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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~October 31, 2016,~~August 1, 2017, there were ~~20,500,553~~34,716,318 shares of the registrant’s common stock outstanding.

	As of September 30, 2016			As of December 31, 2015			As of June 30, 2017			As of December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	14,924,000		$	14,338,000		$	9,028		$	12,560
Accounts receivable, net of reserves of $173,000 and $797,000 in 2016 and 2015, respectively		918,000			1,052,000
Accounts receivable, net of reserves of $167 in both 2017 and 2016, respectively								807			1,242
Restricted cash								429			350
Inventories, net		3,946,000			4,298,000			4,243			3,725
Other current assets		1,253,000			1,555,000			1,116			870
Total current assets		21,041,000			21,243,000			15,623			18,747

Property and equipment, net		1,292,000			1,631,000			3,387			1,157
Restricted cash and cash equivalents		350,000			350,000
Other assets		1,474,000			1,521,000			1,712			2,336
Intangibles, net		8,763,000			9,031,000			7,832			8,447
Goodwill		3,922,000			3,922,000			3,922			3,922
Total assets	$	36,842,000		$	37,698,000		$	32,476		$	34,609
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	5,637,000		$	6,687,000		$	6,485		$	5,872
Current portion of long-term obligations, net of discount		5,267,000			—			6,744			6,629
Joint venture purchase obligation		—			1,750,000
Total current liabilities		10,904,000			8,437,000			13,229			12,501

Deferred revenues		97,000			105,000			110			97
Long-term deferred rent and other		41,000			269,000			136			17
Long-term obligations, net of discount, less current portion		12,130,000			16,681,000			7,771			11,008
Total liabilities		23,172,000			25,492,000			21,246			23,623
Commitments and contingencies

Commitments and contingencies (Note 9)

Stockholders’ equity:
Series A 3.6% convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 13,500 shares issued; no shares outstanding in 2016 and 2015		—			—
Common stock, $0.001 par value; 75,000,000 shares authorized; 20,495,069 and 13,003,893 shares issued and outstanding in 2016 and 2015, respectively		20,000			13,000
Series A 3.6% convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 13,500 shares issued; no shares outstanding in 2017 and 2016								—			—
Common stock, $0.001 par value; 75,000,000 shares authorized; 33,328,401 and 21,707,890 shares issued and outstanding in 2017 and 2016, respectively								33			22
Additional paid-in capital		387,119,000			368,214,000			402,670			388,769
Accumulated other comprehensive income		675,000			996,000			1,183			1,258
Accumulated deficit		(374,144,000	)		(357,017,000	)		(392,656	)		(379,063	)
Total stockholders’ equity		13,670,000			12,206,000			11,230			10,986
Total liabilities and stockholders’ equity	$	36,842,000		$	37,698,000		$	32,476		$	34,609

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2016

2015

2016

2015

Product revenues

$
731,000

$
766,000

$
3,190,000

$
3,281,000

Cost of product revenues

618,000

502,000

1,770,000

2,395,000

Gross profit

113,000

264,000

1,420,000

886,000

Development revenues:

Government contracts and other

1,879,000

1,711,000

5,163,000

5,002,000

1,879,000

1,711,000

5,163,000

5,002,000

Operating expenses:

Research and development

3,960,000

4,352,000

13,334,000

14,363,000

Sales and marketing

818,000

566,000

2,742,000

2,059,000

General and administrative

2,011,000

2,370,000

6,625,000

7,662,000

Change in fair value of warrant liabilities

—

(7,310,000
)

—

(4,988,000
)
Total operating expenses

6,789,000

(22,000
)

22,701,000

19,096,000

Operating (loss) income

(4,797,000
)

1,997,000

(16,118,000
)

(13,208,000
)
Other income (expense):

Income (loss) on asset disposal

—

(3,000
)

2,000

6,000

Loss on debt extinguishment

—

—

—

(260,000
)
Interest income

4,000

3,000

8,000

6,000

Interest expense

(645,000
)

(669,000
)

(1,947,000
)

(2,677,000
)
Other income, net

54,000

199,000

928,000

152,000

Total other expense

(587,000
)

(470,000
)

(1,009,000
)

(2,773,000
)
Net (loss) income

$
(5,384,000
)

$
1,527,000

$
(17,127,000
)

$
(15,981,000
)
Beneficial conversion feature for convertible preferred stock

—

—

—

(661,000
)
Net (loss) income allocable to common stockholders

$
(5,384,000
)

$
1,527,000

$
(17,127,000
)

$
(16,642,000
)
Net income (loss) per share allocable to common stockholders

Basic

$
(0.26
)

$
0.15

$
(1.06
)

$
(1.87
)
Diluted

$
(0.26
)

$
0.15

$
(1.06
)

$
(1.87
)
Weighted average shares used in calculating net income (loss) per
share allocable to common stockholders

Basic

20,493,840

10,253,231

16,147,042

8,878,276

Diluted

20,493,840

10,531,264

16,147,042

8,878,276

Comprehensive (loss) income:

Net (loss) income

$
(5,384,000
)

$
1,527,000

$
(17,127,000
)

$
(15,981,000
)
Other comprehensive (loss) income – foreign currency translation
adjustments

58,000

110,000

(321,000
)

361,000

Comprehensive (loss) income

$
(5,326,000
)

$
1,637,000

$
(17,448,000
)

$
(15,620,000
)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Product revenues	$	969		$	1,126		$	1,560		$	2,459
Cost of product revenues		401			503			811			971
Amortization of intangible assets		306			82			612			181
Gross profit		262			541			137			1,307

Development revenues:
Government contracts and other		531			1,699			1,549			3,284
		531			1,699			1,549			3,284
Operating expenses:
Research and development		2,992			5,247			6,281			9,374
Sales and marketing		1,263			889			2,202			1,924
General and administrative		2,119			2,328			4,227			4,614
In process research and development acquired from Azaya Therapeutics		—			—			1,686			—
Total operating expenses		6,374			8,464			14,396			15,912
Operating loss		(5,581	)		(6,224	)		(12,710	)		(11,321	)

Other income (expense):
Interest income		7			2			18			4
Interest expense		(538	)		(645	)		(1,129	)		(1,302	)
Other income, net		63			462			228			876
Total other expense		(468	)		(181	)		(883	)		(422	)
Net loss	$	(6,049	)	$	(6,405	)	$	(13,593	)	$	(11,743	)

Basic and diluted net loss per share	$	(0.19	)	$	(0.43	)	$	(0.50	)	$	(0.84	)
Basic and diluted weighted average shares used in calculating net loss per share		31,250,872			14,778,616			26,993,619			13,932,496

Comprehensive loss:
Net loss	$	(6,049	)	$	(6,405	)	$	(13,593	)	$	(11,743	)
Other comprehensive loss – foreign currency translation adjustments		(15	)		(130	)		(75	)		(379	)
Comprehensive loss	$	(6,064	)	$	(6,535	)	$	(13,668	)	$	(12,122	)

	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2016			2015			2017			2016
Cash flows from operating activities:
Net loss	$	(17,127,000	)	$	(15,981,000	)	$	(13,593	)	$	(11,743	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		794,000			761,000			1,052			574
Amortization of deferred financing costs and debt discount		714,000			714,000			418			468
In process research and development acquired from Azaya Therapeutics								1,686			—
Joint Venture acquisition obligation accretion		24,000			340,000			—			24
Provision for expired inventory		26,000			—			340			26
Change in fair value of warrants		—			(4,988,000	)
Stock-based compensation expense		925,000			1,617,000			410			645
Loss on asset disposal		2,000			5,000			19			2
Loss on debt extinguishment		—			260,000
Increases (decreases) in cash caused by changes in operating assets and liabilities:
Accounts receivable		91,000			131,000			409			66
Inventories		190,000			(10,000	)		159			(380	)
Other current assets		205,000			(258,000	)		(736	)		137
Other assets		32,000			762,000			43			34
Accounts payable and accrued expenses		(1,013,000	)		870,000			(194	)		(431	)
Deferred revenues		(8,000	)		41,000			13			1
Long-term deferred rent		(227,000	)		(210,000	)		119			(158	)
Net cash used in operating activities		(15,372,000	)		(15,946,000	)		(9,855	)		(10,735	)
Cash flows from investing activities:
Purchases of property and equipment		(110,000	)		(544,000	)		(95	)		(105	)
Expenditures for intellectual property		—			(13,000	)
Purchase of long-lived assets part of Azaya Therapeutics’ acquisition								(1,201	)		—
Change in restricted cash								(79	)		—
Net cash used in investing activities		(110,000	)		(557,000	)		(1,375	)		(105	)
Cash flows from financing activities:
Principal payments on long-term obligations		—			(25,032,000	)		(3,540	)		—
Proceeds from long-term obligations		—			17,700,000
Debt issuance costs and loan fees		—			(1,854,000	)
Joint Venture purchase payments		(1,774,000	)		(1,623,000	)		—			(1,774	)
Proceeds from exercise of employee stock options and warrants		—			4,986,000
Proceeds from sale of common stock, net		17,702,000			26,749,000			11,225			18,179
Dividends paid on preferred stock		—			(75,000	)
Net cash provided by financing activities		15,928,000			20,851,000			7,685			16,405
Effect of exchange rate changes on cash and cash equivalents		140,000			—			13			139
Net increase in cash and cash equivalents		586,000			4,348,000
Net (decrease) increase in cash and cash equivalents								(3,532	)		5,704
Cash and cash equivalents at beginning of period		14,338,000			14,622,000			12,560			14,338
Cash and cash equivalents at end of period	$	14,924,000		$	18,970,000		$	9,028		$	20,042
Supplemental disclosure of cash flows information:
Cash paid during period for:
Interest	$	1,213,000		$	1,607,000		$	740		$	805
Supplemental schedule of non-cash investing and financing activities:
Conversion of preferred stock into common stock		—			10,000
Declared dividend related to preferred stock		—			3,000
Common stock issued in payment for the assets acquired from Azaya Therapeutics							$	2,311		$	-

Our accompanying unaudited consolidated condensed financial statements as of ~~September~~June 30, ~~2016~~2017 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. Our consolidated condensed balance sheet at December 31, ~~2015~~2016 has been derived from the audited financial statements at December 31, ~~2015,~~2016, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations of Cytori Therapeutics, Inc., and our subsidiaries (collectively, the “Company”) have been included. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2016.~~2017. These financial statements should be read in conjunction with the consolidated financial statements and notes therein included in our Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016, filed with the Securities and Exchange Commission on March ~~11, 2016.~~24, 2017.

On May 10, 2016, following stockholder and Board approval, an amendment (the “Amendment”) to the Company’s amended and restated certificate of incorporation, as amended was filed and declared effective, which Amendment effectuated a one-for-fifteen (1:15) reverse stock split of the Company’s (i) outstanding common stock, and (ii) common stock reserved for issuance upon exercise of outstanding warrants and options (the “1:15 Reverse Stock Split”). Upon effectiveness of the 1:15 Reverse Stock Split, the number of shares of the Company’s common stock (x) issued and outstanding decreased from approximately 200 million shares (as of May 10, 2016) to approximately 13.3 million shares; (y) reserved for issuance upon exercise of outstanding warrants and options decreased from approximately 16 million shares to approximately 1.1 million shares, and (z) reserved but unallocated under our current equity incentive plans (including the stockholder-approved share increase to the Company’s 2014 Equity Incentive Plan) decreased from approximately 6.5 million common shares to approximately 0.4 million common shares. In connection with the 1:15 Reverse Stock Split, the Company also decreased the total number of its authorized shares of common stock from 290 million to 75 million. The number of authorized shares of preferred stock remained unchanged. Following the 1:15 Reverse Stock Split, certain reclassifications have been made to the prior periods’ financial statements to conform to the current period's presentation. The Company adjusted stockholders’ equity to reflect the 1:15 Reverse Stock Split by reclassifying an amount equal to the par value of the shares eliminated by the split from common stock to the Additional Paid-in Capital during the first quarter of fiscal 2016, resulting in no net impact to stockholders' equity on our consolidated balance sheets. The Company’s shares of common stock commenced trading on a split-adjusted basis on May 12, 2016. Proportional adjustments for the reverse stock split were made to the Company's outstanding stock options, warrants and equity incentive plans for all periods presented.

Certain immaterial reclassifications have been made to certain of the prior years’ consolidated financial statements to conform to the current year presentation.

In May 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-12, Revenue from Contracts with Customers, the amendment of which addressed narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition as well as providing a practical expedient for contract modifications. In April 2016, March 2016 and December 2016 the FASB issued ASU No. 2016-10, ASU No. 2016-08 and ASU No. 2016-20, respectively, the amendments of which further clarified aspects of Topic 606: identifying performance obligations and the licensing and implementation guidance, improvements to the operability and understandability of the implementation guidance on principal versus agent considerations and contract cost clarifications. The FASB issued the initial release of Topic 606 in ASU No. 2014-09, which requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption of ASU 2016-10 is permitted but not before the original effective date (annual periods beginning after December 15, 2017). We performed a preliminary assessment of the impact of ASU 2014-09 and related

amendments on the consolidated financial statements, and considered all items outlined in the standard. In assessing the impact, we have outlined all revenue generating activities, mapped those activities to deliverables and traced those deliverables to the standard. We are currently assessing what impact the change in standard will have on those deliverables. We will continue to evaluate the future impact and method of adoption of ASU 2014-09 and related amendments on the consolidated financial statements and related disclosures throughout 2017. We will adopt the new standard beginning January 2018.

In February 2016, the FASB issued ASU 2016-02, Leases. Under this new guidance, at the commencement date, lessees will be required to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is not applicable for leases with a term of 12 months or less. The new standard is effective for annual reporting periods, and interim periods within those periods, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of certain cash receipts and cash payments, which addresses the following ~~table provides~~eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a ~~brief description~~business combination; proceeds from the settlement of ~~recent accounting pronouncements~~insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The new standard is effective for annual reporting periods, and interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. We do not anticipate that ~~had and/or could~~the adoption of ASU 2016-15 will have a material impact on ~~the Company’s~~our consolidated ~~condensed~~ financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The ~~Company~~amendments in this update should be applied using a retrospective transition method to each period presented. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. The adoption of this standard will change the presentation of our statement of cash flows to include our restricted cash balance with the non-restricted cash balances. We do not anticipate that the adoption of ASU 2016-18 will have a material impact on our consolidated financial statements.

