NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
GENERAL
Amarantus Bioscience Holdings, Inc. (“Amarantus”
or the “Company”) is a California based biopharmaceutical company founded in January 2008. We own or have exclusive
licenses to various product candidates in the biopharmaceutical and diagnostic areas of the healthcare industry. We are developing
our diagnostic product candidates in the field of neurology, and our therapeutic product candidates in the areas of neurology,
psychiatry, ophthalmology and regenerative medicine. Our business model is to develop our product candidates through various de-risking
milestones that we believe will be accretive to shareholder value, and will position them to be strategically partnered with pharmaceutical
companies, diagnostic companies and/or other stakeholders in order to more efficiently achieve regulatory approval and commercialization.
Amarantus
Bioscience has three operating divisions: the diagnostics division; the therapeutics division; and the drug discovery division.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation.
The
unaudited condensed consolidated financial statements (Financial Statements) have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting
of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation
of the results for the interim periods presented. Certain prior year amounts have been reclassified to conform to current year
presentation.
Certain
information in footnote disclosures normally included in the financial statements prepared in conformity with accounting principles
generally accepted in the United States of America have been condensed or omitted pursuant to the SEC rules and regulations for
interim reporting. The financial results for the periods presented may not be indicative of the full year’s results. The
Company believes the disclosures are adequate to make the information presented not misleading.
These
financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the
notes thereto for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10K filed in May
2016.
Significant
Accounting Policies
There
have been no material changes in the Company’s significant accounting policies to those previously disclosed in the
2015 Annual Report.
Reclassification
- Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current
period financial statements. These reclassifications had no effect on the previously reported net loss.
Use
of Estimates
- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of expenses during the reporting period. Significant estimates include the fair
value of derivatives, the fair value of stock-based compensation and warrants, the carrying value of intangible assets (patents
and licenses), valuation allowance against deferred tax assets, and related disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Research
and Development Expenditures
- Research and development costs are expensed as incurred. Research and development costs include
salaries and personnel-related costs, consulting fees, fees paid for contract research services, fees paid to clinical research
organizations and other third parties associated with clinical trials, the costs of laboratory equipment and facilities, and other
external costs. The Company incurred approximately $1.4 million and $2.5 million research and development costs for the three
months ended March 31, 2016 and 2015, respectively.
Related
Party, Fair Value Convertible Notes Receivable
-
The Company’s convertible note receivable as of March 31, 2016
was valued, taking into consideration, cost of the investment, market participant inputs, market conditions, liquidity, operating
results and other qualitative and quantitative factors. The values at which the Company’s convertible note receivable are
carried on its books are adjusted to estimated fair value at the end of each quarter taking into account general economic and
stock market conditions and those characteristics specific to the underlying investments. Due to the short term nature of
convertible note receivable, cost approximates fair value.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent
Accounting Pronouncements
In
January 2016, FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01
requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;
eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate
the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires
public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial
assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying
notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred
tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01
will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. The Company is currently evaluating the impact that ASU 2016-01 will have on its condensed consolidated financial
statements and related disclosures.
In
February 2016, FASB issued ASU No. 2016-02,
Leases (Topic 842)
which supersedes FASB ASC Topic 840,
Leases (Topic 840)
and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.
The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on
the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater
than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to
existing guidance for operating leases. The standard will be effective for annual and interim periods beginning after December
15, 2018, with early adoption permitted upon issuance. The Company is currently evaluating the impact that ASU 2016-02 will have
on its condensed consolidated financial statements and related disclosures.
In
March 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
(“ASU 2016-09”). The amendment is to simplify several aspects of the accounting
for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. For public entities, the amendments in ASU 2016-09 are effective for interim
and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2016-09 on
its condensed consolidated financial statements and related disclosures.
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. Although management believes that
the Company will be able to successfully fund its operations, there can be no assurance that the Company will be able to do so
or that the Company will ever operate profitably. The Company’s activities since inception have consisted principally of
acquiring product and technology rights, raising capital, and performing research and development. Historically, we have incurred
net losses and negative cash flows from operations.
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.
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”), which contemplate continuation of the Company as a going concern.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Historically,
the Company has incurred net losses and negative cash flows from operations. 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.
3.
