that comply with the requirements of the US Food and Drug Administration (“FDA”) and other regulatory authorities.

With respect to therapeutic research, ISCO focuses on applications where cell and tissue therapy is already proven but where there currently is an insufficient supply of safe and efficacious cells. We have prioritized 1) the treatment of Parkinson’s disease, the second most prevalent neurodegenerative disease in the United States, and one where etiology is well known; 2) inherited/metabolic liver disease, such as Crigler-Najjar syndrome and Alpha 1-antitrypsin deficiency which may offer a quick route to market through the FDA’s orphan disease designation, and 3) blindness caused by corneal damage where the only requirement is for corneal tissue that can be transplanted.

ISCO’s wholly-owned subsidiary Lifeline Skin Care, Inc. (“SkinCare”) develops, manufactures and markets cosmetic skin care products using an extract derived from our human stem cell technologies. These products are regulated as cosmetics. Furthermore, marketing and sales are conducted direct to the consumer via the internet as well as channels such as dermatology clinics and spas, thus providing important revenue to help support our internal development of therapeutic products. SkinCare currently sells its products nationally and internationally through a branded website and select distributors.

ISCO’s wholly-owned subsidiary Lifeline Cell Technology, LLC (“Lifeline”) develops, manufactures and commercializes human cells and the reagents needed to culture and study human cells. Lifeline’s scientists have used a technology called basal medium optimization to systematically produce optimized products designed to culture specific human cell types and to elicit specific cellular behaviors. These techniques also produce products that do not contain non-human animal proteins, a feature desirable to the research and therapeutic markets. Lifeline distinguishes itself in the industry by having in place scientific and manufacturing staff with the experience and knowledge to set up systems and facilities to produce a source of consistent, standardized, non-human animal protein free cell products, some of which are suitable for FDA approval. Lifeline also provides important funds to help support our internal development of therapeutic products. Lifeline’s products are marketed and sold by its internal sales force, OEM partners and Lifeline brand distributors in Europe and Asia.

While we continued to expand our sales and marketing efforts to optimize revenue, to date we have generated limited revenue to support our core therapeutic research and development efforts.

We were originally incorporated in Delaware on June 7, 2005 as BTHC III, Inc. to effect the reincorporation of BTHC III, LLC, a Texas limited liability company, mandated by a plan of reorganization. Pursuant to the plan of reorganization, an aggregate of 500,000 shares of our common stock were issued to holders of administrative and tax claims and unsecured debt, of which 350,000 shares were issued to Halter Financial Group. The plan of reorganization required BTHC III, Inc. to consummate a merger or acquisition prior to June 20, 2007. Until the Share Exchange Agreement described below, BTHC III, Inc. conducted no operations. In October 2006, BTHC III, Inc. affected a 4.42-for-one stock split with respect to the outstanding shares of common stock.

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On December 28, 2006, pursuant to a Share Exchange Agreement, BTHC III, Inc. issued 33,156,502 shares of common stock, representing approximately 93.7% of the common stock outstanding immediately after the transaction, to the shareholders of International Stem Cell Corporation, a California corporation (“ISC California”), in exchange for all outstanding stock of ISC California. This transaction is being accounted for as a “reverse merger” for accounting purposes. Consequently, the assets and liabilities and the historical operations that are reflected in our financial statements are those of ISC California.

ISC California was incorporated in California in June 2006 for the purpose of restructuring the business of Lifeline Cell Technology, LLC, which was organized in California in August 2001. As a result of the restructuring, Lifeline became wholly-owned by ISC California, which in turn is wholly-owned by us. Lifeline Cell Technology is responsible for developing, manufacturing and distributing all of its products.

Lifeline Skin Care, Inc. was formed in the State of California on June 5, 2009 and is a wholly-owned subsidiary of ISC California. SkinCare creates cosmetic skin care products using an ingredient derived from our human cell technologies. SkinCare currently sells its products nationally and internationally through a branded website and select distributors.

Results of Operations

Revenues

We are considered a development stage company, and as such our revenues are limited and not predictable. Revenue for the three months ended June 30, 2012 totaled $1.06 million, compared to $1.11 million for the three months ended June 30, 2011. The decrease in revenue is due largely to lower sales generated from our Lifeline business. Product revenues for the six months ended June 30, 2012 were $2.13 million compared to $2.63 million for the corresponding period in 2011.The decrease in revenue is due principally to fewer sales generated from our SkinCare business, partially offset by Lifeline’s higher sales generated from larger distributors. SkinCare accounted for $523,000 or approximately 50% of total revenue during the three months ended June 30, 2012, compared to $530,000 or 48% of total revenue for the same period in 2011. For the six months ended June 30, 2012, SkinCare generated $1.07 million or 50% of total revenue, compared to $1.66 million or 63% of total revenue for the corresponding period in 2011. Lifeline contributed $533,000 or approximately 50% of total revenue in the three months ended June 30, 2012, compared to $584,000 or 52% of total revenue for the same period in 2011. For the six months ended June 30, 2012, Lifeline generated $1.06 million or 50% of total revenue, compared to $966,000 or 37% of total revenue for same period in 2011.

Cost of sales

Cost of sales for the three months ended June 30, 2012 was $313,000 or 30% of revenue, compared to $362,000 or 33% of revenue for the corresponding period in 2011. The favorable reduction in cost of sales as a percentage of revenue is attributable to increased efficiency and effectiveness in the manufacturing and management of supply chain related to our SkinCare products. The favorable reduction was partially offset by a provision for inventory obsolescence and higher cost of sales resulting from a shift in sales mix from higher margin products to sales of lower margin products in our Lifeline products.

Cost of sales for the six months ended June 30, 2012 was $637,000 or 30% of revenue, compared to $791,000 or 30% of revenue for the same period in 2011. Increased efficiency and effectiveness in the manufacturing and management of supply chain related to our SkinCare products contributed to a favorable reduction in the cost of sales a percentage of revenue. The favorable reduction was offset by a shift in sales mix from higher margin products related to SkinCare to sales of lower margin products related to Lifeline.

Cost of sales includes salaries and benefits related to manufacturing, third party manufacturing costs, materials, general laboratory supplies and an allocation of overhead. As we continue to refine our manufacturing processes on our media and cell type products, and our sales volume continues to increase for these products, we anticipate that our cost of sales as a percentage of product sales will decrease.

Research and Development (“R&D”)

Research and development expenses were $865,000 for the three months ended June 30, 2012, compared to $1.13 million for the same period in 2011. The decrease of $265,000 is due primarily to lower consulting expenses of $93,000 associated with various research projects, lower stock-based compensation expense of $89,000, lower laboratory-related expenses of $71,000, and lower personnel-related spending of $55,000, partially offset by higher stem cell line research and testing expenses of $55,000.

Research and development expenses were $1.80 million for the six months ended June 30, 2012, compared to $2.13 million for the same period in 2011. The decrease of $330,000 is due primarily to lower consulting expenses of $186,000 associated with various research projects, lower stock-based compensation expense of $155,000, lower laboratory-related expenses of $86,000, and reduced travel expenses of $27,000, partially offset by higher stem cell line research and testing expenses of $137,000 and higher personnel-related spending of $17,000 associated with higher headcount and increased research activities.

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R&D is focused on the development of treatments for Parkinson’s disease (PD), metabolic liver diseases (such as Crigler-Najjar syndrome, (CNS) and Alpha 1-antitrypsin deficiency (A1AD)), diseases of the eye and the creation of new cGMP grade human parthenogenetic stem cell lines. These projects are long-term investments that involve developing both new stem cell lines and new differentiation techniques that can provide higher purity populations of functional cells. We do not expect these projects to provide near-term revenue, although we have published milestones including the initiation of a non-human primate PD study in the fourth quarter of 2012, the release of rodent PD study data in the first quarter of 2013 and the initiation of a Gunn rat rodent study to look at CNS, a rare but sometimes fatal inherited liver disease.

Research and development expenses are expensed as they are incurred, and are accounted for on a project by project basis; however much of our research has potential applicability to each of our projects.

Marketing Expense

Marketing expenses for the three months ended June 30, 2012 were $548,000, reflecting an increase of $202,000 or 58%, as compared to $346,000 for the same period in 2011. The significant increase was primarily driven by enhanced efforts in e-commerce marketing support and promotion, and advertising of approximately $94,000, higher shipping and logistic expenses of $58,000, higher personnel related expenses of $55,000 resulting from higher headcount in the sales and marketing of the skin care products, higher consulting expense of $55,000 and higher stock-based consulting expense of $36,000 and higher commission of $22,000 paid to various strategic partners. The increase was partially offset by a reduction of $106,000 in commission paid to a consultant who promoted, marketed, and sold skin care products through various proprietary mailings and employee stock-based compensation of $27,000.

For the six months ended June 30, 2012, marketing expenses amounted to $1.04 million, reflecting an increase of $376,000 or 57%, as compared to $664,000 for the corresponding period in 2011. The substantial increase was primarily driven by enhanced efforts in e-commerce marketing support and promotion, and advertising of approximately $185,000, higher consulting expense of $129,000, higher shipping and logistic expenses of $107,000, higher personnel related expenses of $102,000 resulting from higher headcount in the sales and marketing of the skin care products, and higher stock-based consulting expense of $73,000 and higher commission of $37,000 paid to various strategic partners. The increase was partially offset by a reduction of $221,000 in sales commission paid to a consultant who promoted, marketed, and sold skin care products through various proprietary mailings and employee stock-based compensation of $53,000.

Regarding the marketing arrangement with the abovementioned consultant who promoted, marketed, and sold skin care products, prior and up to June 30, 2011, we incurred a 40% marketing fee on net profits generated from these proprietary mailings. Subsequent to June 30, 2011, we renegotiated and formalized this arrangement in a marketing agreement, which specifies a reduced 20% marketing fee on net revenues generated from these proprietary mailings. For the three and six months ended June 30, 2012, we recorded $46,000 and $86,000, and for the same periods in 2011, we recorded $152,000 and $307,000, respectively, as marketing expenses related to this arrangement.

We continued to augment our marketing efforts by refining our sales and marketing strategies, expanding our sales channels and strengthening our operations to achieve target sales goals.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2012 were $1.76 million, reflecting a decrease of $380,000 or 18%, compared to $2.14 million for the same period in 2011. The decrease, reflecting a more streamlined cost structure, resulted largely from lower employee stock-based compensation of $236,000, reduced employee-related spending resulting from lower headcount of $140,000, lower professional accounting fees of $63,000, and lower corporate support expenses of $35,000. The decrease was partially offset by higher legal fees of $57,000 relating to our corporate activities, and higher consulting expense of $30,000.

General and administrative expenses for the six months ended June 30, 2012 were $3.79 million, reflecting a decrease of $580,000 or 13%, compared to $4.37 million for the same period in 2011. The decrease is primarily attributable to lower employee stock-based compensation of $348,000, the absence of stock-based compensation for services provided by a consultant amounting to $303,000, reduced employee-related spending resulting from lower headcount of $49,000, and lower corporate support expenses of $37,000. The decrease was partially offset by an increase in legal fees of $118,000 relating to our corporate expenses, higher consulting expense of $56,000, and higher professional accounting fees related to Sarbanes-Oxley compliance efforts of $45,000.

Other Income/Expense

Other expense for the three months ended June 30, 2012 was $52,000, reflecting a loss on disposition of fixed asset, compared to other income of $469,000 for the same period in the prior year, primarily reflecting the substantial decrease in the fair value of our warrant liabilities which expired on February 14, 2012. Other expense for the six months ended June 30, 2012 was $9,000, compared to other income of $1.34 million for the same period in the prior year. The significant variance is the result of a substantial decrease in the fair value of our warrant liabilities which expired on February 14, 2012.

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Liquidity and Capital Resources

As of June 30, 2012, our cash and cash equivalents totaled $4.29 million, compared to $1.34 million as of December 31, 2011. As of June 30, 2012, we had working capital of $3.82 million, compared to $905,000 as of December 31, 2011.

Operating Cash Flows

Net cash used in operating activities was $3.46 million for the six months ended June 30, 2012, compared to $2.97 million for the corresponding period in 2011. The primary factors contributing to the variability in the reported cash flow amounts relate to the net loss after non-cash adjustments totaling $3.60 million in the six months ended June 30, 2012, compared to $3.00 million in the same period in 2011. Furthermore, lower deferred revenue balances resulting from lower sales generated from skin care products, timing of customer payments and billings, vendor payments and invoicing, and lower inventory balances contributed to the increase in net cash used in operating activities in the six months ended June 30, 2012.

Investing Cash Flows

Net cash used in investing activities was $449,000 for the six months ended June 30, 2012, compared to $518,000 in the same period in 2011. Investing activities in the six months ended June 30, 2012 consisted of legal fees related to intangible assets and computer equipment, software and leasehold improvements related to our manufacturing facilities.

Financing Cash Flows

Net cash provided by financing activities was $6.86 million for the six months ended June 30, 2012, compared to $1.29 million in the same period in 2011. The net proceeds of $6.86 million received in 2012 were primarily attributable to the issuance of five million shares of Series G Preferred Stock for approximately $4.94 million, which is net of stock issuance costs. For further discussion, see Note 6, Capital Stock, Series G Preferred Stock. In addition, during the six months ended June 30, 2012, we raised $2.09 million from the issuance of 5,000,000 shares of common stock to Aspire Capital Group. We paid dividends of $173,000 to our preferred stockholders.

Management is currently reviewing different financing sources and options to raise working capital to help fund our current operations. We will need to obtain significant additional capital from sources including equity and/or debt financings, license arrangements, grants and/or collaborative research arrangements to sustain our operations and develop products. Thereafter, we will need to raise additional working capital. Unless we obtain additional financing, we do not have sufficient cash on hand to operate for 12 months from the consolidated balance sheet date. The timing and degree of any future capital requirements will depend on many factors, including:

• the accuracy of the assumptions underlying our estimates for capital needs in 2012 and beyond;

• the extent that revenues from sales of SkinCare and Lifeline products cover the related costs and provide capital;

• scientific progress in our research and development programs;

• the magnitude and scope of our research and development programs and our ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;

• our progress with preclinical development and clinical trials;

• the time and costs involved in obtaining regulatory approvals;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and

• the number and type of product candidates that we pursue.

Additional financing through strategic collaborations, public or private equity financings or other financing sources may not be available on acceptable terms, or at all. Additional equity financing could result in significant dilution to our stockholders. Additional debt financing may be expensive and require us to pledge all or a substantial portion of our assets. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our product lines.

We continue to operate as a development stage entity and as such have accumulated losses from inception and expect to incur additional losses in the near future. We need to raise additional working capital. The timing and degree of any future capital requirements will depend on many factors. Currently our burn rate is approximately $625,000 per month, excluding capital expenditures and patent costs averaging $75,000 per month. There can be no assurance that we will be successful in maintaining our normal operating cash flow and that the timing of our capital expenditures will result in cash flow sufficient to sustain our operations through 2013. Based on the above, there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements were prepared assuming that we will continue to operate as a going concern. The consolidated 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

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may result from the outcome of this uncertainty. Management’s plans in regard to these matters are focused on managing our cash flow, the proper timing of our capital expenditures, and raising additional capital or financing in the future. In March 2012, to obtain funding for working capital purpose, the Company sold 5,000,000 shares of Series G Preferred Stock raising $5 million, and during the first quarter of 2012 sold 5,000,000 shares of common stock to Aspire Capital Fund, LLC, for $2.1 million.

We do not currently have any obligations for milestone payments under any of our licensed patents other than the annual payments of $150,000 due each May to Advanced Cell Technology, plus payments that are specifically related to sales and are therefore unpredictable as to timing and amount. Royalties on sales range of 3% to 12%, and milestone payments do not begin until our first therapeutic product is launched. No licenses are terminable at will by the licensor. For further discussion of our patents, see Note 4 to our condensed consolidated financial statements.

Under our Common Stock Purchase Agreement with Aspire Capital Fund, LLC (“Aspire Capital”), we may sell from time to time up to an aggregate of $25.0 million of shares of common stock through approximately January 2014. From commencement through June 30, 2012, we sold a total of 9,333,333 shares of common stock to Aspire Capital for an aggregate of $5,942,000.

Off-Balance Sheet Arrangements

As of June 30, 2012, we did not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on that evaluation, our chief executive officer and our chief financial officer have concluded that, at June 30, 2012, our disclosure controls and procedures were effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in internal control over financial reporting

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of any potential changes in our internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2012 that our certifying officers concluded materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None.

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Item 1A. Risk Factors

The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, and the value of our common stock could decline.

Risks Related to Our Business

Our business is at an early stage of development and we may not develop therapeutic products that can be commercialized.

Our business is at an early stage of development. We do not have any products in late stage clinical trials. We are still in the early stages of identifying and conducting research on potential therapeutic products. Our potential therapeutic products will require significant research and development and preclinical and clinical testing prior to regulatory approval in the United States and other countries. We may not be able to obtain regulatory approvals, enter clinical trials for any of our product candidates, or commercialize any products. Our product candidates may prove to have undesirable and unintended side effects or other characteristics adversely affecting their safety, efficacy or cost effectiveness that could prevent or limit their use. Any product using any of our technology may fail to provide the intended therapeutic benefits, or achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing or production.

We have a history of operating losses, do not expect to be profitable in the near future and our independent registered public accounting firm has expressed doubt as to our ability to continue as a going concern.*

We have not generated any profits since our entry into the biotechnology business and have incurred significant operating losses. We expect to incur additional operating losses for the foreseeable future and, as we increase our research and development activities, we expect our operating losses to increase significantly. We do not have any sources of significant or sustained revenues and may not have any in the foreseeable future.

We have expended substantial funds to develop our technologies, products and product candidates. Based on our financial condition, recurring losses and projected spending, which raise substantial doubts about our ability to continue as a going concern, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2011 regarding this uncertainty. The inclusion of the going concern statement by our auditors may adversely affect our stock price and our ability to raise needed capital or enter into advantageous contractual relationships with third parties. If we were unable to continue as a going concern, the values we receive for our assets on liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

We will need additional capital to conduct our operations and develop our products and our ability to obtain the necessary funding is uncertain.

We need to obtain significant additional capital resources in order to develop products. Our current burn rate is approximately $625,000 per month excluding capital expenditures and patent costs. There can be no assurance that we will be successful in maintaining our normal operating cash flow and that the timing of our capital expenditures will result in cash flows sufficient to sustain our operations through 2012. If financing is not sufficient and additional financing is not available or available only on terms that are detrimental to the long-term survival of the company, it could have a major adverse effect on our ability to continue to function. The timing and degree of any future capital requirements will depend on many factors, including:

• the accuracy of the assumptions underlying our estimates for capital needs in 2012 and beyond;

• scientific progress in our research and development programs;

• the magnitude and scope of our research and development programs and our ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;

• our progress with preclinical development and clinical trials;

• the time and costs involved in obtaining regulatory approvals;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and

• the number and type of product candidates that we pursue.

Additional financing through strategic collaborations, public or private equity financings or other financing sources may not be available on acceptable terms, or at all. Additional equity financing could result in significant dilution to our stockholders. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or product development initiatives, any of which could have a material adverse affect on our financial condition or business prospects.

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Two of our executive officers and directors can significantly influence our direction and policies, and their interests may be adverse to the interests of our other stockholders.

As of March 9, 2012, Dr. Andrey Semechkin, Chief Executive Officer and Co-Chairman of the Board of Directors, and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director, beneficially owned all of the outstanding shares of our Series C, Series D and Series G Preferred Stock, which could be converted into approximately 32% of our outstanding shares of common stock as of March 9, 2012. As a result of their holdings and the rights, preferences and privileges of those series of preferred stock, Dr. Andrey Semechkin and Dr. Ruslan Semechkin are able to appoint and remove two of our seven directors, and propose candidates for nomination of up to two additional directors. As a result, Dr. Andrey Semechkin and Dr. Ruslan Semechkin will be able to significantly influence election of our Board of Directors. They may prevent corporate transactions (such as a merger, consolidation, a sale of all or substantially all of our assets or a financing transaction) that may be favorable from the standpoint of our other stockholders or they may cause a transaction that our other stockholders may view as unfavorable.

Clinical trials are subject to extensive regulatory requirements, very expensive, time-consuming and difficult to design and implement. Our products may fail to achieve necessary safety and efficacy endpoints during clinical trials.

Human clinical trials can be very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is time consuming. We estimate that clinical trials of our product candidates will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be affected by several factors, including:

• unforeseen safety issues;

• determination of dosing issues;

• inability to demonstrate effectiveness during clinical trials;

• slower than expected rates of patient recruitment;

• inability to monitor patients adequately during or after treatment; and

• inability or unwillingness of medical investigators to follow our clinical protocols.

In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our IND submissions or the conduct of these trials.

Patents held by other persons may result in infringement claims against us that are costly to defend and which may limit our ability to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products.

A number of pharmaceutical, biotechnology and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, stem cells, and other technologies potentially relevant to or required by our expected products. We cannot predict which, if any, of such applications will issue as patents or the claims that might be allowed. We are aware that a number of companies have filed applications relating to stem cells. We are also aware of a number of patent applications and patents claiming use of stem cells and other modified cells to treat disease, disorder or injury.

If third party patents or patent applications contain claims infringed by either our licensed technology or other technology required to make and use our potential products and such claims are ultimately determined to be valid, we might not be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. We may be required to defend ourselves in court against allegations of infringement of third party patents. Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease using such technology.

We may not be able to adequately protect against piracy of intellectual property in foreign jurisdictions.

Considerable research in the areas of stem cells, cell therapeutics and regenerative medicine is being performed in countries outside of the United States, and a number of our competitors are located in those countries. The laws protecting intellectual property in some of those countries may not provide adequate protection to prevent our competitors from misappropriating our intellectual property.