In February 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, to simplify how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact ~~of adopting the following standards~~that this standard will have on ~~its~~our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation, to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718 to a change in the terms or conditions of a share-based payment award. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under Topic 718. The amendments in ASU 2017-09 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. We do not anticipate that the adoption of ASU 2016-18 will have a material impact on our consolidated financial statements.

In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This update applies to companies that measure inventory on a first in, first out, or FIFO, or average cost basis. Under this update, companies are to measure their inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion. The amendments in this update are effective for annual reporting periods, and interim periods within those periods, beginning after December 15, 2016 with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption, effective January 1, 2017, did not have a material impact on our consolidated financial statements.

The preparation of ~~Consolidated Condensed Financial Statements~~consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Our most significant estimates and critical accounting policies involve recognizing revenue, reviewing goodwill and intangible assets for impairment, ~~valuing warrants,~~ determining the assumptions used in

measuring share-based compensation expense, measuring ~~accretion~~ expense related to our in process research and development acquisition, ~~of the joint venture,~~ and valuing allowances for doubtful accounts and inventory reserves.

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

We incurred net losses of ~~$5.4~~$6.0 million and ~~$17.1~~$13.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively,~~2017, and ~~incurred net income of $1.5~~$6.4 million and ~~a net loss of $16.0~~$11.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015, respectively.~~2016. We have an accumulated deficit of ~~$374.1~~$392.7 million as of ~~September~~June 30, ~~2016.~~2017. Additionally, we have used net cash of ~~$15.4~~$9.9 million and ~~$15.9~~$10.7 million to fund our operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Further, the Loan and Security Agreement, with Oxford Finance, LCC (“Oxford”), as further described in Note 5, requires us to maintain a minimum of $5.0 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Loan and Security Agreement. Based on our cash and cash equivalents on hand of approximately $9.0 million at June 30, 2017, and our obligation to make payments of principal of $0.6 million plus accrued interest in monthly installments, we estimate that we must raise additional capital and/or obtain a waiver or restructure the Loan and Security Agreement in September 2017 to avoid defaulting under our $5.0 million minimum cash/cash equivalents covenant.

To date, these operating losses have been funded primarily from outside sources of invested capital including our recently completed underwritten public offering, Lincoln Park Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) and the Rights Offering ~~(discussed~~(each defined below), our at-the-market (“ATM”) equity facility, ~~our~~the Loan and Security Agreement ~~with Oxford Finance, LLC~~ and gross profits. We have had, and we will ~~likely~~ continue to have, an ongoing need to raise additional cash from outside sources to fund our future clinical development programs and other operations. Our inability to raise additional cash will have a material and adverse impact on operations and will cause us to default on our loan.

On April 11, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC “Maxim”) relating to the issuance and sale of 8.6 million shares of our common stock, par value $0.001 per share. The price to the public in this offering was $1.10 per share. Maxim agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $1.0395 per share. The net proceeds to us from the offering were approximately $8.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed on April 17, 2017. In addition, under the terms of the Underwriting Agreement, we granted Maxim a 45-day option to purchase up to 944,000 additional shares of common stock. On May 31, 2017, Maxim exercised their overallotment option and purchased

849,000 shares at $1.10 per share. The net proceeds to us were $0.8 million, after deducting underwriting costs and offering expenses payable by us.

On June 15, 2016, the Company closed a Rights Offering originally filed under Form S-1 registration statement in April 2016. Pursuant to the Rights Offering, the Company sold an aggregate of 6,704,852 units consisting of a total of 6,704,852 shares of common stock and 3,352,306 warrants, with each warrant exercisable for one share of common stock at an exercise price of $3.06 per share, resulting in total gross proceeds to Cytori of $17.1 million. See Note 12 for further discussion on the June 2016 Rights Offering.

Pursuant to this securities transaction and related equity issuance, as well as anticipated gross profits and potential outside sources of capital, the Company believes it has sufficient cash to fund operations through Q2 2017. The Company continues to seek additional capital through product revenues, strategic transactions, including extension opportunities under our awarded U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority (“BARDA”) contract, and from other financing alternatives.

Should we be unable to raise additional cash from outside sources, this will have an adverse impact on our operations.

The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

Under our Joint Venture Termination Agreement (“Termination Agreement”), dated May 8, 2013, with Olympus Corporation (“Olympus”), we were required to pay Olympus a total purchase price of $6.0 million within two years of the date of the Termination Agreement. Pursuant to amendments to the Joint Venture Termination Agreement, dated April 30, 2015 and January 8, 2016, the Company’s repayment obligations were extended through May 8, 2016. We made payments under the Termination Agreement totaling approximately $4.2 million through December 31, 2015, as well as separate payments of $0.5 million each in January 2016 and April 2016, and paid the remaining balance of $0.8 million before the May 8, 2016 due date. There were no outstanding obligations to Olympus as of ~~September~~June 30, 2017 and December 31, 2016.

On May 29, 2015, we entered into the Loan and Security Agreement, dated May 29, 2015, ~~(“Loan Agreement”),~~ with Oxford, ~~Finance LLC (“Oxford”),~~ pursuant to which it funded an aggregate principal amount of $17.7 million (“Term Loan”), subject to the terms and conditions set forth in the Loan and Security Agreement. The Term Loan accrues interest at a floating rate of at least 8.95% per annum, comprised of three-month LIBOR rate with a floor of 1.00% plus 7.95%. Pursuant to the Loan and Security Agreement, we were previously required to make interest only payments through June 1, 2016 and thereafter we were required to make payments of principal and accrued interest in equal monthly installments sufficient to amortize the Term ~~loan~~Loan through June 1, 2019, the maturity date. On February 23, 2016, we received an acknowledgement and agreement from Oxford related to the positive data on our U.S. ACT-OA clinical trial. As a result, pursuant to the Loan and Security Agreement, the period for which we are required to make interest-only payments was extended from July 1, 2016 to January 1, 2017. All unpaid principal and interest with respect to the Term Loan is due and payable in full on June 1, 2019. At maturity of the Term Loan, or earlier repayment in full following voluntary prepayment or upon acceleration, we are required to make a final payment in an aggregate amount equal to

approximately $1.1 million. In connection with the Term Loan, on May 29, 2015, we issued to Oxford warrants to purchase an aggregate of 94,441 shares of our common stock at an exercise price of $10.35 per share. These warrants became exercisable as of November 30, 2015 and will expire on May 29, 2025 and, following the authoritative accounting guidance, are equity ~~classified.~~

~~In connection with the Loan Agreement, we prepaid all outstanding amounts under our prior loan agreement with Oxford~~classified and Silicon Valley Bank, at which time the Company’s obligations under the prior loan agreement immediately terminated. We paid approximately $25.4 million to Oxford and Silicon Valley Bank, consisting of the then outstanding principal balance due of approximately $23.4 million, accrued but unpaid interest of approximately $0.2 million, final payment and other agency fees of approximately $1.8 million and other customary lender fees and expenses.

For Oxford, we accounted for this Term Loan as a debt modification. We retired $3.1 million of the principal of the previous loan and the corresponding unamortized fees were expensed. The remaining fees of $0.8 million were recorded as debt discount, and along with the new loan fees, are amortized as an adjustment of interest expense using the effective interest method. For Silicon Valley Bank, which did not participate in the Term Loan, the payoff of the loan was accounted for as debt extinguishment. Accordingly, a total loss on debt extinguishment of $0.3 million was recorded in the second quarter of 2015, which includes the unamortized fees and discounts along with final payment fees.

~~We allocated the aggregate proceeds of the Term Loan between the warrants and the debt obligations based on their relative fair values. The~~its respective fair value ~~of the warrants issued to Oxford~~ was calculated utilizing the Black-Scholes option pricing model. The Black-Scholes option-pricing model incorporates various and highly sensitive assumptions including expected volatility, expected term and risk-free interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period. The risk-free interest rate for period within the contractual life of the warrant is based on the U.S. Treasury yield in effect at the time of grant. We amortize the relative fair value of the warrants at the issuance daterecorded as a discount ~~of $0.8 million over~~to the ~~term of the loan using the effective interest method, with an effective interest rate of 14.95%.~~ debt.

The Term Loan is collateralized by a security interest in substantially all of the Company’s existing and subsequently acquired assets, subject to certain exceptions set forth in the Loan and Security Agreement and excluding its intellectual property assets, which are subject to a negative pledge. The minimum liquidity covenant is $5$5.0 million. As of ~~September~~June 30, ~~2016~~2017, we were in compliance with all of the debt ~~covenants.~~covenants under the Loan and Security Agreement.

Our interest expense for the three and six months ended June 30, 2017 was $0.5 million and $1.1 million and for the three and six months ended June 30, 2016 was $0.6 million and $1.3 million, respectively. Interest expense is calculated using the effective interest method, therefore it is inclusive of non-cash amortization in the amount of $0.2 million and $0.4 million for the three and six months ended June 30, 2017 and $0.2 million and $0.5 million for the three and six months ended June 30, 2016, related to the amortization of the debt discount, capitalized loan costs, and accretion of final payment.

The Term Loan Agreement contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain obligations under the Term Loan and the occurrence of a material adverse change, which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan. In the event of default by us under the Term Loan, the lender would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Term Loan, which could harm our financial condition. Oxford has not invoked the material adverse change clause.

Three direct customers comprised 63% of our revenue recognized for the six months ended June 30, 2017. Two direct customers accounted for 77% of total outstanding accounts receivable (excluding receivables from the Biomedical Advanced Research Development Authority, a division of the U.S. Department of Health and Human Services (“BARDA”)) as of June 30, 2017.

Two distributors and two direct customers comprised ~~80%~~76% of our revenue recognized for the ~~nine~~six months ended ~~September~~June 30, 2016. Two distributors and one direct customer accounted for ~~28% of total outstanding accounts receivable (excluding receivables from BARDA as of September 30, 2016.~~

~~Two distributors and three direct customers comprised 67% of our revenue recognized for the nine months ended September 30, 2015. Three distributors and three direct customers accounted for 63%~~75% of total outstanding accounts receivable as of ~~September~~June 30, ~~2015.~~2016.

Product revenues, classified by geographic location, are as ~~follows:~~follows (in thousands):

	Three months ended										Nine months ended										Three months ended										Six months ended
	September 30, 2016					September 30, 2015					September 30, 2016					September 30, 2015					June 30, 2017					June 30, 2016					June 30, 2017					June 30, 2016
	Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total			Product Revenues		% of Total
Americas	$	79,000		11	%	$	120,000		16	%	$	670,000		21	%	$	597,000		18	%	$	55		6	%	$	356		31	%	$	203		13	%	$	591		24	%
Japan		575,000		79	%		451,000		58	%		2,232,000		70	%		1,408,000		43	%		835		86	%		690		61	%		1,155		74	%		1,657		67	%
EMEA		76,000		10	%		75,000		10	%		281,000		9	%		491,000		15	%		74		8	%		74		7	%		186		12	%		205		8	%
Asia Pacific		1,000		0	%		120,000		16	%		7,000		0	%		785,000		24	%		5		0	%		6		1	%		16		1	%		6		1	%
Total product revenues	$	731,000		100	%	$	766,000		100	%	$	3,190,000		100	%	$	3,281,000		100	%	$	969		100	%	$	1,126		100	%	$	1,560		100	%	$	2,459		100	%

We earn revenue for performing tasks under research and development agreements with governmental agencies like BARDA. Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with government contracts are recorded as government ~~contract~~contracts and other within development revenues. Government contract revenue is recorded at the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in our statements of operations. We recognized ~~$1.9~~$0.5 million and ~~$5.2~~$1.5 million in BARDA revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively,~~2017, as compared to $1.7 million and ~~$5.0~~$3.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015, respectively.~~

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

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

We have excluded all potentially dilutive securities, including unvested performance-based restricted stock, from the calculation of diluted loss per share attributable to common stockholders for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2016~~2017 and ~~nine-month period ended September 30, 2015,~~2016, as their inclusion would be antidilutive. ~~We have included 0.3 million dilutive securities for the purposes of calculating earnings per share for the three months ended September 30, 2015.~~ Potentially dilutive common shares excluded from the calculations of diluted loss per share ~~was 4.3~~were 4.9 million ~~as of September~~for both the three and six months ended June 30, ~~2016,~~2017, which includes ~~3.5~~3.6 million outstanding warrants and ~~0.8~~1.3 million options and restricted stock awards.Potentially dilutive common shares excluded from the calculation of diluted loss per share were 4.2 million and 4.4 million for the three and six months ended June 30, 2016.

We have entered into agreements with various research organizations for pre-clinical and clinical development studies, which have provisions for cancellation. Under the terms of these agreements, the vendors provide a variety of services including conducting research, recruiting and enrolling patients, monitoring studies and data analysis. Payments under these agreements typically include fees for services and reimbursement of expenses. The timing of payments due under these agreements is estimated based on current study progress. As of ~~September~~June 30, ~~2016,~~2017, we have clinical research study obligations of ~~$4.3~~$2.3 million, ~~$3.6 million of~~ which ~~are~~ is expected to be ~~complete~~paid within a year. Should the timing of the clinical trials change, the timing of the payment of these obligations would also change.

~~We lease facilities for our headquarters office location as well as international office locations. As of September 30, 2016, we have remaining lease obligations of~~ ~~$2.5 million,~~ ~~$2.2 million of which are expected to be completed within a year.~~

We are party to an agreement with Roche Diagnostics Corporation which requires us to make certain product purchase minimums. Pursuant to the agreement, as of ~~September~~June 30, ~~2016,~~2017, we have a minimum purchase obligation of ~~$5.9~~$7.5 million, ~~$1.3~~$0.5 million of which is expected to be completed within a year.

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

~~See Note 4~~On February 27, 2017, we entered into a Lease Agreement of office space for our corporate headquarters in San Diego, California (the “Lease”). The initial term of the Lease is 63 months and may be extended upon mutual agreement. We are scheduled to take possession of the premises on November 1, 2017, unless they are earlier occupied by us or the commencement date is delayed to allow for substantial completion of tenant improvements. In connection with the Lease, we issued a ~~discussion~~letter of credit, or Letter of Credit, in favor of the Landlord in the initial principal amount of approximately $0.1 million, which Letter of Credit and corresponding restricted cash increased to $0.3 million on June 1, 2017, and will increase to $0.5 million on the commencement date. The Letter of Credit will remain in effect for the term of the Lease.

In addition to the base rent, we will also be obligated under the Lease to make certain payments for operating expenses, property taxes, insurance, insurance deductibles and other amounts.