NET LOSS PER SHARE
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 (dollars in thousands, except per share amounts):
|
|
For the three
months ended
|
|
|
|
March
31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,576
|
)
|
|
$
|
(6,580
|
)
|
Preferred
stock dividend
|
|
|
(749
|
)
|
|
|
(828
|
)
|
Deemed
dividends on convertible preferred stock
|
|
|
(10,307
|
)
|
|
|
-
|
|
Net
loss attributable to common stockholders
|
|
$
|
(12,632
|
)
|
|
$
|
(7,408
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Common
stock outstanding
|
|
|
33,720,000
|
|
|
|
7,232,000
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.37
|
)
|
|
$
|
(1.02
|
)
|
Potentially
dilutive securities consist of:
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Outstanding common stock options
|
|
|
308,000
|
|
|
|
379,000
|
|
Outstanding preferred stock option
|
|
|
829,000
|
|
|
|
829,000
|
|
Common stock purchase warrants
|
|
|
52,839,000
|
|
|
|
306,000
|
|
Related party liability and accrued interest
|
|
|
5,159,000
|
|
|
|
34,000
|
|
Notes payable
|
|
|
10,060,000
|
|
|
|
-
|
|
Convertible senior secured promissory notes and accrued interest
|
|
|
94,803,000
|
|
|
|
-
|
|
Share-settled debt and accrued interest
|
|
|
6,936,000
|
|
|
|
-
|
|
Convertible preferred stock Series C
|
|
|
5,000
|
|
|
|
5,000
|
|
Convertible preferred stock Series E
|
|
|
95,204,000
|
|
|
|
-
|
|
Convertible preferred stock Series H
|
|
|
100,696,000
|
|
|
|
-
|
|
Potentially dilutive securities
|
|
|
366,839,000
|
|
|
|
1,553,000
|
|
All
of the listed dilutive securities are excluded from the computation of fully diluted loss per share as they are anti-dilutive.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
RELATED PARTY CONVERTIBLE NOTES RECEIVABLE, AT FAIR VALUE
Notes receivable are stated at fair value, as the Company has elected to fair value its notes receivable using
the fair value option permitted to the Company.
The following is a summary of outstanding related party convertible notes receivable as of March 31, 2016 (amount in thousands):
|
|
|
|
|
|
Stated
|
|
|
Conversion
|
|
|
Carrying
|
|
|
|
Issue Date
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Terms
|
|
|
Value
|
|
Avant Diagnostics, Inc
|
|
3/7/2016
|
|
3/7/2017
|
|
|
12
|
%
|
|
$
|
0.20
|
|
|
$
|
100,000
|
|
Theranostics Health, Inc
|
|
2/29/2016
|
|
2/28/2017
|
|
|
8
|
%
|
|
$
|
40.64
|
|
|
|
400,000
|
|
Ending balance as of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
500,000
|
|
On March 1, 2016, the Company loaned $400,000 to Theranostic Health, Inc. (“THI”) which is evidenced
by a convertible note issued by THI (the “THI Note”). The Company provided the financing evidenced by the Note in order
to facilitate the proposed acquisition by Avant Diagnostics, Inc. (“Avant”) of the assets and certain liabilities of
THI. In a concurrent transaction, the Company has entered into a non-binding letter of intent to sell its wholly-owned subsidiary,
Amarantus Diagnostics, Inc. to Avant for 80 million shares of common stock of Avant.
The THI Note matures on February 28, 2017 and bears interest at 8% per annum payable at maturity in cash.
The THI Note is convertible at any time at the option of the Company into shares of common stock of THI at a conversion price of
$40.64 per share. The THI Note shall automatically convert into shares of common stock of THI upon a change of control of THI.
It is expected that the THI Note will be assumed by Avant upon consummation of the transaction with THI. The conversion price of
the THI Note is subject to weighted average anti-dilution price protection if the dilutive issuances are for less than $1 million
and full ratchet anti-dilution protection if the dilutive issuances are for more than $1 million. The THI Note has events of default
in for any default in the payment of principal or interest when due and for bankruptcy.
On
March 7, 2016, the Company loaned $100,000 to Avant which is evidenced by a convertible note (the “Avant Note”). The
Avant Note matures on March 7, 2017 and bears interest at 12% per annum payable at maturity in cash. The Avant Note is convertible
at any time at the option of the Company into shares of common stock of Avant at a conversion price of $0.20 per share. The Avant
Note shall automatically convert into shares of common stock of Avant upon a change of control of Avant.
5.
NOTES PAYABLE
On March 9, 2016 two investors assigned their 12% Promissory notes issued by the Company to a third investor.
The third investor, on the same day, entered into two separate Exchange Agreements with the Company. The Exchange Agreements
allow the third investor to exchange the 12% Promissory Notes for two separate 12% Senior Secured Convertible Promissory Notes
in the principal amounts of $100,000 and $200,000 respectively.