Our competition includes fully integrated biotechnology and pharmaceutical companies that have significant advantages over us.

The market for therapeutic stem cell products is highly competitive. We expect that our most significant competitors will be fully integrated pharmaceutical companies and more established biotechnology and stem cell companies. These companies are developing stem cell-based products and they have significantly greater capital resources and research and development, manufacturing, testing,

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regulatory compliance, and marketing capabilities. Many of these potential competitors are further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop obsolete.

If we fail to meet our obligations under our license agreements, we may lose our rights to key technologies on which our business depends.

Our business depends in part on licenses from third parties. These third party license agreements impose obligations on us, such as payment obligations and obligations to diligently pursue development of commercial products under the licensed patents. If a licensor believes that we have failed to meet our obligations under a license agreement, the licensor could seek to limit or terminate our license rights, which could lead to costly and time consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation, our ability to carry out the development and commercialization of potential products could be significantly and negatively affected. If our license rights were restricted or ultimately lost, our ability to continue our business based on the affected technology platform could be severely affected adversely.

Restrictive and extensive government regulation could slow or hinder our production of a cellular product.

The research and development of stem cell therapies is 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 is lengthy, expensive and uncertain. We may fail to obtain the necessary approvals to continue our research and development, which would hinder our ability to manufacture or market any future product.

Research in the field of embryonic stem cells is currently subject to strict government regulations, and our operations could be restricted or outlawed by any legislative or administrative efforts impacting the use of nuclear transfer technology or human embryonic material.

Significant portions of our business are focused on human cell therapy, which includes the production of human differentiated cells from stem cells and involves human oocytes. Although our focus is on parthenogenetic stem cells derived from unfertilized oocytes, certain aspects of that work may involve the use of embryonic stem cells. Research utilizing embryonic stem cells is controversial, and currently subject to intense scrutiny, particularly in the area of the use of human embryonic material.

Federal law is not as restrictive regarding the use of federal funds for human embryonic cell research, commonly referred to as hES cell research as it once was. However, federal law does prohibit federal funding for creation of parthenogenetic stem cells. Our operations may also be restricted by future legislative or administrative efforts by politicians or groups opposed to the development of hES cell technology, parthenogenetic cell technology or nuclear transfer technology. Further, future legislative or administrative restrictions could, directly or indirectly, delay, limit or prevent the use of hES technology, parthenogenetic technology, or nuclear transfer technology, the use of human embryonic material, or the sale, manufacture or use of products or services derived from nuclear transfer technology or hES or parthenogenetic technology.

Restrictions on the use of human stem cells, and the ethical, legal and social implications of that research, could prevent us from developing or gaining acceptance for commercially viable products in these areas.

Although our stem cells are derived from unfertilized human eggs through a process called “parthenogenesis” that can produce cells suitable for therapy, but are believed to be incapable of producing a human being, such cells are nevertheless often incorrectly referred to as “embryonic” stem cells. Because the use of human embryonic stem cells gives rise to ethical, legal and social issues regarding the appropriate use of these cells, our research related to human parthenogenic stem cells could become the subject of adverse commentary or publicity and some political and religious groups may still raise opposition to our technology and practices. In addition, many research institutions, including some of our scientific collaborators, have adopted policies regarding the ethical use of human embryonic tissue, which, if applied to our procedures, may have the effect of limiting the scope of research conducted using our stem cells, thereby impairing our ability to conduct research in this field. In some states, use of embryos as a source of stem cells is prohibited.

To the extent we utilize governmental grants in the future, the governmental entities involved may retain certain rights in technology that we develop using such grant money and we may lose the revenues from such technology if we do not commercialize and utilize the technology pursuant to established government guidelines.

Certain of our licensors’ research has been or is being funded in part by government grants. Our research may also be government-funded in the future. In connection with certain grants, the governmental entity involved retains various rights in the technology developed with the grant. These rights could restrict our ability to fully capitalize upon the value of this research by reducing total revenues that might otherwise be available since such governmental rights may give the government the right to practice the invention without payment of royalties if we do not comply with applicable requirements.

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We rely on parthenogenesis, cell differentiation and other stem cell technologies that we may not be able to successfully develop, which may prevent us from generating revenues, operating profitably or providing investors any return on their investment.

We have concentrated our research on our parthenogenesis, cell differentiation and stem cell technologies, and our ability to operate profitably will depend on being able to successfully implement or develop these technologies for human applications. These are emerging technologies with, as yet, limited human applications. We cannot guarantee that we will be able to successfully implement or develop our nuclear transfer, parthenogenesis, cell differentiation and other stem cell technologies or that these technologies will result in products or services with any significant commercial utility. We anticipate that the commercial sale of such products or services, and royalty/licensing fees related to our technology, would be an additional source of revenues.

The outcome of pre-clinical, clinical and product testing of our products is uncertain, and if we are unable to satisfactorily complete such testing, or if such testing yields unsatisfactory results, we may be unable to commercially produce our proposed products.

Before obtaining regulatory approvals for the commercial sale of any potential human products, our products will be subjected to extensive pre-clinical and clinical testing to demonstrate their safety and efficacy in humans. The clinical trials of our prospective products, or those of our licensees or collaborators, may not demonstrate the safety and efficacy of such products at all, or to the extent necessary to obtain appropriate regulatory approvals. Similarly, the testing of such prospective products may not be completed in a timely manner, if at all, or only after significant increases in costs, program delays or both, all of which could harm our ability to generate revenues. In addition, our prospective products may not prove to be more effective for treating disease or injury than current therapies. Accordingly, we may have to delay or abandon efforts to research, develop or obtain regulatory approval to market our prospective products. The failure to adequately demonstrate the safety and efficacy of a therapeutic product under development could delay or prevent regulatory approval of the product and could harm our ability to generate revenues, operate profitably or produce any return on an investment in us.

If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.

We are engaged in activities in the biotechnology field, which is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. Research and discoveries by other biotechnology, agricultural, pharmaceutical or other companies may render our technologies or potential products or services uneconomical or result in products superior to those we develop. Similarly, any technologies, products or services we develop may not be preferred to any existing or newly developed technologies, products or services.

We may not be able to protect our proprietary technology, which could harm our ability to operate profitably.

The biotechnology, cosmeceutical, and pharmaceutical industries place considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, to a substantial degree, on our ability to obtain and enforce patent protection for our products, preserve any trade secrets and operate without infringing the proprietary rights of others. We cannot assure you that:

• we will succeed in obtaining any patents, obtain them in a timely manner, or that the breadth or degree of protection that any such patents will protect our interests;

• the use of our technology will not infringe on the proprietary rights of others;

• patent applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued, such patents will afford adequate protection to us or will not be challenged, invalidated or infringed; or

• patents will not be issued to other parties, which may be infringed by our potential products or technologies.

We are aware of certain patents that have been granted to others and certain patent applications that have been filed by others with respect to nuclear transfer and other stem cell technologies. The fields in which we operate have been characterized by significant efforts by competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors’ purported patent rights and the technologies they actually utilize in their businesses.

Our business is highly dependent upon maintaining licenses with respect to key technology.

Although our primary focus relates to intellectual property we have developed internally, some of the patents we utilize are licensed to us by Advanced Cell Technology, which has licensed some of these from other parties, including the University of Massachusetts. These licenses are subject to termination under certain circumstances (including, for example, our failure to make minimum royalty payments). The loss of any of such licenses, or the conversion of such licenses to non-exclusive licenses, could harm our operations and/or enhance the prospects of our competitors.

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Although our licenses with Advanced Cell Technology allow us to cure any defaults under the underlying licenses to them and to take over the patents and patents pending in the event of default by Advanced Cell Technology, the cost of such remedies could be significant and we might be unable to adequately maintain these patent positions. If so, such inability could have a material adverse affect on our business. Some of these licenses also contain restrictions (e.g., limitations on our ability to grant sublicenses) that could materially interfere with our ability to generate revenue through the licensing or sale to third parties of important and valuable technologies that we have, for strategic reasons, elected not to pursue directly. In the future we may require further licenses to complete and/or commercialize our proposed products. We may not be able to acquire any such licenses on a commercially-viable basis.

Certain of our technology may not be subject to protection through patents, which leaves us vulnerable to theft of our technology.

Certain parts of our know-how and technology are not patentable or are trade secrets. To protect our proprietary position in such know-how and technology, we intend to require all employees, consultants, advisors and collaborators to enter into confidentiality and invention ownership agreements with us. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, in the absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business.

We depend on our collaborators to help us develop and test our proposed products, and our ability to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful.

Our strategy for the development, clinical testing and commercialization of our proposed products requires that we enter into collaborations with corporate partners, licensors, licensees and others. We are dependent upon the subsequent success of these other parties in performing their respective responsibilities and the continued cooperation of our partners. Our collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to our research and development activities related to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us.

Under agreements with collaborators, we may rely significantly on such collaborators to, among other things:

• design and conduct advanced clinical trials in the event that we reach clinical trials;

• fund research and development activities with us;

• pay us fees upon the achievement of milestones; and

• market with us any commercial products that result from our collaborations.

The development and commercialization of potential products will be delayed if collaborators fail to conduct these activities in a timely manner, or at all. In addition, our collaborators could terminate their agreements with us and we may not receive any development or milestone payments. If we do not achieve milestones set forth in the agreements, or if our collaborators breach or terminate their collaborative agreements with us, our business may be materially harmed.

Our reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities are not wholly within our control, may lead to delays in development of our proposed products.

We rely extensively upon and have relationships with scientific consultants at academic and other institutions, some of whom conduct research at our request, and other consultants with expertise in clinical development strategy or other matters. These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time to be dedicated to our activities. These research facilities may have commitments to other commercial and non-commercial entities. We have limited control over the operations of these laboratories and can expect only limited amounts of time to be dedicated to our research goals.

We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.

Our business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.

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We may not be able to obtain third party patient reimbursement or favorable product pricing, which would reduce our ability to operate profitably.

Our ability to successfully commercialize certain of our proposed products in the human therapeutic field may depend to a significant degree on patient reimbursement of the costs of such products and related treatments at acceptable levels from government authorities, private health insurers and other organizations, such as health maintenance organizations. Reimbursement in the United States or foreign countries may not be available for any products we may develop, and, if available, may be decreased in the future. Also, reimbursement amounts may reduce the demand for, or the price of, our products with a consequent harm to our business. We cannot predict what additional regulation or legislation relating to the health care industry or third party coverage and reimbursement may be enacted in the future or what effect such regulation or legislation may have on our business. If additional regulations are overly onerous or expensive, or if health care related legislation makes our business more expensive or burdensome than originally anticipated, we may be forced to significantly downsize our business plans or completely abandon our business model.

Our products may be expensive to manufacture, and they may not be profitable if we are unable to control the costs to manufacture them.

Our products may be significantly more expensive to manufacture than other therapeutic products currently on the market today. We hope to substantially reduce manufacturing costs through process improvements, development of new science, increases in manufacturing scale and outsourcing to experienced manufacturers. If we are not able to make these, or other improvements, and depending on the pricing of the product, our profit margins may be significantly less than that of other therapeutic products on the market today. In addition, we may not be able to charge a high enough price for any cell therapy product we develop, even if they are safe and effective, to make a profit. If we are unable to realize significant profits from our potential product candidates, our business would be materially harmed.

To be successful, our proposed products must be accepted by the health care community, which can be very slow to adopt or unreceptive to new technologies and products.

Our proposed products and those developed by our collaborative partners, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community in general may decide not to accept and utilize these products. The products that we are attempting to develop represent substantial departures from established treatment methods and will compete with a number of more conventional therapies manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any of our developed products will depend on a number of factors, including:

• our establishment and demonstration to the medical community of the clinical efficacy and safety of our proposed products;

• our ability to create products that are superior to alternatives currently on the market;

• our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

• reimbursement policies of government and third party payers.

If the healthcare community does not accept our products for any of the foregoing reasons, or for any other reason, our business would be materially harmed.

We depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly hinder our ability to move forward with our business plan.

Because of the specialized nature of our business, we are highly dependent on our ability to identify, hire, train and retain highly qualified scientific and technical personnel for the research and development activities we conduct or sponsor. The loss of one or more key executive officers, or scientific officers, would be significantly detrimental to us. In addition, recruiting and retaining qualified scientific personnel to perform research and development work is critical to our success. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing and marketing, will require the addition of new management personnel and the development of additional expertise by existing management personnel. There is intense competition for qualified personnel in the areas of our present and planned activities, and we may not be able to continue to attract and retain the qualified personnel necessary for the development of our business. The failure to attract and retain such personnel or to develop such expertise would adversely affect our business.

We may not have sufficient product liability insurance, which may leave us vulnerable to future claims we will be unable to satisfy.

The testing, manufacturing, marketing and sale of human therapeutic products entail an inherent risk of product liability claims. We currently have a limited amount of product liability insurance, which may not be adequate to meet potential product liability claims. In the event we are forced to expend significant funds on defending product liability actions, and in the event those funds come from

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operating capital, we will be required to reduce our business activities, which could lead to significant losses. Adequate insurance coverage may not be available in the future on acceptable terms, if at all. If available, we may not be able to maintain any such insurance at sufficient levels of coverage and any such insurance may not provide adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained in the future, any product liability claim could harm our business or financial condition.

Risks Related to the Securities Markets and Our Capital Structure

Stock prices for biotechnology companies have historically tended to be very volatile.

Stock prices and trading volumes for many biotechnology companies fluctuate widely for a number of reasons, including but not limited to the following factors, some of which may be unrelated to their businesses or results of operations:

• clinical trial results;

• the amount of cash resources and such company’s ability to obtain additional funding;

• announcements of research activities, business developments, technological innovations or new products by competitors;

• entering into or terminating strategic relationships;

• changes in government regulation;

• disputes concerning patents or proprietary rights;

• changes in our revenues or expense levels;

• public concern regarding the safety, efficacy or other aspects of the products or methodologies we are developing;

• reports by securities analysts;

• activities of various interest groups or organizations;

• media coverage; and

• status of the investment markets. This market volatility, as well as general domestic or international economic, market and political conditions, could materially and adversely affect the market price of our common stock.

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of our common stock, adversely affect the market price of our common stock and increase stockholder transaction costs to sell those shares.

As long as the trading price of our common stock is below $5.00 per share, the open market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities.

The rights of holders of our common stock are subordinate to significant rights, preferences and privileges of our existing five series of preferred stock, and to any additional series of preferred stock created in the future.

Under the authority granted by our Certificate of Incorporation, our Board of Directors has established five separate series of preferred stock which have various rights and preferences senior to the shares of common stock. Shares of various series of our existing preferred stock are entitled to dividends (some of which accrue and some of which are required to be paid on a quarterly basis), enhanced voting rights and liquidation preferences. As a result of the various voting rights, the holders of various series of preferred stock may be able to block the proposed approval of various corporate actions, which could prevent us from achieving strategic or other goals dependent on such actions. As a result of the liquidation preferences, in the event that we voluntarily or involuntary liquidate, dissolve or windup our affairs (including as a result of a merger), the holders of our preferred stock would be entitled to receive stated amounts per share, including any accrued and unpaid dividends, before any distribution of assets or merger consideration is made to holders of our common stock. Additionally, these shares of preferred stock may be converted, at the option of the holders, into common stock at rates that may be adjusted, for the benefit of holders of preferred stock, if we sell equity securities below the then existing conversion prices. Any such adjustments would compound the potential dissolution suffered by holders of common stock if we issue additional securities at prices below the current conversion prices (ranging from $0.25 to $0.40 per share). Additionally, our Board of Directors has the power to issue additional series of preferred stock and to designate, as it deems

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appropriate (subject to the rights of the holders of the current series of preferred stock), the special dividend, liquidation or voting rights of the shares of those additional series. The creation and designation of any new series of preferred stock could adversely effect the voting power, dividend, liquidation and other rights of holders of our common stock and, possibly, any other class or series of stock that is then in existence.

The market price for our common stock may be particularly volatile given our status as a relatively unknown company with a limited operating history and lack of profits, which could lead to wide fluctuations in our share price. The price at which stockholders purchase shares of our common stock may not be indicative of the price of our common stock that will prevail in the trading market.

The market for our common stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our stock price could continue to be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share price is attributable to a number of factors. First, there has been limited trading in our common stock. As a consequence of this lack of liquidity, any future trading of shares by our stockholders may disproportionately influence the price of those shares in either direction. Second, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors will be beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time or as to what effect that the sale of shares or the availability of shares for sale at any time will have on the prevailing market price.

In addition, the market price of our common stock could be subject to wide fluctuations in response to:

• quarterly variations in our revenues and operating expenses;

• announcements of new products or services by us;

• fluctuations in interest rates;

• significant sales of our common stock;

• the operating and stock price performance of other companies that investors may deem comparable to us; and

• news reports relating to trends in our markets or general economic conditions.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who is not an affiliate of our company and who has satisfied a six month holding period may, as long as we are current in our required filings with the SEC, sell securities without further limitation. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our company who has satisfied a one year holding period. Affiliates of our company who have satisfied a six month holding period may sell securities subject to limitations. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have an adverse effect on the market price of our securities. Currently, almost all of our securities are either free trading or subject to the release of trading restrictions under the six month or one year holding periods of Rule 144.

Certain provisions of our Certificate of Incorporation and Delaware law may make it more difficult for a third party to affect a change-in-control.

Our Certificate of Incorporation authorizes the Board of Directors to issue up to 20,000,000 shares of preferred stock and our Board of Directors has created and issued shares of six series of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors without further action by the stockholders. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire the Company or affect a change-in-control.

40

We will need additional capital in the future. If additional capital is not available, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely.

During 2011, we used a significant amount of cash to finance the continued development and testing of our product candidates. If we continue to use cash at this rate we will need significant additional financing, which we may seek to raise through, among other things, public and private equity offerings and debt financing. Any equity financings will likely be dilutive to existing stockholders, and any debt financings will likely involve covenants restricting our business activities. Additional financing may not be available on acceptable terms, or at all.

The sale or issuance of a substantial number of shares may adversely affect the market price for our common stock.

The future sale of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could significantly and negatively affect the market price for our common stock. We expect that we will likely issue a substantial number of shares of our capital stock in financing transactions in order to fund our operations and the growth of our business. Under these arrangements, we may agree to register the shares for resale soon after their issuance. We may also continue to pay for certain goods and services with equity, which would dilute our current stockholders. Also, sales of the shares issued in this manner could negatively affect the market price of our stock.

Limitations on director and officer liability and indemnification of our officers and directors by us may discourage stockholders from bringing suit against a director.

Our certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director. In addition, our certificate of incorporation and bylaws may provide for mandatory indemnification of directors and officers to the fullest extent permitted by governing state law.

Compliance with the rules established by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 is complex. Failure to comply in a timely manner could adversely affect investor confidence and our stock price.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require us to perform an annual assessment of our internal controls over financial reporting, certify the effectiveness of those controls and obtain an opinion by our independent registered public accountants. The standards that must be met for management to assess the internal controls over financial reporting now in effect are complex, costly and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal controls over financial reporting. If we cannot perform the assessment or certify that our internal controls over financial reporting are effective investor confidence and share value may be negatively impacted.

We do not expect to pay cash dividends in the foreseeable future.

We have not paid cash dividends on our common stock, and we do not plan to pay cash dividends on our common stock in the foreseeable future.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

41

Item 6. Exhibits

Exhibit	Description
3.1	Certificate of Incorporation (incorporated by reference to Exhibit 3.4 of the Registrant’s Form 10-SB filed on April 4, 2006, File No. 000-51891).
3.2	Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Preliminary Information Statement on Form 14C filed on December 29, 2006, File No. 000-51891).
3.3	Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed June 4, 2012).
3.4	Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on May 6, 2011, File No. 000-51891).
4.1	Form of Specimen Common Stock Certificate. (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-KSB filed on April 9, 2007, File No. 000-51891).
4.2	Certification of Designation of Series B Preferred Stock (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on May 12, 2008, File No. 000-51891).
4.3	Certification of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on August 21, 2008, File No. 000-51891).
4.4	Certification of Designation of Series D Preferred Stock (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on January 5, 2009, File No. 000-51891).
4.5	Warrant Certificate for warrants in connection with Series A Preferred Stock (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on January 17, 2008, File No. 000-51891).
4.6	Warrant Certificate for warrants in connection with Series B Preferred Stock (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on May 12, 2008, File No. 000-51891).
4.7	Certificate of Designation of Series G Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on March 14, 2012, File No. 000-51891).
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of Chief Executive Officer.
32.2	Section 1350 Certification of Chief Financial Officer.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

* Indicates management contract or compensatory plan.