On January 27, 2017, we entered into a Lease Agreement of office space for our ~~commitments~~office in Tokyo, Japan (the “Japan Lease”). The initial term of the Japan Lease is 61 months, and ~~contingencies related~~may be extended upon mutual agreement. The Lease commenced on April 15, 2017.

We lease facilities for our headquarters office location as well as international office locations. As of June 30, 2017, we have remaining lease obligations of $7.5 million, $1.7 million of which are expected to ~~our transactions with Olympus.~~

Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. We

follow a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:

As of ~~September~~June 30, ~~2016~~ 2017, and as of December 31, ~~2015,~~2016, the Company did not have any assets or liabilities measured at fair value presented on the Company’s balance sheets.

Warrants with exercise price reset features (down-round protection) were accounted for as liabilities, with changes in the fair value included in net loss for the respective periods. Because some of the inputs to our valuation model were either not observable or were not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability was classified as Level 3 in the fair value hierarchy. All of these warrants were cashless exercised on or before December 31, 2015.

We disclose fair value information about all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. The disclosures of estimated fair value of financial instruments at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

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

~~We utilize quoted market prices to estimate~~Further, based on the borrowing rates currently available for loans with similar terms, we believe the fair value of long-term debt approximates its carrying value.

On February 15, 2017 (the “Closing Date”), we completed the acquisition from Azaya Therapeutics, Inc. (“Azaya”) of certain tangible assets which consisted of a research lab, equipment and leasehold improvements and the assumption of certain of liabilities of Azaya, pursuant to an Asset Purchase Agreement (the “Agreement”). The book value of the tangible assets acquired was approximately $3.0 million at the acquisition date. The assets acquired are located in a facility rented in San Antonio, TX, by Cytori. In addition, pursuant to the Agreement, we acquired intangible assets comprised of two drug candidates in process research and development (IPR&D) stage (i) ATI-0918, a generic bioequivalent formulation of DOXIL/CAELYX, a chemotherapy drug that is a liposomal formulation of doxorubicin (ATI-0918); and (ii) ATI-1123, a liposomal formulation of docetaxel (ATI-1123).

At the closing of the acquisition, we (i) issued 1,173,241 of shares of our common stock in Azaya’s name, (A) 879,931 of which were delivered to Azaya promptly after the Closing, and (B) 293,310 of which were deposited into a 15-month escrow pursuant to a standard escrow agreement; and (ii) assumed the obligation to pay approximately $1.8 million of Azaya’s existing payables, all of which were paid on or prior to June 30, 2017. At the Closing Date, Azaya had no employees and therefore no Azaya employees were transitioned to us.

In addition, as of the Closing Date, the Company committed to certain contingent considerations to: (i) pay Azaya fixed ~~rate debt, when available.~~ commercialization milestone payments based upon achievement of certain net sales milestones for ATI-0918; (ii) make certain earn-out payments to Azaya equal to a mid-single-digit percentage of net sales of ATI-0918; and (iii) make certain earn-out payments to Azaya equal to a low single-digit percentage of net sales of any product (each a “Patented Product”), including ATI-1123, that practices a claim in the related patent assigned by Azaya to the Company (the “ATI-1123 Patent”). Our aggregate earn-out payment obligations to Azaya from global net sales of both ATI-0918 and any Patented Product will not exceed $100.0 million (the “Earn-Out Cap”).

Further, the Agreement provides that if we enter into certain assignments, licenses or other transfers of rights to a Patented Product or the ATI-1123 Patent, we will pay Azaya a percentage in the low to mid-teens of the consideration received by us, provided, that our aggregate payment obligation to Azaya for any such assignment, license or other transfer of rights will not exceed $50.0 million.

If ~~quoted market prices are~~the Company or its successors, sublicenses or transferees sells a competing product to ATI-0918 at any time prior to satisfaction of the Earn-Out Cap, other than because ATI-0918 fails to receive marketing authorization from the European Medicines Agency within a certain period of time or fails to generate a minimum threshold of net sales within a pre-determined amount of time, then 50% of the net sales of such competing product would be deemed to be net sales of ATI-0918 under the Agreement for purposes of calculating commercialization milestone payments and earn-out payments.

We accounted for the acquisition as an asset acquisition because the acquired set of assets did not ~~available, we calculate~~meet the definition of a business. The total consideration of $4.3 million, which consists of $2.3 million related to the fair value of ~~our fixed rate debt~~the common stock issued to Azaya at the acquisition date, $1.8 million in assumed liabilities and $0.2 million in acquisition costs, was allocated to the assets acquired based on ~~a currently available market rate assuming~~their relative fair values at the ~~loans are outstanding through maturity~~time of acquisition. All other future payments were deemed contingent consideration which will be accounted for when the contingency is resolved and ~~considering~~ the ~~collateral. In~~consideration is paid or becomes payable.

When determining the ~~current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar terms to the debt.~~

~~At September 30, 2016 and December 31, 2015, the aggregate~~ fair value of tangible assets acquired, the Company estimated the cost to replace the tangible asset with a new asset, taking into consideration such factors as age, condition and the ~~carrying~~economic useful life of the asset. When determining the fair value of intangible assets acquired, the Company used a discounted cash flow model with key inputs being the applicable discount rate, market growth rates and the timing and amount of future cash flows. The acquired IPR&D is in the early stage of development. Additional research, pre-clinical studies, and regulatory approvals must be successfully completed prior to selling any product. Because there is no current alternative use for the IPR&D, following the authoritative accounting guidance, the Company has expensed it in full on the Closing Date. The Company measured the fair value of the ~~Company’s long-term debt were~~shares issued as ~~follows:~~consideration in the acquisition of the assets based on the stock price at the acquisition date. Transaction costs directly related to the acquisition of the assets have been capitalized. The total consideration was allocated on a relative fair value basis to the assets acquired, as follows (in thousands):

~~Carrying value is net of debt discount of $1.4 million and $2.1 million as of September 30, 2016 and December 31, 2015, respectively.~~

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

We have authorized 5 million shares of $0.001 par value preferred stock. Our Board of Directors is authorized to designate the terms and conditions of any preferred stock we issue without further action by the common stockholders. There were 13,500 shares of Series A 3.6% Convertible Preferred Stock that had been issued at September 30, 2016 and December 31, 2015, none of which were outstanding as of either date.

All outstanding shares of the Series A 3.6% Convertible Preferred Stock were converted into common stock during the fourth quarter of 2014 and the first quarter of 2015 at the option of the holders. The fair value of the common stock into which the Series A 3.6% Convertible Preferred Stock was convertible on the date of issuance exceeded the proceeds allocated to the

preferred stock, resulting in the beneficial conversion feature that we recognized as a dividend to the preferred stockholders and, accordingly, an adjustment to net loss to arrive at net loss allocable to common stockholders. Certain shares of Series A 3.6% Convertible Preferred Stock were not convertible until stockholder approval, which occurred in January 2015. As a result, a dividend for the beneficial conversion feature of $0.7 million was recorded during the quarter ended March 31, 2015.

~~In connection with the 3.6% Convertible Preferred Stock outstanding at December 31, 2014, we declared a cash dividend of $0.08 million. The cash dividend was paid in January and April 2015.~~

In May 2015, the Company entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company agreed to sell up to $25.0 million of units, with each unit consisting of one share of its common stock and one warrant to purchase one share of its common stock, in a registered direct offering. The purchase and sale of the units took place in two separate closings. At the initial closing, which took place on May 8, 2015, the Company received approximately $17.4 million in net proceeds from the sale of units. The second closing occurred on August 27, 2015 upon satisfaction of certain conditions, including, without limitation, stockholder vote, and the Company received approximately $2.1 million in net proceeds from the sale of 500,000 units of the 1,000,000 units available for sale at the second closing.

On December 17, 2015, the Company and the holders of October 2014 warrants agreed to amend the October 2014 Warrants pursuant to an Amendment to Common Stock Purchase Warrant (the “2014 Amendment”). Also on December 17, 2015, the Company and the holders of the May 2015 Warrants and the August 2015 Warrants (collectively the “2015 Warrants”) agreed to amend the 2015 Warrants pursuant to an Amendment to Series A-1 Warrant to Purchase Common Stock and Amendment to Series A-2 Warrant to Purchase Common Stock, respectively (the “2015 Amendment” and, together with the 2014 Amendment, the “Warrant Amendments”). The Warrant Amendments provided that the holders may exercise their warrants on a “cashless exercise” basis in whole on or prior to December 31, 2015, whereby each exercising holder of the amended 2015 Warrants would receive 0.75 shares for each warrants share exercised and each exercising holder of the amended 2014 Warrants would receive 0.69 shares for each warrant share exercised. In addition, the Warrant Amendments removed certain provisions which provided that the exercise price of the Warrants would be reset in the event of certain equity issuances by the Company for a price below the exercise price of the Warrants at the time of such issuance. All 2014 Warrants and all 2015 Warrants were cashless exercised on or before December 31, 2015.

From January 1, 2016 and through September 30, 2016, we sold 766,382 shares of our common stock under an at-the-market offering program (“ATM”), receiving total net proceeds of approximately $2.7 million.

Pursuant to a registration statement on Form S-1, originally filed on April 6, 2016, as amended (the “Registration Statement”), and declared effective by the U.S. Securities and Exchange Commission (“SEC”) on May 26, 2016, and related prospectus (as supplemented), the Company registered, offered and sold to its participating stockholders of record as of the announced May 20, 2016 record date, one non-transferable subscription right for each share of common stock held by each stockholder as of the record date (the “Rights Offering”). Each right entitled the holder thereof to purchase one unit at the subscription price of $2.55 per unit, composed of one share of common stock and 0.5 of a warrant, with each whole warrant exercisable to purchase one share of common stock at an exercise price of $3.06 per share for 30 months from the date of issuance. Pursuant to the Rights Offering, which closed on June 15, 2016, the Company sold an aggregate of 6,704,852 units, resulting in total net proceeds to the Company of $15.3 ~~million, respectively.~~million. The warrants issued pursuant to the Rights Offering are currently listed on NASDAQ under the symbol ~~“CTYXW.~~“CYTXW.” Based on the relevant authoritative accounting guidance, the warrants were equity classified at the issuance date. The warrants may be redeemed by the Company at $0.01 per warrant prior to their expiration if the Company’s common stock closes above $7.65 per share for 10 consecutive trading days.

On December 22, 2016, we entered into a Purchase Agreement (the “Lincoln Park Purchase Agreement”) with Lincoln Park Capital, LLC (“Lincoln Park”) pursuant to which we have the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $20.0 million in amounts of shares, of our common stock, over the 30-month period commencing on the date that a registration statement, which we filed with the SEC in December 2016. We may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase up to 100,000 shares of common stock on any business day but in no event will the amount of a single Regular Purchase (as defined in the Lincoln Park Purchase Agreement) exceed $1.0 million. The purchase price of shares of common stock related to the Regular Purchases will be based on the prevailing market prices of such shares at the time of sales. Our sales of shares of common stock to Lincoln Park under the Lincoln Park Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of the common stock. There are no trading volume requirements or restrictions under the Lincoln Park Purchase Agreement. There is no upper limit on the price per share that Lincoln Park must pay for common stock under a Regular Purchase or an accelerated purchase and in no event will shares be sold to Lincoln Park on a day our closing price is less than the floor price of $0.50 per share as set forth in the Purchase Agreement. On December 22, 2016, we issued to Lincoln Park 127,419 shares of common stock with a market value on the date of issuance of approximately $0.2 million as commitment shares in consideration for entering into the Lincoln Park Purchase Agreement. We will issue up to an additional 382,258 shares of common stock on a pro rata basis to Lincoln Park only as and when shares are sold under the Lincoln Park Purchase Agreement to Lincoln Park. Through June 30, 2017, we sold a total of 103,000 shares under the Lincoln Park Purchase Agreement, for proceeds of approximately $0.2 million.

During the six months ended June 30, 2017, we sold 894,050 shares of our common stock under an ATM program, receiving total net proceeds of approximately $1.5 million. During 2016, we sold 1,840,982 shares of our common stock under an ATM program, receiving total net proceeds of approximately $4.4 million.

On April 11, 2017, we entered into an underwriting agreement with Maxim relating to the issuance and sale of 8.6 million shares of our common stock, par value $0.001 per share. The price to the public in this offering is $1.10 per share. Maxim agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $1.0395 per share. The net proceeds to us from the offering were approximately $8.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed on April 17, 2017. In addition, under the terms of the underwriting agreement, we granted Maxim a 45-day overallotment option to purchase up to 944,000 additional shares of common stock. On May 31, 2017, Maxim exercised their overallotment option and purchased 849,000 shares at $1.10 per share. The net proceeds to us were $0.8 million, after deducting underwriting costs and offering expenses payable by us.

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

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

You should read this MD&A in conjunction with the financial statements and related notes in Item 1 and our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015.~~2016.

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

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

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

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

~~We develop cellular~~Our strategy is to build a profitable and growing specialty therapeutics ~~uniquely formulated~~company focused on rare and ~~optimized for specific diseases~~niche opportunities frequently overlooked by larger companies but requiring breadth of scope, expertise and ~~medical conditions~~focus often not possessed by or available to smaller companies. To meet this objective, we have, thus far, identified two therapeutic development platforms, discussed below, and ~~related products. Lead~~candidate therapeutics in our pipeline that hold promise for many patients and significant market potential. Our current corporate activities fall substantially into one of two key areas related to our two therapeutic development platforms: Cytori Cell Therapy and

Cytori Cell Therapy, or “CCT”, is based on the scientific discovery that the human adipose or fat tissue compartment is a source of a unique mixed population of stem, progenitor and regenerative cells that may hold substantial promise in the treatment of numerous diseases and conditions. To bring this promise to health providers, we are ~~currently targeted~~developing novel therapies prepared and administered at the patient’s bedside with proprietary technologies that include therapy-specific reusable, automated Celution devices and single-use procedure sets consisting of Celution consumables, Celase reagent, and Intravase reagent. Our lead product candidate, Habeo™ Cell Therapy™, is being evaluated in a U.S. pivotal clinical trial for the treatment of impaired hand function in scleroderma. On July 24, 2017, we announced top-line, preliminary data from our Phase III pivotal STAR trial of Habeo in patients with scleroderma. The U.S. multi-center STAR trial enrolled and evaluated 88 patients with scleroderma, ~~osteoarthritis~~including 51 patients within the diffuse cutaneous subset and 37 with limited cutaneous scleroderma. While the primary and secondary endpoints did not reach statistical significance at 24 or 48 weeks, the trial data reported clinically meaningful improvement in the primary and secondary endpoints of both hand function and scleroderma-associated functional disability, for Habeo treated patients compared to placebo, in the pre-specified subgroup of patients with diffuse cutaneous scleroderma. Additional CCT treatments are in various stages of development in the areas of immunology, urology, wound healings, and orthopedics. Further, our CCT platform is the subject of investigator-initiated trials conducted by our partners, licensees and other third parties, some of which are supported by us and/or funded by government agencies and other funding sources. Currently, we internally manufacture the CCT processing device and procedure sets in the United States. and the United Kingdom and source our Celase and Intravase reagents from a third-party supplier. We also have obtained regulatory approval to sell some of our CCT products, including our Celution devices and disposable components, in certain markets outside the United States. In those markets, we have been able to further develop and improve our core technologies, gain expanded clinical and product experience and data, and generate sales.