During the quarter ended March 31, 2016, the Company made payment of $100,000 on outstanding notes payable,
and $30,000 on accrued interest.
As of March 31, 2016, the Company had notes payable in the aggregate amount of $600,000 outstanding.
The Company is in default under the terms of all of its outstanding notes payables.
6.
SENIOR SECURED CONVERTIBLE PROMISSORY NOTES
The
following is a summary of outstanding senior secured convertible notes as of March 31, 2016 (amount in thousands):
|
|
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Issue
Date
|
|
Maturity
Date
|
|
Interest Rate
|
|
|
Conversion
Terms
|
|
|
Face Value
|
|
|
Debt
Discount
|
|
|
Carrying
Value
|
|
Delafeild Investments Ltd
|
|
9/30/2015
|
|
9/29/2016
|
|
|
12
|
%
|
|
$
|
0.06
|
|
|
$
|
3,056
|
|
|
$
|
(1,716
|
)
|
|
$
|
1,340
|
|
Dominion Capital LLC
|
|
9/30/2015
|
|
9/29/2016
|
|
|
12
|
%
|
|
$
|
0.06
|
|
|
|
2,096
|
|
|
|
(1,177
|
)
|
|
|
919
|
|
GEMG LLC
|
|
3/9/2016
|
|
7/1/2016
|
|
|
12
|
%
|
|
$
|
0.06
|
|
|
|
200
|
|
|
|
(70
|
)
|
|
|
130
|
|
Ending balance as of March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,352
|
|
|
$
|
(2,963
|
)
|
|
$
|
2,389
|
|
Dominion
Notes
During the quarter ended March 31, 2016, the Company entered into a conversion agreement with Dominion Capital
for the conversion of an aggregate amount of $75,000 in accrued interest on notes issued to Dominion Capital to 1.3 million shares
of common stock.
Other
Convertible Notes
On March 9, 2016, an individual investor exchanged its note payable of $300,000 for 12% senior secured convertible
notes. The Company recorded additional embedded conversion feature of $105,000 as debt discount on the issuance date.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During March
2016, an outstanding $100,000 note was converted into 2.0 million shares of common stock, and the Company wrote off $35,000 debt
discount associated with the note. The Company recorded a loss of $40,000 on the conversion based on the fair value of the common
stock recorded.
During the quarter ended March 31, 2016, the
Company entered into a conversion agreement with an investor to covert an aggregate amount of $100,000 to 110 shares of Series
H convertible preferred stock including a 10% OID.
The Company is in default under the terms of all of its senior secured convertible promissory notes.
7.
SHARE-SETTLED DEBT
During the quarter ended March 31, 2016, the Company
converted $25,000 share-settled debt into 495,188 shares of common stock at $0.12 per share. The Company also recorded an extinguishment
loss of $34,000 on the conversion.
The Company is in default under the terms of its share-settled debt.
8.
FAIR VALUE MEASUREMENTS
The Company’s financial
assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2016 by level within the fair value
hierarchy, are as follows (in thousands):
|
|
Fair value measured at March 31, 2016
|
|
|
|
Fair value
at
March 31,
|
|
|
Quoted
prices
in active
markets
|
|
|
Significant
other
observable
inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
2016
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party convertible notes receivable
|
|
$
|
500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
500
|
|
Total fair value
|
|
$
|
500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion feature
|
|
$
|
2,092
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,092
|
|
Warrant liability
|
|
|
2,073
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,073
|
|
Share-settled debt
|
|
|
476
|
|
|
|
-
|
|
|
|
-
|
|
|
|
476
|
|
Total fair value
|
|
$
|
4,641
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,641
|
|
There
were no transfers between Level 1, 2 or 3 during the three months ended March 31, 2016.
The
following table presents additional information about Level 3 liabilities measured at fair value. Both observable and unobservable
inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a
result, the unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value
that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable
long-dated volatilities) inputs.
