NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(in thousands,
except share and per share data)
Amarantus Bioscience Holdings, Inc.
(the “Company”) is a Nevada corporation that was formed to facilitate a merger with Amarantus BioScience, Inc., a Delaware
corporation that was incorporated on January 14, 2008. The Company is a biopharmaceutical drug development company dedicated
to sourcing high-potential therapeutic platform technologies and aligning their development with complementary clinical-stage compounds
to reduce overall enterprise risk. Through June 30, 2014, the Company has been primarily engaged in biotechnology research and
development and raising capital to fund its operations.
Basis of Presentation
The accompanying unaudited condensed financial statements
as of June 30, 2014 and for the three and six months then ended have been prepared in accordance with the accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to
the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and
on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance
sheet as of June 30, 2014, condensed consolidated statements of operations for the three and six months ended June 30, 2014 and
2013, condensed consolidated statement of stockholders’ equity (deficit) for the six months ended June 30, 2014, and the
condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013 are unaudited, but include all
adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of
the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended
June 30, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014 or for any future
interim period. The condensed balance sheet at December 31, 2013 has been derived from audited financial statements; however, it
does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed
financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2013,
and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on April 1, 2014.
Significant Accounting
Policies
There have been no material changes
in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.
As the Company has not yet commenced any revenue-generating operations, does not have cash flows from operations, and is dependent
on debt and equity funding to finance its operations, the Company is considered a development stage company, as defined. The
Company’s activities are subject to significant risks and uncertainties, as described in the liquidity and going concern
footnote and including failing to secure additional funding to operationalize the Company’s current projects and technology
before another company develops similar therapeutic platform technologies.
In June 2014, as discussed below the Financial Accounting
Standards Board issued new guidance that removed all incremental financial reporting requirements from U.S. GAAP for development
stage entities. The Company early adopted this new guidance effective June 30, 2014, as a result of which all inception-to-date
financial information and disclosures have been omitted from this report.
Recently Issued Accounting
Pronouncements
Accounting Standards
Update No. 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation
removes all incremental financial reporting
requirements for development stage entities, including the removal of reporting of the cumulative results of operations and cash
flows for the period from inception to the end of the current period. The update is effective for the first annual period
beginning after December 15, 2014. Early adoption is permitted, and the Company has decided to adopt this change effective with
its form 10-Q filing for the period ending June 30, 2014.
Accounting
Standard Update No. 2014-12
, Compensation – stock
requires
that a performance target that affects vesting and that could be achieved after the requisite service period
should
be treated as a performance condition that affects vesting, rather than a condition that affects the grant-date fair value.
The effective date will be for fiscal years, and interim periods within those years, beginning after
December 15, 2015 for all entities. Early adoption is permitted. The Company is considering the effect of this FASB issuance, on
the financial statements, and has decided not to early adopt at this time.
|
|
2.
|
LIQUIDITY AND GOING CONCERN
|
The Company’s activities
since inception have consisted principally of acquiring product and technology rights, raising capital, and performing research
and development. Successful completion of the Company’s development programs and, ultimately, the attainment of profitable
operations are dependent on future events, including, among other things, its ability to access potential markets; secure financing,
develop a customer base; attract, retain and motivate qualified personnel; and develop strategic alliances. From inception, the
Company has been funded by a combination of equity and debt financings.
The Company expects to continue
to incur substantial losses over the next several years during its development phase. To fully execute its business plan, the Company
will need to complete certain research and development activities and clinical studies. Further, the Company’s product candidates
will require regulatory approval prior to commercialization. These activities may span many years and require substantial expenditures
to complete and may ultimately be unsuccessful. Any delays in completing these activities could adversely impact the Company. The
Company plans to meet its capital requirements primarily through issuances of debt and equity securities and, in the longer term,
revenue from product sales.
As of June 30, 2014, the Company
had cash and cash equivalents of approximately $1,402. During the six months ended June 30, 2014, the Company incurred a net loss
of approximately $9,567 and had negative cash flows from operating activities of approximately $3,633. In addition, the Company
had an accumulated deficit of approximately $36,651 at June 30, 2014. The Company believes its current capital resources are not
sufficient to support its operations. Management intends to continue its research efforts and to finance operations of the Company
through debt and/or equity financings. Management plans to seek additional debt and/or equity financing through private or public
offerings or through a business combination or strategic partnership. There can be no assurance that the Company will be successful
in obtaining additional financing on favorable terms, or at all. These matters raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
At June 30, 2014, the Company
was in technical default on certain convertible notes with an aggregate principal balance outstanding of approximately $85, which
was due prior to June 30, 2014.
|
|
3.
|
RESTATEMENT OF PRIOR QUARTERS
|
In the fourth quarter of 2013, we discovered that
some of the amounts we had previously reported in prior quarters had not been recorded correctly. The adjustments to correct for
accounting differences were made in the fourth quarter of 2013 and are primarily related to our accounting for convertible note
obligations.
The following table sets forth the effects of the
restatement on affected items within our previously reported Condensed Consolidated Statement of Operations for the three and six
months ended June 30, 2013.
|
|
|
Three Months Ended June 30,
2013
|
|
|
Six Months Ended June 30, 2013
|
|
|
|
|
As Reported
|
|
|
As Restated
|
|
|
As Reported
|
|
|
As Restated
|
|
|
Operating loss
|
|
|
(1,304
|
)
|
|
|
(1,304
|
)
|
|
|
(3,189
|
)
|
|
|
(3,189
|
)
|
|
Non-operating income (loss)
|
|
|
404
|
|
|
|
107
|
|
|
|
(569
|
)
|
|
|
(2,646
|
)
|
|
Net loss
|
|
|
(900
|
)
|
|
|
(1,197
|
)
|
|
|
(3,758
|
)
|
|
|
(5,835
|
)
|
|
Net loss per common share, basic and diluted
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
Deferred funding fees:
|
|
|
Period Ended
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
Total deferred funding fees
|
|
$
|
150
|
|
|
$
|
150
|
|
|
Amortization
|
|
|
(147
|
)
|
|
|
(41
|
)
|
|
Net deferred funding fees
|
|
$
|
3
|
|
|
$
|
109
|
|
Accrued expenses:
|
|
|
Period Ended
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation and related benefits
|
|
$
|
231
|
|
|
$
|
266
|
|
|
Series D convertible preferred dividend payable
|
|
|
26
|
|
|
|
26
|
|
|
Total
|
|
$
|
257
|
|
|
$
|
292
|
|
Related party liabilities:
|
|
|
Period Ended
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
Promissory note
|
|
$
|
222
|
|
|
$
|
222
|
|
|
Accrued interest
|
|
|
28
|
|
|
|
26
|
|
|
Total
|
|
$
|
250
|
|
|
$
|
248
|
|
This promissory note dated March
5, 2008 is due and payable March 5, 2015 and carries an annual interest rate of 2%. At the option of the Company, the note and
the accrued interest owed can be converted to the common stock of the Company based on the closing price on the day of the conversion
as quoted on the exchange on which the Company’s common stock is listed. The conversion price as at June 30, 2014 was $0.1044
and would convert to approximately 2,396,000 shares.