The Cytori Nanomedicine platform features a liposomal nanoparticle technology for drug encapsulation that has thus far provided the foundation to bring two promising drugs into early/late stage clinical trials. Nanoparticle encapsulation is promising because it can help improve the trafficking and metabolism of many drugs, thus potentially enhancing the therapeutic profile and patient benefits. Our lead drug candidate, ATI-0918 is a generic version of pegylated liposomal encapsulated doxorubicin. pegylated liposomal encapsulated doxorubicin is a heavily relied upon chemotherapeutic used in many cancer types on a global basis. We believe that data from a 60-patient European study of ATI-0918 has met the statistical criteria for bioequivalence to CAELYX®, the current reference listed drug in Europe. We intend that these bioequivalence data will serve as a basis for our planned regulatory submission to the European Medicines Agency, or EMA, for ATI-0918. We are currently evaluating our options to ATI-0918 in the U.S. market.Our second nanomedicine drug candidate is ATI-1123, a novel and new chemical entity which is a nanoparticle-encapsulated form of docetaxel, also a standard chemotherapeutic drug used for many cancers. A Phase I clinical trial of ATI-1123 has been completed, and we are investigating possible expansion of this trial to Phase II, potentially in conjunction with a development partner. In addition, we are early in the long-term research and development of encapsulated regenerative medicine drugs, focused first on the treatment of scleroderma and related connective disorders. Finally, in connection with our acquisition of the ~~knee, stress urinary incontinence,~~ATI-0918 and ~~deep thermal burns including those complicated by radiation exposure.~~ATI-1123 drug candidates, we have acquired know-how (including proprietary processes and techniques) and a scalable nanoparticle manufacturing plant in San Antonio, Texas from which we intend to test, validate and eventually manufacture commercial quantities of our nanoparticle drugs.

~~Our cellular therapeutics are collectively known by the trademarked name,~~ Cytori Cell Therapy and consist of a mixed population of specialized cells including stem cells that are involved in response to injury, repair and healing. These cellular therapeutics are extracted from an adult patient’s own adipose (fat) tissue using our fully automated Celution System, which includes a device, proprietary enzymes, and sterile consumable sets utilized at the point-of-therapeutic application or potentially at an off-site processing center. Cytori Cell Therapy can either be administered to the patient the same day or cryopreserved for future use.

~~Our~~The primary near-term goal is for Cytori Cell Therapy to be the first cell therapy to market for the treatment of impaired hand function in scleroderma, through Cytori-sponsored and supported clinical development efforts. The Cytori-sponsored Scleroderma Treatment with Celution Processed Adipose Derived Regenerative Cells, or STAR clinical trial, is a ~~48-week,~~ randomized, ~~double blind,~~double-blind, placebo-controlled, ~~phase~~Phase III pivotal clinical trial ~~of 80 patients~~ in the U.S. The purpose of the STAR trial ~~evaluates~~is to evaluate the safety and efficacy of a single administration of ~~Cytori~~Habeo™ Cell Therapy ~~(ECCS-50)~~(formerly named ECCS-50) in patients with scleroderma ~~patients~~ affecting the ~~hands and fingers.~~hands. The first sites for ~~the scleroderma study~~our STAR trial were initiated in July 2015 and ~~completed~~final enrollment of 88 patients was completed in June 2016. ~~We anticipate~~As noted above, preliminary assessment of unblinded topline data show that ~~we will receive 48-week follow-up~~while the primary and secondary endpoints did not reach statistical significance at 24 or 48 weeks, the trial data ~~on this phase III pivotal clinical trial~~reported clinically meaningful improvement in ~~mid-2017.~~the primary and secondary endpoints of both hand function and scleroderma-associated functional disability, for Habeo treated patients compared to placebo, in the subgroup of patients with diffuse cutaneous scleroderma.

With respect to the remainder of our current cellular therapeutics clinical ~~pipeline, we received Investigational Device Exemption,~~pipeline:

In addition to our targeted therapeutic development, we have continued to commercialize our Cytori Cell Therapy technology under select medical device approvals, clearances and registrations to ~~research and commercial~~ customers in Europe, Japan and other regions. ~~Many of these~~These customers are a mix of research customers evaluating new therapeutic applications of Cytori Cell ~~Therapy.~~Therapy and commercial customers, including our licensing partners, distributors, and end user hospitals, clinics and physicians, that use our Celution cell processing system (as further described in “Sales, Marketing and Service” below) mostly for treatment of patients in private pay procedures. In Japan, our largest commercial market, we gained increased utilization of our products in the private pay marketplace in 2016 due to several factors, including increased clarity around the November 2014 Regenerative Medicine Law (implemented in November 2015 as it relates to regenerative medicine products like Cytori Cell Therapy) and we project that our sales of consumable sets and market presence in Japan will continue to grow in 2017. The sale of ~~systems, consumables~~Celution devices, procedure sets, and ancillary products ~~contributes~~contribute a margin that partially offsets our operating expenses and will continue to play a role in fostering familiarity within the medical community with our technology. ~~These sales have~~It also ~~facilitated the discovery of new applications for Cytori~~provides us with product and customer feedback.

Habeo Cell Therapy ~~by customers conducting investigator-initiated~~for Impaired Hand Function in Scleroderma and ~~funded research.~~

Scleroderma is a rare and chronic connective tissue disease generally classified as an autoimmune ~~disorder associated with fibrosis~~rheumatic disorder. An estimated 300,000 Americans have scleroderma, about one-third of whom have the systemic form of the ~~skin,~~disease, known as systemic sclerosis (SSc). SSc is further sub-classified as diffuse cutaneous and ~~destructive changes in blood vessels~~limited cutaneous SSc. Diffuse subset has more severe disease with significant hand dysfunction and ~~multiple~~internal organ ~~systems as the result~~involvement. Diffuse scleroderma accounts for between one third and one half of ~~a generalized overproduction~~all cases of ~~collagen. Scleroderma affects approximately 50,000 patients in the U.S. (women~~systemic sclerosis. Women are affected four times more frequently than ~~men)~~men and the condition is typically detected between the ages of 30 and 50. More than ~~90 percent~~90% of scleroderma patients ~~have~~are afflicted with hand involvement that is typically progressive and can result in chronic pain, blood flow changes and severe dysfunction. ~~The limited availability~~A small number of treatments are occasionally used off-label for hand scleroderma, ~~may provide some benefit~~ but they do little to modify disease progression or substantially improve symptoms. ~~Treatment~~Current treatment options are directed at protecting the hands from injury and detrimental environmental conditions as well as the use of vasodilators. When the disease is advanced, ~~immunosuppressive~~prostanoids, Endothelin-1 receptor antagonists, and ~~other medications~~immunosuppressants may be used but are often accompanied by ~~significant~~ side effects.

~~In January 2015, the FDA granted IDE approval for~~ If these medications are unsuccessful, health providers may perform a ~~pivotal clinical trial, named the “STAR” trial,~~sympathectomy to evaluate Cytori Cell Therapy as a potential treatment for impaired hand function in scleroderma. The STAR trial is a 48-week, randomized, double blind, placebo-controlled pivotal clinical trial of 88 patients in the U.S. The trial evaluates the safety and efficacy of a single administration of ECCS-50 in patients with scleroderma affecting the hands and fingers. The STAR trial uses the Cochin Hand Function Scale, or CHFS, a validated measure of hand function, as the primary endpoint measured at six months after a single administration of ECCS-50 or placebo. Patients in the placebo group will be eligible for crossover to the active arm of the trial after all patients have completed 48 weeks of follow up. In February 2015, the FDA approved our requestremove nerves to increase ~~the number of investigational sites from 12 to up to 20. The increased number of sites served to broaden the geographic coverage of the trial~~blood flow and facilitate trial enrollment. The enrollment of this trial began in August 2015 and was completed at 88 patients in June 2016. We anticipate that we will receive 48-week follow-up data on this phase III pivotal clinical trial in mid-2017.decrease long-term pain.

~~The STAR trial~~SCLERADEC-I is ~~predicated on~~ a completed, investigator-initiated, ~~pilot~~ 12-patient, open-label, ~~phase~~Phase I pilot trial ~~performed~~sponsored by Assistance Publique-Hôpitaux de Marseille, or AP-HM, in ~~France termed SCLERADEC I.~~Marseille, France. The SCLERADEC I trial received partial support from Cytori. The six-month results were published in the Annals of the Rheumatic Diseases in May 2014 and demonstrated approximately a 50 percent improvement at six months across four important and validated endpoints used to assess the clinical status in patients with scleroderma with impaired hand function. Patients perceived their health status to be improved as shown by a 45.2% and 42.4% decrease of the Scleroderma Health Assessment Questionnaire, or SHAQ, at month 2 (p=0.001) and at month 6 (p=0.001), respectively. A 47% and 56% decrease of the CHFS at month 2 and month 6 in comparison to baseline was observed (p<0.001 for both). Grip strength increased at month 6 with a mean

improvement of +4.8±6.4 kg for the dominant hand (p=0.033) and +4.0±3.5 kg for the non-dominant hand (p=0.002). Similarly, an increase in pinch strength at month 6 was noted with a mean improvement of +1.0±1.1 kg for the dominant hand (p=0.009) and +0.8±1.2 kg for the non-dominant hand (p=0.050). Among subjects having at least one digital ulcer, or DU, at inclusion, total number of DU decreased, from 15 DUs at baseline, 10 at month 2 and 7 at month 6. The average reduction of the Raynaud’s Condition Score from baseline was 53.7% at month 2 (p<0.001) and 67.5% at month 6 (p<0.001). Hand pain showed a significant decrease of 63.6% at month 2 (p=0.001) and 70% at month 6 (p<0.001). One year results were published in September 2015 in the journal Rheumatology. Relative to baseline, the CHFS and the SHAQ improved by 51.3% and 46.8% respectively (p<0.001 for both). The Raynaud’s score improved by 63.2% from baseline (p<0.001). Other findings at one-year included a 30.5% improvement in grip strength (p=0.002) and a 34.5% improvement in hand pain (p=0.052). In February 2016, two-yearTwo-year follow up data in the SCLERADEC I trial was presented at the Systemic Sclerosis World Congress ~~which~~in February 2016 and published in the journal Current Research in Translational Medicine in November 2016 and demonstrated sustained improvement in the following four key endpoints: ~~Cochin Hand Function Score (CHFS), Scleroderma Health Assessment Questionnaire, Raynaud’s Condition Score (which assesses severity of Raynaud’s Phenomenon),~~CHFS, SHAQ, RCS, and hand pain, as assessed by a standard visual analogue scale. ~~The major findings at 24 months following a single administration of ECCS-50 were as follows:~~

In 2014, Drs. Guy Magalon and Brigitte Granel, under the sponsorship of ~~the Assistance Publique - Hôpitaux de Marseille,~~AP-HM, submitted a study for review for a follow-up ~~phase III~~ randomized, double-blind, placebo-controlled trial in France using Cytori Cell Therapy, to be supported by ~~Cytori.~~us. The trial, ~~name is~~named SCLERADEC II, ~~and was approved by~~received approval from the French government in April 2015. Enrollment of this trial commenced in October 2015 and is ongoing. The trial is currently approaching 75% enrollment and we expect enrollment to be completed in 2017, approximately one year later than originally projected, due to delays in French regulatory approvals of participating sites. Patients will be followed ~~for a 6-month post-procedure.~~

~~In January 2016, we entered into an agreement~~at six-month post-treatment and compared with ~~Idis Managed Access, part of Clinigen Group plc, or Idis, to establish a managed access program, or MAP, in select countries across Europe,~~placebo treated patients. Pending the Middle East and Africa, or EMEA, for patients with impaired hand function due to scleroderma. We established this MAP, also known as an “early access” or “named patient” program, to make our ECCS-50 therapy available tosix-month results patients in ~~advance~~the placebo group will be eligible for crossover using Habeo cells stored at the time of ~~obtaining regulatory clearance. We believe this MAP~~the initial procedure. This crossover arm will open after all patients have completed six-month follow up.

Based on the results of the SCLERADEC-I trial, we initiated the US-based STAR trial. The STAR trial is ~~justified and needed based on~~ a ~~number~~48-week, 19 site, randomized, double blind, placebo-controlled pivotal clinical trial of factors, including scleroderma’s status as a rare disease, the favorable risk-benefit profile reported by the 12-patient, open-label SCLERADEC I clinical study results, our two scleroderma phase III trials currently enrolling, and clear unmet scleroderma patient needs. We hope to offer our ECCS-50 therapy to patients who are unable to participate in our scleroderma clinical trials, generally due to a lack of geographic proximity to a site. Beyond the benefit of helping88 patients in ~~need of new therapies for scleroderma,~~ the MAP will increase awareness of and facilitate a positive experience with Cytori Cell Therapy among healthcare providers in advance of commercialization, will allow for tracking and collection of key program data and documentation which will provide valuable insight regarding the demand for and use of Cytori Cell Therapy, and will provide us with pricing insight for our ECCS-50 therapy.

In April 2016, the European Commission, acting on the positive recommendation from the European Medicines Agency Committee for Orphan Medicinal Products, issued orphan drug designation to a broad range of Cytori Cell Therapy formulations when usedU.S. for the treatment of impaired hand ~~dysfunction~~

function in scleroderma. The trial evaluates the safety and ~~Raynaud’s Phenomenon~~efficacy of a single administration of Habeo Cell Therapy in patients with scleroderma ~~under Community Register~~affecting the hands and fingers. The STAR trial uses the Cochin Hand Function Scale, or CHFS, a validated measure of hand function, as the primary endpoint measured at 24 weeks and 48 weeks (approximately 6 and 12 months) after a single administration of Habeo Cell Therapy or placebo. Of the 88 patients enrolled in STAR, 51 had diffuse cutaneous scleroderma while 37 had the limited form of the disease.