Changes
in Level 3 liabilities measured at fair value for the three months ended March 31, 2016 were as follows (dollars in thousands):
|
|
|
|
|
Embedded
|
|
|
|
|
|
|
|
|
|
Warrant
Liability
|
|
|
Conversion
Feature
|
|
|
Share-settled
Debt
|
|
|
Total
|
|
January
1, 2016
|
|
|
3,025
|
|
|
|
2,073
|
|
|
|
521
|
|
|
|
5,619
|
|
Issuance
of warrants
|
|
|
1,456
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,456
|
|
Issuance
of convertible notes
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
105
|
|
Conversion
of 12% senior convertible debentures to common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Conversion
of share-settled debt to common stock
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
(25
|
)
|
|
|
(60
|
)
|
Change
in fair value
|
|
|
(2,408
|
)
|
|
|
(51
|
)
|
|
|
(20
|
)
|
|
|
(2,479
|
)
|
March
31, 2016
|
|
$
|
2,073
|
|
|
$
|
2,092
|
|
|
$
|
476
|
|
|
$
|
4,641
|
|
The
Company’s warrant liabilities, derivative liabilities and share-settled debt are measured at fair value using the Monte
Carlo simulation valuation methodology. A summary of weighted average (in aggregate) about significant unobservable inputs (Level
3 inputs) used in measuring the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy
for the years ended December 31, 2015 is as follows:
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
As
of March 31, 2016
|
|
|
|
|
|
|
Embedded
|
|
|
|
|
|
|
Warrant
Liability
|
|
|
Conversion
Feature
|
|
|
Share-settled
Debt
|
|
Contractual
life (years)
|
|
|
4.63
|
|
|
|
0.50
|
|
|
|
0.10
|
|
Annualized
volatility
|
|
|
72
|
%
|
|
|
72
|
%
|
|
|
72
|
%
|
Conversion
price
|
|
$
|
0.29
|
|
|
$
|
0.06
|
|
|
$
|
0.30
|
|
Expected
dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free
investment rate
|
|
|
1.1
|
%
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
*
The Company uses comparable companies within the same industry to derive at the 72% annualized volatility.
9.
TEMPORARY EQUITY
Series E Preferred Stock
The following table summarizes the Company’s
Series E Preferred Stock activities for the three months ended March 31, 2016 (amount in thousands):
|
|
Series
E convertible
preferred stock
|
|
|
|
Shares
|
|
|
Value
|
|
Balances
as of January 1, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Reclass
Series E to temporary equity
|
|
|
9,766
|
|
|
|
8,764
|
|
Proceeds
from sale of Series E preferred stock
|
|
|
256
|
|
|
|
230
|
|
Common
stock issued in conversion of Series E convertible preferred stock
|
|
|
(1,205
|
)
|
|
|
(1,205
|
)
|
Deemed
dividends on conversion of Series E convertible preferred stock to common stock
|
|
|
-
|
|
|
|
130
|
|
Repurchase
of Series E preferred stock
|
|
|
(248
|
)
|
|
|
(248
|
)
|
Offering
cost related to repurchase of Series E preferred stock
|
|
|
-
|
|
|
|
(10
|
)
|
Deemed
dividends on repurchase of Series E convertible preferred stock
|
|
|
-
|
|
|
|
27
|
|
Deemed
dividends related to accretion of redemption value
|
|
|
-
|
|
|
|
3,137
|
|
Legal
fees related to stock financing
|
|
|
-
|
|
|
|
(51
|
)
|
Balance
as of March 31, 2016
|
|
|
8,569
|
|
|
$
|
10,774
|
|
Securities Purchase Agreement
On
February 8, 2016, the Company entered into a Securities Purchase Agreement with institutional investors for the sale of 255.56
(including 10% OID) shares of the Company’s 12% Series E Preferred Stock (the “Series E Preferred Stock”) in
a registered direct offering, subject to customary closing conditions. The gross proceeds to the Company from the offering were
$230,000. Each share of Series E Preferred Stock has a stated value of $1,000 and is convertible into shares of common stock at
a conversion price of $7.50 provided if the Holder delivers a conversion notice within 5 trading days following a period that
the average of 3 consecutive VWAPs is less than $9.00, the conversion price shall be equal to lesser of the then conversion price
and 65% of the lowest 2 consecutive VWAPs out of the prior 10 consecutive trading days prior to the delivery of the conversion
notice.
Repurchase
agreement of Series E Preferred Stock
The
Company entered into repurchase agreements with one of its institutional investors pursuant to which the Company repurchased an
aggregate of 248 shares of Series E Preferred Stock at a price of $385,000, including offering costs of $10,000.
Conversion
of Series E Preferred Stock
During
the quarter ended March 31, 2016, 1,205 shares of Series E Preferred were converted to 10.3 million shares of common stock. Upon
conversion, the Company recorded an additional deemed dividend of $130,000.