42

SIGNATURES

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

	INTERNATIONAL STEM CELL CORPORATION
Dated: August 8, 2012
	By:	/S/ ANDREY SEMECHKIN
	Name:	Andrey Semechkin
	Title:	Chief Executive Officer
	By:	/s/ LINH T. NGUYEN
	Name:	Linh T. Nguyen
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

43

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Andrey Semechkin, Chief Executive Officer of International Stem Cell Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of International Stem Cell Corporation;

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(s) 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 officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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 control 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: August 8, 2012

By:	/s/ Andrey Semechkin
	Andrey Semechkin
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Linh T. Nguyen, Chief Financial Officer of International Stem Cell Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of International Stem Cell Corporation;

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(s) 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 officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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 control 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: August 8, 2012

By:	/s/ Linh T. Nguyen
	Linh T. Nguyen
	Chief Financial Officer
	(Principal Financial and Accounting 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 Quarterly Report on Form 10-Q of International Stem Cell Corporation (the “Company”) for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrey Semechkin, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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: August 8, 2012

By:	/s/ Andrey Semechkin
	Andrey Semechkin
	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 Quarterly Report on Form 10-Q of International Stem Cell Corporation (the “Company”) for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Linh T. Nguyen, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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: August 8, 2012

By:	/s/ Linh T. Nguyen
	Linh T. Nguyen
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

XML

Related Party Transactions (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Dividend accrued	$ 77,000		$ 77,000		$ 108,000
Related Party Transactions (Textual) [Abstract]
Rent expense related to facility lease arrangement	29,000	23,000	57,000	30,000
Series D Preferred Stock [Member]
Dividend accrued	156,000		156,000
Series G Preferred Stock [Member]
Dividend accrued					$ 108,000

XML

Commitments and Contingencies (Details Textual) (USD $)	3 Months Ended		6 Months Ended		130 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
Commitments and Contingencies [Line Items]
Marketing expenses	$ 548,000	$ 346,000	$ 1,044,000	$ 664,000	$ 4,918,000
Consolidated revenues, percentage	17.00%	13.00%	13.00%	11.00%
Commitments and Contingencies (Textual) [Abstract]
Percentage of net profits generated from the proprietary mailings			40.00%
Percentage of net revenues for direct sales generated from the proprietary mailings			20.00%
Percentage of net revenues for referral sales			10.00%
Termination of the agreement			30 days
Common stock warrants to be issued for the benefit of the third party marketing organization			100,000
Strike Prices	$ 1.50		$ 2.00
Warrant term			5 years
Stock-based compensation from warrants issued for services	36,000	36,000	73,000	73,000
Another Major Customer [Member]
Commitments and Contingencies [Line Items]
Consolidated revenues, percentage				16.00%
Other Customer [Member]
Commitments and Contingencies [Line Items]
Consolidated revenues, percentage			10.00%
SkinCare [Member]
Commitments and Contingencies [Line Items]
Marketing expenses	46,000	147,000	84,000	302,000
Oceanside [Member]
Commitments and Contingencies [Line Items]
Square feet of leased office and laboratory			8,215
Expiry of Lease			2016-08
Current base rent	8,095		8,095		8,095
Percentage of increase in monthly base rent			3.00%
Walkersville [Member]
Commitments and Contingencies [Line Items]
Square feet of leased office and laboratory			3,240
Expiry of Lease			2011-03
Frederick [Member]
Commitments and Contingencies [Line Items]
Expiry of Lease			Dec. 31, 2015
Current base rent	6,143		6,143		6,143
Increase in monthly base rent			11,236
Expiry of Lease additional			5 years
Priestly Drive [Member]
Commitments and Contingencies [Line Items]
Square feet of leased office and laboratory			4,653
Expiry of Lease			Feb. 29, 2016
Current base rent	5,118		5,118		5,118
Percentage of increase in monthly base rent			3.00%
Increase in monthly base rent			$ 9,018
Expiry of Lease additional			5 years

XML

Patent Licenses (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Summary of future amortization expense related to our intangible assets subject to amortization
2012 (remaining six months)	$ 31
2013	62
2014	62
2015	62
2016	62
Thereafter	1,250
Total	$ 1,529

XML

Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Summary of Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year

	Amount
2012 (remaining six months)	$	182
2013		364
2014		359
2015		370
2016		98
Total	$	1,373

XML

Stock Options and Warrants (Details 2) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2009	Dec. 31, 2010
2006 Plan and 2010 Plan [Member]
Summary of the changes in options outstanding and the related exercise prices for the shares of the Company's common stock issued
Number of Shares issued Outstanding beginning balance		14,730,207		10,009,937
Number of shares Granted	2,398,000	6,997,500	10,257,593
Number of shares Exercised	(17,500)	(300,820)
Number of shares Canceled or expired	(1,139,932)	(1,976,410)
Number of Shares issued Outstanding ending balance	15,970,775
Weighted Average Exercise Price Per Share Outstanding beginning balance	$ 1.26	$ 0.92
Weighted Average Exercise Price Per Share Granted	$ 0.38	$ 1.69
Weighted Average Exercise Price Per Share Exercised	$ 0.22	$ 0.50
Weighted Average Exercise Price Per Share Canceled or expired	$ 0.76	$ 1.17
Weighted Average Exercise Price Per Share Outstanding Ending balance	$ 1.16	$ 1.26
Outside Plan [Member]
Summary of the changes in options outstanding and the related exercise prices for the shares of the Company's common stock issued
Number of Shares issued Outstanding beginning balance				10,708,939
Number of shares Granted
Number of shares Exercised		(454,170)
Number of shares Canceled or expired		(2,000,537)
Number of Shares issued Outstanding ending balance	8,254,232	8,254,232
Weighted Average Exercise Price Per Share Outstanding beginning balance	$ 0.65	$ 0.64
Weighted Average Exercise Price Per Share Granted
Weighted Average Exercise Price Per Share Exercised		$ 0.59
Weighted Average Exercise Price Per Share Canceled or expired		$ 0.62
Weighted Average Exercise Price Per Share Outstanding Ending balance	$ 0.65	$ 0.65

XML

Capital Stock (Details)	Jun. 30, 2012
Shares Reserved for Future Issuance
Shares reserved for future issuance net	82,875,312
Options outstanding [Member]
Shares Reserved for Future Issuance
Shares reserved for future issuance net	24,225,007
Options available for future grant [Member]
Shares Reserved for Future Issuance
Shares reserved for future issuance net	16,147,105
Convertible preferred stock [Member]
Shares Reserved for Future Issuance
Shares reserved for future issuance net	38,973,200
Warrants [Member]
Shares Reserved for Future Issuance
Shares reserved for future issuance net	3,530,000

XML

Property and Equipment

6 Months Ended

Jun. 30, 2012

Property and Equipment [Abstract]

Property and Equipment

3. Property and Equipment

Property and equipment consists of the following (in thousands):

	June 30, 2012			December 31, 2011
Machinery and equipment	$	973		$	969
Computer equipment		362			358
Office equipment		224			217
Leasehold improvements		830			816
		2,389			2,360
Less: accumulated depreciation and amortization		(1,143	)		(940	)
Property and equipment, net	$	1,246		$	1,420

Depreciation expenses for the three and six months ended June 30, 2012 were $106,000 and $214,000, respectively. During the same periods in the prior year, depreciation expenses were $109,000 and $203,000, respectively.

XML

Stock Options and Warrants (Details 3) (Warrants [Member], USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	6,569,550	6,670,878	9,565,552
Shares Issued		200,000
Shares Exercised		(301,328)	(2,894,674)
Shares Forfeited	(3,039,550)
Shares Outstanding Ending balance	3,530,000	6,569,550	6,670,878
Weighted average exercise price Outstanding beginning balance		$ 0.49	$ 0.45	$ 0.45
Weighted average exercise price Issued		$ 1.75
Weighted average exercise price Exercised		$ 0.40	$ 0.47
Weighted average exercise price Forfeited	$ 0.66
Weighted average exercise price Outstanding ending balance	$ 0.33
Maximum [Member]
Summary of Share data related to warrant transactions
Weighted average exercise price Outstanding beginning balance		$ 2.00	$ 0.80	$ 0.80
Weighted average exercise price Issued		$ 2.00
Weighted average exercise price Exercised		$ 0.80	$ 0.80
Weighted average exercise price Forfeited	$ 0.80
Weighted average exercise price Outstanding ending balance	$ 2.00
Minimum [Member]
Summary of Share data related to warrant transactions
Weighted average exercise price Outstanding beginning balance		$ 0.25	$ 0.25	$ 0.25
Weighted average exercise price Issued		$ 1.50
Weighted average exercise price Exercised		$ 0.25	$ 0.25
Weighted average exercise price Forfeited	$ 0.56
Weighted average exercise price Outstanding ending balance	$ 0.25
Series A Preferred Stock [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	1,600,000	1,600,000	2,000,000
Shares Issued
Shares Exercised			(400,000)
Shares Forfeited
Shares Outstanding Ending balance	1,600,000	1,600,000	1,600,000
Series B Preferred Stock [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	300,000	500,000	1,100,000
Shares Issued
Shares Exercised		(200,000)	(600,000)
Shares Forfeited
Shares Outstanding Ending balance	300,000	300,000	500,000
YKA Loan [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	1,400,000	1,400,000	1,400,000
Shares Issued
Shares Exercised
Shares Forfeited
Shares Outstanding Ending balance	1,400,000	1,400,000	1,400,000
BioTime [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	30,000	30,000	30,000
Shares Issued
Shares Exercised
Shares Forfeited
Shares Outstanding Ending balance	30,000	30,000	30,000
Bridge Loan & non-cash Grants [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	1,317,921	1,380,721	1,629,623
Shares Issued
Shares Exercised		(62,800)	(248,902)
Shares Forfeited	(1,317,921)
Shares Outstanding Ending balance		1,317,921	1,380,721
Brookstreet [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	1,721,629	1,760,157	3,405,929
Shares Issued
Shares Exercised		(38,528)	(1,645,772)
Shares Forfeited	(1,721,629)
Shares Outstanding Ending balance		1,721,629	1,760,157
Skin Care Marketing [Member]
Summary of Share data related to warrant transactions
Shares Outstanding beginning balance	200,000
Shares Issued		200,000
Shares Exercised
Shares Forfeited
Shares Outstanding Ending balance	200,000	200,000

XML

Inventory (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of the components of inventories
Raw materials	$ 232	$ 265
Work in process	299	285
Finished goods	783	794
Total	1,314	1,344
Less: allowance for inventory obsolescence	(42)	(76)
Inventory, net	$ 1,272	$ 1,268

XML

Organization and Significant Accounting Policies (Details Textual) (USD $)	6 Months Ended							3 Months Ended		6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2007	Dec. 31, 2006	Dec. 28, 2006	Jul. 01, 2006	Jun. 30, 2012 Restricted Stock [Member]	Jun. 30, 2012 Research and development expense [Member]	Jun. 30, 2011 Research and development expense [Member]	Jun. 30, 2012 Research and development expense [Member]	Jun. 30, 2011 Research and development expense [Member]	Jun. 30, 2012 Series G Preferred Stock [Member]	Dec. 31, 2011 Series G Preferred Stock [Member]	Mar. 31, 2012 Series G Preferred Stock [Member] Aspire Capital Fund LLC [Member]
Item Effected [Line Items]
Preferred stock, shares issued												5,000,000	0	5,000,000
Preferred stock												$ 5,033,000		$ 5,000,000
Common stock, shares issued	87,238,815	80,036,315	1,370,000	1,350,000										5,000,000
Common stock value	87,000	80,000												2,100,000
Amortization expense								16,000	22,000	33,000	44,000
Non-vested stock options outstanding	10,528,100	11,141,598					185,000
Organization and Significant Accounting Policies (Textual) [Abstract]
Percentage of ownership in issued and outstanding shares of common stock parent company					93.70%
Warrants in subsidiary company						20,000,000
Burn rate excluding capital expenditures and patent costs	625,000
Patent costs	75,000
Estimated useful life of property and equipment	5 years
Patents and patent licenses	2,016,000	1,677,000
Accumulated amortization	429,000	395,000
Period of right of return guarantee	30 days
Net deferred revenue	134,000	189,000
Warrants outstanding	3,530,000	6,569,550
Vested stock options outstanding	13,696,907	11,842,841
Allowance for bad debts	$ 4,000

XML

Stock Options and Warrants (Details Textual) (USD $)	3 Months Ended			6 Months Ended		12 Months Ended				6 Months Ended		12 Months Ended		3 Months Ended	12 Months Ended												6 Months Ended	12 Months Ended	6 Months Ended		12 Months Ended		3 Months Ended	12 Months Ended					12 Months Ended				12 Months Ended	6 Months Ended	12 Months Ended			6 Months Ended	12 Months Ended	6 Months Ended		12 Months Ended	6 Months Ended	12 Months Ended		6 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2007	Dec. 31, 2008	Dec. 31, 2006	Jun. 30, 2012 Warrants issued with other financings [Member]	Dec. 31, 2011 Warrants issued with other financings [Member]	Dec. 31, 2007 Private Placement [Member]	Dec. 31, 2009 Private Placement [Member]	Mar. 31, 2007 Individuals [Member]	Dec. 31, 2007 Individuals [Member]	Jun. 30, 2012 Series A Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2010 Series A Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2008 Series A Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2008 Series A Preferred Stock [Member] Warrants to purchase shares of common Stock [Member]	Jun. 30, 2012 Series B Preferred Stock [Member]	Dec. 31, 2011 Series B Preferred Stock [Member]	Jun. 30, 2012 Series B Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2011 Series B Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2010 Series B Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2008 Series B Preferred Stock [Member] Warrants issued with preferred stock [Member]	Dec. 31, 2008 Series B Preferred Stock [Member] Warrants to purchase shares of common Stock [Member]	Jun. 30, 2012 YKA Loan [Member] Warrants issued with other financings [Member]	Dec. 31, 2011 YKA Loan [Member] Warrants issued with other financings [Member]	Jun. 30, 2012 BioTime [Member]	Jun. 30, 2011 BioTime [Member]	Dec. 31, 2008 BioTime [Member]	Dec. 31, 2011 BioTime [Member]	Mar. 31, 2007 Brookstreet [Member]	Dec. 31, 2007 Brookstreet [Member]	Dec. 31, 2011 Brookstreet [Member]	Dec. 31, 2009 Brookstreet [Member]	Dec. 31, 2008 Brookstreet [Member]	Dec. 31, 2006 Brookstreet [Member]	Dec. 31, 2007 Brookstreet [Member] Private Placement [Member]	Dec. 31, 2009 Brookstreet [Member] Private Placement [Member]	Dec. 31, 2008 Brookstreet [Member] Private Placement [Member]	Dec. 31, 2006 Brookstreet [Member] Private Placement [Member]	Dec. 31, 2007 Maximum [Member]	Jun. 30, 2011 Maximum [Member] BioTime [Member]	Dec. 31, 2011 Maximum [Member] BioTime [Member]	Dec. 31, 2008 Minimum [Member]	Dec. 31, 2007 Minimum [Member]	Jun. 30, 2011 Minimum [Member] BioTime [Member]	Dec. 31, 2011 Minimum [Member] BioTime [Member]	Jun. 30, 2012 2006 Plan [Member]	Jun. 30, 2012 2010 Plan [Member]	Dec. 31, 2010 2010 Plan [Member]	Jun. 30, 2012 2006 Plan and 2010 Plan [Member]	Dec. 31, 2011 2006 Plan and 2010 Plan [Member]	Dec. 31, 2009 2006 Plan and 2010 Plan [Member]	Jun. 30, 2012 2006 Plan and 2010 Plan [Member] Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 541,000		$ 899,000	$ 1,200,000	$ 1,800,000										$ 222,000																			$ 1,200,000
Options granted to employees, directors and consultants																																																		15,000,000		18,000,000	2,398,000	6,997,500	10,257,593
Options vesting terms																																												5 years				4 years					50 months
Expiry of Options																																																		10 years	10 years		10 years
Expiry date of warrants																															Dec. 31, 2012
Options issued																																																								10 years
Compensation Received as warrants	10,528,100			10,528,100		11,141,598																																1,976,190
Additional warrants earned										1,629,623		274,000		426,767													1,400,000	1,400,000		100,000			274,000	2,250,190					2,250,190
Warrant exercised										0.80		1	0.56		0.80							0.25					0.25	0.25			0.25			1.00							1
Private equity placement totaled																																		9,900,000
Cash offering costs																																		1,500,000
Non-cash offering cost																																		1,200,000
Period	5 years 7 months 6 days		6 years 2 months 12 days	5 years 7 months 6 days	6 years 2 months 12 days																													5 years									5 years				3 years
Risk-free interest rates	0.91%		2.35%	0.94%	2.35%	0.94%																																					5.13%			4.58%	4.58%
Dividend yield	0.00%		0.00%	0.00%	0.00%																								0.00%														0.00%			0.00%	0.00%
Volatility rate minimum	124.20%		60.11%	124.68%	69.76%																								134.00%														71.00%			70.57%	63.00%
Warrants converted into common stock																																		484,675						612,267
Net of cash fees and expenses							1,200,000
Deemed Dividend																																					337,000
Warrant revalued								0.56
Value attributable to the warrants	68,755,000			68,755,000		63,995,000																																	169,000			1,200,000
Brookstreet Warrants outstanding										0	1,317,921					1,600,000	400,000	2	2,000,000						2	1,100,000									1,721,629
Common stock, shares issued	87,238,815			87,238,815		80,036,315	1,370,000		1,350,000									1		300,000	300,000		300,000	800,000	1											3,510,206			1,370,000	484,675
Advance																															250,000
Number of shares which can be purchased by the exercise of warrants																														30,000		100,000
Strike prices																																												2.00	2.00			1.50	1.50
Stock Options and Warrants (Textual) [Abstract]
Unrecognized compensation expense related to stock options	5,100,000		9,400,000	5,100,000	9,400,000
Weighted average period				2 years 7 months 6 days	3 years 2 months 12 days
Warrant per share						0.25
Warrant liabilities		0				38,000
Recorded income		38,000				871,000
Fair market value of the warrants				$ 38,000

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	$ 2,389	$ 2,360
Less: accumulated depreciation and amortization	(1,143)	(940)
Property and equipment, net	1,246	1,420
Machinery and equipment [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	973	969
Computer Equipment [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	362	358
Office Equipment [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	224	217
Leasehold Improvements [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	$ 830	$ 816

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Property and Equipment (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Property and Equipment (Textual) [Abstract]
Depreciation expenses	$ 106,000	$ 109,000	$ 214,000	$ 203,000

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Inventory

6 Months Ended

Jun. 30, 2012

Inventory [Abstract]

Inventory

2. Inventory

Inventories are accounted for using the first-in, first-out (FIFO) method for Lifeline Skin Care products, and specific identification method for Lifeline Cell Technology products. Lab supplies used in the research and development process are expensed as consumed. Inventory is reviewed periodically for product expiration and obsolete inventory and adjusted accordingly. The components of inventories are as follows (in thousands):

	June 30, 2012			December 31, 2011
Raw materials	$	232		$	265
Work in process		299			285
Finished goods		783			794
Total		1,314			1,344
Less: allowance for inventory obsolescence		(42	)		(76	)
Inventory, net	$	1,272		$	1,268

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Patent Licenses (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Summary of Obligation to Pay Royalties and Other Fees
License fee	$ 340,000
UMass IP [Member]
Summary of Obligation to Pay Royalties and Other Fees
License fee	150,000
At 12 months	15,000
At 24 months	30,000
At 36 months	45,000
Annually thereafter	60,000
First commercial product	250,000
Sales reaching $5,000,000	500,000
Sales reaching $10,000,000	1,000,000
UMass IP [Member] | Maximum [Member]
Summary of Obligation to Pay Royalties and Other Fees
Royalty rates	12.00%
UMass IP [Member] | Minimum [Member]
Summary of Obligation to Pay Royalties and Other Fees
Royalty rates	3.00%
ACT IP [Member]
Summary of Obligation to Pay Royalties and Other Fees
License fee	225,000
At 12 months	15,000
At 24 months	38,000
At 36 months	61,000
Annually thereafter	75,000
First commercial product	250,000
Sales reaching $5,000,000	500,000
Sales reaching $10,000,000	1,000,000
ACT IP [Member] | Maximum [Member]
Summary of Obligation to Pay Royalties and Other Fees
Royalty rates	10.00%
ACT IP [Member] | Minimum [Member]
Summary of Obligation to Pay Royalties and Other Fees
Royalty rates	3.00%
Infigen IP [Member]
Summary of Obligation to Pay Royalties and Other Fees
License fee	25,000
At 12 months	8,000
At 24 months	8,000
At 36 months	7,000
Annually thereafter	15,000
First commercial product	250,000
Sales reaching $5,000,000	500,000
Sales reaching $10,000,000	$ 1,000,000
Infigen IP [Member] | Maximum [Member]
Summary of Obligation to Pay Royalties and Other Fees
Royalty rates	10.00%
Infigen IP [Member] | Minimum [Member]
Summary of Obligation to Pay Royalties and Other Fees
Royalty rates	3.00%

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Stock Options and Warrants (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Significant assumptions (weighted-average):
Risk-free interest rate at grant date	0.91%	2.35%	0.94%	2.35%	0.94%
Expected stock price volatility	124.20%	60.11%	124.68%	69.76%
Expected dividend payout	0.00%	0.00%	0.00%	0.00%
Expected option life-years based on management's estimate	5 years 7 months 6 days	6 years 2 months 12 days	5 years 7 months 6 days	6 years 2 months 12 days

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Cash and cash equivalents	$ 4,285	$ 1,337
Accounts receivable, net	210	140
Inventory, net	1,272	1,268
Prepaid expenses and other current assets	291	274
Total current assets	6,058	3,019
Property and equipment, net	1,246	1,420
Intangible assets, net	1,589	1,282
Deposits and other assets	16	16
Total assets	8,909	5,737
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Accounts payable	995	777
Accrued liabilities	781	752
Deferred revenue	134	189
Related party payable	77	108
Advances	250	250
Warrants to purchase common stock		38
Total current liabilities	2,237	2,114
Commitments and contingencies
Stockholders' Equity
Common stock, $0.001 par value 300,000,000, shares authorized, 87,238,815 and 80,036,315 issued and outstanding at June 30, 2012 and December 31, 2011, respectively	87	80
Additional paid-in capital	68,755	63,995
Deficit accumulated during the development stage	(67,205)	(60,455)
Total stockholders' equity	1,639	3,623
Total liabilities, redeemable preferred stock and stockholders' equity	8,909	5,737
Series A
Stockholders' Equity
Preferred stock	0	1
Common stock, $0.001 par value 300,000,000, shares authorized, 87,238,815 and 80,036,315 issued and outstanding at June 30, 2012 and December 31, 2011, respectively	1,000
Total stockholders' equity	0	1
Series B
Stockholders' Equity
Preferred stock	0	0
Series C
Stockholders' Equity
Preferred stock	2	2
Total stockholders' equity	2	2
Series D
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Related party payable	156
Stockholders' Equity
Preferred stock
Series G
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Related party payable		108
Stockholders' Equity
Preferred stock	$ 5,033