On July 24, 2017, we announced top-line, preliminary data from the STAR trial. While the primary and secondary endpoints did not reach statistical significance at 24 or 48 weeks, the trial data reported clinically meaningful improvement in the primary and secondary endpoints of both hand function and scleroderma-associated functional disability for Habeo^™ treated patients compared to placebo, in the subgroup of patients with diffuse cutaneous scleroderma.

In November 2016, the US FDA Office of Orphan ~~Medicinal~~ Products ~~number EU/3/16/1643.~~ Development granted Cytori an orphan drug designation for cryopreserved or centrally processed ECCS-50 (Habeo) for scleroderma.

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

In the later part of 2014, we received approval by the FDA to begin an exploratory U.S. IDE pilot (phase II) trial of Cytori Cell Therapy (ECCO-50) in patients with osteoarthritis of the knee. The trial, called ACT-OA, iswas a 94-patient, randomized, double-blind, placebo controlled study involving two doses of Cytori Cell Therapy, a low dose and a high dose, and was conducted over 48 weeks. The randomization iswas 1:1:1 between the control, low and high dose groups. ~~Enrollment on this~~The trial ~~began in February 2015 and~~ was completed in June 2015. The goal of this proof-of-concept trial iswas to help determine: (1) safety and feasibility of the ECCO-50 therapeutic for osteoarthritis, (2) provide dosing guidance and (3) explore key trial endpoints useful for a ~~phase~~Phase III trial.

~~Top-line~~We completed top-line analysis of the final 48-week data has recently been completed. The primary objective of this prospective, randomized, placebo controlled study was to evaluate the safety and feasibility of intraarticular injection of Celution prepared adipose-derived regenerative cells injected into knees of patients with chronic knee pain due to osteoarthritis.in July 2016. A total of 94 patients were randomized (33 placebo, 30 low dose ~~ECCS-50,~~ECCO-50, 31 high dose ~~ECCS-50)~~ECCO-50). In general, a clear difference between low and high dose ~~ECCS-50~~ECCO-50 was not observed and therefore the data for both groups have been combined. ~~Numerous~~We evaluated numerous endpoints ~~were evaluated~~ that can be summarized as follows:

In summary, the ACT-OA ~~phase~~Phase II trial demonstrated feasibility of same day fat harvesting, cell processing and intraarticular administration of autologous ADRCs (ECCO-50) with a potential for a ~~cell benefit effect. Additional analyses are ongoing.~~beneficial effect of ECCO-50. The accumulated data and experienced gained will be critical in considering designs of further clinical trials in osteoarthritis and other potential indications. ~~As well,~~In addition, we are actively pursuing partnering and commercialization opportunities for ECCO-50 to further develop our knee osteoarthritis program and also to support our growing commercial sales into the ~~multicenter nature of the trial~~knee osteoarthritis market in ~~the United States provides relevant information as to optimizing commercialization.~~Japan.

Another therapeutic target under evaluation by Cytori ~~in combination with~~led by the University of Nagoya and three other sites and partially supported by the Japanese MHLW, is stress urinary incontinence in men following surgical removal of the prostate gland, which is based on positive data reported in a peer reviewed journal resulting from the use of ~~adipose-derived regenerative cells processed~~ADRCs prepared by our Celution System. The ADRESU trial is a 45 patient, investigator-initiated, open-label, multi-center, ~~and~~ single arm trial that was approved by ~~Japan’s~~the Japanese MHLW in July 2015 and is being led by both Momokazu Gotoh, MD, Ph.D., Professor and Chairman of the Department of Urology and Tokunori Yamamoto, MD, Ph.D., Associate Professor Department of Urology at University of Nagoya Graduate School of Medicine. ~~Partial funding of this study~~Trial enrollment began in September 2015, and in June 2017, the trial is granted by AMED (Japan Agency for Medical Research and Development). The goal of this investigator-initiated trial will be to apply for product approval for Cytori Cell Therapy technology for this indication.over 66% enrolled. This clinical trial is primarily sponsored and funded by the Japanese ~~government. Enrollment of this trial began in September 2015.~~government, including a grant provided by AMED.

We are also developing Cytori Cell Therapy, ~~is also being developed~~or DCCT-10, for the treatment of thermal ~~burns combined with radiation injury.~~burns. In the third quarter of 2012, we were awarded a contract by BARDA valued at up to $106 million ~~with BARDA~~ to develop a medical countermeasure for thermal burns. The ~~initial base period included $4.7 million over two years and covered preclinical research and continued development of Cytori’s Celution System to improve cell processing.~~

In 2014, an in-process review meeting was held with BARDA at which Cytori confirmed completion of the objectives of the initial phase of the contract. In August 2014, BARDA exercised contract option 1 in the amount of approximately $12 million. In December 2014 and September 2016, the option 1 was supplemented with an additional $2 million and $2.5 million in funds, respectively. This funded continuation of research, regulatory, clinical and other activities required for submission of an Investigational Device Exemption, or IDE, request to the FDA for a pilot clinical trial using Cytori Cell Therapy (DCCT-10) for the treatment of thermal burns. We anticipate that we will receive IDE approval in the fourth quarter of 2016 to execute this pilot clinical trial. Upon receipt of IDE approval, we anticipate that BARDA will provide funding to cover costs associated with execution of the clinical trial and related activities, currently estimated at approximately $8.3 million.

Our contract with BARDA contains two additional options to fund a pivotal clinical trial and additional preclinical work in thermal burn complicated by radiation exposure. These options are valued at up to $45 million and $23 million, respectively.

~~The~~ total award under the BARDA contract ishas been intended to support all clinical, preclinical, regulatory and technology development activities needed to complete the FDA approval process for use of DCCT-10 in thermal burn injury under a device-based ~~PMA~~pre-market authorization (“PMA”) regulatory pathway and to provide preclinical data in burn complicated by radiation exposure.

Pursuant to this contract, BARDA initially awarded us approximately $4.7 million over the initial two-year base period to fund preclinical research and continued development of our Celution System to improve cell processing. In August 2014, BARDA determined that Cytori had completed the objectives of the initial phase of the contract, and exercised its first contract option in the amount of approximately $12 million. In December 2014 and September 2016, BARDA exercised additional contract options pursuant to which it provided us with $2.0 million and $2.5 million in supplemental funds, respectively. These additional funds supported continuation of our research, regulatory, clinical and other activities required for submission of an IDE request to the FDA for RELIEF, a pilot clinical trial using DCCT-10 for the treatment of thermal burns. In April 2017, we received approval of an IDE from the FDA to conduct a pilot clinical trial of CCT in patients with thermal burn injuries. This trial is referred to as the RELIEF clinical trial. In May 2017, we announced BARDA’s exercise of Option 2 of up to approximately $13.4 million to fund RELIEF.

In accordance with the terms of the Amendments, BARDA will provide us with reimbursement of costs incurred, plus payment of a fixed fee, in the aggregate amount of up to approximately $13.4 million (the “Funding Amount”). We are responsible for further costs in excess of the Funding Amount, if any, to meet the objectives of the Pilot Trial. The Amendments also extend the term of the BARDA Agreement and the period of performance of Option 2 of the BARDA Agreement to November 30, 2020.

In February 2017, we completed our acquisition of the assets of Azaya Therapeutics, Inc., or Azaya, pursuant to the terms of an Asset Purchase Agreement, dated January 26, 2017. Pursuant to the terms of the agreement, we acquired equipment, certain intellectual property including, a portfolio of investigational therapies and related assets, and assumed certain liabilities, from Azaya in exchange for the issuance of 1,173,241 of shares of our common stock in the amount of $2.3 million, assumption of approximately $1.8 million in Azaya’s payables, and the obligation to pay Azaya future milestones, earn-outs and licensing fees. The acquisition of Azaya brought two additional product candidates, ATI-0918 and ATI-1123, into the Cytori pipeline and we intend to develop and potentially commercialize both compounds, most likely in conjunction with a commercial and or commercial partner.

ATI-0918 is a complex generic formulation of the market leading DOXIL®/CAELYX®, which is a pegylated liposomal encapsulation of doxorubicin and approved in the United States for use in ovarian cancer, multiple myeloma, and Kaposi’s Sarcoma; and in the European Union for breast cancer, ovarian cancer, multiple myeloma, and Kaposi’s Sarcoma. The current approval pathway for ATI-0918 is to leverage existing bioequivalence data to CAELYX® for approval in the EU and to demonstrate bioequivalence to Lipodox® in the U.S. A study to demonstrate ATI-0918’s bioequivalence to CAELYX®, for purposes of EMA approval, has been completed and we intend for these data to serve as the basis for our submission of a marketing authorization application for ATI-0918 to the EMA. We are also making plans to perform a bioequivalence study of ATI-0918 to the U.S. Reference Standard (RS) to serve as the basis for submission of an ANDA for U.S. FDA approval. We currently anticipate that any U.S. bioequivalence trial for ATI-0918 would be funded by a development partner or licensee.

ATI-1123 is a novel liposomal formulation of docetaxel. Docetaxel is currently approved for non-small cell lung cancer, breast cancer, squamous cell carcinoma of the head and neck cancer, gastric adenocarcinoma, and hormone refractory prostate cancer. Its side effects include hair loss, bone marrow suppression, and allergic reactions. It is currently available as a generic drug and there is no form of docetaxel as a liposomal formulation. There is a protein (albumin) bound form of a similar chemotherapeutic drug,

~~Heart failure due~~paclitaxel known as Abraxane®, which demonstrated some clinical advantages to ~~ischemic heart disease does~~paclitaxel. ATI-1123 has shown promising results in preclinical animal models that suggest it may have superior qualities to doxetaxel, including actions against some tumor types that are not ~~represent a current~~amenable to treatment by doxetaxel. A Phase I study of ATI-1123 has been completed in late stage refractory patients and has shown some activity in several tumor types (mostly stable disease). We are currently evaluating clinical ~~target for us at this time. Our ATHENA and ATHENA~~scenarios to bring into Phase II ~~trials related to that indication were truncated and we have minimized expenses related to initiatives~~studies in ~~this area. While the safety data from these trial programs will be used for regulatory support for our other~~several indications and also for publication in peer reviewed forums, we are not actively pursuing indications related to these trials. The 12 month results of the ATHENA Trials were presented by the investigators at the Society of Cardiac Angiography and Interventions Annual Scientific Meeting on May 5, 2016 and data was published in the Catheterization and Cardiovascular Interventions journal in June 2016.potential development partnerships.

Product revenues consisted of revenues primarily from the sale of Cytori Cell Therapy-related products.

The following table summarizes the components for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

We experienced a ~~slight~~ decrease of ~~$35,000~~$0.2 million and $0.9 million in product revenue during the three and six months ended ~~September~~June 30, ~~2016~~2017 as compared to the same period in ~~2015,~~2016. The decrease in the three-month period is due to ~~decreased revenue~~lower sales in ~~Asia Pacific and~~ the Americas of ~~$0.2~~$0.3 million partially offset by increased revenues in Japan of $0.1 ~~million~~million. The decrease in the six-month period is due to ~~continued adoption of Cytori Cell Therapy primarily~~lower sales in the ~~aesthetic~~Americas of $0.4 million and ~~osteoarthritis business. We experienced a decrease~~Japan of ~~$0.1 million~~$0.5 million. The lower sales in ~~product revenue during~~ the ~~nine~~Americas for the three and six months ~~ended September 30, 2016 as compared to the same period in 2015, due to decreased revenues in Asia Pacific of $0.8 million,~~periods is primarily due to the ~~opening order from Lorem Vascular in~~completion of a customer’s clinical trial, for which Cytori was suppling the second quarter of 2015 and lack of ongoing orders in subsequent periods, decreased revenue in EMEA of $0.2 million offset by increased revenues in Japan of $0.8 million due to continued adoption of Cytori Cell Therapy, for the same reason mentioned above.products.

The ~~future~~future:: We expect to continue to generate a majority of product revenues from the sale of Cytori Cell Therapy-related products to researchers, clinicians, and distributors in EMEA, Japan, Asia Pacific, and the Americas. In Japan and EMEA, researchers will use our technology in ongoing and new investigator-initiated and funded studies focused on, but not limited to, hand scleroderma, Crohn’s disease, peripheral artery disease, erectile dysfunction, and diabetic foot ulcers. ~~ECCS-50 therapy~~Habeo Cell Therapy for hand scleroderma will continue to be accessible to patients and physicians through a managed access program, or ~~MAP,~~MAP. We announced in mid-June of 2017 that we ~~initiated~~ended our MAP agreement with IDIS (initiated in ~~EMEA~~2016) and partnered with a new vendor, myTomorrows, with expanded geographical coverage for MAP, including Europe, Middle East and Latin America (excluding of Chile). myTomorrows is an innovative and fully integrated organization dedicated to providing fully compliant early access to innovative therapeutics in ~~2016. In~~advance of the ~~America’s, Cytori’s partner, Kerastem, is utilizing~~products full marketing authorization in the ~~Cytori Cell Therapy technology as part of its FDA-approved STYLE trial for patients with alopecia, or hair loss.Overall, we expect 2016 product revenues to remain relatively consistent with 2015.~~countries that it serves.

Cost of product revenues relate primarily to Cytori Cell Therapy-related products and includes material, manufacturing labor, and overhead ~~costs.~~costs, as well as amortization of intangible assets. The following table summarizes the components of our cost of revenues for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

Cost of product revenues as a percentage of product revenues was ~~84.5%~~73.0% and ~~55.5%~~91.2% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~65.5%~~52.0% and ~~73.0%~~46.8% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015, respectively.~~2016. Fluctuation in this percentage is due to ~~the~~our product mix, distributor and direct sales mix, geographic mix, foreign exchange rates, ~~and~~idle capacity, allocation of ~~overhead.~~overhead, and higher intangible amortization expense.

The future: We expect to continue to see variation in our gross profit margin as the product mix, distributor and direct sales mix and geographic mix comprising revenues fluctuate. ~~In addition, in 2016, as part of~~We are investigating various pricing options for our ~~EMEA managed access program we anticipate~~

~~the ability to command a premium price for ECCS-50 for the treatment of hand impairment due to scleroderma, a rare (or orphan) disease,~~cellular therapeutics, which may help to increase our gross profit ~~margin.~~ margins in 2017 and beyond.