|
|
5.
|
Fair Value Measurements
|
The Company’s financial
assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, by level
within the fair value hierarchy, are as follows:
Fair Value
Measurements at June 30, 2014
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
325
|
|
|
$
|
325
|
|
Fair Value Measurements
at December 31, 2013
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,859
|
|
|
$
|
5,859
|
|
For certain convertible note obligations, the Company
is required to measure and record a related derivative liability, representing the estimated fair value of any embedded conversion
options. The following table provides a summary of changes in the fair value of the Company’s Level 3 financial liabilities
from December31, 2013 to June 30, 2014:
The weighted average Black-Scholes
inputs associated with the conversion of 8% senior convertible debentures is as follows:
|
|
|
For the Three Months Ended,
|
|
|
Total
|
|
|
|
|
31-Mar-14
|
|
|
June 30,2014
|
|
|
|
|
|
Number of shares issued (000 omitted)
|
|
|
77,406
|
|
|
|
4,567
|
|
|
|
81,973
|
|
|
Debenture principal
|
|
$
|
2,995
|
|
|
$
|
174
|
|
|
$
|
3,169
|
|
|
Fair value of debenture at conversion
|
|
$
|
4,784
|
|
|
$
|
277
|
|
|
$
|
5,061
|
|
|
Exercise Price
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
|
|
|
|
Volatility
|
|
|
134
|
%
|
|
|
90
|
%
|
|
|
|
|
|
Risk-free Rate
|
|
|
0.07
|
%
|
|
|
0.04
|
%
|
|
|
|
|
|
Contractual Life
|
|
|
0.6
|
|
|
|
0. 25
|
|
|
|
|
|
|
Dividend Yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
The weighted average Black-Scholes
inputs associated with the valuation of 8% senior convertible debentures is as follows:
|
|
|
As at
|
|
|
|
|
31-Mar-14
|
|
|
June 30,2014
|
|
|
Exercise Price
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
Volatility
|
|
|
133
|
%
|
|
|
860
|
%
|
|
Risk-free Rate
|
|
|
0.07
|
%
|
|
|
0.04
|
%
|
|
Contractual Life
|
|
|
0.4
|
|
|
|
0. 3
|
|
|
Dividend Yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
Derivative
Liability
|
|
|
December 31, 2013
|
|
$
|
5,859
|
|
|
Conversion of 8% senior convertible debentures to common stock
(1)
|
|
|
(4,784
|
)
|
|
Change in fair value
|
|
|
(666
|
)
|
|
March 31,2014
|
|
|
409
|
|
|
Conversion of 8% senior convertible debentures to common stock
(2)
|
|
|
(277
|
)
|
|
Change in fair value
|
|
|
193
|
|
|
June 30, 2014
|
|
$
|
325
|
|
|
|
(1)
|
The $4,784 was included with the debt discount of $1,693 in the statement of equity as result of the conversions of the convertible debt.
|
|
|
|
|
|
|
(2)
|
The $277 was included with the debt discount of $47 in the statement of equity as result of the conversions of the convertible debt.
|
The following table sets forth the computation of
the basic and diluted net loss per share attributable to the Company’s common stockholders for the periods indicated:
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013 (Restated)
|
|
|
2014
|
|
|
2013 (Restated)
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,025
|
)
|
|
$
|
(1,197
|
)
|
|
$
|
(9,567
|
)
|
|
$
|
(5,835
|
)
|
|
Preferred stock dividend
|
|
|
26
|
|
|
|
—
|
|
|
|
52
|
|
|
|
—
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(4,051
|
)
|
|
$
|
(1,197
|
)
|
|
$
|
(9,619
|
)
|
|
$
|
(5,835
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - basic
|
|
|
734,023,717
|
|
|
|
397,175,440
|
|
|
|
682,657,535
|
|
|
|
380,084,393
|
|
|
Common shares equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock - diluted
|
|
|
734,023,717
|
|
|
|
397,175,440
|
|
|
|
682,657,535
|
|
|
|
380,084,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Potentially dilutive securities excluded from the
computation of basic and dilutive net loss per share are as follows:
|
Outstanding time-based common stock options
(1)
|
|
14,443,000
|
|
|
-
|
(2)
|
|
Outstanding performance-based and market-based common stock options
(1)
|
|
4,000,000
|
|
|
-
|
(2)
|
|
Outstanding time-based preferred stock options
(1)
|
|
2,488,000
|
|
|
-
|
(2)
|
|
Warrants
(1)
|
|
67,776,000
|
|
|
-
|
(2)
|
|
Related party liability
(1)
|
|
2,396,000
|
|
|
-
|
(2)
|
|
Convertible promissory note(s)
(1)
|
|
4,725,000
|
|
|
-
|
(2)
|
|
8% Senior convertible debentures
(1)
|
|
4,418,000
|
|
|
-
|
(2)
|
|
Convertible preferred stock
(1) (3)
|
|
44,061,000
|
|
|
-
|
(2)
|
|
|
(1)
|
The impact of time-based, performance-based and market-based stock options, time-based restricted stock units, warrants, the
convertible notes, the 8% senior convertible debentures, and the convertible preferred stock on earnings per share is anti-dilutive
in a period of loss from continuing operations.
|
|
|
(2)
|
Total anti dilutive securities as of June 30, 2013 was approximately 85,000,000.