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Summary of Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year
2012 (remaining six months)	$ 182
2013	364
2014	359
2015	370
2016	98
Total	$ 1,373

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended		130 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
Cash flows from operating activities
Net loss	$ (5,153)	$ (3,984)	$ (58,071)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	247	247	1,689
Accretion of discount on notes payable			103
Accretion of discount on bridge loans			638
Warrants issued for services	73		370
Non-cash compensation expense	1,225	1,788	9,635
Common stock issued for services	5	303	4,302
Change in market value of warrants	(38)	(1,349)	1,357
Amortization of discount on convertible debt			1,081
Allowance for inventory obsolescence	(34)	(2)	42
Interest on perpetual preferred stock notes receivable			(35)
Loss on disposal of fixed assets	50		74
Impairment of intangible assets	18		21
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(70)	397	(210)
(Increase) decrease in inventory, net	29	(471)	(1,315)
(Increase) decrease in prepaid assets	(17)	(62)	(291)
(Increase) decrease in deposits and other assets		24	(16)
Increase (decrease) in accounts payable	218	450	1,103
Increase (decrease) in accrued expenses	29	311	1,066
Increase (decrease) in deferred revenue	(55)	(622)	134
Increase (decrease) in related party payable	13		(152)
Net cash used in operating activities	(3,460)	(2,971)	(38,474)
Investing activities
Purchases of property and equipment	(99)	(404)	(2,588)
Proceeds from sale of property and equipment	7		7
Payments for patent licenses and trademarks	(357)	(114)	(2,038)
Net cash used in investing activities	(449)	(518)	(4,619)
Financing activities
Proceeds from Members' contributions			2,685
Proceeds from issuance of common stock	2,089	1,164	28,887
Proceeds from issuance of preferred stock	4,941		17,202
Proceeds from issuance of convertible promissory notes			2,100
Proceeds from exercise of warrants and options		339	988
Payment of preferred stock dividends	(173)	(214)	(1,256)
Payment of promissory notes			(2,203)
Payment of offering costs			(1,760)
Proceeds from convertible debt, advances and loan payable			1,360
Payment of loan payable			(625)
Net cash provided by financing activities	6,857	1,289	47,378
Net (decrease) increase in cash and cash equivalents	2,948	(2,200)	4,285
Cash and cash equivalents, beginning of period	1,337	5,782
Cash and cash equivalents, end of period	4,285	3,582	4,285
Supplemental disclosures of cash flow information:
Cash paid for interest			372
Cash paid for income taxes			11
Non-cash financing activities:
Discount on convertible debt from beneficial conversion feature			641
Discount on convertible debt from warrants			270
Accretion of preferred stock dividends	92		92
Deemed dividend on preferred stock	1,375		8,058
Conversion of debt to common stock			500
Warrants issued for placement agent services			1,231
Warrants issued with promissory notes			638
Non-cash sale of preferred stock			382
Dividend on preferred stock exchanged for note receivable			95
Conversion of preferred stock			2
Cashless exercise of warrants		$ 23	$ 1,847

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Advances (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 18, 2008
Summary of advances to related party
Advances of related party	$ 250	$ 250	$ 250
Bio Time Inc [Member]
Summary of advances to related party
Advances of related party	$ 0	$ 250

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Advances (Tables)

6 Months Ended

Jun. 30, 2012

Advances [Abstract]

Summary of advances to related party

	June 30, 2012		December 31, 2011
BioTime, Inc. (in thousands)	$	250	$	250

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Advances (Details Textual) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 18, 2008
Advances (Textual) [Abstract]
Advances of related party	$ 250	$ 250	$ 250

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Stock Options and Warrants (Tables)

6 Months Ended

Jun. 30, 2012

Stock Options and Warrants [Abstract]

Fair value of stock option award

	Three Months Ended June 30, 2012			Six Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Significant assumptions (weighted-average):
Risk-free interest rate at grant date		0.91	%		0.94	%		2.35	%		2.35	%
Expected stock price volatility		124.20	%		124.68	%		60.11	%		69.76	%
Expected dividend payout		0	%		0	%		0	%		0	%
Expected option life-years based on management’s estimate		5.6 yrs			5.6 yrs			6.2 yrs			6.2 yrs

Summary of changes in options outstanding and the related exercise prices

Options Outstanding							Options Exercisable and vested
Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$0.22-$0.50		4,423,600		7.89	$	0.41		1,986,200		6.08	$	0.44
$0.51-$0.75		9,469,368		7.46	$	0.62		5,772,368		7.41	$	0.62
$0.76-$1.00		2,838,339		3.95	$	0.99		2,674,339		3.63	$	1.00
$1.01-$1.25		375,000		8.65	$	1.10		223,300		8.53	$	1.10
$1.26-$1.50		1,268,700		7.66	$	1.31		697,500		7.30	$	1.33
$1.51-$3.20		5,850,000		8.32	$	1.94		2,343,200		8.08	$	2.00
		24,225,007		7.37	$	0.99		13,696,907		6.61	$	0.95

Summary of the changes in options outstanding and the related exercise prices for the shares of the Company's common stock issued

	Number of Shares issued under 2006 Plan and 2010 Plan			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2010		10,009,937		$	0.92
Granted		6,997,500		$	1.69
Exercised		(300,820	)	$	0.50
Canceled or expired		(1,976,410	)	$	1.17
Outstanding at December 31, 2011		14,730,207		$	1.26
Granted		2,398,000		$	0.38
Exercised		(17,500	)	$	0.22
Canceled or expired		(1,139,932	)	$	0.76
Outstanding at June 30, 2012		15,970,775		$	1.16
	Number of Shares issued outside the Plan			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2010		10,708,939		$	0.64
Granted		—		$	—
Exercised		(454,170	)	$	0.59
Canceled or expired		(2,000,537	)	$	0.62
Outstanding at December 31, 2011		8,254,232		$	0.65
Granted		—		$	—
Exercised		—		$	—
Canceled or expired		—		$	—
Outstanding at June 30, 2012		8,254,232		$	0.65

Summary of share data related to warrant transactions

																						Price per Share
	Series A			Series B			YKA Loan		BioTime		Bridge Loan & non-cash Grants			Brookstreet			Skin Care Marketing		Shares			Range		Weighted average exercise price
Outstanding, December 31, 2009		2,000,000			1,100,000			1,400,000		30,000		1,629,623			3,405,929			—		9,565,552		$	0.25-0.80	$	0.45
2010
Issued																				—
Exercised		(400,000	)		(600,000	)						(248,902	)		(1,645,772	)				(2,894,674	)		0.25-0.80		0.47
Forfeited																				—
Outstanding, December 31, 2010		1,600,000			500,000			1,400,000		30,000		1,380,721			1,760,157			—		6,670,878		$	0.25-0.80	$	0.45
2011
Issued																		200,000		200,000			1.50-2.00		1.75
Exercised					(200,000	)						(62,800	)		(38,528	)				(301,328	)		0.25-0.80		0.40
Forfeited																				—
Outstanding, December 31, 2011		1,600,000			300,000			1,400,000		30,000		1,317,921			1,721,629			200,000		6,569,550		$	0.25-2.00	$	0.49
2012
Issued																				—
Exercised																				—
Forfeited												(1,317,921	)		(1,721,629	)				(3,039,550	)	$	0.56-0.80	$	0.66
Outstanding, June 30, 2012		1,600,000			300,000			1,400,000		30,000		—			—			200,000		3,530,000		$	0.25-2.00	$	0.33

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Organization and Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Organization and Significant Accounting Policies [Abstract]

Organization and Significant Accounting Policies

1. Organization and Significant Accounting Policies

Business Combination and Corporate Restructure

BTHC III, Inc. (“BTHC III” or the “Company”) was organized in Delaware in June 2005 as a shell company to effect the reincorporation of BTHC III, LLC, a Texas limited liability company. On December 28, 2006, the Company effected a Share Exchange pursuant to which it acquired all of the stock of International Stem Cell Corporation, a California corporation (“ISC California”). After giving effect to the Share Exchange, the stockholders of ISC California owned 93.7% of issued and outstanding shares of common stock. As a result of the Share Exchange, ISC California is now the wholly-owned subsidiary, though for accounting purposes it was deemed to have been the acquirer in a “reverse merger.” In the reverse merger, BTHC III is considered the legal acquirer and ISC California is considered the accounting acquirer. On January 29, 2007, the Company changed its name from BTHC III, Inc. to International Stem Cell Corporation.

Lifeline Cell Technology, LLC (“Lifeline”) was formed in the State of California on August 17, 2001. Lifeline is in the business of developing and manufacturing purified primary human cells and optimized reagents for cell culture. Lifeline’s scientists have used a technology, called basal medium optimization to systematically eliminate animal proteins from cell culture systems. Lifeline distinguishes itself in the industry by having in place scientific and manufacturing staff with the experience and knowledge to set up systems and facilities to produce a source of consistent, standardized, non-human animal protein free cell products, some of which are suitable for FDA approval.

On July 1, 2006, Lifeline entered into an agreement among Lifeline, ISC California and the holders of membership units and warrants. Pursuant to the terms of the agreement, all the membership units in Lifeline were exchanged for 20,000,000 shares of ISC California Common Stock and for ISC California’s assumption of Lifeline’s obligations under the warrants. Lifeline became a wholly-owned subsidiary of ISC California.

Lifeline Skin Care, Inc. (“SkinCare”) was formed in the State of California on June 5, 2009 and is a wholly-owned subsidiary of ISC California. SkinCare develops, manufactures and distributes cosmeceutical products, utilizing human parthenogenetic stem cell technologies.

Going Concern

The Company continues in the development stage and as such has accumulated losses from inception and expects to incur additional losses in the near future. The Company needs to raise additional working capital. The timing and degree of any future capital requirements will depend on many factors. Currently, the Company’s burn rate is approximately $625,000 per month, excluding capital expenditures and patent costs averaging $75,000 per month. There can be no assurance that the Company will be successful in maintaining its normal operating cash flow, and that such cash flows will be sufficient to sustain the Company’s operations through 2013. Based on the above, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements were prepared assuming that the Company is a going concern. The consolidated 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. Management’s plans in regard to these matters are focused on managing its cash flow, the proper timing of its capital expenditures, and raising additional capital or financing in the future. In March 2012, to obtain funding for working capital purposes, the Company sold 5,000,000 shares of Series G Preferred Stock raising $5 million and during the first quarter of 2012 sold 5,000,000 shares of common stock to Aspire Capital Fund, LLC for $2.1 million. For further discussion, see Note 6, Capital Stock, and Series G Preferred Stock.

Basis of Presentation

International Stem Cell Corporation was formed in June 2006. BTHC III, Inc. was a shell company that had no operations and no net assets. For accounting purposes the acquisition has been treated as a recapitalization of BTHC III with ISC California as the accounting acquirer (reverse acquisition). The historical statements prior to June 2006 are those of Lifeline Cell Technology, LLC, the wholly-owned subsidiary of ISC California.

The Company is a development-stage company with limited and less predictable revenue stream from its Lifeline Skin Care and Lifeline Cell Technology business units. While the Company continued to expand its sales and marketing efforts to optimize revenue, to date it has generated limited revenue to support its core therapeutic research and development efforts.

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q.

They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the annual report on Form 10-K of International Stem Cell Corporation and Subsidiaries for the year ended December 31, 2011. When used in these notes, the terms “Company,” “we,” “us,” or “our” mean International Stem Cell Corporation and all entities included in our unaudited condensed consolidated financial statements.

In the opinion of management, the unaudited condensed consolidated financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated results of operations, financial position and cash flows. The unaudited condensed consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s annual report on Form 10-K. Operating results for interim periods are not necessarily indicative of the operating results for any interim period or an entire year.

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of International Stem Cell Corporation and its subsidiaries after intercompany balances and transactions have been eliminated.

The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Inventories

Inventories are accounted for using the first-in, first-out (FIFO) method for Lifeline Skin Care products, and specific identification method for Lifeline Cell Technology products. Inventory balances are stated at the lower of cost or market. Laboratory supplies used in the research and development process are expensed as consumed. Inventory is reviewed periodically for product expiration and obsolescence and is adjusted accordingly.

Accounts Receivable

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. Accounts receivable primarily consist of trade accounts receivable from the sales of Lifeline Cell Technology’s products, timing of cash receipts by the Company related to Skin Care credit card sales to customers, as well as Skin Care trade receivable amounts related to spa and distributor sales. The Company considers receivables past due based on the contractual payment terms. The Company reviews its exposure to amounts receivable and reserves specific amounts if collectability is no longer reasonably assured. As of June 30, 2012, the Company had an allowance for bad debt totaling $4,000. As of December 31, 2011, the Company did not have an allowance for bad debt as all accounts receivable were deemed collectible.

Property and Equipment

Property and equipment are stated at cost. The provision for depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally over five years. The costs of major remodeling and leasehold improvements are capitalized and amortized over the shorter of the remaining term of the lease or the life of the asset.

Intangible Assets

Intangible assets consist of acquired research and development rights used in research and development, and capitalized legal fees related to the acquisition, filing, maintenance, and defense of patents. Patent or patent license amortization only begins once a patent license is acquired or a patent is issued by the appropriate authoritative bodies. In the period in which a patent application is rejected or efforts to pursue the patent are abandoned, all the related accumulated costs are expensed. Patents and patent licenses are recorded at cost of $2,016,000 and $1,677,000 at June 30, 2012 and December 31, 2011, respectively, and are amortized on a straight-line basis over the shorter of the lives of the underlying patents or the useful life of the license. Amortization expense for the three months ended June 30, 2012 and 2011 and six months ended June 30, 2012 and 2011 amounted to $16,000, $22,000, $33,000, and $44,000, respectively, and is included in research and development expense. Accumulated amortization as of June 30, 2012 and December 31, 2011 are $429,000 and $395,000, respectively. Additional information regarding patents and patent licenses is included in Note 4.

Long-lived Asset Impairment

The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, at least annually. The Company considers assets to be impaired and writes them down to fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows. None of the Company’s long-lived assets were considered impaired at June 30, 2012 and December 31, 2011.

Lifeline Product Sales

The Company recognizes revenue from product sales at the time of shipment to the customer, provided no significant obligations remain and collection of the receivable is reasonably assured. If the customer has a right of return, the Company recognizes product revenues upon shipment, provided that future returns can be reasonably estimated. In the case where returns cannot be reasonably estimated, revenue will be deferred until such estimates can be made or the right of return has expired.

Deferred Revenue

The Company recognizes revenue from its LifeLine Skin Care products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. However, the LifeLine Skin Care products have a 30-day right of return guarantee and therefore, the Company defers all revenue associated with these product sales until the 30-day guarantee has expired. In addition, all costs associated with these product sales are reclassified against the deferred revenue account so that the net deferred revenue balance is presented. At June 30, 2012 and December 31, 2011, net deferred revenue totaled $134,000 and $189,000, respectively.

Cost of Sales

Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products and include related direct materials, general laboratory supplies and allocation of overhead. Certain of the agreements under which the Company has licensed technology will require the payment of royalties based on the sale of its future products. Such royalties will be recorded as a component of cost of sales. Additionally, the amortization of license fees or milestone payments related to developed technologies used in the Company’s products will be classified as a component of cost of sales to the extent such payments become due in the future.

Research and Development Costs

Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits associated with research and development personnel, overhead and occupancy, contract services, and amortization of license costs for technology used in research and development with alternative future uses.

Registration Payment Arrangements

In accordance with applicable authoritative guidance, the Company is required to separately recognize and measure registration payment arrangements, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement. Such payments include penalties for failure to effect a registration of securities.

Fair Value Measurements

On January 1, 2008, the Company adopted authoritative guidance for fair value measurements and fair value disclosures. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level  1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level  2	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level  3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of June 30, 2012 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	3,505	$	3,505	$	—	$	—

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of December 31, 2011 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	470	$	470	$	—	$	—
LIABILITIES:
Warrants to purchase common stock	$	38	$	—	$	—	$	38

The following table displays the rollforward activity of liabilities with inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity):

	Warrants to purchase common stock
Beginning balance at December 31, 2010	$	2,400
Issuances		—
Adjustments to estimated fair value		(2,362	)
Ending balance at December 31, 2011		38
Issuances		—
Adjustments to estimated fair value due to expiry		(38	)
Ending balance at June 30, 2012	$	—

Income Taxes

The Company accounts for income taxes in accordance with applicable authoritative guidance, which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements. Significant estimates include patent life (remaining legal life versus remaining useful life) and transactions using the Black-Scholes option pricing model, e.g., warrants and stock options, as well as Monte-Carlo valuation method for certain of the Company’s warrants. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company believes that the carrying value of its cash and cash equivalents, receivables, accounts payable and accrued liabilities as of June 30, 2012 and December 31, 2011 approximate their fair values because of the short-term nature of those instruments. The fair value of certain warrants was determined at each reporting date in 2011 using the Monte-Carlo valuation methodology; however, warrants requiring such valuations have expired in the first quarter of 2012.

Income (Loss) Per Common Share

The computation of net loss per common share is based on the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents, which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. At June 30, 2012, there were 185,000 non-vested restricted shares, 3,530,000 warrants, and 13,696,907 vested and 10,528,100 non-vested stock options outstanding; and at December 31, 2011, there were 6,569,550 warrants, and 11,842,841 vested and 11,141,598 non-vested stock options outstanding. These restricted shares, options and warrants were not included in the diluted loss per share calculation because the effect would have been anti-dilutive.

Comprehensive Income

Comprehensive income or loss includes all changes in equity except those resulting from investments by owners and distributions to owners. The Company did not have any items of comprehensive income or loss other than net loss from operations for the three and six months ended June 30, 2012 and 2011 or the period from inception through June 30, 2012.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation. The amounts reclassified had no effect on total assets, total liabilities, total stockholders’ equity and results of operations of the prior year consolidated financial statements.

Recent Accounting Pronouncements

There were no new accounting pronouncements during the three and six months ended June 30, 2012, as compared to the recent accounting pronouncements described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance, to the Company.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2012 Series A	Dec. 31, 2011 Series A	Jun. 30, 2012 Series B	Dec. 31, 2011 Series B	Jun. 30, 2012 Series C	Dec. 31, 2011 Series C	Jun. 30, 2012 Series G	Dec. 31, 2011 Series G
Common stock, shares issued			300,000	300,000
Common Stock, shares outstanding			300,000	300,000
Preferred stock, par value	$ 0.001	$ 0.001	$ 0.001	$ 0.001	$ 0.001	$ 0.001	$ 0.001	$ 0.001
Preferred stock, shares authorized	0	5,000,000	5,000,000	5,000,000	3,000,000	3,000,000	5,000,000	0
Preferred stock, shares issued	0	500,000	300,000	300,000	2,000,000	2,000,000	5,000,000	0
Preferred stock, shares outstanding	0	500,000	300,000	300,000	2,000,000	2,000,000	5,000,000	0
Liquidation preference	$ 0	$ 615	$ 376	$ 367	$ 2,447	$ 2,387	$ 5,092	$ 0

XML

Organization and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Organization and Significant Accounting Policies [Abstract]

Business Combination and Corporate Restructure

Business Combination and Corporate Restructure

BTHC III, Inc. (“BTHC III” or the “Company”) was organized in Delaware in June 2005 as a shell company to effect the reincorporation of BTHC III, LLC, a Texas limited liability company. On December 28, 2006, the Company effected a Share Exchange pursuant to which it acquired all of the stock of International Stem Cell Corporation, a California corporation (“ISC California”). After giving effect to the Share Exchange, the stockholders of ISC California owned 93.7% of issued and outstanding shares of common stock. As a result of the Share Exchange, ISC California is now the wholly-owned subsidiary, though for accounting purposes it was deemed to have been the acquirer in a “reverse merger.” In the reverse merger, BTHC III is considered the legal acquirer and ISC California is considered the accounting acquirer. On January 29, 2007, the Company changed its name from BTHC III, Inc. to International Stem Cell Corporation.

Lifeline Cell Technology, LLC (“Lifeline”) was formed in the State of California on August 17, 2001. Lifeline is in the business of developing and manufacturing purified primary human cells and optimized reagents for cell culture. Lifeline’s scientists have used a technology, called basal medium optimization to systematically eliminate animal proteins from cell culture systems. Lifeline distinguishes itself in the industry by having in place scientific and manufacturing staff with the experience and knowledge to set up systems and facilities to produce a source of consistent, standardized, non-human animal protein free cell products, some of which are suitable for FDA approval.

On July 1, 2006, Lifeline entered into an agreement among Lifeline, ISC California and the holders of membership units and warrants. Pursuant to the terms of the agreement, all the membership units in Lifeline were exchanged for 20,000,000 shares of ISC California Common Stock and for ISC California’s assumption of Lifeline’s obligations under the warrants. Lifeline became a wholly-owned subsidiary of ISC California.

Lifeline Skin Care, Inc. (“SkinCare”) was formed in the State of California on June 5, 2009 and is a wholly-owned subsidiary of ISC California. SkinCare develops, manufactures and distributes cosmeceutical products, utilizing human parthenogenetic stem cell technologies.