Under our government contract with BARDA, we recognized a total of ~~$1.9~~$0.5 million and ~~$5.2~~$1.5 million in revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively~~2017 which included allowable fees as well as cost reimbursements. During the three and ~~nine~~six months ended ~~September~~June 30, 2017, we incurred $0.5 million and $1.4 million in qualified expenditures. During the three and six months ended June 30, 2016, we ~~incurred~~recognized revenue of $1.7 million and ~~$4.8~~$3.3 million and incurred $1.6 million and $3.1 million in qualified expenditures, respectively. ~~We recognized a total of $1.7 million and $5.0 million~~The decrease in revenues for the three and ~~nine~~six months ended ~~September~~June 30, 2015, respectively which included allowable fees as well as cost reimbursements. During the three and nine months ended September 30, 2015, we incurred $1.6 million and $4.6 million in qualified expenditures, respectively. The increase in revenues for the three and nine months ended September 30, 20162017 as compared to the same periods in ~~2015~~2016 is primarily due to slight ~~increases~~decreases in research and development activities related to BARDA.

The ~~future~~future:~~: In August 2014,~~ We entered into an amendment with BARDA ~~exercised Option 1 of our contract~~in May 2017 for ~~us to perform research, regulatory, clinical and other tasks required for~~the initiation of a pilot clinical trial of DCCT-10 in thermal burn injury. The ~~contract was amended in December 2014 to reflect amendments to~~amendment extends the ~~Statement of Work, and reorganization~~term of the ~~contract options for a total fixed fee~~BARDA Agreement and the period of upperformance of Option 2 of the BARDA Agreement to ~~$14.0 million. We expect the work associated with Option 1, as amended, to be completed by the end of 2016 and overall contract revenues to remain materially consistent with 2015.~~November 30, 2020.

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

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

The following table summarizes the components of our research and development expenses for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

The decrease in research and development expenses, excluding share-based compensation, for the three and six months ended ~~September~~June 30, ~~2016~~2017 as compared to the same period in ~~2015~~2016 is due to a decrease of approximately ~~$0.2~~$1.8 million ~~due to headcount reduction, $0.1~~and $2.4 million ~~decreases in professional services~~for the three and ~~$0.1 million~~six months periods in clinical ~~studies, respectively. The decrease in research and development~~study expenses ~~for the nine months ended September 30, 2016~~ as ~~compared to the same period in 2015 is due to~~well as a decrease of approximately ~~$1.0~~$0.2 million and $0.5 million in ~~clinical studies~~salaries and ~~related professional services~~benefits as a result of ~~a decrease~~completion of enrollment in ~~the number of the~~our U.S. clinical trials enrolling ~~from two trials in 2015 to one trial~~ in 2016.

The ~~future~~future:: We expect aggregate research and development expenditures ~~to decrease in~~remain consistent at current levels for the ~~remainder~~balance of ~~2016~~2017, as we ~~completed~~complete the ~~U.S. ACT-OA clinical trial in 2016, and completed enrollment in the U.S.~~ STAR clinical trial ~~in June 2016.~~and begin our activities on the RELIEF clinical trial as well as our development efforts of the recently acquired assets from Azaya.

Sales and marketing expenses include costs of sales and marketing personnel, events and tradeshows, customer and sales representative education and training, primary and secondary market research, and product and service promotion. The following table summarizes the components of our sales and marketing expenses for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

Sales and marketing expenses excluding share-based compensation increased by approximately ~~$0.2~~$0.4 million and ~~$0.6~~$0.3 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively,~~2017 as compared to the same ~~periods~~period in ~~2015~~2016 due to increases in ~~salary and related benefits expense and~~ professional services mostly related to ~~investments~~our operations in ~~the EMEA managed access program,~~Japan, commercial planning activities for scleroderma in the ~~U.S.~~United States and ~~our operations~~investments in ~~Japan.~~the EMEA managed access program.

The future: We expect sales and marketing expenditures to ~~stabilize or~~ slightly ~~increase~~decrease during the ~~remainder~~second half of ~~2016, associated with investments in our EMEA managed access program and~~2017, as we delay efforts on commercial ~~planning~~readiness activities for hand scleroderma ~~knee osteoarthritis and stress urinary incontinence.~~ in the United States.

General and administrative expenses include costs for administrative personnel, legal and other professional expenses, and general corporate expenses. The following table summarizes the general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

General and administrative expenses excluding share-based compensation decreased by ~~$0.3~~$0.2 million and $0.4 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively,~~2017, as compared to the same periods in ~~2015~~2016 is primarily due to decreases in salary and related benefits expense ~~and professional services~~ consistent with our ongoing cost curtailment efforts.

The future: We expect general and administrative expenditures to ~~remain at current levels or slightly~~moderately increase inwith the ~~remainder~~acquisition of ~~2016.~~ Azaya assets and as we integrate its operations under the Cytori Therapeutics umbrella.

~~Stock-based~~Share-based compensation expenses include charges related to options and restricted stock awards issued to employees, directors and non-employees along with charges related to the employee stock purchases under the Employee Stock Purchase Plan, or ESPP. We measure stock-based compensation expense based on the grant-date fair value of any awards granted to our employees. Such expense is recognized over the requisite service period.

The following table summarizes the components of our share-based compensation expenses for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

The decrease in share-based compensation expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 as compared to the same periods in ~~2015~~2016 is primarily related to a lower annual grant activities caused by reductions in headcount and due to the decline in the stock price during ~~2016~~2017 as compared to the same ~~periods~~period in ~~2015,~~2016, and its corresponding impact ~~into the~~on share-based compensation.

The future: We expect to continue to grant options and stock awards (which will result in an expense) to our employees, directors, and, as appropriate, to non-employee service providers. In addition, previously-granted options will continue to vest in accordance with their original terms. As of ~~September~~June 30, ~~2016,~~2017, the total compensation cost related to non-vested stock options and stock awards not yet recognized for all our plans is approximately ~~$1.5~~$1.2 million which is expected to be recognized as a result of vesting under service conditions over a weighted average period of ~~1.63~~1.64 years.

In February 2017, we entered into an agreement to acquire assets, including in ~~fair value~~process research and development (“IPR&D) related to two drug candidates, from Azaya Therapeutics. In connection with this agreement, we recorded an IPR&D charge totaling $1.7 million. The acquired IPR&D is in the early stage of ~~warrant liability~~

~~The following is a table summarizing the change in fair value~~development and has no alternative use. Additional research, pre-clinical studies, and regulatory approvals must be successfully completed prior to commercialization of ~~our warrant liability for the three and nine months ended September 30, 2016 and 2015:~~

The change in fair value of our warrant liability for the three and nine months ended September 30, 2016 as compared to the same period in 2015 is due to the fact that all warrants with price reset features accounted for as liabilities were cashless exercised on or before December, 31, 2015.

~~The future:~~ ~~We do not expect~~ any ~~further changes in fair value of warrant liability, as all of our outstanding warrants with exercise price reset features were settled during December 2015.~~product.

The following table summarizes interest income, interest expense, and other income and expense for the three and ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 ~~and 2015:~~(in thousands):

The future:We expect interest expense in ~~2016~~2017 to decrease as we ~~refinanced and decreased~~continue to make payments on the principal balance of ~~our outstanding~~the Loan and Security Agreement, ~~entered into~~dated May 29, 2015, or the Loan and Security Agreement, with Oxford Finance LLC, ~~in 2015.~~or Oxford.

The following is a summary of our key liquidity measures at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015:~~2016 (in thousands):

We incurred net losses of ~~$5.4~~$6.0 million and ~~$17.1~~$13.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively~~2017, and ~~incurred net income of $1.5~~$6.4 million and ~~a net loss of $16.0~~$11.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, respectively. We have an accumulated deficit of ~~$374.1~~$392.7 million as of ~~September~~June 30, ~~2016.~~2017. Additionally, we have used net cash of ~~$15.4~~$9.9 million and ~~$15.9~~$10.7 million to fund our operating activities for the ~~nine~~six months ended June 30, 2017 and 2016, respectively.

Further, our Loan and Security Agreement with Oxford requires us to maintain a minimum of $5.0 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Loan and Security Agreement. Based on our cash and cash equivalents on hand of approximately $9.0 million at June 30, 2017, and our obligation to make payments of principal of $0.6 million plus accrued interest in monthly installments, we estimate that we must raise additional capital and/or obtain a waiver or restructure the Loan and Security Agreement in September ~~30, 2016 and 2015, respectively. These factors raise substantial doubt about the Company’s ability~~2017 to ~~continue as a going concern.~~avoid defaulting under our $5.0 million minimum cash/cash equivalents covenant.

To date, these operating losses have been funded primarily from outside sources of invested capital including our recently completed underwritten public offering, our Lincoln Park Purchase Agreement (“Lincoln Park Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) and the Rights Offering (each defined below), our at-the-market ~~or ATM offering program,~~(“ATM”) equity facility, the Loan and Security Agreement and gross profits. We have had, and we will likely continue to have, an ongoing need to raise additional cash from outside sources to fund our future clinical development programs and other operations.

On June 15, 2016, the Company closed a ~~Rights Offering~~rights offering originally filed under Form S-1 registration statement in April ~~2016.~~2016 (“Rights Offering”). Pursuant to the Rights Offering, the Company sold an aggregate of 6,704,852 units consisting of a total of 6,704,852 shares of common stock and 3,352,306 warrants, with each warrant exercisable for one share of common stock at an exercise price of $3.06 per share, resulting in total gross proceeds to ~~Cytori~~us of $17.1 million.

~~From January 1, 2016 and through September~~During the six months ended June 30, ~~2016,~~2017, we sold ~~766,382~~894,050 shares of our common stock under our ATM offering program, receiving total net proceeds of approximately ~~$2.7~~$1.5 million. Although sales of our common stock have taken place pursuant to our ATM offering program, there can be no assurance that we will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that we deem ~~appropriate~~.appropriate. In addition, under current ~~Securities and Exchange Commission~~SEC regulations, at any time during which the aggregate market value of our common stock held by non-affiliates, or public float, is less than $75.0 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements, including sales under our ATM offering program, is limited to an aggregate of one-third of our public float. As of ~~October~~December 31,, 2016, our public float was ~~20.3~~21.5 million shares, the value of which was ~~$36.1~~$32.5 million based upon the closing price of our common stock of ~~$1.78~~$1.51 on such date. The value of one-third of our public float calculated on the same basis was ~~$12.0~~approximately $11.0 million.

On December 22, 2016, we entered into the Lincoln Park Purchase Agreement and a registration rights agreement, with Lincoln Park pursuant to which we have the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $20.0 million in amounts of shares, of our common stock, over the 30-month period commencing on the date that a registration statement, that we filed with the Securities and Exchange Commission (the “SEC”) in December 2016. We may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase up to 100,000 shares of common stock on any business day but in no event will the amount of a single Regular Purchase exceed $1.0 million. The purchase price of shares of common stock related to the Regular Purchases will be based on the prevailing market prices of such shares at the time of sales. Our sales of shares of common stock to Lincoln Park under the Lincoln Park Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of the common stock. There are no trading volume requirements or restrictions under the Lincoln Park Purchase Agreement. There is no upper limit on the price per share that Lincoln Park must pay for common stock under a Regular Purchase or an accelerated purchase and in no event will shares be sold to Lincoln Park on a day our closing price is less than the floor price of $0.50 per share as set forth in the Lincoln Park Purchase Agreement. On December 22, 2016, we issued to Lincoln Park 127,419 shares of common stock as commitment shares in consideration for entering into the Lincoln Park Purchase Agreement. Through June 30, 2017, we sold a total of 103,000 shares under the Lincoln Park Purchase Agreement, for proceeds of approximately $0.2 million. We will issue up to an additional 279,258 shares of common stock on a pro rata basis to Lincoln Park only as and when shares are sold under the Lincoln Park Purchase Agreement to Lincoln Park.

Pursuant to this securities transaction and related equity issuance, as well as anticipated gross profits and potential outside sources of capital, we believe we have sufficient cash to fund operations through at least Q2the third quarter of 2017. ~~The Company continues~~We continue to seek additional capital through product revenues, strategic transactions, including extension opportunities under the awarded BARDA contract, and from other financing alternatives. However, there can be no assurance that we will be successful in securing additional resources when needed, on terms acceptable to us or at all. Therefore, there exists substantial doubt about our ability to continue as a going concern.

~~Should~~On April 11, 2017, we ~~be unable~~entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (“Maxim”) relating to the issuance and sale of 8.6 million shares of our common stock, par value $0.001 per share. The price to the public in this offering is $1.10 per share. Maxim agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $1.0395 per share. The net proceeds to us from the offering were approximately $8.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The offering closed on April 17, 2017. In addition, under the terms of the Underwriting Agreement, we granted Maxim a 45-day option to purchase up to 944,000 additional shares of common stock. On May 31, 2017, Maxim exercised their overallotment option and purchased 849,000 shares at $1.10 per share. The net proceeds to us were $0.8 million, after deducting underwriting costs and offering expenses payable by us.

Our inability to raise additional cash ~~from outside sources, this~~ will have ana material and adverse impact on operations and will cause us to default on our ~~operations.~~loan.

include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

As of ~~September~~June 30, ~~2016,~~2017, there have been no material changes outside the ordinary course of our business to the contractual obligations we reported in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015.~~2016.

Cash (used in) provided by operating, investing, and financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 is summarized as ~~follows:~~follows (in thousands):

Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 was ~~$15.4~~$9.9 million. Overall, our operational cash use ~~increased~~decreased during the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 as compared to the same period in ~~2015,~~2016, due primarily to a decrease in losses from operations (when adjusted for non-cash items) of ~~$2.6~~$0.3 million ~~offset~~and by ~~$2.0~~$0.5 million in ~~changes in~~ working ~~capital.~~capital improvements.

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 resulted primarily from cash outflows for payment for ~~purchases~~long-lived assets purchased as part of ~~property and equipment~~Azaya’s acquisition of ~~$0.1~~$1.2 million. ~~The cash outflow was $0.4 million lower than the same period in 2015 due to expense reduction efforts implemented throughout 2016.~~

The net cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 related primarily to a sale of common stock ~~through our Rights Offering and ATM offering program. The~~of $11.2 million offset by cash inflow from financing activities was approximately $4.9 million lower than the same period in 2015, primarily due to the fact that there was $14.0 million less in capital raised during the nine months ended September 30, 2016 as compared to the same period in 2015, an increase of $0.2 million in Joint Venture purchase payments to Olympus, and $9.2 million decreaseused in principal ~~payment~~payments on ~~long-term obligations and loan fees.~~our debt of $3.5 million.