|
|
|
(3)
|
Includes convertible preferred Series C and D.
|
The following table summarizes our intangible assets:
|
|
|
Period Ended
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
Intellectual properties
|
|
$
|
1,684
|
|
|
$
|
681
|
|
|
Accumulated amortization
|
|
|
(123
|
)
|
|
|
(70
|
)
|
|
Total intangible assets net
|
|
$
|
1,561
|
|
|
$
|
611
|
|
These intellectual properties costs will be amortized
over the expected remaining useful lives. As of June 30, 2014, amortization expense for the next five years is expected to be as
follows:
|
2014 (remaining six months)
|
|
$
|
65
|
|
|
2015
|
|
|
128
|
|
|
2016
|
|
|
128
|
|
|
2017
|
|
|
128
|
|
|
2018
|
|
|
128
|
|
|
thereafter
|
|
|
984
|
|
|
Total
|
|
$
|
1,561
|
|
Asset purchase agreement
with Memory Dx, LLC
On April 29, 2014, the Company
entered into an asset purchase agreement (“MDx Purchase Agreement”) with Memory Dx, LLC (“MDx”), pursuant
to which the Company purchased all of the assets of MDx, including all right, title and interest in the LymPro Technology, (as
defined in the MDx Purchase Agreement). Such assets include all intellectual property, owned by MDx, subject to certain exclusions
as further described in the MDx Purchase Agreement.
As consideration for transfer
of the assets, the Company agreed to pay to MDx (i) $50 upon execution of the MDx Purchase Agreement, (ii) $50 upon the date 60
days after execution of the MDx Purchase Agreement, and (iii) $50 on the date 120 days after execution of the MDx Purchase Agreement.
Additionally, the Company agreed to issue to MDx upon delivery of the assets, 1,500,000 shares of the Company’s common stock
and provide MDx with piggy-back registration rights as it relates to such shares.
Contingent upon (i) the Company
entering into a direct licensing agreement with the University of Leipzig (“Leipzig”) pursuant to which Leipzig would
grant the Company a direct license to certain assets now licensed to MDx by Leipzig, and (ii) MDx terminating the license agreement
it currently holds with Leipzig as it relates to such licensed assets with the Company’s prior written consent, the Company
has agreed to issue to MDx 6,500,000 shares of the Company’s common stock and will provide MDx with piggy-back registration
rights as it relates to such shares. The previous laboratory services agreement entered into between Amarantus and MDx on April
2, 2013 was terminated following execution of the MDx Purchase Agreement.
|
|
8.
|
8% Senior convertible
debentures
|
The following table summarizes
the Company’s outstanding 8% convertible promissory note obligations:
|
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Interest
|
|
|
|
|
Principal Balance Outstanding
|
|
|
Issue Date
|
|
Date
|
|
Rate
|
|
|
Conversion Terms
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
10/2/2013
|
|
10/2/2014
|
|
|
8.0
|
%
|
|
Variable conversion price currently at $0.04
|
|
$
|
167
|
|
|
$
|
1,789
|
|
|
9/6/2013
|
|
9/6/2014
|
|
|
8.0
|
%
|
|
Variable conversion price, currently at $0.04
|
|
|
-
|
|
|
|
1,544
|
|
|
|
|
Sub total
|
|
|
|
|
|
|
|
|
167
|
|
|
|
3,333
|
|
|
|
|
Discount
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
(2,401
|
)
|
|
|
|
Current portion of 8% convertible promissory notes, net
|
|
$
|
124
|
|
|
$
|
932
|
|
During the six months ended June
30, 2014 approximately $3,274, consisting of approximately $3,166 of debentures and approximately $108 of accrued interest of the
8% senior convertible debentures, converted to 81,973,400 shares of common stock of the Company. Additionally, $1,787 of
the 8% senior convertible debentures related debt discount was reclassified from liability to additional paid in capital.
|
|
9.
|
Convertible
Promissory Notes
|
The following table summarizes
the Company’s outstanding convertible promissory note obligations:
|
|
|
|
|
Stated
|
|
|
|
|
Principal Balance Outstanding
|
|
|
Issue Date
|
|
Maturity Date
|
|
Interest
Rate
|
|
|
Conversion Terms
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
6/5/2013
|
|
12/2/2013
|
|
|
6.0
|
%
|
|
Fixed at $0.02
|
|
|
-
|
|
|
|
20
|
|
|
11/4/2012
|
|
5/3/2013
|
|
|
6.0
|
%
|
|
Fixed at $0.01
|
|
|
-
|
|
|
|
10
|
|
|
8/23/2012
|
|
2/19/2013
|
|
|
6.0
|
%
|
|
Fixed at $0.015
|
|
|
50
|
|
|
|
50
|
|
|
11/2012
|
|
On Demand
|
|
|
None
|
|
|
Refundable excess payment
|
|
|
-
|
|
|
|
1
|
|
|
6/6/2011
|
|
6/6/2013
|
|
|
5.0
|
%
|
|
Variable at $0.04
|
|
|
10
|
|
|
|
10
|
|
|
4/11/2011
|
|
4/11/2013
|
|
|
5.0
|
%
|
|
Variable at $0.04
|
|
|
25
|
|
|
|
25
|
|
|
5/1/2011
|
|
5/1/2013
|
|
|
5.0
|
%
|
|
Fixed at $0.10
|
|
|
-
|
|
|
|
4
|
|
|
4/1/2011
|
|
4/1/2013
|
|
|
5.0
|
%
|
|
Fixed at $0.10
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible promissory notes
|
|
$
|
85
|
|
|
$
|
124
|
|
Convertible notes converted to common
stock or paid
During the six months ended June 30th, 2014 in aggregate
approximately $30 in notes and $2 in accrued interest were converted into approximately 2,159,000 shares of common stock.