Going Concern

Going Concern

The Company continues in the development stage and as such has accumulated losses from inception and expects to incur additional losses in the near future. The Company needs to raise additional working capital. The timing and degree of any future capital requirements will depend on many factors. Currently, the Company’s burn rate is approximately $625,000 per month, excluding capital expenditures and patent costs averaging $75,000 per month. There can be no assurance that the Company will be successful in maintaining its normal operating cash flow, and that such cash flows will be sufficient to sustain the Company’s operations through 2013. Based on the above, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements were prepared assuming that the Company is a going concern. The consolidated 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. Management’s plans in regard to these matters are focused on managing its cash flow, the proper timing of its capital expenditures, and raising additional capital or financing in the future. In March 2012, to obtain funding for working capital purposes, the Company sold 5,000,000 shares of Series G Preferred Stock raising $5 million and during the first quarter of 2012 sold 5,000,000 shares of common stock to Aspire Capital Fund, LLC for $2.1 million. For further discussion, see Note 6, Capital Stock, and Series G Preferred Stock.

Basis of Presentation

Basis of Presentation

International Stem Cell Corporation was formed in June 2006. BTHC III, Inc. was a shell company that had no operations and no net assets. For accounting purposes the acquisition has been treated as a recapitalization of BTHC III with ISC California as the accounting acquirer (reverse acquisition). The historical statements prior to June 2006 are those of Lifeline Cell Technology, LLC, the wholly-owned subsidiary of ISC California.

The Company is a development-stage company with limited and less predictable revenue stream from its Lifeline Skin Care and Lifeline Cell Technology business units. While the Company continued to expand its sales and marketing efforts to optimize revenue, to date it has generated limited revenue to support its core therapeutic research and development efforts.

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q.

They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the annual report on Form 10-K of International Stem Cell Corporation and Subsidiaries for the year ended December 31, 2011. When used in these notes, the terms “Company,” “we,” “us,” or “our” mean International Stem Cell Corporation and all entities included in our unaudited condensed consolidated financial statements.

In the opinion of management, the unaudited condensed consolidated financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated results of operations, financial position and cash flows. The unaudited condensed consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s annual report on Form 10-K. Operating results for interim periods are not necessarily indicative of the operating results for any interim period or an entire year.

Principles of Consolidation

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of International Stem Cell Corporation and its subsidiaries after intercompany balances and transactions have been eliminated.

The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Cash Equivalents

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Inventories

Inventories

Inventories are accounted for using the first-in, first-out (FIFO) method for Lifeline Skin Care products, and specific identification method for Lifeline Cell Technology products. Inventory balances are stated at the lower of cost or market. Laboratory supplies used in the research and development process are expensed as consumed. Inventory is reviewed periodically for product expiration and obsolescence and is adjusted accordingly.

Accounts Receivable

Accounts Receivable

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. Accounts receivable primarily consist of trade accounts receivable from the sales of Lifeline Cell Technology’s products, timing of cash receipts by the Company related to Skin Care credit card sales to customers, as well as Skin Care trade receivable amounts related to spa and distributor sales. The Company considers receivables past due based on the contractual payment terms. The Company reviews its exposure to amounts receivable and reserves specific amounts if collectability is no longer reasonably assured. As of June 30, 2012, the Company had an allowance for bad debt totaling $4,000. As of December 31, 2011, the Company did not have an allowance for bad debt as all accounts receivable were deemed collectible.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost. The provision for depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally over five years. The costs of major remodeling and leasehold improvements are capitalized and amortized over the shorter of the remaining term of the lease or the life of the asset.

Intangible Assets

Intangible Assets

Intangible assets consist of acquired research and development rights used in research and development, and capitalized legal fees related to the acquisition, filing, maintenance, and defense of patents. Patent or patent license amortization only begins once a patent license is acquired or a patent is issued by the appropriate authoritative bodies. In the period in which a patent application is rejected or efforts to pursue the patent are abandoned, all the related accumulated costs are expensed. Patents and patent licenses are recorded at cost of $2,016,000 and $1,677,000 at June 30, 2012 and December 31, 2011, respectively, and are amortized on a straight-line basis over the shorter of the lives of the underlying patents or the useful life of the license. Amortization expense for the three months ended June 30, 2012 and 2011 and six months ended June 30, 2012 and 2011 amounted to $16,000, $22,000, $33,000, and $44,000, respectively, and is included in research and development expense. Accumulated amortization as of June 30, 2012 and December 31, 2011 are $429,000 and $395,000, respectively. Additional information regarding patents and patent licenses is included in Note 4.

Long-lived Asset Impairment

Long-lived Asset Impairment

The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their carrying value may not be recovered, at least annually. The Company considers assets to be impaired and writes them down to fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is the present value of the associated cash flows. None of the Company’s long-lived assets were considered impaired at June 30, 2012 and December 31, 2011.

Lifeline Product Sales

Lifeline Product Sales

The Company recognizes revenue from product sales at the time of shipment to the customer, provided no significant obligations remain and collection of the receivable is reasonably assured. If the customer has a right of return, the Company recognizes product revenues upon shipment, provided that future returns can be reasonably estimated. In the case where returns cannot be reasonably estimated, revenue will be deferred until such estimates can be made or the right of return has expired.

Deferred Revenue

Deferred Revenue

The Company recognizes revenue from its LifeLine Skin Care products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. However, the LifeLine Skin Care products have a 30-day right of return guarantee and therefore, the Company defers all revenue associated with these product sales until the 30-day guarantee has expired. In addition, all costs associated with these product sales are reclassified against the deferred revenue account so that the net deferred revenue balance is presented. At June 30, 2012 and December 31, 2011, net deferred revenue totaled $134,000 and $189,000, respectively.

Cost of Sales

Cost of Sales

Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products and include related direct materials, general laboratory supplies and allocation of overhead. Certain of the agreements under which the Company has licensed technology will require the payment of royalties based on the sale of its future products. Such royalties will be recorded as a component of cost of sales. Additionally, the amortization of license fees or milestone payments related to developed technologies used in the Company’s products will be classified as a component of cost of sales to the extent such payments become due in the future.

Research and Development Costs

Research and Development Costs

Research and development costs, which are expensed as incurred, are primarily comprised of costs and expenses for salaries and benefits associated with research and development personnel, overhead and occupancy, contract services, and amortization of license costs for technology used in research and development with alternative future uses.

Registration Payment Arrangements

Registration Payment Arrangements

In accordance with applicable authoritative guidance, the Company is required to separately recognize and measure registration payment arrangements, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement. Such payments include penalties for failure to effect a registration of securities.

Fair Value Measurements

Fair Value Measurements

On January 1, 2008, the Company adopted authoritative guidance for fair value measurements and fair value disclosures. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level  1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level  2	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level  3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of June 30, 2012 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	3,505	$	3,505	$	—	$	—

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of December 31, 2011 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	470	$	470	$	—	$	—
LIABILITIES:
Warrants to purchase common stock	$	38	$	—	$	—	$	38

The following table displays the rollforward activity of liabilities with inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity):

	Warrants to purchase common stock
Beginning balance at December 31, 2010	$	2,400
Issuances		—
Adjustments to estimated fair value		(2,362	)
Ending balance at December 31, 2011		38
Issuances		—
Adjustments to estimated fair value due to expiry		(38	)
Ending balance at June 30, 2012	$	—

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with applicable authoritative guidance, which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements. Significant estimates include patent life (remaining legal life versus remaining useful life) and transactions using the Black-Scholes option pricing model, e.g., warrants and stock options, as well as Monte-Carlo valuation method for certain of the Company’s warrants. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company believes that the carrying value of its cash and cash equivalents, receivables, accounts payable and accrued liabilities as of June 30, 2012 and December 31, 2011 approximate their fair values because of the short-term nature of those instruments. The fair value of certain warrants was determined at each reporting date in 2011 using the Monte-Carlo valuation methodology; however, warrants requiring such valuations have expired in the first quarter of 2012.

Income (Loss) Per Common Share

Income (Loss) Per Common Share

The computation of net loss per common share is based on the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents, which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period. At June 30, 2012, there were 185,000 non-vested restricted shares, 3,530,000 warrants, and 13,696,907 vested and 10,528,100 non-vested stock options outstanding; and at December 31, 2011, there were 6,569,550 warrants, and 11,842,841 vested and 11,141,598 non-vested stock options outstanding. These restricted shares, options and warrants were not included in the diluted loss per share calculation because the effect would have been anti-dilutive.

Comprehensive Income

Comprehensive Income

Comprehensive income or loss includes all changes in equity except those resulting from investments by owners and distributions to owners. The Company did not have any items of comprehensive income or loss other than net loss from operations for the three and six months ended June 30, 2012 and 2011 or the period from inception through June 30, 2012.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation. The amounts reclassified had no effect on total assets, total liabilities, total stockholders’ equity and results of operations of the prior year consolidated financial statements.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

There were no new accounting pronouncements during the three and six months ended June 30, 2012, as compared to the recent accounting pronouncements described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance, to the Company.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 03, 2012
Document And Entity Information [Abstract]
Entity Registrant Name	INTERNATIONAL STEM CELL CORPORATION
Entity Central Index Key	0001355790
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock Shares Outstanding		87,238,815

XML

Organization and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2012

Organization and Significant Accounting Policies [Abstract]

Fair value of Assets and Liabilities

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	3,505	$	3,505	$	—	$	—

The table below sets forth a summary of the fair values of the Company’s assets and liabilities as of December 31, 2011 (in thousands).

	Total		Level 1		Level 2		Level 3
ASSETS:
Cash equivalents	$	470	$	470	$	—	$	—
LIABILITIES:
Warrants to purchase common stock	$	38	$	—	$	—	$	38

Fair value measurement and unobservable rollforward activity of liabilities

	Warrants to purchase common stock
Beginning balance at December 31, 2010	$	2,400
Issuances		—
Adjustments to estimated fair value		(2,362	)
Ending balance at December 31, 2011		38
Issuances		—
Adjustments to estimated fair value due to expiry		(38	)
Ending balance at June 30, 2012	$	—

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended		130 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
Revenues
Product sales	$ 1,056	$ 1,114	$ 2,133	$ 2,629	$ 9,764
Royalties and license					135
Total revenue	1,056	1,114	2,133	2,629	9,899
Development expenses
Cost of sales	313	362	637	791	3,971
Research and development	865	1,129	1,802	2,132	20,096
Marketing	548	346	1,044	664	4,918
General and administrative	1,755	2,135	3,794	4,369	35,478
Total development expenses	3,481	3,972	7,277	7,956	64,463
Loss from development activities	(2,425)	(2,858)	(5,144)	(5,327)	(54,564)
Other income (expense)
Settlement with related company					(93)
Miscellaneous expense	(56)	(12)	(54)	(11)	(235)
Dividend income					94
Interest expense					(2,225)
Sublease income	4	2	7	5	316
Change in market value of warrants		479	38	1,349	(1,357)
Total other income (expense), net	(52)	469	(9)	1,343	(3,500)
Loss before income taxes	(2,477)	(2,389)	(5,153)	(3,984)	(58,064)
Provision for income taxes					7
Net loss	(2,477)	(2,389)	(5,153)	(3,984)	(58,071)
Deemed dividend on preferred stock			(1,375)		1,375
Dividends on preferred stock	(139)	(107)	(222)	(213)	(8,189)
Net loss applicable to common stockholders	$ (2,616)	$ (2,496)	$ (6,750)	$ (4,197)	$ (67,635)
Net loss per common share-basic and diluted	$ (0.03)	$ (0.03)	$ (0.08)	$ (0.06)
Weighted average shares-basic and diluted	87,106	76,340	84,446	75,842

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Capital Stock

6 Months Ended

Jun. 30, 2012

Capital Stock [Abstract]

Capital Stock

6. Capital Stock

As of December 31, 2006, the Company was authorized to issue 200,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share. In May 2012, the Company amended its Certificate of Incorporation to increase the authorized number of shares of common stock to 300,000,000.

In October 2006, the board of directors of BTHC III approved a stock split of 4.42 shares to 1. As a result of the split, the outstanding common stock of BTHC III increased from 500,000 to 2,209,993 shares. Pursuant to the Share Exchange Agreement, each share of International Stem Cell Corporation common stock was exchanged for one share of BTHC III common stock. All numbers in the financial statements and notes to the financial statements have been adjusted to reflect the stock split for all periods presented.

On December 27, 2006, the Company’s Board of Directors and holders of a majority of the outstanding shares approved an increase in the authorized capital stock of the Company to 200,000,000 shares of Common Stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share.

In December 2006, the Company issued 1,350,000 shares of common stock, 350,000 of such shares in consideration for legal consulting services relating to the reverse merger and 1,000,000 shares in consideration for a contract to provide investor relations services which commenced September 1, 2006 for a period of one year.

In January and February 2007, ISC California completed the Brookstreet financing and issued 1,370,000 shares of common stock that was part of a private placement of securities by ISC California during the second half of 2006. The net proceeds from sale finalized in 2007 were $1,157,000 net of cash fees and expenses. In connection with the final settlement in 2007, the selling agent for the private placement received 274,000 additional warrants, which entitle the holder thereof to purchase that number of shares of common stock for $1.00 each.

Series A Preferred Stock

On January 15, 2008, to raise funds, the Company entered into a subscription agreement with accredited investors for the sale of between 1,000,000 and 5,000,000 of Series A Preferred Stock (“Series A Preferred”). Series A Units consist of one share of Series A Preferred and two Warrants (“Series A Warrants”) to purchase common stock for each $1.00 invested. The Series A Preferred was convertible into shares of common stock at market price on the date of the first finance closing, but not to exceed $1 per share and the Series A Warrants are exercisable at $0.50 per share. The Series A Preferred has an anti-dilution clause whereby, if the Company issues $1 million or more of equity securities or securities convertible into equity at a price below the respective exercise prices of the Series A Preferred or the Series A Warrant shall be adjusted downward to equal the price of the new securities. The Series A Preferred has priority on any sale or liquidation of the Company equal to the purchase price of the Series A Units, plus a liquidation premium of 6% per year. If the Company elects to declare a dividend in any year, it must first pay to the Series A Preferred a dividend of the amount of the dividend the Series A Preferred holder would receive if the shares were converted just prior to the dividend declaration.

Each share of Series A Preferred has the same voting rights as the number of shares of common stock into which it would be convertible on the record date. On March 30, 2012, the holder of the remaining 500,000 shares of Series A Preferred Stock, converted his shares to a total of 2,000,000 shares of common stock. As of June 30, 2012 and December 31, 2011, the Company had zero and 500,000 shares of the Series A Preferred Stock issued and outstanding, respectively. In May 2012, the Company filed a Certificate of Elimination for the Series A Preferred Stock to remove the powers, designations, preferences, privileges and other rights of the Series A Preferred Stock.

Series B Preferred Stock

On May 12, 2008, to obtain funding for working capital, the Company entered into a series of subscription agreements with five accredited investors for the sale of a total of 400,000 Series B Units, each Series B Unit consisting of one share of Series B Preferred Stock (“Series B Preferred”) and two Series B Warrants (“Series B Warrants”) to purchase common stock for each $1.00 invested.

The total purchase price received by the Company was $400,000. The Series B Preferred is convertible into shares of common stock at the initial conversion ratio of two shares of common stock for each share of Series B Preferred converted (which was established based on an initial conversion price of $0.50 per share), and the Series B Warrants were exercisable at $0.50 per share until five years from the issuance of the Series B Warrants. The Series B Preferred and Series B Warrants contained anti-dilution clauses whereby, (subject to the exceptions contained in those instruments) if the Company issues equity securities or securities convertible into equity at a price below the respective conversion price of the Series B Preferred or the exercise price of the Series B Warrant, such conversion and exercise prices shall be adjusted downward to equal the price of the new securities, which has been triggered and the new price of the warrants was set at $0.25. The Series B Preferred has a priority (senior to the shares of common stock, but junior to the shares of Series A Preferred Stock) on any sale or liquidation of the Company equal to the purchase price of the Series B Units, plus a liquidation premium of 6% per year. If the Company elects to declare a dividend in any year, it must first pay to the Series B Preferred holder a dividend equal to the amount of the dividend the Series B Preferred holder would receive if the Series B Preferred were converted just prior to the dividend declaration. Each share of Series B Preferred has the same voting rights as the number of shares of common stock into which it would be convertible on the record date. As of June 30, 2012 and December 31, 2011, the Company had 300,000 shares of the Series B Preferred Stock issued and outstanding.

Fair Value of Warrants Issued with Series A and B Preferred Stock

In accordance with the applicable authoritative guidance, the Company allocated the proceeds of the Series A and B preferred stock according to the value of the convertible preferred stock and the warrants based on their relative fair values. Fair value of the warrants issued with the Series A and Series B were determined using the Black-Scholes valuation model using risk-free interest rates of 3% and 3.37%, volatility rate of 65.0% and 57.9%, term of five years, and exercise price of $0.50.

In connection with the Series A and B rounds of financing, each investor received a warrant to purchase up to a number of shares of common stock for $1.00 per share. Subsequently, the exercise price for those warrants was adjusted down to $0.25 per share.

In August 2008, in accordance with the anti-dilution provisions of the securities, the conversion rates and exercise price were reduced to $0.25. Estimated adjusted fair value of the warrants was determined using the Black-Scholes valuation model using risk-free interest rate of 3%, volatility rate of 57.9%, term of five years, and exercise price of $0.25. For Series A and Series B, the beneficial conversion feature and warrants were adjusted to $553,000 and $193,000, and $308,000 and $110,000, respectively.

During the second quarter of 2010, the holders of the warrants issued to the purchasers of Series A and B Preferred Stock signed a waiver to give up their rights to the anti-dilution provisions related to the warrants and the exercise price is now fixed at $0.25. The modification to the warrants resulted in the change in classification from a liability to equity and the warrants were re-valued at the date of modification. The re-valuation of the warrants resulted in a reduction in the warrant value of $5,276,000 which was recorded as a credit to income. The adjusted value of the warrants of $804,971 was reclassified to Additional Paid-in Capital, thus eliminating any fair value of outstanding warrant liability as of June 30, 2010.

Series C Preferred Stock

On August 20, 2008, to obtain funding for working capital, the Company entered into a subscription agreement with an accredited investor (the “Series C Investor”) to sell for $3,000,000 up to 3,000,000 shares of Series C Preferred Stock (“Series C Preferred”) at a price of $1.00 per Series C Preferred share. The Series C Preferred will be convertible into shares of common stock at $0.25 per share. The Series C Preferred had an anti-dilution clause whereby, if the Company issues 250,000 shares or more of equity securities or securities convertible into equity at a price below the conversion price of the Series C Preferred, the conversion price of the Series C Preferred shall be adjusted downward to equal the price of the new securities. The Series C Preferred shall have priority over the common stock on any sale or liquidation of the Company equal to the purchase price of the Units, plus a liquidation premium of 6% per year. If the Company elects to declare a dividend in any year, it must first pay to the Series C Preferred a dividend in the amount of the dividend the Series C Preferred holder would receive if converted just prior to the dividend declaration. Each share of Series C Preferred shall have the same voting rights as the number of shares of common stock into which it would be convertible on the record date. 700,000 shares of Series C Preferred Stock were sold on August 20, 2008, and 1,300,000 shares of Series C Preferred Stock were sold on September 23, 2008. The beneficial conversion feature for the Series C preferred stock is $720,000. All the Series

C Preferred Stock was issued to X-Master Inc., which is a related party and affiliated with our Chief Executive Officer and Co-Chairman of the Board of Directors Dr. Andrey Semechkin and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director. As of June 30, 2012 and December 31, 2011, we had 2,000,000 shares of the Series C Preferred Stock issued and outstanding.

Series D Preferred Stock

On December 30, 2008, to obtain funding for both working capital and the eventual repayment of the outstanding obligation under the OID Senior Secured Convertible Note with a principal amount of $1,000,000 issued in May 2008, the Company entered into a Series D Preferred Stock Purchase Agreement (the “Series D Agreement”) with accredited investors (the “Investors”) to sell for up to $5,000,000 or up to 50 shares of Series D Preferred Stock (“Series D Preferred”) at a price of $100,000 per Series D Preferred share. The sale of the Series D Preferred closed on the following schedule: (1) 10 shares were sold on December 30, 2008; (2) 10 shares were sold on February 5, 2009; and (3) 10 shares were sold on each of March 20, 2009, and June 30, 2009 and 3 shares on September 30, 2009. The Company raised a total of $4,700,000 in the Series D Preferred Stock round. The beneficial conversion feature from the Series D Preferred Stock is recognized as deemed dividend totaling $2,480,000. Of the Series D Preferred Stock issued, 10 shares of the Series D Preferred Stock was issued to X-Master Inc., which is a related party and affiliated with our Chief Executive Officer and Co-Chairman of the Board of Directors Dr. Andrey Semechkin and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director and 33 shares of the Series D Preferred Stock was issued to our Chief Executive Officer and Co-Chairman of the Board of Directors Dr. Andrey Semechkin. As of June 30, 2012 and December 31, 2011, we had 43 shares of the Series D Preferred Stock issued and outstanding. The Series D Preferred Stock earns cumulative dividends at a rate of 10% per annum through December 31, 2011 and 6% per annum effective January 1, 2012, payable 15 days after each quarter end. As of June 30, 2012 and December 31, 2011, Series D Preferred Stock dividends of $64,000 and $108,000 were accrued, respectively. During the three and six months ended June 30, 2012 and 2011, dividends of $64,000, $173,000, $107,000 and $213,000 were paid to the holders, respectively.