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

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

We believe it is important for you to understand our most critical accounting policies. Our critical accounting policies and estimates remain consistent with those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015.~~2016.

As of ~~September~~June 30, ~~2016,~~2017, there have been no material changes in our market risks from those described in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015.~~2016.

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

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

There have been no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we have been involved in routine litigation incidental to the conduct of our business. As of ~~September~~June 30, ~~2016,~~2017, we were not a party to any material legal proceeding.

Our business is subject to various risks, including those described in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015,~~2016 filed with the SEC on March 24, 2017, which we strongly encourage you to review with all other information contained or incorporated by reference in this report before you decide to invest in our common stock. In addition to those risk factors, we identified the following new risks or substantive changes from the risks described in our Annual Report on Form 10-K. If any of the risks described in our Annual Report on Form 10-K, our Quarterly Reports, or discussed below actually occurs, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment.

~~There~~Our success depends in large part upon the successful development and commercialization of our cellular therapeutics, especially Habeo Cell Therapy, which recently failed to achieve its primary or secondary endpoints in a Phase III clinical trial assessing the safety and efficacy of Habeo Cell Therapy in the treatment of finger and hand dysfunction due to scleroderma. While we are continuing to assess the topline data from the trial, we may be unable to identify a viable path forward for continued development of this product candidate, which in turn could materially and adversely affect our business and operations.

Our success in large part is ~~substantial doubt concerning~~dependent upon our ability to ~~continue as a going concern.~~

~~Our financial statements have been prepared assuming~~develop our Cytori Cell Therapy products, and in particular, our Habeo Cell Therapy product. Habeo Cell Therapy is our lead product candidate. In July 2017, we announced topline results from our Phase III STAR clinical trial that ~~we will continue as a going concern, which contemplates~~evaluated the ~~realization~~efficacy and safety of ~~assets and satisfaction of liabilities~~Habeo Cell Therapy in the ~~normal course~~treatment of ~~business. We expect~~finger and hand dysfunction due to ~~incur further losses~~scleroderma. In this trial, Habeo Cell Therapy did not achieve its primary endpoint of improvement in hand dysfunction, compared to placebo, in patients with scleroderma, as measured by the Cochin Hand Function Score, or CHFS, at twenty-four (24) and forty-eight (48) weeks, nor did it achieve its secondary endpoints of improvement in the Raynaud’s Condition Score, or RCS, and the Scleroderma Health Assessment Questionnaire, or SHAQ, at forty-eight (48) weeks, compared to placebo. The Company does not believe that this STAR clinical data is sufficient to submit a pre-market approval, or PMA, application for Habeo Cell Therapy to the ~~foreseeable future. These circumstances raise substantial doubt about our ability~~FDA for hand manifestations of scleroderma.

Analysis of the Phase III data indicated that within a pre-specified subgroup analysis, the STAR patients within the diffuse cutaneous scleroderma subset indicated improvements in the Cochin Hand Function Score and the Health Assessment Questionnaire-Disability Index, or HAQ-DI (a measure of functional disability), that met or exceeded the published criteria for minimally important clinical differences in these measures as compared to STAR patients within the limited cutaneous scleroderma subset. However, these differences may not be deemed sufficient to continue asdevelopment of Habeo Cell Therapy for scleroderma. Thorough analysis of our Phase III data may result in the determination that there is not a ~~going concern. As a~~viable plan for continued development of Habeo Cell Therapy for scleroderma. Further, anticipated discussions with the FDA and with other regulatory authorities regarding our Phase III data and Habeo Cell Therapy may be unsuccessful or may result in imposition of onerous requirements should we pursue further development of this ~~uncertainty~~therapy. Even if we desire to design further trials and continue to pursue a path toward potential regulatory approval of Habeo Cell Therapy, any such development will likely require significant financial and personnel resources. We may be unable to obtain sufficient capital to fund such further trials, and any such trials, if funded, may fail to yield positive results. Further, the ~~substantial doubt about~~failure to achieve our ~~ability~~primary or secondary endpoints in the STAR Phase III trial will likely have an adverse effect on our current commercial sales of our cellular therapeutics, on the development and implementation of our EU managed access program, our and our partners’ efforts to ~~continue as a going concern as of December 31, 2015, the Report of Independent Registered Public Accounting Firm included immediately prior~~develop, commercialize and sell our cellular therapeutics, and on our efforts to ~~the Consolidated Financial Statements included in~~find additional partners to develop and commercialize our ~~Annual Report on Form 10-K as filed March 11, 2016, includes a going concern explanatory paragraph.~~ cellular therapeutic product candidates.

There was no change in this assessment as of September 30, 2016. Management plans to raise additional funds with the following activities: future financing events; increasing revenue by seeking new arrangements with commercial distribution partners and increasing revenues from existing customers; and by the reduction of expenditures. However,can be no assurance ~~can be given at this time as to whether~~that we will be able to ~~achieve these objectives.~~further develop Habeo Cell Therapy. Our ~~financial statements do not include any adjustment relating~~continuing analyses of data from the Phase III trial may produce negative or inconclusive results, or may be inconsistent with our previously announced top-line results. Because our cell therapy business is in substantial part dependent on the success of Habeo Cell Therapy, if we are unable to ~~the recoverability~~identify, fund and ~~classification~~ultimately execute an alternative development strategy for this product candidate or our other cell therapy candidates, we may be required to reduce or curtail our cell therapy activities, which would materially and adversely affect our business and operations, and could require us to liquidate, dissolve or otherwise wind down our operations. Further, if we decide to sell or otherwise dispose of ~~recorded asset amounts or the amounts and classification of liabilities that might be necessary should~~our cell therapy platform, we may be unable to ~~continue as~~identify a ~~going concern.~~suitable acquirer, or may be unable to negotiate and consummate a transaction on terms acceptable to us.

If ~~you hold warrants issued pursuant~~we are unable to successfully partner with other companies to commercialize our ~~recently completed~~product candidates, our business could materially suffer.

A key part of our business strategy is to leverage strategic partnerships/collaborations to commercialize our product candidates. We do not have the financial, human or other resources necessary to develop, commercialize, launch or sell our therapeutic offerings in all of the geographies that we are targeting, and thus it is important that we identify and partner with third parties who possess the necessary resources to bring our products to market. We expect that any such partners will provide regulatory and reimbursement/pricing expertise, sales and marketing resources, and other expertise and resources vital to the success of our product offerings in their territories. We further expect, but cannot guarantee, that any such partnering arrangements will include upfront cash payments to us in return for the rights ~~offering, you~~to develop, manufacture, and/or sell our products in specified territories, as well as downstream revenues in the form of milestone payments and royalties.

We are currently prioritizing our efforts to find a strategic partner for our Habeo Cell Therapy, formerly ECCS-50, which is specifically intended for treatment of hand dysfunction in scleroderma patients. For various reasons, including the preliminary topline data from our U.S. Phase III STAR clinical trial announced in July 2017 and the novelty of our cellular therapeutic approach, the regulatory and reimbursement environments for Habeo Cell Therapy in certain markets, including Europe and the Asia-Pacific region, are complex and uncertain. There can be no assurance that regulatory agencies or authorities in the U.S., Europe, the Asia-Pacific region or elsewhere will grant conditional or full regulatory approval for Habeo Cell Therapy on the timeframes we anticipate, or at all, nor can we guarantee that government or commercial payers will grant us favorable reimbursement for use of Habeo Cell Therapy. In fact, we anticipate that our preliminary topline STAR Phase III clinical data will result in delays in our regulatory approval efforts of our Habeo Cell Therapy efforts, or cause us to abandon or materially alter our regulatory approval strategies for Habeo Cell Therapy. Further, even if we receive regulatory approval and favorable reimbursement, there is no guarantee that a market will develop for Habeo Cell Therapy at our intended price points, or at all. These commercialization risks could affect prospective partners’ or collaborators’ willingness to enter into partnering arrangements on terms acceptable to us, or at all. Prospective partners may be ~~limited~~unwilling to enter into Habeo collaboration/partnering agreements with us in ~~your ability~~light of our topline STAR clinical trial data. We anticipate that it will be difficult to ~~engage~~find a commercialization partner for our Habeo Cell Therapy on favorable terms, if at all. Further, if data from the currently enrolling French investigator-initiated SCLERADEC II trial are not positive, or if the trial is discontinued prior to receipt of data, the regulatory and commercial hurdles for Habeo Cell Therapy will further increase, especially in ~~certain hedging transactions~~the EU.

We are also prioritizing our efforts to find a strategic partner to help commercialize and sell our ATI-0918 drug candidate, initially in Europe, and secondarily, to fund development and commercialization of our ATI-1123 product candidate. We do not currently have the commercial expertise or resources to market and sell either ATI-0918 or ATI-1123. There can be no assurance that ~~could provide you~~we will enter into partnering agreements for either ATI-0918 or ATI-1123 with ~~financial benefits.~~

On June 15, 2016, we closed our rights offering to subscribe for units at a subscription price of $2.55 per unit, or the Rights Offering. Pursuant to the Rights Offering, we sold to our stockholders of record (as of May 20, 2016) an aggregate of 6,704,852 units

~~consisting of 6,704,852 shares of common stock and 3,352,306 warrants, or Warrants, with each Warrant exercisable for one share of common stock at an exercise price of $3.06 per share.~~

~~Holders of Warrants were required to represent~~suitable partners on terms acceptable to us, ~~that they will~~or at all. At present, we do not intend to expend significant resources on development of ATI-1123. However, regardless of whether we enter into ~~any short sale or similar transaction~~a partnering agreement for ATI-0918, we will still incur significant costs and expenses in manufacturing, testing and validating it and in performing necessary regulatory and clinical work to ready our EMA marketing dossier for submission. If we cannot find a suitable partner for our ATI-0918 product candidate, our business could be significantly harmed.

We are also soliciting partnering interest in our ECCO-50 therapeutic for use in knee osteoarthritis, but we anticipate that our partnering efforts with respect to this indication will be subordinate to our ~~common stock for~~Habeo Cell Therapy and ATI-0918 partnering efforts. Further, while consistent trends were observed in most secondary endpoints relative to the placebo group in our ACT-OA knee osteoarthritis trial, the 12-week endpoint of single pain on walking question did not achieve statistical significance, so long as they continue to hold Warrants. These requirements prevent our Warrant holders from pursuing certain investment strategies that could provide them greater financial benefits than they might have realized had they not been required to make this representation.

~~Absence of a public trading market for the Warrants may limit the ability to resell the Warrants.~~

~~The Warrants are listed for trading on NASDAQ under the symbol “CYTXW,” but~~ there can be no assurance that ~~a robust market~~our partnering efforts for our ECCS-50 therapeutics will ~~exist~~be successful.

In addition, we may seek development and/or commercial partners for the ~~Warrants.~~ other therapeutic indications set forth in our clinical pipeline, including:

There can be no assurance that these male SUI and SRP pipeline indications will be attractive to prospective partners. The male SUI market is small (approximately $45.0 million), and the viability of both indications, especially SRP, is in substantial part dependent upon receipt of positive STAR and/or SCLERADEC II clinical data. We anticipate that the failure to achieve the primary and secondary endpoints in our STAR Phase III trial could materially hamper our efforts to identify prospective cell therapy partners or to negotiate cell therapy partnering transactions on terms favorable to us, or at all.

Even if we succeed in securing partners for our lead or other product candidates, our partners may fail to develop or effectively commercialize our product candidates. Partnerships and collaborations involving our products and product candidates pose a ~~market~~number of risks, including the following:

As a result, partnering agreements may not lead to development or commercialization of our lead product candidates or other product candidates in the most efficient manner or at all.

We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the ~~price of the Warrants may fluctuate and liquidity~~funds necessary to do so, we may be ~~limited. If the Warrants cease~~required to ~~be eligible for continued listing on NASDAQ,~~delay, scale back or ~~if the market for the Warrants does not fully develop (or subsequently weakens), then purchasers of the Warrants~~eliminate our product development activities or may be unable to ~~resell~~continue our business.

We have had, and we will continue to have, an ongoing need to raise additional cash from outside sources to continue funding our operations to profitability, including our continuing substantial research and development expenses. We do not currently believe that our cash balance and the ~~Warrants or sell them only~~revenues from our operations will be sufficient to fund the development and marketing efforts required to reach profitability without raising additional capital from accessible sources of financing in the near future. Although it is difficult to predict future liquidity requirements, we believe that our $9 million in cash and cash equivalents on hand as of June 30, 2017 will be sufficient to fund our currently contemplated operations at ~~an unfavorable price for an extended period of time, if at all. Future trading prices of the Warrants~~least through October 2017. Our future capital requirements will depend on many factors, including:

We have secured capital historically from grant revenues, collaboration proceeds, and debt and equity offerings. We will need to secure substantial additional capital to fund our future operations. We cannot be certain that additional capital will be available on terms acceptable to us, or at all. Our ability to raise capital was adversely affected when the FDA put a hold on our ATHENA cardiac trials in mid-2014, which had an adverse impact to stock price performance and our corresponding ability to restructure our debt. Subsequently, a continued downward trend in our stock price resulting from a number of factors, including (i) general economic and industry conditions, (ii) challenges faced by the regenerative medicine industry as a whole, (iii) the market’s unfavorable view of certain of our recent equity financings conducted in 2014 and 2015 (which financings were priced at a discount to market and included 100% warrant coverage), (iv) market concerns regarding our continued need for capital (and the effects of any future capital raising transactions we may consummate), (v) market perceptions of our ATHENA and ACT-OA clinical trial data, and (vi) our recent NASDAQ Stock Market LLC, or Nasdaq, listing deficiency issues and resultant 1-for-15 reverse stock split, made it more difficult to procure additional capital on terms reasonably acceptable to us. Most recently, the release in July 2017 of the top-line data from our STAR Phase III trial, in which we announced the failure to achieve the trial’s primary and secondary endpoints, resulted in a further substantial decrease in our stock price. Though our recent acquisition of the Cytori Nanomedicine business from Azaya Therapeutics, including our ATI-0918 and ATI-1123 drug candidates, appear to have been viewed favorably by our investors and the ~~common stock issuable upon exercise~~marketplace, we cannot assure you that this acquisition will not ultimately be viewed negatively and thus further hamper our efforts to attract additional capital. If we are unsuccessful in our efforts to raise any such additional capital, we may be required to take actions that could materially and adversely harm our business, including a possible significant reduction in our research, development and administrative operations (including reduction of our employee base), surrendering of our rights to some technologies or product opportunities, delaying of our clinical trials or regulatory and reimbursement efforts, or curtailing of or even ceasing operations.