During the six months ended June 30th, 2014 in aggregate
approximately $8 in notes and $1 in accrued interest were paid in full to the note holders
Convertible notes in default
At June 30, 2014, the Company
was in technical default on certain convertible promissory notes with an aggregate principal balance outstanding of approximately
$85, which was due prior to June 30, 2014. The company is working with the note holders to convert.
|
|
10.
|
DEMAND PROMISSORY NOTE
|
On February 14, 2014, the Company executed a Demand
Promissory Note payable to Dominion Capital, LLC in the amount of $500 at an annual interest rate of 12% compounded monthly until
the note is repaid. On March 12, 2014, the Company elected to extend the maturity of the Note from March 14, 2014 to August 14,
2014. On August 14, 2014 the note holder agreed to extend the due date thirty days for a consideration of $10.
|
|
11.
|
commitments
and contingencies
|
Commitments:
Lease Arrangements
—
The Company leases its main office facility and laboratory
space in San Francisco, CA under a one-year lease agreement with QB3 Incubator Partners, LP. The lease agreement was entered into
in October 2013 and provides for rental payments of approximately $7 per month.
Commencing
August 2014 the Company will lease new office facilities in San Francisco under a twenty nine month sublease with Stamats Communications
for an average monthly amount
average monthly rental of $12 plus an additional monthly $9 for basic operating costs
Rent expense for the six months
ended June 30, 2014 and 2013 was approximately $42 and $12, respectively.
Research Agreements
—
The Company and PGI entered into a services agreement
pursuant to which PGI will provide certain services to the Company related to PGI’s proprietary analytical systems (refer
to Note INTANGABLE ASSETS). The Company agreed to a payment commitment of $450 at a minimum annual rate of $150, for each of three
years. The Services Agreement is for a term of the later of 3 years or the completion of any study plan accepted by the parties
under the services agreement.
Pursuant to the December 12, 2013 license agreement
between the Company and the University of Massachusetts, the Company is required to pay an annual license maintenance fee of $15
as long as the agreement remains in effect and the related patents remain valid. The Company is also obligated to reimburse the
university for all patent costs incurred that are related to the licensed patents for the duration of the agreement term.
The Company and The Washington
University (“WashU”) entered into a sponsored research agreement (the “Agreement”) whereby the Company
is required to pay a total amount of $120 for an employee of WashU to perform certain research utilizing a proprietary compound
of the Company’s (the “Materials”), subject to certain terms and restrictions as further described in the Agreement.
Technical Acquisition
—
Pursuant to the MDx Purchase Agreement and contingent
upon (i) the Company entering into a direct licensing agreement with the University of Leipzig (“Leipzig”) pursuant
to which Leipzig would grant the Company a direct license to certain assets now licensed to MDx by Leipzig, and (ii) MDx terminating
the license agreement it currently holds with Leipzig with the Company’s prior written consent, the Company has agreed to
issue to MDx 6,500,000 shares of the Company’s common stock and will provide MDx with piggy-back registration rights as it
relates to such shares.
Contingencies
:
On January 10, 2014, the Company
entered into a license agreement (“PGI License Agreement”) with PGI Drug Discovery, LLC (“PGI”). Pursuant
to the terms of the agreement, the Company agreed to pay PGI up to an aggregate of $4,000 in development milestones through NDA
submission. Milestone based payments payable by the Company under the PGI License Agreement are as follows: (i) $1,000 upon successful
completion of the first Phase 2b clinical study, and (ii) $3,000 million upon submission of a New Drug Application with the United
States Food and Drug Administration or a comparable submission outside of the United States.
Pursuant to the LPC Purchase Agreement, the Company
may be required to issue up to 3,500 shares of common stock to LPC on a pro rata basis if and when the Company utilizes funding
available under the agreement.
Pursuant to the MDx Purchase Agreement and contingent
upon (i) the Company entering into a direct licensing agreement with the University of Leipzig (“Leipzig”) pursuant
to which Leipzig would grant the Company a direct license to certain assets now licensed to MDx by Leipzig, and (ii) MDx terminating
the license agreement it currently holds with Leipzig with the Company’s prior written consent, the Company has agreed to
issue to MDx 6,500,000 shares of the Company’s common stock and will provide MDx with piggy-back registration rights as it
relates to such shares.
Pursuant to the December 12, 2013 license agreement
between the Company and the University of Massachusetts, the Company is obligated to pay the university certain amounts in the
event certain events occur or milestones are achieved. Milestones to be paid under the agreement are as follows: (i) $50 upon first
human dosing, (ii) $75 upon initiation of first Phase 2 clinical trial, (iii) $100 upon initiation of first Phase 3 clinical trial,
and (iv) $500 upon first product approval in the United States. Following commercial launch, the Company is required to pay a royalty
to the university equal to 2% of net sales, as defined under the agreement, subject to certain royalty minimums ranging from $125
to $500 per year. The Company is also obligated to pay to the university 10% of any sub-license income generated under the agreement.
|
|
12.
|
COMMON STOCK
WARRANTS
|
Stock Warrants
The Company issued 83,333,251
Warrants pursuant to Securities Purchase Agreement with certain investors entered in September 2013 (the “Debenture Warrant
Transaction”). The Warrants are exercisable for a term of three years from the date of issuance at an exercise price of $0.06
per share. The Warrants are exercisable on a cashless basis if at any time after the six months anniversary there is no effective
registration statement or current prospectus available for the resale of the shares underlying the Warrants. The Company may call
the warrants at an exercise price of $.001 per share if certain conditions as described in the Warrant are met. On February 4,
2014, the Company registered these warrants with the SEC.
On March 7, 2014, the Company
accepted elections by warrant holders to exercise certain warrants in the aggregate amount of 60,000,000 shares of common stock
for gross proceeds of $3,600. Pursuant to the offer to exercise dated February 13, 2014 as supplemented on March 6, 2014, the holders
of outstanding warrants to purchase shares of common stock of the Company at a price of $0.06 (the “Original Warrants”)
were offered the opportunity to exercise their Original Warrants and receive warrants (the “New Warrants”) to purchase
three (3) shares of common stock of the Company for every four (4) Original Warrants exercised. The New Warrants are exercisable
at any time at a price of $0.12 for a term of five (5) years. The New Warrants are callable by the Company if the Volume Weighted
Average Price (VWAP) of the Company’s common stock for each of 20 consecutive trading days exceeds $0.18 and certain equity
conditions are met. The Company may also call the New Warrants if the closing price of the Company’s common stock exceeds
$0.18 on the date that is the earlier of the receipt by the Company of an approval letter for listing of the Company’s common
stock on an exchange or actual listing of the common stock on an exchange. The holders of the New Warrants have piggy-back registration
rights. Upon the closing of the offer to exercise the Company issued New Warrants to purchase 45,000,000 shares of common stock
of the Company.