Series E Preferred Stock

On June 30, 2009, the Company entered into a definitive agreement with Optimus Capital Partners, LLC (“Investor”) for a $5 million investment commitment. The transaction was structured whereby the Company could draw down funds as needed, but had no obligations to make draws or use these funds if not needed. As funds were drawn down, the Company issued Series E Preferred Stock (the “Preferred Stock”). The Preferred Stock was not convertible into common stock and could be redeemed by the Company after one year. Each issue of Preferred Stock was accompanied by the issuance of five-year warrants to purchase common stock at 100% of the closing price of the company’s common stock on the day prior to the date the company gave notice of its election to draw funds. The total exercise value of warrants issued equaled 135% of the drawdown amount. Dividends on the Preferred Stock were payable in additional shares of non-convertible Preferred Stock at the rate of 10% per annum. A commitment fee of $250,000, payable in shares of common stock, was made to the Investor. As part of the agreement, the Company filed a registration statement on July 31, 2009, which was declared effective on September 30, 2009. The investment was used to fund operations and working capital needs of the Company and expand its scientific research.

On July 31, 2009, the Company filed a registration statement with the Securities and Exchange Commission as part of the Preferred Stock Purchase Agreement the Company signed on June 30, 2009, between International Stem Cell Corporation and Optimus Capital Partners. Per the agreement, the Company was required to use its best efforts to promptly file (but in no event later than 30 days after the Effective Date) and cause to become effective as soon as possible a Registration Statement for the sale of all Common Shares. Each Registration Statement was required to comply when it became effective, and, as amended or supplemented, at the time of any Tranche Notice Date, Tranche Closing Date, or issuance of any Common Shares, and at all times during which a prospectus was required by the Act to be delivered in connection with any sale of Common Shares, to comply, in all material respects, with the requirements of the Act. The Company is and has been in compliance with all applicable requirements of that agreement.

To create the Series E Preferred sold to the Investor under the Agreement, on June 30, 2009, the Company amended its Certificate of Incorporation by filing a Certificate of Designation of Preferences, Rights and Limitations of the Series E Preferred. The Series E Preferred has priority over the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and common stock on the proceeds from any sale or liquidation of the Company in an amount equal to the purchase price of the Series E Preferred, plus any accrued but unpaid dividends. From the date of issuance of the Series E Preferred, dividends at the rate per annum of ten percent (10%) of the Purchase Price per share accrued on such shares of Series E Preferred. Following the first anniversary of the issuance date, the Company had the right at its option to redeem the Series E Preferred at an amount equal to the purchase price of the Series E Preferred, plus any accrued but unpaid dividends and plus a redemption premium that declines from 26% (for redemptions between the first and second anniversary of issuance) to zero (for redemptions after the fourth anniversary of issuance).

During 2010, the Company drew $2.4 million of the private equity financing and issued 24 shares of the Series E Preferred Stock, as well as issued 3.7 million warrants which were immediately exercised to purchase 3.7 million shares of the Company’s common stock.

Exchange Agreement Series E Preferred Stock

On June 11, 2010, the Company entered into an Exchange Agreement (the “Optimus Exchange Agreement”) with Optimus Capital Partners, LLC (“Optimus”) under which the Company and Optimus agreed to exchange all of the Series E Preferred Stock previously issued to Optimus pursuant to the Preferred Stock Purchase Agreement dated June 30, 2009 (the “Optimus Preferred Stock Agreement”) for all of the promissory notes of Optimus (the “Optimus Notes”) issued to the Company in that transaction as payment for shares of the Company’s common stock. As part of the exchange transaction, the Company agreed to waive all accrued interest on the Optimus Notes and Optimus agreed to waive all accrued dividends and redemption premiums on the Series E Preferred Stock. The exchange was completed in June 2010 and is discussed in more detail below.

Series F Preferred Stock

On May 4, 2010, International Stem Cell Corporation entered into a Preferred Stock Purchase Agreement with Socius CG II, Ltd., a Bermuda exempted company (the “Investor”), to sell for up to $10,000,000 up to one thousand (1,000) shares of Series F Preferred Stock (“Series F Preferred”) at a price of $10,000 per Series F Preferred share. The Company was entitled to determine the time and amount of Series F Preferred to be purchased by the Investor and the Company intended to sell all 1,000 shares of Series F Preferred at a single time. The Series F Preferred could not be converted into common stock and was redeemable by the Company. Under the terms of the Agreement, the Company provided the Investor with a non-refundable fee of 250,000 shares of Company common stock (the “Fee Shares”) and issued the Investor a warrant to purchase up to 7,000,000 shares of the Company’s common stock, with the exercise price of $1.93 per share, subject to adjustment. The closing of the sale of the Series F Preferred took place in early June 2010.

Exchange Agreement Series F Preferred Stock

On June 11, 2010, the Company, entered into an Exchange Agreement (the “Socius Exchange Agreement”) with Socius CG II, Ltd. (“Socius”) under which the Company and Socius agreed to exchange all of the Series F Preferred Stock previously issued to Socius pursuant to the Preferred Stock Purchase Agreement dated May 4, 2010 (the “Socius Preferred Stock Agreement”) for all of the promissory notes of Socius (the “Socius Notes”) issued to the Company in that transaction as payment for shares of the Company’s common stock and a $2.5 million note issued in partial payment for the Socius Series F Preferred Stock. As part of the exchange transaction, the Company agreed to waive all accrued interest on the Socius Notes and Socius agreed to waive all accrued dividends and redemption premiums on the Socius Series F Preferred Stock. The exchange was completed in June 2010 and is discussed in more detail below.

Perpetual Preferred Stock

As part of the Series E financing agreement, the Company recorded a Perpetual Preferred Stock equal to the amount of financing received during the year, plus accrued dividends, and Note Receivable equal to 135% of financing received, which represents the amount of warrant coverage per the agreement, plus accrued interest. In accordance with applicable authoritative guidance on Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, the Company classified the Note Receivable as contra Equity (“Note subscription on Perpetual Preferred Stock”) and the Perpetual Preferred Stock as a liability (“Long Term Perpetual Preferred Stock”). The Note Receivable accrued interest at a rate of 2% per year and the Perpetual Preferred Stock accrued a 10% dividend per year. The Company allocated the proceeds of the Series E Preferred Stock according to the value of the preferred stock and the fair value of the warrants. Estimated adjusted fair value of the warrants was determined using the Black-Scholes valuation model using risk-free interest rates ranging from 2.40% to 2.65%, volatility rate ranging from 64.46% to 65.33%, term of five years, and exercise price ranging from $0.56 to $0.74.

As a result of the exchange transactions for the Series E and Series F Preferred stock, all of the Company’s obligations under the previously outstanding Series E Preferred Stock and Series F Preferred Stock, which collectively had liquidation preferences of $15 million senior to the shares of the Company’s common stock and redemption premiums that started at 26% of the liquidation preference were retired and the Company no longer held any promissory notes of either Socius or Optimus. Because the parties to these exchange transactions determined that the instruments and rights being exchanged were of equivalent value, neither party paid any cash to the other party to the exchange transaction. Therefore, as of June 30, 2010, the Company reversed out all of the Perpetual Preferred Stock and the Notes Receivable related to the Perpetual Preferred Stock.

Series G Preferred Stock

On March 9, 2012, the Company entered into a Series G Preferred Stock Purchase Agreement (the “Series G Agreement”) with AR Partners, LLC (the “Purchaser”) to sell five million (5,000,000) shares of Series G Preferred Stock (“Series G Preferred”) at a price of $1.00 per Series G Preferred share, for a total purchase price of $5,000,000. The Purchaser is an affiliate of Dr. Andrey Semechkin, the Company’s Co-Chairman and Chief Executive Officer, and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director.

The Series G Preferred is convertible into shares of common stock at $0.40 per share, resulting in an initial conversion ratio of 2.5 shares of common stock for every share of Series G Preferred. The conversion price may be adjusted for stock splits and other combinations, dividends and distributions, recapitalizations and reclassifications, exchanges or substitutions and is subject to a weighted-average adjustment in the event of the issuance of additional shares of common stock below the conversion price. The Series G Preferred shares have priority over the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock on the proceeds from any sale or liquidation of the Company in an amount equal to the purchase price of the Series G Preferred, plus any accrued but unpaid dividends, but such payment may be made only after payment in full of the liquidation preferences payable to holders of any shares of Series D Preferred Stock then outstanding. From the date of issuance of the Series G Preferred, dividends at the rate per annum of six percent (6%) of the Purchase Price per share accrue on such shares of Series G Preferred. Dividends accrue quarterly and are cumulative. Each share of Series G Preferred has the same voting rights as the number of shares of Common Stock into which it would be convertible on the record date. As long as there are at least 1,000,000 shares of Series G Preferred outstanding, the holders of Series G Preferred have (i) the initial right to propose the nomination of two members of the Board, at least one of which nominees shall be subject to the approval of the Company’s independent directors, for election by the stockholder’s at the Company next annual meeting of stockholders, or, elected by the full board of directors to fill a vacancy, as the case may be, and (ii) the right to approve any amendment to the certificate of incorporation, certificates of designation or bylaws, in manner adverse to the Series G Preferred, alter the percentage of board seats held by the Series G directors or increase the authorized number of shares of Series G Preferred. At least one of the two directors nominated by holders of the Series G Preferred shares shall be independent based on the NASDAQ listing requirements. As of June 30, 2012, Series G Preferred Stock dividend of $92,000 was accrued compared to none as of December 31, 2011. Such dividends were accreted to the carrying value of the Series G preferred stock. No dividend was paid to the holders during the three and six months ended June 30, 2012 and 2011.

The Company determined that the Series G convertible preferred shares have a contingent redemption feature. As the event that may trigger the redemption of the convertible preferred stock is not solely within the Company’s control, the convertible preferred stock has been classified as mezzanine equity (outside of permanent equity) on the Company’s condensed consolidated balance sheet. Additionally, legal costs related to the Series G financing in the amount of $59,000 were recorded in the mezzanine equity as well.

The Company determined that as the initial conversion price at the date of close of the Series G transaction was lower than the closing market price on that day (March 9, 2012) that a beneficial conversion feature existed in the amount of $1,375,000. Such amount was recorded as a discount on the Series G convertible preferred stock with a corresponding increase in additional paid-in capital. Based on the appropriate accounting guidance, the Company is required to recognize the discount over the period of time from the issuance of preferred shares until the convertible preferred shares can be first converted. As the Series G convertible shares are convertible immediately following their issuance, the discount amount of $1,375,000 was recognized in March 2012 as deemed dividend with a corresponding increase in accumulated deficit.

Common Stock Purchase Agreement

On December 9, 2010, International Stem Cell Corporation (“ISCO” or the “Company”) entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $25.0 million of shares of ISCO common stock (the “Purchase Shares”) over the term of the Purchase Agreement. In connection with the execution of the Purchase Agreement, ISCO sold Aspire 333,333 shares of common stock for a total of $500,000. Under the Purchase Agreement, the Company also agreed to pay Aspire Capital a commitment fee of 500,000 shares of its common stock. The Company is not obligated to pay any additional expense reimbursement or any placement agent fees in connection with the transaction.

The Purchase Agreement is intended to provide the Company with a source of capital of up to $25 million over a term of up to three years. The sales price of any shares the Company elects to sell will be known by the Company at the time it makes the decision to sell and will be determined by a formula (described below) based on the price of the Company’s stock over the preceding 12 days. As a result, the Company will be able to sell shares on whatever schedule it believes best suits its needs and is not required to sell any shares unless it deems such sales to be beneficial to the Company.

Once the Registration Statement (referred to below) is effective, on any day on which the principal market for shares of ISCO common stock is open for trading, over the three-year term of the Purchase Agreement, the Company has the right, in its sole discretion, to provide Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire Capital to purchase the number of shares of ISCO common stock specified in the Purchase Notice. The number of shares the Company may designate in the Purchase Notice varies based on the closing price of the ISCO common stock on the date of the Purchase Notice. The Company may direct Aspire Capital to purchase up to: (1) 100,000 shares of common stock so long as the closing price is above $0.25; (2) 150,000 shares of common stock so long as the closing price is above $1.25; (3) 200,000 shares of common stock so long as the closing price is above $1.75 and (4) 300,000 shares of common stock so long as the closing price is above $2.25. The purchase price per share (the “Purchase Price”) for each Purchase Notice is the lower of (i) the lowest sale price for the common stock on the date of sale or (ii) the arithmetic average of the three lowest closing sale prices for the common stock during the 12 consecutive business days ending on the business day immediately preceding the purchase date of those securities.

The timing and the number of shares covered by each Purchase Notice are determined in the Company’s sole discretion, and the applicable Purchase Price will be determined prior to delivery of any Purchase Notice. The Company may deliver multiple Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed. There are no trading volume requirements or restrictions under the Purchase Agreement. Aspire Capital has no right to require any sales by the Company, but is obligated to make purchases as directed in accordance with the Purchase Agreement.

The Purchase Agreement contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions. The Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost or penalty. Aspire Capital has agreed not to cause, or engage in any manner whatsoever, any direct or indirect short selling or hedging of ISCO common stock. The Company did not pay any additional amounts to reimburse or otherwise compensate Aspire Capital in connection with the transaction. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.

The Company’s net proceeds will depend on the Purchase Price and volume and frequency of the Company’s sales of shares to Aspire Capital; provided, however, that the maximum aggregate proceeds from sales of shares to Aspire Capital under the Purchase Agreement is $25 million. The Company anticipates that delivery of Purchase Notices will be made subject to market conditions, in light of the Company’s capital needs from time to time and under the limitations contained in the Purchase Agreement. The Company expects to use proceeds from sales of shares to Aspire Capital for funding its research and development activities and for general corporate purposes and working capital requirements.

Registration Rights

In connection with the Purchase Agreement, the Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Aspire Capital, dated December 9, 2010. The Registration Rights Agreement provides, among other things, that the Company will register the resale of the commitment fee shares and the shares that have been or may be sold to Aspire Capital (collectively, the “Securities”) by Aspire Capital. The Company further agreed to keep the Registration Statement effective and to indemnify Aspire Capital for certain liabilities in connection with the sale of the Securities under the terms of the Registration Rights Agreement.

During the three and six months ended June 30, 2012 and 2011, the Company has issued 5,000,000, 5,000,000, 600,000 and 1,050,000, respectively, shares of common stock to Aspire Capital, raising $2.1 million, $2.1 million, $587,000 and $1,164,000, respectively, which was used to fund its operational activities.

Reserved Shares

At June 30, 2012, the Company had shares reserved for future issuance as follows:

Options outstanding	24,225,007
Options available for future grant	16,147,105
Convertible preferred stock	38,973,200
Warrants	3,530,000
	82,875,312

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Advances

6 Months Ended

Jun. 30, 2012

Advances [Abstract]

Advances

5. Advances

Advance

On June 18, 2008, the Company entered into an agreement with BioTime, Inc. (“Bio Time”), where Bio Time will pay an advance of $250,000 to Lifeline Cell Technology, a wholly-owned subsidiary of International Stem Cell Corporation, to produce, make, and distribute Joint Products. The $250,000 advance will be paid down with the first $250,000 of net revenues that otherwise would be allocated to Lifeline under the agreement. As of June 30, 2012 no revenues were realized from this agreement.

	June 30, 2012		December 31, 2011
BioTime, Inc. (in thousands)	$	250	$	250

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Capital Stock (Tables)

6 Months Ended

Jun. 30, 2012

Capital Stock [Abstract]

Summary of shares reserved for future issuance

Options outstanding	24,225,007
Options available for future grant	16,147,105
Convertible preferred stock	38,973,200
Warrants	3,530,000
	82,875,312

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Inventory (Tables)

6 Months Ended

Jun. 30, 2012

Inventory [Abstract]

Summary of the components of inventories

	June 30, 2012			December 31, 2011
Raw materials	$	232		$	265
Work in process		299			285
Finished goods		783			794
Total		1,314			1,344
Less: allowance for inventory obsolescence		(42	)		(76	)
Inventory, net	$	1,272		$	1,268

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Stock Options and Warrants

6 Months Ended

Jun. 30, 2012

Stock Options and Warrants [Abstract]

Stock Options and Warrants

9. Stock Options and Warrants

Stock Options

The Company has adopted the 2006 Equity Participation Plan (the “2006 Plan”). The options granted under the 2006 Plan may be either qualified or non-qualified options. Up to 15,000,000 options may be granted to employees, directors and consultants under this Plan. Options may be granted with different vesting terms and expire no later than 10 years from the date of grant.

In April 2010, the Company adopted the 2010 Equity Participation Plan (the “2010 Plan”). The options granted under the 2010 Plan may be either qualified or non-qualified options. Up to 18,000,000 options may be granted to employees, directors and consultants under the 2010 Plan. Options may be granted with different vesting terms and expire no later than 10 years from the date of grant.

In November and December of 2009, the Company issued outside the 2006 and 2010 option plans non-qualified stock options to purchase 10,257,593 shares of common stock to certain employees and consultants. These options vest over 50 months and expire no later than 10 years from the date of grant.

In accordance applicable authoritative guidance, the Company is required to establish assumptions and estimates of the weighted-average fair value of stock options granted, as well as using a valuation model to calculate the fair value of stock-based awards. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. All options are amortized over the requisite service periods. During the three months ended June 30, 2012 and 2011, and the six months ended June 30, 2012 and 2011, the Company recognized $541,000, $899,000, $1.2 million, and $1.8 million, as stock-based compensation expense, respectively. Unrecognized compensation expense related to stock options as of June 30, 2012 and 2011 was $5.1 million and $9.4 million, respectively, which is expected to be recognized over a weighted average period of approximately 2.6 years and 3.2 years, respectively.

Stock-based compensation for stock options granted to non-employees has been determined using the estimated fair value of the stock options issued, based on the Black-Scholes Option Pricing Model. These options are revalued at each reporting period until fully vested, with any change in fair value recognized in the consolidated statements of operations.

The fair value of options granted is estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended June 30, 2012			Six Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Significant assumptions (weighted-average):
Risk-free interest rate at grant date		0.91	%		0.94	%		2.35	%		2.35	%
Expected stock price volatility		124.20	%		124.68	%		60.11	%		69.76	%
Expected dividend payout		0	%		0	%		0	%		0	%
Expected option life-years based on management’s estimate		5.6 yrs			5.6 yrs			6.2 yrs			6.2 yrs

Options Outstanding							Options Exercisable and vested
Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$0.22-$0.50		4,423,600		7.89	$	0.41		1,986,200		6.08	$	0.44
$0.51-$0.75		9,469,368		7.46	$	0.62		5,772,368		7.41	$	0.62
$0.76-$1.00		2,838,339		3.95	$	0.99		2,674,339		3.63	$	1.00
$1.01-$1.25		375,000		8.65	$	1.10		223,300		8.53	$	1.10
$1.26-$1.50		1,268,700		7.66	$	1.31		697,500		7.30	$	1.33
$1.51-$3.20		5,850,000		8.32	$	1.94		2,343,200		8.08	$	2.00
		24,225,007		7.37	$	0.99		13,696,907		6.61	$	0.95

Transactions involving stock options issued to employees, directors and consultants under the 2006 Plan, the 2010 Plan and outside the plans are summarized below. Options issued have a maximum life of 10 years. The following table summarizes the changes in options outstanding and the related exercise prices for the Company’s common stock options issued as of June 30, 2012:

	Number of Shares issued under 2006 Plan and 2010 Plan			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2010		10,009,937		$	0.92
Granted		6,997,500		$	1.69
Exercised		(300,820	)	$	0.50
Canceled or expired		(1,976,410	)	$	1.17
Outstanding at December 31, 2011		14,730,207		$	1.26
Granted		2,398,000		$	0.38
Exercised		(17,500	)	$	0.22
Canceled or expired		(1,139,932	)	$	0.76
Outstanding at June 30, 2012		15,970,775		$	1.16
	Number of Shares issued outside the Plan			Weighted Average Exercise Price Per Share
Outstanding at December 31, 2010		10,708,939		$	0.64
Granted		—		$	—
Exercised		(454,170	)	$	0.59
Canceled or expired		(2,000,537	)	$	0.62
Outstanding at December 31, 2011		8,254,232		$	0.65
Granted		—		$	—
Exercised		—		$	—
Canceled or expired		—		$	—
Outstanding at June 30, 2012		8,254,232		$	0.65

Warrants

Brookstreet Securities Corporation

As of December 31, 2006, Brookstreet Securities Corporation (“Brookstreet”) had earned 1,976,190 warrants as partial compensation for its services as placement agent for the raising of equity capital. An additional 274,000 warrants were earned by Brookstreet in the first quarter of 2007, for a total of 2,250,190 warrants related to the Company’s private placement. In addition, 426,767 warrants were granted to a number of individuals as compensation for services rendered to the Company. Each Warrant entitles the holder thereof to purchase the number of shares of common stock that could be purchased by the dollar amount of the Warrant being exercised at $1.00 in the case of the Brookstreet warrants and $0.80 in the case of the individuals’ warrants. The Company recognized the value attributable to the individuals’ warrants in the amount of $222,000 and applied it to general and administrative expense. The Company recognized the value attributable to the Brookstreet warrants in the amount of $1.2 million. The Company recognized the Brookstreet warrants as a component of additional paid-in capital with a corresponding reduction in additional paid-in capital to reflect this as a non-cash cost of the offering. Proceeds from the private equity placement totaled $9.9 million and are offset by cash offering costs of $1.5 million as well as the non-cash offering cost of $1.2 million related to the fair value of the Brookstreet warrants. The Company

valued the Brookstreet warrants and the warrants issued to the individuals using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years and 3 years, an average risk free interest rate of 4.58% and 5.13%, a dividend yield of 0% and 0%, and volatility of 71% and 63%, respectively.