Our financing plans include pursuing additional cash through use of our at-the-market, or ATM, offering program, strategic corporate partnerships, licensing and sales of equity. In addition, in December 2016, we entered into a purchase agreement, or the ~~Warrants;~~

~~The market price~~shares of our common stock ~~may never exceed~~from time to time over a 30-month period, subject to satisfaction of certain conditions. While we have an established history of raising capital through these platforms, and we are currently involved in negotiations with multiple parties, there is no guarantee that adequate funds will be available when needed from additional debt or equity financing, development and commercialization partnerships or from other sources or on terms acceptable to us. In addition, under current SEC regulations, at any time during which the ~~exercise price of the Warrants issued in connection with the Rights Offering.~~

~~The Warrants issued pursuant to the Rights Offering became exercisable upon issuance and will expire 30 months from the date of issuance. The~~aggregate market ~~price~~value of our common stock ~~may never exceed~~held by non-affiliates, or public float, is less than $75.0 million, the ~~exercise price~~amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements, including sales under our ATM offering program, is limited to an aggregate of one-third of our public float. As of June 30, 2017, our public float was 33.1 million shares, the ~~Warrants prior to their date~~value of ~~expiration. Any Warrants not exercised by their date of expiration will expire worthless and we will be under no further obligation to the Warrant holder.~~

~~The Warrants contain features that may reduce Warrant holders’ economic benefit from owning them.~~

The Warrants contain features that allow us to redeem the Warrants and that prohibit Warrant holders from engaging in certain investment strategies. We may redeem the Warrants for $0.01 per Warrant oncewhich was $36.4 million based upon the closing price of our common stock ~~has equaled~~of $1.10 on such date. The value of one-third of our public float calculated on the same basis was approximately $12.1 million.

Further, our Loan and Security Agreement with Oxford Finance, LLC, or ~~exceeded $7.65 per share, subject~~Oxford, as further described below, requires us to ~~adjustment, for ten consecutive trading days, provided~~maintain a minimum of $5.0 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Loan and Security Agreement. Based on our cash and cash equivalents on hand of approximately $9 million at June 30, 2017, and our obligation to make payments of principal of $590,000 plus accrued interest in monthly installments, we estimate that we ~~may not do so prior~~must raise additional capital and/or obtain a waiver or restructure the Loan and Security Agreement in September 2017 to the first anniversary of closing of the Rights Offering, and only upon not less than 30 days’ prior written notice of redemption. If we give notice of redemption, Warrant holders will be forced to sell or exercise their Warrants or accept the redemption price. The notice of redemption could come at a time when it is not advisable or possible for Warrant holders to exercise the Warrants. As a result, Warrant holders may be unable to benefit from owning the Warrants being redeemed. In addition, for so long as Warrant holders continue to hold Warrants, they will not be permitted to enter into any short sale or similar transaction with respect toavoid defaulting under our ~~common stock. This could prevent Warrant holders from pursuing investment strategies that could provide them greater financial benefits from owning the Warrants~~

~~Since the Warrants are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.~~

In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised Warrants are executory contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the Warrants may, even if we have sufficient funds, not be entitled to receive any consideration for their Warrants or may receive an amount less than they would be entitled to if they had exercised their Warrants prior to the commencement of any such bankruptcy or reorganization proceeding.

$5 million minimum cash/cash equivalents covenant. If we are unable to ~~retain key personnel,~~avoid an event of default under the Loan and Security Agreement, our business could be severely harmed.

In addition to the funding sources previously mentioned, we continue to seek additional capital through product revenues and state and federal development programs, including additional funding opportunities though our current BARDA contract.

We may ~~not~~ be ~~able~~or become the target of securities litigation, which is costly and time-consuming to ~~sustain~~defend.

In the past, following periods of market volatility in the price of a company’s securities, the reporting of unfavorable news or ~~grow~~continued decline in a company’s stock price, security holders have often instituted class action litigation. The market value of our ~~business.~~

Our ability to operate successfully and manage our potential future growth depends significantly upon our ability to attract, retain, and motivate highly skilled and qualified research, technical, clinical, regulatory, sales, marketing, managerial and financial personnel. We competesecurities has steadily declined over the past several years for ~~talent with numerous companies, as well as universities and non-profit research organizations. Our future success also depends on~~a variety of reasons, including the ~~personal efforts and abilities~~announcement of the ~~principal members~~results of our ~~senior management~~Phase III clinical trial in July 2017, and ~~scientific staff to~~for other reasons discussed elsewhere in this “Risk Factors” section, which heightens our

~~provide strategic direction, manage~~litigation risk. If we face such litigation, we could incur substantial legal costs and our operations, and maintain a cohesive and stable environment. We have not entered into any employment agreements with our executive officers or key personnel, nor do we maintain key man life insurance onmanagement’s attention could be diverted from the ~~lives of any of the members~~ operation of our senior management. Although we have a stock option plan pursuant to which we provide our executive officers with various economic incentives to remain employed with us, these incentives may not be sufficient to retain them. The loss of key personnel for any reason or our inability to hire, retain, and motivate additional qualified personnel in the future could prevent us from sustaining or growing our business.

~~The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.~~

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect onbusiness, causing our business ~~financial condition and results of operations and reduce the price of our securities.~~to suffer. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

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

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

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

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

Large Accelerated Filer	☐		Accelerated Filer	☒☐
Non-Accelerated Filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☒
			Emerging growth company	☐

			Page
PART I	~~FINANCIAL INFORMATION~~

	Item 1.	~~Financial Statements~~	3

		~~Consolidated Condensed Balance Sheets as of ~~September~~June 30, ~~2016~~2017~~ ~~(unaudited) and December 31, ~~2015 (unaudited)~~2016~~	3

		~~Consolidated Condensed Statements of~~ ~~Operations and Comprehensive ~~(Loss) Income~~Loss for the three and ~~nine~~ six~~ ~~months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 (unaudited)~~	4

		~~Consolidated Condensed Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016~~and 2015~~ (unaudited)~~	5

		~~Notes to Consolidated~~Consolidated~~ Condensed Financial Statements (unaudited)~~	6

	Item 2.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	1315

	Item 3.	~~Quantitative and Qualitative Disclosures about Market Risk~~	2225

	Item 4.	~~Controls and Procedures~~	2325

PART II	~~OTHER INFORMATION~~

	Item 1.	~~Legal Proceedings~~	2326
	Item 1A.	~~Risk Factors~~	2326
	Item 2.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	2530
	Item 3.	~~Defaults Upon Senior Securities~~	2530
	Item 4.	~~Mine Safety Disclosures~~	2530
	Item 5.	~~Other Information~~	2530
	Item 6.	~~Exhibits~~	2530

~~2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based~~ ~~Payment Accounting~~	The standard simplifies the following aspects of accounting for share-based payments awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. Transition method: Various.	awards as either equity or liabilities, and classification on the statement of cash flows. This new guidance will require all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled, as opposed to additional paid-in-capital where it is currently recorded. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting. All tax-related cash flows resulting from stock-based payments are to be reported as operating activities on the statement of cash flows. The guidance also allows a Company to make a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. This new standard is effective for annual reporting periods, and interim periods within those periods, beginning after December 15, 2016, with early adoption permitted. We have elected to keep our policy consistent for the application of a forfeiture rate and, as such, the adoption of this standard did not have a material impact on our consolidated financial statements. In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. We elected to early adopt the new guidance effective January 1, 2017 and this guidance was used in our assessment of the Azaya Therapeutics asset purchase agreement entered into in February 2017. ~~Early adoption is permitted.~~
~~2016-02, Leases (Topic 842)~~	The standard creates Topic 842, Leases which supersedes Topic 840, Leases, and introduces a lessee model that brings substantially all leases onto the balance sheet while retaining most of the principles of the existing lessor model in U.S. GAAP and aligning many of those principles with ASC 606, Revenue from Contracts with Customers. Transition method: modified retrospective approach with certain practical expedients.	~~January 1, 2019. Early adoption is permitted.~~
~~2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory~~	~~The standard replaces the current lower of cost or market test with a lower of cost or net realizable value test. Transition method: prospectively.~~	~~January 1, 2017. Early adoption is permitted.~~
~~2014-09, Revenue from Contracts with Customers (Topic 606)~~	The standard provides a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The standard requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. Transition method: a full retrospective or modified retrospective approach.	~~January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.~~
~~2016-08, Revenue from Contracts with Customers (Topic 606) — Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~	The standard clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and apply the control principle to certain types of arrangements. The amendments also re-frame the indicators to focus on evidence that an entity is acting as a principal rather than as an agent, revise existing examples and add new ones. Transition method: a full retrospective or modified retrospective approach.	~~January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.~~
~~2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~	This standard clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. This standard reduces the cost and complexity of applying Topic 606 to the identification of promised goods or services, and it also includes implementation guidance on licensing. Transition method: a full retrospective or modified retrospective approach.	~~January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.~~
~~2016-12, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~	This standard addresses narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition as well as providing a practical expedient for contract modifications.	~~January 1, 2018 (as deferred by ASU No. 2015-14). Earlier application is permitted only as of January 1, 2017.~~
~~2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.~~	The amendments in this update will require management to assess, at each annual and interim reporting period, the entity’s ability to continue as a going concern and, if management identifies conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, to disclose in the notes to the entity’s financial statements the principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of their significance, and management’s plans that alleviated or are intended to alleviate substantial doubt about the entity’s ability to continue as a going concern. After adoption at December 31, 2016, the Company will apply this guidance to assess going concern.	~~Annual period ending after December 15, 2016.~~ ~~Early adoption is permitted.~~

	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Raw materials	$	831,000	$	1,009,000	$	1,522	$	885
Work in process		934,000		816,000		996		1,021
Finished goods		2,181,000		2,473,000		1,725		1,819
	$	3,946,000	$	4,298,000	$	4,243	$	3,725

	September 30, 2016				December 31, 2015
	Fair Value		Carrying Value		Fair Value		Carrying Value
Long-term debt	$	17,393,000	$	17,397,000	$	16,844,000	$	16,681,000

	February 15, 2017
Tangible assets	$	2,586
Intangible assets		1,686
Total assets	$	4,272

Accounts payable	$	1,796
Fair value of the common stock issued		2,311
Transaction costs		165
Total consideration	$	4,272

	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Cost of product revenues	$	608,000		$	481,000		$	1,735,000		$	2,335,000
Cost of product revenues (excluding amortization of intangible assets and share-based compensation)													$	396		$	494		$	798		$	946
Amortization of intangible assets														306			82			612			181
Share-based compensation		10,000			21,000			35,000			60,000			5			9			13			25
Total cost of product revenues	$	618,000		$	502,000		$	1,770,000		$	2,395,000		$	707		$	585		$	1,423		$	1,152
Total cost of product revenues as % of product revenues		84.5	%		65.5	%		55.5	%		73.0	%		73.0	%		52.0	%		91.2	%		46.8	%

	As of September 30,		As of December 31,		As of June 30,		As of December 31,
	2016		2015		2017		2016
Cash and cash equivalents	$	14,924,000	$	14,338,000	$	9,028	$	12,560

Current assets	$	21,041,000	$	21,243,000	$	15,623	$	18,747
Current liabilities		10,904,000		8,437,000		13,229		12,501
Working capital	$	10,137,000	$	12,806,000	$	2,394	$	6,246

	For the Nine Months Ended September 30,						For the six months ended June 30,
	2016			2015			2017			2016
Net cash used in operating activities	$	(15,372,000	)	$	(15,946,000	)	$	(9,855	)	$	(10,735	)
Net cash used in investing activities		(110,000	)		(557,000	)		(1,375	)		(105	)
Net cash provided by financing activities		15,928,000			20,851,000			7,685			16,405
Effect of exchange rate changes on cash and cash equivalents		140,000			—			13			139
Net increase in cash and cash equivalents	$	586,000		$	4,348,000
Net decrease in cash and cash equivalents							$	(3,532	)	$	5,704

	CYTORI THERAPEUTICS, INC.

	By:	/s/ Marc H. Hedrick
Dated: ~~November 9, 2016~~August 11, 2017		Marc H. Hedrick
		President & Chief Executive Officer

	By:	/s/ Tiago Girao
Dated: ~~November 9, 2016~~August 11, 2017		Tiago Girao
		VP of Finance and Chief Financial Officer

Exhibit No.		Description

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

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

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

3.4		Certificate of Designation of Preferences, Rights and Limitations of Series A 3.6% Convertible Preferred Stock (incorporated by reference to our Current Report on Form 8-K filed with the Commission on October 8, 2014)

3.5		Certificate of Amendment to Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to our Current Report on Form 8-K filed with the Commission on May 10, 2016)

4.1		Form of ~~Non-Transferable Subscription Rights Certificate~~Warrant by and between Cytori Therapeutics, Inc. and Maxim Group LLC (incorporated by reference to our ~~Registration Statement~~Current Report on Form ~~S-1/A,~~8-K, filed with the Commission on ~~May 10, 2016)~~April 12, 2017)

4.2		Form of ~~Series R~~Restated Warrant ~~underlying the Units (incorporated by reference to our Registration Statement on Form S-1/A, filed with the Commission on May 10, 2016)~~

~~4.3~~		~~Form of Warrant Agreement~~ by and between Cytori Therapeutics, Inc. and Broadridge Corporate Issuer Solutions, ~~Inc. (incorporated by reference to our Registration Statement on Form S-1/A, filed with the Commission on May 10, 2016)~~Inc. (filed herein)

10.1		Sixth Amendment of Solicitation/~~Amendment~~Modification of Contract, effective ~~September 9, 2016,~~April 14, 2017, by and between ASPR-BARDA and Cytori Therapeutics, Inc. (incorporated by reference to our Quarterly Report on Form 10-Q filed with the Commission on May 12, 2017)

10.2#		2014 Equity Incentive Plan of Cytori Therapeutics, Inc. as Amended and Restated (incorporated by reference to Appendix A of our Definitive Proxy Statement on Schedule 14A filed with the Commission on April 10, 2017)

10.3+		Seventh Amendment of Solicitation/Modification of Contract, effective May 19, 2017, by and between ASPR-BARDA and Cytori Therapeutics, Inc. (filed herewith).

10.4+		Eighth Amendment of Solicitation/Modification of Contract, effective May 23, 2017, by and between ASPR-BARDA and Cytori Therapeutics, Inc. (filed herewith)

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document