In the three months ended June
30, 2014, a warrant holder exercised 2,777,775 warrants to purchase 2,777,775 shares of the Company’s common stock at the
exercise price of $.06 per share for a total amount of approximately $167.
In accordance with ASC 815-40-25-10 the Company determined
that the appropriate accounting treatment of the New Warrants is to determine the fair value of the warrant and to record the fair
value of the warrant as a loss upon Issuance of Warrants in the Other income (expense) section of the statement of operations along
with a credit to Additional paid-In capital. The fair value was determined to be approximately $3,867, using the Black-Scholes
model, which management believes approximates the fair value using the binomial lattice model with the following weighted average
assumptions at issuance:
|
Annualized volatility
(1)
|
|
|
305
|
%
|
|
Contractual term
|
|
|
5.0
|
|
|
Risk-free investment rate
|
|
|
1.65
|
%
|
|
Dividend yield
|
|
|
0.0
|
%
|
(1) - The Company has three years of trading history
that was utilized in computing the annualized volatility as of the date of issuance.
The following table summarizes
the Company’s warrant activity for the six months ended June 30, 2014.
|
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term
|
|
|
Outstanding warrants as of December 31, 2013
|
|
|
84,553,306
|
|
|
|
0.06
|
|
|
|
2.2
|
|
|
Exercised
|
|
|
(62,777,774
|
)
|
|
|
0.06
|
|
|
|
2.2
|
|
|
Issued
|
|
|
45,000,000
|
|
|
|
0.12
|
|
|
|
4.7
|
|
|
Outstanding warrants as of June 30, 2014
|
|
|
66,775,532
|
|
|
|
0.10
|
|
|
|
3.9
|
|
|
|
13.
|
COMMON STOCK PRIVATE PLACEMENTS
|
On March 7, 2014, the Company entered into an equity
financing agreement (“LPC Purchase Agreement”) with Lincoln Park Capital Fund LLC (“LPC”) whereby LPC is
obligated to purchase up to $20,000 of the Company’s common stock from time to time over a 30 month period, as directed by
the Company and subject to certain requirements, restrictions and limitations. Under the agreement, the per share purchase price
will be the lesser of (1) the lowest sale price of common stock on the purchase date and (2) the average of the three lowest closing
purchase prices during the 10 consecutive business days prior to the purchase date. However, LPC is not obligated to purchase shares
from the Company on any date that the closing price of the common stock is below $0.04, subject to adjustment upon the occurrence
of certain stock related events. The Company may also request that LPC purchase shares under an accelerated purchase notice whereby
the per share purchase price will be the lower of (i) 94% of a volume weighted average price calculation as determined under the
agreement or (ii) the closing price of the common stock on the accelerated purchase date.
In consideration for entering into the agreement,
the Company agreed to issue 9,500,000 shares of common stock to LPC, 6,000,000 of which were issued upon entering into the agreement
and 3,500,000 of which are contingently issuable on a pro rata basis as the Company utilizes the financing arrangement. The agreement
will automatically terminate upon the earliest of 30 months or upon full utilization of the purchase commitment.
Pursuant to the agreement, in the three months ended
March 31, 2014 the Company sold an initial 4,000,000 shares to LPC for an aggregate gross purchase price of $400. The fair value
of the 6,000,000 shares provided to LPC was approximately $516 and was treated as a deferred funding fee. $400 was considered a
placement fee against the $400 raised pursuant to execution of the LPC Purchase Agreement. The remaining $116 of deferred funding
fees will be offset against future capital raises.
Also pursuant to the agreement, during
the three months ended June 30, 2014, the Company sold an additional 1,500,000 shares for approximately $146 and issued an additional
25,463 commitment fee shares valued at $2 to LPC. The $2 commitment fee along with the balance of the upfront deferred commitment
fees of $116 from the original transaction in March 2014, for a total of $118, was charged to additional paid in capital in the
three months ended June 30, 2014.
2008 Stock Plan
The Company’s Board of Directors approved the
2008 Stock Plan (the “Plan”). Under the Plan, the Company may grant up to 38,242,127 options, including 10,000,000
the Board added to the plan in January, of incentive stock options, nonqualified stock options, or stock awards to eligible persons,
including employees, nonemployees, and members of the Board of Directors, consultants, and other independent advisors who provide
services to the Company. In general, options are granted with an exercise price equal to the fair value of the underlying common
stock on the date of the grant. Options granted typically have a contractual life of 10 years and vest over periods ranging
from being fully vested as of the grant date to four years.
The following table is a summary of activity under
the Plan:
|
|
|
|
|
|
|
|
|
Outstanding
Options
Common
|
|
|
|
|
Common Stock
options
outstanding
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Balance – December 31, 2013
|
|
|
6,941,288
|
|
|
|
0.05
|
|
|
|
9.0
|
|
|
Options granted (weighted-average fair value of $0.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
9,200,000
|
|
|
|
0.08
|
|
|
|
9.8
|
|
|
Non-Employee
|
|
|
3,301,323
|
|
|
|
0.08
|
|
|
|
9.8
|
|
|
Options cancelled
|
|
|
(1,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Options Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance –June 30, 2014
|
|
|
18,442,611
|
|
|
|
0.07
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested as of June 30, 2014
|
|
|
9,024,622
|
|
|
|
|
|
|
|
|
|
The 9,200,000 shares granted to employees include
8,000,000 shares granted to the Company’s new Chief Financial Officer, 4,000,000 of which are time-based and vest 25 percent
upon grant and 1/36 per month thereafter during continued service; 2,000,000 of which are performance-based and vest upon continued
service and achievement of a specific goal; and 2,000,000 of which are market-based and vest upon continued service and the Company’s
achievement of certain stock price targets. All of the 8,000,000 shares are at an exercise price of $0.0775 and were granted on
March 31, 2014.
During the six months ended June 30, 2014, the company
granted 2,301,323 net options (granted 3,301,323 less cancelled 1,000,000) to non-employees, resulting in an approximate expense
of $84.
During the six months ended June 30, 2014, the Company
granted stock options and awards that were greater than the shares authorized, resulting in a deficit of shares available in the
Plan of 3,377,705 as of June 30, 2014. On July 3, 2014 the Board approved an increase in the number of shares subject to the plan
to 46, 119,832 shares.