The number of warrants converted into common stock by Brookstreet was 484,675 for the completion of the Brookstreet financing and issued 1,370,000 shares of common stock that was part of a private placement of securities by ISC California during the second half of 2006. The net proceeds from the shares whose sale was finalized in 2007 was $1.2 million net of cash fees and expenses. In connection with the final settlement in 2007, the selling agent for the private placement received 274,000 additional warrants, which entitle the holder thereof to purchase that number of shares of common stock for $1.00 each.

During 2008, the Company raised additional capital by issuing Preferred Series A, B, C and D stock. This issuance of the Preferred Series C triggered an anti-dilutive clause in the Brookstreet warrant agreement, where Brookstreet would receive an adjustment downward in the price it pays for converting its warrants and resulted in a deemed dividend of $337,000. Brookstreet earned a total of 2,250,190 warrants in 2006 and 2007 in connection with the Company’s private placement. Each Warrant entitles the holder thereof to purchase one share of common stock for $1.00, revalued to $0.56 per warrant. The Company recognized the value attributable to the warrants in the amount of $1.2 million in 2006 and $169,000 in 2007 as a component of additional paid-in capital with a corresponding reduction in additional paid-in capital to reflect the issuance as a non-cash cost of the offering. Prior to 2009, the Company valued the Brookstreet warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 4.58%, a dividend yield of 0%, and volatility of 70.57%. During 2009, the Company issued a total of 3,510,206 shares of common stock which related to warrants originally issued to Brookstreet. Brookstreet converted a total of 612,267 warrants into 484,675 shares of common stock at an average cashless conversion price of $0.56 per share.

Implementation of Accounting Standards Code (ASC) 815-40-15, (formerly known as EITF 07-5 “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock Price”)

The Accounting Standards Code (ASC) 815-40-15, with an effective date of December 15, 2008, should have been implemented as of January 1, 2009, and in future periods. This Issue applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative as described in ASC 815-10-15-83, (previously paragraphs 6–9 of Statement 133) for purposes of determining whether that instrument or embedded feature qualifies for the first part of the scope exception in ASC 815-10-74 (previously paragraph 11(a) of Statement 133). This Issue also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock, regardless of whether the instrument has all the characteristics of a derivative for purposes of determining whether the instrument is within the scope of ASC 875-40.

During 2008, the Company issued a Series C Preferred round of financing which triggered the anti-dilution clause in the Brookstreet warrant agreement (“Brookstreet Warrants”). From issuing the Series C Preferred Stock, the exercise prices of the Brookstreet Warrants were revalued down to $0.56 per warrant. Based on the anti-dilution clause being triggered and the exercise price of the Brookstreet Warrants being revalued downward to $0.56, ASC 815-40-15 should have caused the Brookstreet Warrants to be treated and accounted for as a liability.

The anti-dilution provisions of the Brookstreet Warrants failed the criteria set by this ASC and therefore required reclassification from equity to liability. The reclassification resulted in the requirement to revaluate the Brookstreet Warrants at each reporting period with a corresponding charge or credit to the statement of operations. Valuation of the warrants was estimated using the Monte-Carlo simulation method using the following assumptions: stock price and warrant price as of the valuation date, the Company’s historical stock price, interest rate on U.S. treasury notes, dividend rate derived from the Series D Preferred Stock, warrant expiration; simulated as a daily interval and anti-dilution impact if the Company had to raise capital below $0.25 per share. The reclassification and valuation of the warrants resulted in warrant liabilities of zero and $38,000 as of March 31, 2012 and December 31, 2011, respectively. In addition, in the three months ended March 31, 2012 and 2011, we recorded income of $38,000 and $871,000, respectively, in our consolidated condensed statements of operations related to the change in the fair value of warrants.

The 1,721,629 Brookstreet Warrants outstanding as of December 31, 2011 expired on February 14, 2012, and the Company recorded $38,000 to reduce the fair market value of the warrants to zero as they are no longer outstanding as of June 30, 2012.

Warrants issued with other financings

During 2007 and 2008, the Company entered into various agreements to borrow working capital and as part of these agreements, the Company issued warrants to the holders to purchase common stock. The Company issued 1,629,623 warrants to various investors at an exercise price of $0.80 per share of which zero and 1,317,921 warrants remained outstanding at June 30, 2012 and December 31, 2011, respectively. In addition, 1,400,000 warrants were issued to YKA Partners, an affiliated company of our former Co-Chairman of the Board with an exercise price of $0.25 per share, all of which remain outstanding at June 30, 2012 and December 31, 2011.

Warrants issued with Preferred Stock

During 2008, in connection with the Company’s fund raising efforts, two warrants were issued to purchase shares of common stock with the purchase of one Series A Preferred Stock, where an additional 2,000,000 common stock warrants were outstanding and two warrants to purchase shares of common stock with the purchase of one Series B Preferred Stock, where an additional 1,100,000 common stock warrants were outstanding. As of December 31, 2010, 400,000 warrants related to the Series A Preferred Stock were converted into 800,000 common shares.

As of June 30, 2012 and December 31, 2011, there were 1,600,000 warrants related to the Series A Preferred Stock and 300,000 warrants related to the Series B Preferred Stock, each at an exercise price of $0.25 per share.

Warrants issued to BioTime

During June 2008, the Company entered into an agreement with BioTime, Inc. (“Bio Time”). Based on the agreement, Bio Time agreed to pay the Company an advance of $250,000 to produce, make, and distribute joint products (as defined in that agreement). As part of the agreement, the Company issued warrants for Bio Time to purchase 30,000 shares of the Company’s common stock at $0.25 per share. These warrants expire in December 2012.

Warrants issued in connection with SkinCare Marketing Agreement

In September 2011, the Company signed a Marketing Agreement (“agreement”) with an effective date of June 30, 2011, with a third party marketing organization. According to the terms of the agreement as described in Note 10 below, Commitments and Contingencies, under Marketing Arrangement and Agreement, the third party marketing organization would provide assistance to SkinCare to sell its skin care products through various specific proprietary mailings. The agreement provides for two tranches of common stock warrants to be issued by the Company for the benefit of the third party marketing organization for 100,000 shares each, with strike prices of $1.50 and $2.00, respectively, vesting over four quarters, and a warrant term of five years.

Accordingly, there were warrants for 100,000 shares of common stock at a strike price of $1.50 vested as of December 31, 2011 in connection with the agreement. In addition, as of June 30, 2012, there were 100,000 warrants vested with a strike price of $2.00. The Company valued the warrants issued in connection with the SkinCare Marketing Agreement using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.94%, a dividend yield of 0%, and volatility of 134%.

Share data related to warrant transactions as of June 30, 2012 were as follows:

																						Price per Share
	Series A			Series B			YKA Loan		BioTime		Bridge Loan & non-cash Grants			Brookstreet			Skin Care Marketing		Shares			Range		Weighted average exercise price
Outstanding, December 31, 2009		2,000,000			1,100,000			1,400,000		30,000		1,629,623			3,405,929			—		9,565,552		$	0.25-0.80	$	0.45
2010
Issued																				—
Exercised		(400,000	)		(600,000	)						(248,902	)		(1,645,772	)				(2,894,674	)		0.25-0.80		0.47
Forfeited																				—
Outstanding, December 31, 2010		1,600,000			500,000			1,400,000		30,000		1,380,721			1,760,157			—		6,670,878		$	0.25-0.80	$	0.45
2011
Issued																		200,000		200,000			1.50-2.00		1.75
Exercised					(200,000	)						(62,800	)		(38,528	)				(301,328	)		0.25-0.80		0.40
Forfeited																				—
Outstanding, December 31, 2011		1,600,000			300,000			1,400,000		30,000		1,317,921			1,721,629			200,000		6,569,550		$	0.25-2.00	$	0.49
2012
Issued																				—
Exercised																				—
Forfeited												(1,317,921	)		(1,721,629	)				(3,039,550	)	$	0.56-0.80	$	0.66
Outstanding, June 30, 2012		1,600,000			300,000			1,400,000		30,000		—			—			200,000		3,530,000		$	0.25-2.00	$	0.33

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Related Party Transactions

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

Related Party Transactions

7. Related Party Transactions

The Company’s related party transactions were for related party dividends and for a facility lease.

Dividend amounts related to Series D and Series G financing, of $156,000 and $108,000 were accrued at June 30, 2012 and December 31, 2011 respectively, to be payable to X-Master, Inc. and AR Partners LLC, entities affiliated with our Chief Executive Officer and Co-Chairman of the Board of Directors, Dr. Andrey Semechkin and Dr. Ruslan Semechkin, Vice President of International Stem Cell and a director. The Series D dividends are payable to both X-Master, Inc. and our Chief Executive Officer and Co-Chairman of the Board of Directors, Dr. Andrey Semechkin, while Series G Preferred Stock dividends are cumulative and are payable upon conversion of the Series G shares or upon certain Series G deemed liquidation events to AR Partners, LLC.

In addition, during the first quarter of 2011, the Company executed an operating lease for our corporate offices with S Real Estate Holdings LLC. S Real Estate Holdings LLC is owned by Dr. Andrey Semechkin, the Company’s Chief Executive Officer and Co-Chairman of the Board of Directors. The lease agreement was negotiated at arm’s length and was reviewed by the Company’s outside legal counsel. The terms of the lease were reviewed by a committee of independent directors, and the Company believes that, in total, those terms are at least as favorable to the Company as could be obtained for comparable facilities from an unaffiliated party. For the three months ended June 30, 2012 and 2011, the Company recorded $29,000 and $23,000, respectively, in rent expense that was related to the facility lease arrangement with related parties. Additionally, during the six months ended June 30, 2012 and 2011, the Company recorded $57,000 and $30,000, respectively, related to the same arrangement with the related party.

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

The Company estimated Federal and state tax losses for the current year and recorded a full valuation allowance against all net deferred tax assets. As such, no income tax provision has been recorded for the current period. The Company may be subject to IRC code section 382 which could limit the amount of the net operating loss and tax credit carryovers that can be used in future years.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

10. Commitments and Contingencies

Leases

We have established our primary research facility in 8,215 square feet of leased office and laboratory space in Oceanside, California. Our lease for this facility expires in August 2016. Our current base rent is $8,095 per month. The facility has leasehold improvements which include cGMP (current Good Manufacturing Practices) level clean rooms designed for the derivation of clinical-grade stem cells and their differentiated derivatives, research laboratories for our stem cell differentiation studies and segregated rooms for biohazard control and containment of human donor tissue. The monthly base rent will increase by 3% annually on the anniversary date of the agreement.

During 2010 we utilized a 3,240 square foot laboratory in Walkersville, Maryland. Our lease for this facility expired in March 2011, and we moved into a new manufacturing facility in Frederick, Maryland which we use for laboratory and administrative purposes. Our base rent in the new facilities is $6,143 per month for the first year, increasing to $11,236 in 2012. The initial lease term expires December 31, 2015 and there is an option for an additional five years.

On February 25, 2011, the Company entered into a lease agreement (the “Lease Agreement”) with S Real Estate Holdings LLC to allow the Company to expand into new corporate offices located at 5950 Priestly Drive, Carlsbad, California. The new building is used for administrative purposes, but could also be used for research and development purposes if such space is needed in the future. The lease covers approximately 4,653 square feet, which was occupied on or about March 1, 2011. The lease expires on February 29, 2016, subject to the Company’s right to extend the term for up to five additional years. The Company began rent payments in March 2011 once it occupied the facilities, at an initial rate of $5,118 per month. The lease was amended effective July 2011 to account for additional square footage occupied by Company personnel. As such, the initial monthly rate has increased to $9,018 per month. In addition, the monthly base rent will increase by 3% annually on the anniversary date of the agreement. The Company is also obligated to pay a portion of the utilities for the building and increases in property tax and insurance. In addition, the Company will pay its proportionate share of the CC&R fees.

S Real Estate Holdings LLC is owned by Dr. Andrey Semechkin, the Company’s Chief Executive Officer and Co-Chairman of the Board of Directors. The Lease Agreement was negotiated at arm’s length and was reviewed by the Company’s outside legal counsel. The terms of the lease were reviewed by a committee of independent directors, and the Company believes that, in total, those terms are consistent with the terms that could be obtained for comparable facilities from an unaffiliated party.

Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2012, are as follows (in thousands):

	Amount
2012 (remaining six months)	$	182
2013		364
2014		359
2015		370
2016		98
Total	$	1,373

Marketing Arrangement and Agreement

The Company signed a Term Sheet (“arrangement”) in late 2010 with a third party marketing organization that would serve as a consultant and assist in marketing for Lifeline Skin Care, Inc., a wholly-owned subsidiary of International Stem Cell, to sell its skin care products through various proprietary mailings. As part of the arrangement, there were various phases and objectives to accomplish, one of which was the potential formation of a joint venture in the future between the parties. Based on the arrangement, SkinCare paid 40% of net profits (as defined in the arrangement) generated from the proprietary mailings.

In September 2011, the Company signed a Marketing Agreement (“agreement”) with an effective date of June 30, 2011, superseding the terms of the arrangement with the third party marketing organization. According to the agreement, the third party marketing organization will continue to provide assistance to SkinCare to sell skin care products through various specific proprietary mailings. In exchange for such services, the Company will pay 20% of net revenues for Direct Sales (as defined in the agreement) generated from the proprietary mailings. In addition, the Company agreed to pay 10% of net revenues for Referral Sales. The agreement specifies that the parties do not intend to create a joint venture, and that either party may terminate the agreement upon 30-day written notice. In addition, the agreement provides for two tranches of common stock warrants to be issued by the Company for the benefit of the third

party marketing organization for 100,000 shares each, with strike prices of $1.50 and $2.00, respectively, with vesting over four quarters, and warrant term of five years. The Company recognized $36,000 and $73,000 in stock-based compensation from warrants issued for services during the three and six months ended June 30, 2012 and 2011, respectively.

SkinCare incurred $46,000 and $84,000 as marketing expenses during the three and six months ended June 30, 2012, respectively, under the terms of this arrangement and agreement. For the same periods in 2011, we recorded $147,000 and $302,000, respectively, as marketing expenses related to this consultant.

Customer Concentration

During the three and six months ended June 30, 2012, a major customer accounted for 17% and 13% of our consolidated revenues, while during the three and six months ended June 30, 2011, a major customer accounted for approximately 13% and 11% of revenues, and during the six months ended June 30, 2011 another major customer accounted for approximately 16% of revenues. No other single customer accounted for more than 10% of our revenues for any period presented.

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Patent Licenses (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2012
Patent Licenses [Line Items]
Patent acquisition costs	$ 1,102,000
Patent Licenses (Textual) [Abstract]
Option and license fees	340,000
Additional option fees	22,500
Additional license fees	400,000
Cash proceeds	5,000,000
ACT IP [Member]
Patent Licenses [Line Items]
Patent acquisition costs	747,000
Patent Licenses (Textual) [Abstract]
Option and license fees	$ 225,000
Convertible Notes Payable [Member]
Patent Licenses [Line Items]
Interest rate	10.00%

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Patent Licenses (Tables)

6 Months Ended

Jun. 30, 2012

Patent Licenses [Abstract]

Summary of obligation to pay royalties and other fees

	UMass IP		ACT IP		Infigen IP
License fee	$	150	$	225	$	25
Royalty rates		3% to 12%		3% to 10%		3% to 10%
Minimum royalties
At 12 months	$	15	$	15	$	8
At 24 months	$	30	$	38	$	8
At 36 months	$	45	$	61	$	7
Annually thereafter	$	60	$	75	$	15
Milestone payments
First commercial product	$	250	$	250	$	250
Sales reaching $5,000,000	$	500	$	500	$	500
Sales reaching $10,000,000	$	1,000	$	1,000	$	1,000

Summary of future amortization expense related to our intangible assets subject to amortization

	Amount
2012 (remaining six months)	$	31
2013		62
2014		62
2015		62
2016		62
Thereafter		1,250
Total	$	1,529

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Organization and Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
ASSETS:
Cash equivalents	$ 3,505	$ 470
LIABILITIES:
Warrants to purchase common stock		38
Level 1 [Member]
ASSETS:
Cash equivalents	3,505	470
LIABILITIES:
Warrants to purchase common stock
Level 2 [Member]
ASSETS:
Cash equivalents
LIABILITIES:
Warrants to purchase common stock
Level 3 [Member]
ASSETS:
Cash equivalents
LIABILITIES:
Warrants to purchase common stock		$ 38

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Stock Options and Warrants (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2012
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	24,225,007
Options Outstanding Weighted Average Remaining Contractual Life (Years)	7 years 4 months 13 days
Options Outstanding Weighted Average Exercise Price	$ 0.99
Options Exercisable and vested Number Exercisable	13,696,907
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	6 years 7 months 10 days
Options Exercisable and vested Weighted Average Exercise Price	$ 0.95
$0.22-$0.50 [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	4,423,600
Options Outstanding Weighted Average Remaining Contractual Life (Years)	7 years 10 months 21 days
Options Outstanding Weighted Average Exercise Price	$ 0.41
Options Exercisable and vested Number Exercisable	1,986,200
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	6 years 29 days
Options Exercisable and vested Weighted Average Exercise Price	$ 0.44
$0.22-$0.50 [Member] | Maximum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 0.50
$0.22-$0.50 [Member] | Minimum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 0.22
$0.51-$0.75 [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	9,469,368
Options Outstanding Weighted Average Remaining Contractual Life (Years)	7 years 5 months 16 days
Options Outstanding Weighted Average Exercise Price	$ 0.62
Options Exercisable and vested Number Exercisable	5,772,368
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	7 years 4 months 28 days
Options Exercisable and vested Weighted Average Exercise Price	$ 0.62
$0.51-$0.75 [Member] | Maximum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 0.75
$0.51-$0.75 [Member] | Minimum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 0.51
$0.76-$1.00 [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	2,838,339
Options Outstanding Weighted Average Remaining Contractual Life (Years)	3 years 11 months 12 days
Options Outstanding Weighted Average Exercise Price	$ 0.99
Options Exercisable and vested Number Exercisable	2,674,339
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	3 years 7 months 17 days
Options Exercisable and vested Weighted Average Exercise Price	$ 1.00
$0.76-$1.00 [Member] | Maximum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 1.00
$0.76-$1.00 [Member] | Minimum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 0.76
$1.01-$1.25 [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	375,000
Options Outstanding Weighted Average Remaining Contractual Life (Years)	8 years 7 months 24 days
Options Outstanding Weighted Average Exercise Price	$ 1.10
Options Exercisable and vested Number Exercisable	223,300
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	8 years 6 months 11 days
Options Exercisable and vested Weighted Average Exercise Price	$ 1.10
$1.01-$1.25 [Member] | Maximum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 1.25
$1.01-$1.25 [Member] | Minimum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 1.01
$1.26-$1.50 [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	1,268,700
Options Outstanding Weighted Average Remaining Contractual Life (Years)	7 years 7 months 28 days
Options Outstanding Weighted Average Exercise Price	$ 1.31
Options Exercisable and vested Number Exercisable	697,500
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	7 years 3 months 18 days
Options Exercisable and vested Weighted Average Exercise Price	$ 1.33
$1.26-$1.50 [Member] | Maximum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 1.50
$1.26-$1.50 [Member] | Minimum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 1.26
$1.51-$3.20 [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Number Outstanding	5,850,000
Options Outstanding Weighted Average Remaining Contractual Life (Years)	8 years 3 months 26 days
Options Outstanding Weighted Average Exercise Price	$ 1.94
Options Exercisable and vested Number Exercisable	2,343,200
Options Exercisable and vested Weighted Average Remaining Contractual Life (Years)	8 years 29 days
Options Exercisable and vested Weighted Average Exercise Price	$ 2.00
$1.51-$3.20 [Member] | Maximum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 3.20
$1.51-$3.20 [Member] | Minimum [Member]
Summary of changes in options outstanding and the related exercise prices
Options Outstanding Exercise Prices	$ 1.51