2012 Preferred Stock Plan
In July 2012, our Board of Directors
adopted a new stock plan, the Management, Employee, Advisor and Director Preferred Stock Option Plan – 2012 Series B Convertible
Preferred Stock Plan (“Preferred Stock Plan”). The purposes of the Preferred Stock Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide additional incentive to Management, Employees,
Advisors and Directors and to promote the success of our business. These options currently vest over two or three years and cannot
be converted into common shares or sold for two years from the date of the Designation of the Series B Preferred shares. Each share
of Series B Preferred stock converts into fifty shares of common stock. The following table is a summary of activity under the
Preferred Stock Plan:
|
|
|
|
|
|
|
|
|
Outstanding
Preferred
Options
|
|
|
|
|
Preferred Stock
Options
Outstanding
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Balance – December 31, 2013
|
|
|
2,287,500
|
|
|
|
0.47
|
|
|
|
8.5
|
|
|
Options granted (weighted-average fair value of $1.61)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
200,000
|
|
|
|
2.21
|
|
|
|
9.8
|
|
|
Non-Employee
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Options cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance – June 30, 2014
|
|
|
2,487,500
|
|
|
|
0.61
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred options vested as of June 30, 2014
|
|
|
1,650,130
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
for all plans is classified in the statements of operations as follows:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Research and development
|
|
$
|
108
|
|
|
$
|
19
|
|
|
$
|
288
|
|
|
$
|
302
|
|
|
General and administrative
|
|
|
165
|
|
|
|
70
|
|
|
|
187
|
|
|
|
296
|
|
|
Total
|
|
$
|
273
|
|
|
$
|
89
|
|
|
$
|
475
|
|
|
$
|
598
|
|
At June 30, 2014, there was a
total of approximately $1,043 of unrecognized compensation cost, net of estimated forfeitures of zero, as the Company has
not experienced any forfeitures to date, related to non-vested stock option awards, which is expected to be recognized over a weighted-average
period of approximately 2.5 years.
The fair value of the Company’s stock-based
awards during the six months ended June 30, 2014 and 2013 were estimated using the Black-Scholes option-pricing model with the
following assumptions:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June
30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Weighted-average volatility
|
|
|
302
|
%
|
|
|
*
|
%
|
|
|
89%-302
|
%
|
|
|
108
|
%
|
|
Weighted-average expected term
|
|
|
5.75
|
|
|
|
*
|
|
|
|
5-5.75
|
|
|
|
5
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
*
|
%
|
|
|
|
%
|
|
|
0
|
%
|
|
Risk-free investment rate
|
|
|
1.96
|
%
|
|
|
*
|
%
|
|
|
1.73%-1.96
|
%
|
|
|
0.5
|
%
|
* There were no options granted in the three months
ended June 30, 2013
|
|
15.
|
SERIES D PREFERRED
STOCK
|
The Company obtained approval from the Series D stockholder
and filed with the state of Nevada to amend the terms of its series D preferred stock to remove the feature by which stockholder
could require redemption of the stock at cost. Accordingly, since the stock now contains mainly equity-like features, the Company
changed the classification of the stock on its balance sheet from temporary equity to permanent equity within stockholders’
equity (deficit) as of June 30, 2014.
|
|
16.
|
RElated-Party
Transactions
|
On June 30, 2014 Gerald E. Commissiong, a member of
the Board of Directors, President and Chief Executive Officer, converted his 8% Senior Convertible Debenture and related accrued
interest in the amount of $6 into 147,265 shares of restricted common stock.
On June 30, 2014 John Commissiong, a member of the
Board of Directors and Chief Scientific Officer, converted his 8% Senior Convertible Debenture and related accrued interest in
the amount of $6 into 147,265 shares of restricted common stock.
Common Stock Private Placement
In July 2014, the Company exercised
its rights under the LPC Purchase Agreement to sell 8,000,000 shares to LPC for a total of $1,235. As required by the agreement,
the Company issued 216,160 commitment fee shares valued at $34 to LPC, which will be charged to additional paid in capital.
Call of Warrants
In July 2014, the Company called
its outstanding warrants to purchase shares of its common stock at an exercise price of $0.06 per share issued in the Company’s
private placement offering completed on September 3, 2013 and September 26, 2013 (the “Original Warrants”). There were
20,138,810 outstanding Original Warrants. Pursuant to the terms of the Original Warrants, the Company will honor any exercise notices
it receives before the 10 trading after the call notice is received by the holders. If the Original warrants are exercised the
Company will receive an aggregate of approximately $1,208. In August 2014 a warrant holder exercised 8,333,333 warrants for
an aggregate amount of approximately $500.
Conversion of Debentures
In July 9, 2014, the Company
also met the conditions to force the conversion of its outstanding 8% Original Issue Discount Senior Convertible Debentures due
September 6, 2014 and October 1, 2014 (the “Debentures”). As of the date hereof, the Company has a principal aggregate
amount of $167 Debentures outstanding. The Company provided notice to the holder of the Debentures to force such conversion, on
July 19, 2014 the debenture holder converted and the Company issued 4,500,009 shares of its common stock to satisfy the conversion.
Stock Option Grants
During the month of July 2014 four employees signed
their agreements, eliminating the contingency and causing the deficit in shares available for grant (see note STOCK OPTION PLANS)
to increase to 6,877,705. On July 3, 2014 the Board approved an increase in the number of shares subject to the plan to 46, 119,832
shares.
Sublease of New Offices
In August 2014, the Company subleased
new office facilities at 665 Montgomery Street, San Francisco, Ca Suite 900 with Stamats Communications commencing August 1, 2014
and ending November 30, 2016 at an average monthly rental of $12 plus an additional monthly $9 for basic operating costs.
Proxy Statement
In August 8, 2014 the Company filed a Preliminary
Proxy Statement concerning its Notice of Annual Meeting of Stockholders.
Research Agreement
On August 5, 2014, the Company
entered into a sponsored research agreement (the “Agreement”) with the Buck Institute for Research on Aging pursuant
to which Dr. Heinrich Jasper shall perform certain research utilizing Mesencephalic-Astrocyte-derived Neurotrophic Factor, subject
to certain terms and restrictions as further described in the Agreement.
Pursuant to the Agreement, the
Company shall provide financial support for the research plan, which is further described in the in the form of four quarterly
payments of $75, based upon the budget set forth in the Agreement.
License Agreement
The Company entered into a license agreement with University
of Miami (“
UNIVERSITY
”) effective August 14, 2014, for an exclusive license for the Patent Rights to certain
inventions of its employee, Rong Wen, MD, PhD, which the UNIVERSITY owns all rights and title to. In consideration for this exclusive
license the Company will pay the UNIVERSITY certain fees and royalties
Fees:
|
|
1.
|
$10 within thirty (30) days of the Effective Date of this Agreement;
|
|
|
2.
|
$10 on the second (2
nd
) anniversary;
|
|
|
3.
|
$15 on the third (3
rd
) anniversary;
|
|
|
4.
|
$25 on the fourth (4
th
) through seventh (7
th
) anniversary;
|
|
|
5.
|
$50on the eighth (8
th
) through tenth (10
th
) anniversaries; and
|
|
|
6.
|
$ 75 on the eleventh (11
th
) anniversary and every anniversary thereafter.
|
Such annual fee is creditable towards any other consideration,
including royalty and milestone payments that are, as set forth herein, due to the UNIVERSITY by the Company.
Royalties:
Running royalty in an amount
equal to three percent (3%) of the annual Net Sales of the Product(s) used, leased or sold by or for the Company, its Affiliates,
or its subsidiaries (“
Running Royalty
”). In the event the Company is required to pay royalties to a third party
or third parties for the same Product or Process as licensed under this Agreement to avoid potential infringement of third party
patent rights as a result of sales of Products, then the Company may reduce the Running Royalty by fifty cents ($0. 50) for each
one dollar ($1.00) in royalties which the Company is obligated to pay to a third party or third parties under such licenses, provided
however, that the royalties payable to UNIVERSITY under this section shall not be reduced to less than two percent (2%) of annual
Net Sales of the Product(s) used, leased or sold by or for the Company or its subsidiaries. If, in any one calendar year, the Company
is not able to fully recover its fifty percent (50%) portion of the payments due to a third party, it shall be entitled to carry
forward such right of off-set to future calendar years with respect to the excess amount.
2014 Stock Option Plan
On August 6, 2014, the Company
adopted the 2014 Stock Option Plan and has reserved 154,000,000 shares of the common stock of the Company for issuance within this
plan.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Amarantus Bioscience Holdings, Inc. is a California-based development-stage
biopharmaceutical company founded in January 2008. We focus on developing our intellectual property and proprietary technologies
to develop drug and diagnostic product candidates to treat human disease. We own or have exclusive licenses to various product
candidates in the biopharmaceutical and diagnostic areas of the healthcare industry, with a specific focus on bringing these candidates
to market in the areas of Alzheimer’s disease, Parkinson’s disease, Retinal Degenerative disorders, and other ailments
of the human body, with a particular focus on the nervous system. Our business model is to develop our product candidates through
various de-risking milestones that we believe will be accretive to shareholder value and strategically partner with biopharmaceutical
companies, diagnostic companies, investors, private foundations and other key stakeholders in the specific sub-sector of the healthcare
industry in which we are developing our products in order to achieve regulatory approval in key jurisdictions and thereafter successfully
market and distribute our products.
Overview
The Company’s philosophy is to acquire, in-license, discover
and develop drug candidates and diagnostics with the potential to address critically important biological pathways involved in
human disease.
LymPro Test ®
The Lymphocyte Proliferation Test (“LymPro Test ®”,
or “LymPro”) is a diagnostic blood test for Alzheimer’s disease originally developed by the University of Leipzig
in Germany. The test works by evaluating the cell surface marker CD69 on peripheral blood lymphocytes following a mitogenic stimulation.
The underlying scientific basis for LymPro is that Alzheimer’s patients have dysfunctional cellular machinery that inappropriately
allows mature neurons in the brain to enter the mitotic process (cell division /cell cycle). When this happens the neurons start
the cell division process, but cannot complete that process. As a result, a number of cytokines and other genes are upregulated,
ultimately leading to cell death by apoptosis. This inappropriate cell division activation process is also present in the lymphocytes
of Alzheimer’s patients, as lymphocytes share a similar cellular division machinery with brain neurons. We measure the integrity
of this cellular division machinery process by measuring CD69 upregulation in response to the mitogenic stimulation. If CD 69 is
upregulated it means that the cellular division machinery process is correct and Alzheimer’s is not present. If CD69 is not
upregulated, it means there is a dysfunctional cellular division machinery process, and Alzheimer’s is more likely. To date,
data has been published in peer-reviewed publications on LymPro with 160 patients, demonstrating 92% co-positivity and 91% co-negativity
with an overall 95% accuracy rating for LymPro.
Eltoprazine
Eltoprazine is a small molecule drug candidate that is a selective
partial agonist on the 5HT1-A and 5HT1-B receptors of the serotonergic system in the brain originally discovered and developed
by Solvay Pharmaceuticals (now Abbvie). The serotonergic system has been associated with a wide range of disorders motor and behavioral
disorders including aggression, cognition, attention and control. The Company is developing Eltoprazine for the treatment of the
primary side effect of current Parkinson’s disease medication Levadopa-Induced Dyskinesia (“PD LID”), as well
as Adult Attention Deficit Hyperactivity Disorder (“Adult ADHD”). To date, over 700 patients have been dosed with Eltoprazine
at varying doses as high as 30mg; the active dose in both PD LID and Adult ADHD is 5mg. Primary and secondary endpoints have been
met for Eltoprazine in Phase 2 trials in PD LID and Adult ADHD
MANF
Mesencephalic Astrocyte-derived Neurotrophic Factor (“MANF”)
is an endogenous, evolutionally conserved and widely expressed protein that was discovered by the Company’s Chief Scientific
Officer Dr. John Commissiong. MANF acts on a variety of molecular functions, including as a part of the endoplasmic reticulum stress
response (“ER-SR”) system of the unfolded protein response (“UPR”). MANF has demonstrated efficacy as a
disease-modifying treatment in various animal models, including Parkinson’s disease, retinitis pigmentosa, cardiac ischemia
and stroke. The Company has made a strategic decision to focus the development of MANF in orphan indications and is currently evaluating
the most appropriate indication for development based on data currently being assembled internally, by contract research organizations
and academic collaborators.