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Condensed Consolidated Statements of Changes In Redeemable Convertible Preferred Stock Members Deficit And Stockholders Equity (Deficit) (Unaudited) (USD $) In Thousands, unless otherwise specified	Total USD ($)	Note Subscription On Perpetual Preferred USD ($)	Subscription Receivable on Common Stock USD ($)	Additional Paid-In Capital USD ($)	Deficit Accumulated During The Development Stage USD ($)	Members Deficit USD ($)	Common Stock USD ($)	Series A USD ($)	Series A Common Stock	Series A Convertible Preferred Stock USD ($)	Series B Convertible Preferred Stock USD ($)	Series C USD ($)	Series C Convertible Preferred Stock USD ($)	Series D USD ($)	Series D Convertible Preferred Stock USD ($)	Series E Convertible Preferred Stock USD ($)	Series F Convertible Preferred Stock USD ($)	Series G USD ($)	Series G Convertible Redeemable Preferred Stock USD ($)
Beginning balance at Aug. 17, 2001
Beginning balance, shares at Aug. 17, 2001
Members contributions						100
Issuance of Common Stock
Net loss						(141)
Ending balance at Dec. 31, 2001						(41)
Members contributions						250
Issuance of Common Stock
Net loss						(391)
Ending balance at Dec. 31, 2002						(182)
Members contributions						195
Issuance of Common Stock
Net loss						(519)
Ending balance at Dec. 31, 2003						(506)
Members contributions						1,110
Issuance of Common Stock
Net loss						(854)
Ending balance at Dec. 31, 2004						(250)
Members contributions						780
Issuance of Common Stock
Net loss						(1,386)
Ending balance at Dec. 31, 2005						(856)
Members contributions						250
Effect of the Reorganization Transactions	(606)			2,665	(3,291)	606	20
Effect of the Reorganization Transactions, shares							20,000
BTHC transactions				(2)			2
BTHC transactions, shares							2,210
Offering costs	(2,778)			(2,778)
Warrants issued for equity placement services	1,231			1,231
Warrants issued for services	222			222
Warrants issued with promissory note	638			638
Issuance of common stock	10,382			10,371			11
Issuance of common stock, shares							10,437
Issuance of Common Stock
For services	1,350			1,349			1
For services, shares							1,350
Stock-based compensation	842			842
Net loss	(6,584)				(6,584)
Ending balance at Dec. 31, 2006	4,697			14,538	(9,875)		34
Ending balance, shares at Dec. 31, 2006							33,997
Offering costs	(382)			(382)
Warrants issued for equity placement services	169			169
Issuance of common stock	1,370			1,369			1
Issuance of common stock, shares							1,370
Issuance of Common Stock
From exercise of warrants	3
From exercise of warrants, shares							3
Stock-based compensation	427			427
Net loss	(6,072)				(6,072)
Ending balance at Dec. 31, 2007	212			16,124	(15,947)		35
Ending balance, shares at Dec. 31, 2007							35,370
Issuance of Common Stock
For services	596			593			3,041
For services, shares							3
From conversion of debt, shares								500	2,000
Stock-based compensation	735			735
Issuance of Preferred Stock	4,550			4,546						1	1		2
Issuance of Preferred Stock, shares										1,000	550		2,000
Warrants issued and beneficial conversion feature	911			911
Deemed Dividend				1,582	(1,582)
Net loss	(6,571)				(6,571)
Ending balance at Dec. 31, 2008	433			24,491	(24,100)		38			1	1		2
Ending balance, shares at Dec. 31, 2008							38,411			1,000	550		2,000
Warrants issued for services	281			281
Issuance of Common Stock
For services	942			941			1
For services, shares							1,208
From conversion of preferred stock				(3)			4				(1)
From conversion of preferred stock, shares							3,727			(400)	(150)
From conversion of debt	500			498			2
From conversion of debt, shares							2,000
From exercise of warrants	963	(2,700)		3,659			4
From exercise of warrants, shares							4,392
From cashless exercise of warrants, shares							3,510
From cashless exercise of warrants and options	283			279			4
For cash	1,400			1,397			3
For cash, shares							2,787
Stock-based compensation	410			410
Issuance of Preferred Stock	3,682			3,682
Deemed Dividend	(869)			3,163	(4,032)
Preferred Stock Subscription
Options issued for services	106			106
Cumulative effect adjustment-warrant liabilities	(1,274)			(1,704)	430
Equity placement shares	(250)			(250)
Deemed dividend on preferred stock	(364)				(364)
Net loss	(8,513)	(9)			(8,504)
Ending balance at Dec. 31, 2009	(2,270)	(2,709)		36,950	(36,570)		56			1			2
Ending balance, shares at Dec. 31, 2009							56,035			600	400		2,000
Warrants issued for services
Issuance of Common Stock
For services	1,085			1,084			1
For services, shares							749
From conversion of preferred stock and options				(1)			1
From conversion of preferred stock and options, shares							800			(100)	(100)						(1)
From conversion of debt
From exercise of warrants	1,493	(3,254)	(5)	4,747			5
From exercise of warrants, shares							5,063
From cashless exercise of warrants and options	1,538			1,536			2
From cashless exercise of warrants and options, shares							1,531
For cash	10,190			10,181			10
For cash, shares							10,593
Stock-based compensation	2,068			2,068
Preferred Stock Subscription																	0
Preferred stock subscription, shares																	1
Options issued for services
Warrants reclassified to equity	805			805
Deemed dividend on preferred stock	(1,037)				(1,037)
Accrued and paid dividend on preferred stock	(524)				(524)
Swap notes Receivable and Perpetual Preferred Stock	4,763	5,963		(1,200)
Net loss	(12,723)				(12,723)
Ending balance at Dec. 31, 2010	5,389		(5)	56,170	(50,854)		75			1			2				0
Ending balance, shares at Dec. 31, 2010							74,771			500	300		2,000
Warrants issued for services	75			75
Issuance of Common Stock
For services	303			303
For services, shares							150
From cashless exercise of warrants	26			26
From cashless exercise of warrants, shares							55
From cashless exercise of warrants and options, shares
From exercise of options and warrants	527			526			1
From exercise of options and warrants, shares							1,060
For cash	3,358			3,354			4
For cash, shares							4,000
Stock-based compensation	3,541			3,541
Dividend on preferred stock	(430)				(430)									108
Stock subscription	5		5
Net loss	(9,171)				(9,171)
Ending balance at Dec. 31, 2011	3,623			63,995	(60,455)		80	1		1		2	2				0
Ending balance, shares at Dec. 31, 2011							80,036			500	300		2,000
Warrants issued for services	73			73
Issuance of Common Stock
For services	5			5
For services, shares							185
From conversion of preferred stock				(1)			2			(1)
From conversion of preferred stock, shares							2,000			(500)
For cash	2,089			2,079			5
For cash, shares							5,000
Stock-based compensation	1,225			1,225
Issuance of convertible redeemable Series G preferred stock, net of issuance costs of $59 Value																			4,941
Issuance of convertible redeemable Series G preferred stock, net of issuance costs of $59																			5,000
Beneficial conversion feature for Series G preferred stock	1,375			1,375															(1,375)
From exercise of options	4			4
From exercise of options, shares	18
Dividend on preferred stock	222				(222)									64					92
Deemed dividend on preferred stock	(1,375)				(1,375)														1,375
Accrued and paid dividend on preferred stock														2,480				1,375
Net loss	(5,153)				(5,153)
Ending balance at Jun. 30, 2012	$ 1,639			$ 68,755	$ (67,205)		$ 87	$ 0				$ 2	$ 2						$ 5,033
Ending balance, shares at Jun. 30, 2012							87,239				300		2,000						5,000

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Patent Licenses

6 Months Ended

Jun. 30, 2012

Patent Licenses [Abstract]

Patent Licenses

4. Patent Licenses

On December 31, 2003, Lifeline entered into an Option to License Intellectual Property agreement with Advanced Cell Technology, Inc. (“ACT”) for patent rights and paid ACT $340,000 in option and license fees. On February 13, 2004, Lifeline and ACT amended the Option agreement and Lifeline paid ACT additional option fees of $22,500 for fees related to registering ACT’s patents in selected international countries.

On May 14, 2004, Lifeline amended the licensing agreement with ACT for the exclusive worldwide patent rights for the following ACT technologies: UMass IP, ACT IP and Infigen IP, which terms are summarized below. The additional license fees aggregate a total of $400,000 and were secured by separate convertible promissory notes. The notes bore no interest unless they were not repaid at maturity, in which event they shall thereafter bear interest at an annual rate equal the lesser of 10% or the maximum non-usurious rate legally allowed.

The notes could be converted at the option of ACT into the first equity financing of Lifeline with cash proceeds in excess of $5,000,000 under the following conditions: i) Upon the consummation of the First Equity Financing; or ii) Immediately prior to the closing of any merger, sale or other consolidation of the Company or of any sale of all or substantially all assets of the Company which occurs prior to the First Equity Financing (an “Acquisition Event”). Notwithstanding the above, and only in the event that a conversion resulting from such Acquisition Event would result in a security not traded on a national stock exchange (including NASDAQ and NASDAQ small cap), upon written notice to the Company not later than five days after the consummation of the Acquisition Event and notice of the Acquisition Event to the holder of the note, the holder may elect to receive payment in cash of the entire outstanding principal of this Note. On December 21, 2007 ACT, elected to receive payment and was paid in cash in-lieu of conversion of the notes. The Company still maintains an obligation to pay royalties and other fees in accordance with the following schedule (in thousands, except percentages and sales thresholds):

	UMass IP		ACT IP		Infigen IP
License fee	$	150	$	225	$	25
Royalty rates		3% to 12%		3% to 10%		3% to 10%
Minimum royalties
At 12 months	$	15	$	15	$	8
At 24 months	$	30	$	38	$	8
At 36 months	$	45	$	61	$	7
Annually thereafter	$	60	$	75	$	15
Milestone payments
First commercial product	$	250	$	250	$	250
Sales reaching $5,000,000	$	500	$	500	$	500
Sales reaching $10,000,000	$	1,000	$	1,000	$	1,000

As of June 30, 2012, the total amount capitalized related to the acquired ACT licenses was $747,000, and $1,102,000 related to the other patent acquisition costs.

At June 30, 2012, future amortization expense related to our intangible assets subject to amortization is expected to be as follows (in thousands):

	Amount
2012 (remaining six months)	$	31
2013		62
2014		62
2015		62
2016		62
Thereafter		1,250
Total	$	1,529

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Organization and Significant Accounting Policies (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Fair value measurement and unobservable rollforward activity of liabilities
Beginning balance	$ 38	$ 2,400
Issuances
Adjustments to estimated fair value due to expiry	(38)	(2,362)
Ending balance		$ 38

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Capital Stock (Details Textual) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended				130 Months Ended			12 Months Ended			12 Months Ended			12 Months Ended								6 Months Ended	12 Months Ended			12 Months Ended					12 Months Ended				6 Months Ended	12 Months Ended		6 Months Ended		12 Months Ended						3 Months Ended		6 Months Ended		12 Months Ended						12 Months Ended				12 Months Ended				12 Months Ended	6 Months Ended			6 Months Ended		6 Months Ended			12 Months Ended						3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2007	Dec. 31, 2006	Jun. 30, 2012	Jun. 30, 2009	Dec. 27, 2006	Dec. 31, 2010 Socius Exchange Agreement [Member]	Dec. 31, 2007 Maximum [Member]	Oct. 31, 2006 Maximum [Member]	Dec. 31, 2008 Minimum [Member]	Dec. 31, 2007 Minimum [Member]	Oct. 31, 2006 Minimum [Member]	Dec. 31, 2009 Common Stock [Member]	Jun. 30, 2012 Common Stock [Member]	Dec. 31, 2011 Common Stock [Member]	Dec. 31, 2010 Common Stock [Member]	Dec. 31, 2008 Common Stock [Member]	Dec. 31, 2007 Common Stock [Member]	Dec. 31, 2006 Common Stock [Member]	Aug. 17, 2001 Common Stock [Member]	Jun. 30, 2012 Series A Preferred Stock [Member]	Dec. 31, 2008 Series A Preferred Stock [Member]	Dec. 31, 2011 Series A Preferred Stock [Member]	Jan. 15, 2008 Series A Preferred Stock [Member]	Dec. 31, 2008 Series A Preferred Stock [Member] Maximum [Member]	Dec. 31, 2008 Series A Preferred Stock [Member] Minimum [Member]	Dec. 31, 2008 Series A Preferred Stock [Member] Common Stock [Member]	Jun. 30, 2012 Series A Preferred Stock [Member] Common Stock [Member]	Dec. 31, 2001 Series A Preferred Stock [Member] Common Stock [Member]	Dec. 31, 2008 Series B Preferred Stock [Member]	Jun. 30, 2012 Series B Preferred Stock [Member]	Dec. 31, 2011 Series B Preferred Stock [Member]	May 12, 2008 Series B Preferred Stock [Member]	Jun. 30, 2012 Series A and Series B Preferred Stock [Member]	Dec. 31, 2008 Series A and Series B Preferred Stock [Member]	Aug. 31, 2008 Series A and Series B Preferred Stock [Member]	Jun. 30, 2012 Series A and Series B Preferred Stock [Member] Maximum [Member]	Jun. 30, 2012 Series A and Series B Preferred Stock [Member] Minimum [Member]	Dec. 31, 2008 Series B Warrants [Member]	Dec. 31, 2008 Series C Preferred Stock [Member]	Jun. 30, 2012 Series C Preferred Stock [Member]	Dec. 31, 2011 Series C Preferred Stock [Member]	Sep. 23, 2008 Series C Preferred Stock [Member]	Aug. 20, 2008 Series C Preferred Stock [Member]	Jun. 30, 2012 Series D Preferred Stock [Member]	Jun. 30, 2011 Series D Preferred Stock [Member]	Jun. 30, 2012 Series D Preferred Stock [Member]	Jun. 30, 2011 Series D Preferred Stock [Member]	Dec. 31, 2011 Series D Preferred Stock [Member]	Dec. 31, 2008 Series D Preferred Stock [Member]	Sep. 30, 2009 Series D Preferred Stock [Member]	Mar. 20, 2009 Series D Preferred Stock [Member]	Feb. 05, 2009 Series D Preferred Stock [Member]	Dec. 30, 2008 Series D Preferred Stock [Member]	Dec. 31, 2010 Series E Preferred Stock [Member]	Dec. 31, 2009 Series E Preferred Stock [Member]	Dec. 31, 2010 Series E Preferred Stock [Member] Warrants [Member]	Jun. 30, 2009 Series E Preferred Stock [Member] Capital Partners LLC [Member]	Dec. 31, 2009 Series E Preferred Stock [Member] Maximum [Member]	Dec. 31, 2009 Series E Preferred Stock [Member] Minimum [Member]	Dec. 31, 2010 Series F Preferred Stock [Member]	Dec. 31, 2010 Series F Preferred Stock [Member] Fees Shares [Member]	Dec. 31, 2010 Series F Preferred Stock [Member] Socius C G II [Member]	Jun. 30, 2012 Series G Preferred Stock [Member]	Mar. 09, 2012 Series G Preferred Stock [Member]	Dec. 31, 2011 Series G Preferred Stock [Member]	Jun. 30, 2012 Series G Preferred Stock [Member] AR Partners LLC [Member]	Mar. 31, 2012 Series G Preferred Stock [Member] Aspire Capital Fund LLC [Member]	Jun. 30, 2012 Perpetual Preferred Stock [Member]	Jun. 30, 2012 Perpetual Preferred Stock [Member] Maximum [Member]	Jun. 30, 2012 Perpetual Preferred Stock [Member] Minimum [Member]	Dec. 31, 2010 Common Stock Purchase Agreement [Member] Aspire Capital Fund LLC [Member]	Dec. 09, 2010 Common Stock Purchase Agreement [Member] Aspire Capital Fund LLC [Member]	Dec. 09, 2010 Common Stock Purchase Agreement [Member] Aspire Capital Fund LLC [Member] Closing Price Above $ 0.25 [Member]	Dec. 09, 2010 Common Stock Purchase Agreement [Member] Aspire Capital Fund LLC [Member] Closing Price Above $ 1.25 [Member]	Dec. 09, 2010 Common Stock Purchase Agreement [Member] Aspire Capital Fund LLC [Member] Closing Price Above $ 1.75 [Member]	Dec. 09, 2010 Common Stock Purchase Agreement [Member] Aspire Capital Fund LLC [Member] Closing Price Above $ 2.25 [Member]	Jun. 30, 2012 Registration Rights [Member] Aspire Capital Fund LLC [Member]	Jun. 30, 2011 Registration Rights [Member] Aspire Capital Fund LLC [Member]	Jun. 30, 2012 Registration Rights [Member] Aspire Capital Fund LLC [Member]	Jun. 30, 2011 Registration Rights [Member] Aspire Capital Fund LLC [Member]
Class of Stock [Line Items]
Common Stock, shares outstanding	238,815		238,815		80,036,315				238,815					2,209,993			500,000																			300,000	300,000
Sale of number of shares issued in transactions																														500,000	100,000				400,000										300,000										50					24						1,000			5,000,000								333,333
Common stock, par value	$ 0.001		$ 0.001		$ 0.001		$ 1.00	$ 0.001	$ 0.001		$ 0.001																		$ 1.00									$ 1.00	$ 1.00
Common Stock At Market Price On The First Finance Closing Limit																													1
Warrants exercisable																											$ 0.50								$ 0.50				$ 0.25					$ 0.25
Common stock value	$ 87,000		$ 87,000		$ 80,000				$ 87,000																	$ 1,000,000																																															$ 2,100,000					$ 25,000,000
Number of shares of Series A Preferred stock																		2,000,000									500,000					2,000,000
Common stock, shares issued	87,238,815		87,238,815		80,036,315		1,370,000	1,350,000	87,238,815																								0	500,000		300,000	300,000																																				5,000,000						100,000	150,000	200,000	300,000
Proceeds from issuance of preferred stock			4,941,000						17,202,000																										400,000
Conversion of Stock Initial Conversion Price																																			$ 0.50
Liquidation premium																										6.00%									6.00%										6.00%																													26.00%
Risk-free interest rates	0.91%	2.35%	0.94%	2.35%	0.94%								5.13%		4.58%	4.58%																								3.00%		3.37%	3.00%																															2.40%
Volatility rate minimum	124.20%	60.11%	124.68%	69.76%									71.00%		70.57%	63.00%																							65.00%	57.90%																																		64.46%
Volatility rate maximum																																							57.90%																																			65.33%
Period	5 years 7 months 6 days	6 years 2 months 12 days	5 years 7 months 6 days	6 years 2 months 12 days									5 years			3 years																							5 years																																			5 years
Exercise price																																							$ 0.50		$ 0.25																																		$ 0.74	$ 0.56
Beneficial conversion feature																											553,000								308,000										720,000
Warrants adjusted	36,000	36,000	73,000	73,000																							193,000								110,000				804,971
Anti Dilution Provisions Related To Warrants And Exercise Price																																							$ 0.25
Reduction In Value Of Warrants Due To Revaluation																																							5,276,000
Subscription agreement with an accredited investor							1,200,000																																						3,000,000										5,000,000													10,000,000				5,000,000					500,000
Convertible shares of common stock																																																	$ 0.25																				$ 0.40
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount																																													250,000
Number of days with in dividend declared after each quarter end			15 days
Preferred stock, shares issued																										0		500,000								300,000	300,000									2,000,000	2,000,000			43		43		43															5,000,000		0		5,000,000
Number of preferred stock sold																																																1,300,000	700,000
Secured Convertible Note amount																																																							1,000,000
Preferred stock price per share																																																											$ 100,000
Sale of the Series D Preferred										10																																														3	10	10	10
Total amount raised																																																				4,700,000
Total deemed dividend						(524,000)																																														2,480,000																	1,375,000
Preferred stock, shares outstanding																										0		500,000								300,000	300,000									2,000,000	2,000,000			43		43		43															5,000,000	1,000,000	0
Stock dividends accrued	139,000	107,000	222,000	213,000	(430,000)				8,189,000																																											64,000		108,000
Dividend paid																																																		64,000	173,000	107,000	213,000
Investment commitment																																																															5,000,000
Number of years warrants to purchase common stock																																			5 years																										5 years
Percentage on warrants to purchase common stock of closing price																																																													100.00%
Percentage of exercise value of warrants issued																																																													135.00%
Rate of preferred stock dividend and redemption premium																																																				6.00%		10.00%							10.00%			0.00%	26.00%				6.00%					10.00%
Commitment fees																																																													25,000
Number of days for Promptly file after the effective date																																																													30 days
Private equity financing																																																												2,400,000
Selling Price per shares						$ 10,000		$ 0.001			$ 0.001															$ 0.001		$ 0.001								$ 0.001	$ 0.001									$ 0.001	$ 0.001		$ 1.00	$ 0.001		$ 0.001		$ 0.001															$ 0.001	$ 1.00	$ 0.001
Shares, Issued																		56,035,000	87,239,000	80,036,000	74,771,000	38,411,000	35,370,000	33,997,000																																						3,700,000					250,000
Warrants to purchase common stock					38,000																																																													7,000,000
Common stock exercise price per share						$ 1.93
Notes issued												2,500,000
Initial conversion ratio of common stock																																																																					250.00%
Dividend																																																																					92,000
Legal costs																																																																					59,000
Percentage of financing receivables																																																																										135.00%
Note receivable accrued interest rate																																																																										2.00%
Risk-free interest rates maximum																																																																										2.65%
Common stock liquidation preferences amount																																																																										15,000,000
Capital Commitment Fees On Common Stock																																																																														500,000
Common stock purchase agreement period																																																																													3 years
Number of days to be taken for calculation share sales price																																																																													12 days
Closing Price of common shares																																																																															$ 0.25	$ 1.25	$ 1.75	$ 2.25
Issued shares to aspire capital for operating activities																																																																																			5,000,000	5,000,000	600,000	1,050,000
Issued to aspire capital for operating activities																																																																																			2,100,000	2,100,000	587,000	1,164,000
Capital Stock (Textual) [Abstract]
Common stock, shares authorized	300,000,000		300,000,000		200,000,000			200,000,000	300,000,000		200,000,000
Preferred stock, shares authorized								20,000,000			20,000,000															0		5,000,000								5,000,000	5,000,000									3,000,000	3,000,000			50		50		50															5,000,000		0
Stock split approved								4.42
In October 2006, the board of directors of BTHC III approved a stock split of 4.42 shares to 1								In October 2006, the board of directors of BTHC III approved a stock split of 4.42  shares to 1 .
Stock Issued During Period Shares Issued For legal consulting								350,000
Stock Issued During Period Shares Issued For Contract To Provide Investor Relations Services								100,000
Net proceeds from sales							$ 1,157,000
Selling agent for the private placement							274,000

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2012

Property and Equipment [Abstract]

Summary of Property and equipment

	June 30, 2012			December 31, 2011
Machinery and equipment	$	973		$	969
Computer equipment		362			358
Office equipment		224			217
Leasehold improvements		830			816
		2,389			2,360
Less: accumulated depreciation and amortization		(1,143	)		(940	)
Property and equipment, net	$	1,246		$	1,420