Other
Exploration of the Company’s PhenoGuard platform for neurotrophic
factor discovery and discovery and evaluation of external drug candidates for potential in-licensure or acquisition.
For the next 12 months, the Company intends to focus primarily
on the commercialization of LymPro, the further clinical development of Eltoprazine, and the preclinical development of MANF.
The Three Months Ended June 30, 2014
compared to Three Months Ended June 30, 2013
During the three months ended June 30, 2014 and 2013, we generated
no revenue.
Research and development costs for the three months ended June
30, 2014 increased $1,166 to $1,640 from $474 for the three months ended June 30, 2013 an extensive amount of pre-clinical and
clinical work as the company advances the development of its products and the expensing of the clinical materials acquired in the
first quarter.
General and administrative expenses for the three months ended
June 30, 2014 increased $1,271 to $2,101from $830 for the three months ended June 30, 2013 primarily due an increase in employee
compensation related expenses, increases in legal patent and audit related expenses, and increased business development expenses.
Other income (expense) for the three months ended June 30, 2014
decreased $391 to an expense of $284 from an income of $107 for the three months ended June 30, 2013. Interest expense decreased
$197 to $71 from $268 for the three months ended June 30, 2013 primarily due to debt conversion to equity.
Net loss for the three months ended June 30, 2014 was $4,025
as compared to a net loss of $1,197 for the three months ended June 30, 2013. Stock based compensation from grants under the 2008
Stock Plan and the 2012 Series B Convertible Preferred Stock Option Plan accounted for $273 of the $4,025 net loss for the three
months ended June 30, 2014 and $89 of the $1,197 net loss for the three months ended June 30, 2013.
The Six Months Ended June 30, 2014 compared
to Six Months Ended June 30, 2013
During the six months ended June 30, 2014 and 2013, we generated
no revenue.
Research and development costs for the six months ended June
30, 2014 increased $1,019 to $2,157 from $1,138 for the six months ended June 30, 2013 primarily due to debt conversion to equity.
General and administrative expenses for the six months ended
June 30, 2014 increased $1,169 to $3,220 from $2,051 for the six months ended June 30, 2013 primarily due to an increase in employee
compensation related expenses, increases in legal patent and audit related expenses, and increased business development expenses.
Other income (expense) for the six months ended June 30, 2014
increased $1,544 to an expense of $4,190 from an expense of $2,646 for the six months ended June 30, 2013. Interest expense decreased
$432 to $709 from $1,141 for the six months ended June 30, 2013 primarily due to lower financing costs on new debt and debt conversion
to equity. Loss on issuance of warrants increased $3,867 from $0.
For the six months ended June 30, 2014 there is a $4,533 charge
related to the issuance of new warrants offset by a gain of $666 in change in fair value of derivative liability.
Net loss for the six months ended June 30, 2014 was $9,567 as
compared to a net loss of $5,835 for the six months ended June 30, 2013. Stock based compensation from grants under the 2008 Stock
Plan and the 2012 Series B Convertible Preferred Stock Option Plan accounted for $475 of the $9,567 net loss for the six months
ended June 30, 2014 and $598 of the $5,835 net loss for the six months ended June 30, 2013.
Inflation adjustments have had no material
impact on the Company.
Liquidity and Capital Resources
As of June 30, 2014, the Company had total
current assets of $1,801 consisting of $1,402 in cash and cash equivalents, $146 in receivable from sale of common stock $250 in
prepaid expenses and other current assets, and $3 in deferred funding fees. As of June 30, 2014, the Company had current liabilities
in the amount of $3,599, consisting of:
|
Accounts payable
|
|
$
|
2,006
|
|
|
Related party liabilities and accrued interest
|
|
$
|
250
|
|
|
Accrued expenses
|
|
$
|
257
|
|
|
Accrued interest
|
|
$
|
52
|
|
|
Demand promissory note
|
|
$
|
500
|
|
|
8% Senior convertible debentures, net of discount
|
|
$
|
124
|
|
|
Convertible promissory notes
|
|
$
|
85
|
|
|
Derivative liability
|
|
$
|
325
|
|
As of June 30, 2014, the Company had a
working capital deficit in the amount of $1,798 compared to a deficit of $7,291 at December 31, 2013.
The table below sets forth selected cash flow
data for the periods presented:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
(restated)
|
|
|
Net cash (used in) operating activities
|
|
$
|
(3,633
|
)
|
|
$
|
(1,646
|
)
|
|
Net cash (used in) investing activities
|
|
|
(656
|
)
|
|
|
(34
|
)
|
|
Net cash provided by financing activities
|
|
|
4,658
|
|
|
|
1,590
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
369
|
|
|
$
|
67
|
|
Since inception, the Company has financed cash flow requirements
through the issuance of common stock and the exercise warrants and loans. As of June 30, 2014, the Company had $1,402 in cash and
cash equivalents. Since June 30, 2014 the Company has raised approximately $1,900 thru the sale of common stock and call of warrants.
The Company still has an additional $18,000 of equity capital available under the financing facility with Lincoln Park Capital
Fund LLC, and an additional $700 from the anticipated call of warrants. Based upon the cash used for operations for the 6 months
ended June 30, 2014 the Company would have sufficient liquidity for approximately 2 years.
The success of our business plan during
the next 12 months and beyond is contingent upon us generating sufficient revenue to cover our costs of operations, or upon us
obtaining additional financing. Should our revenues be less than anticipated, or should our expenses be greater than anticipated,
then we may seek to obtain business capital through the use of private and public equity fundraising or shareholder loans. There
can be no assurance that such additional financing will be available to us on acceptable terms, or at all. Similarly, there can
be no assurance that we will be able to generate sufficient revenue to cover the costs of our business operations. We will use
all commercially-reasonable efforts at our disposal to raise sufficient capital to run our operations on a go forward basis.
Off Balance Sheet Arrangements
Not applicable
Going Concern
We are a company engaged in biotechnology research and development.
We have suffered recurring losses from operations since inception, we have a positive working capital but have generated negative
cash flow from operations. There is substantial doubt about our ability to continue as a going concern.