Temporary
equity
The
Series E Preferred Stock is being classified as temporary equity because it has redemption features that are outside of the Company’s
control upon certain triggering events, such as the failure of the Company to at all times have an effective registration statement
or usable prospectus that would allow for the resale the Conversion Shares.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Redemption value
The Company is carrying the Series E at its
maximum redemption amount at March 31, 2016 as the security is not currently redeemable, but is redeemable subsequent to March
31, 2016. The Company recognized the change immediately as if the redemption was to occur as of March 31, 2016. The current redemption
amount is $10.8 million as of March 31, 2016.
Series
H Preferred Stock
The
following table summarizes the Company’s Series H Preferred Stock activities for the three months ended March 31, 2016 (amount
in thousands):
|
|
Series H convertible
preferred stock
|
|
|
|
Shares
|
|
|
Value
|
|
Balance
as of January 1, 2016
|
|
|
2,816
|
|
|
$
|
3,154
|
|
Series
H preferred stock issued for note conversion
|
|
|
110
|
|
|
|
100
|
|
Proceeds
from sale of Series H preferred stock, net of issuance cost of $0.5 million
|
|
|
4,883
|
|
|
|
3,890
|
|
Beneficial
conversion feature of Series H convertible preferred stock
|
|
|
-
|
|
|
|
(610
|
)
|
Deemed
dividends related to immediate accretion of beneficial conversion feature of Series H convertible preferred stock
|
|
|
-
|
|
|
|
610
|
|
Fair
Value of common stock warrant issued with Series H convertible preferred stock
|
|
|
-
|
|
|
|
(1,456
|
)
|
Common
stock issued in conversion of Series H convertible preferred stock
|
|
|
(1,354
|
)
|
|
|
(1,354
|
)
|
Deemed
dividends on conversion of Series H convertible preferred stock to common stock
|
|
|
-
|
|
|
|
923
|
|
Repurchase
of Series H convertible preferred stock
|
|
|
(413
|
)
|
|
|
(413
|
)
|
Offering
cost related to repurchase of Series H convertible preferred stock
|
|
|
-
|
|
|
|
(10
|
)
|
Deemed
dividends on repurchase of Series H convertible preferred stock
|
|
|
-
|
|
|
|
48
|
|
Deemed
dividends related to accretion of redemption value
|
|
|
-
|
|
|
|
5,095
|
|
Balance
as of March 31, 2016
|
|
|
6,042
|
|
|
$
|
9,977
|
|
Securities
Purchase Agreement
During
the quarter ended March 31, 2016, the Company entered into multiple Securities Purchase with accredited investors for sale of
an aggregate of 4,883 (including 10% OID) shares of 12% Series H Preferred Stock and warrants to purchase 13,920,000 shares of
common stock in registered direct offerings. The warrants are immediately exercisable, expire on the five-year anniversary from
issuance and have an exercise price of $0.40 per share. The aggregate gross proceeds to the Company were $4.4 million. The
Company also incurred $535,000 related offering cost. Each share of Series H Preferred Stock has a stated value of $1,000 and
is convertible into shares of common stock $0.06 as of March 31, 2016.
During
the quarter ended March 31, 2016, the Company recorded a deemed dividend of $610,000 related to the beneficial conversion feature
of the Series H Convertible Preferred stock.
The
Company entered into repurchase agreements with one of its institutional investor pursuant to which the Company repurchased an
aggregate 413 shares of Series H Preferred Stock at a price of $635,000, including offering costs of $10,000.
Conversion of Series H Preferred Stock
During
the quarter ended March 31, 2016, 1,354 shares of Series H Preferred were converted to 18.4 million shares of common stock. Upon
conversion the Company recorded an additional deemed dividend of $923,000 associated with the make-whole provision
.
Redemption value
The Company is carrying the Series H at its
maximum redemption amount at March 31, 2016 as the security is currently redeemable. The Company recognized the change immediately
as if the redemption was to occur as of March 31, 2016. The current redemption amount is $10.0 million as of March 31, 2016.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.
STOCKHOLDERS' EQUITY
Warrants
Common
Stock Purchase Warrants
The
following table summarizes the Company’s warrant activities for the three months ended March 31, 2016:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number
of
Warrants
|
|
|
Average
Exercise Price
|
|
|
Contractual
Term
|
|
Outstanding
as of December 31, 2015
|
|
|
12,809,950
|
|
|
$
|
1.14
|
|
|
|
4.52
|
|
Issued
in connection with various financings (1)
|
|
|
14,744,666
|
|
|
|
0.48
|
|
|
|
|
|
Reset
warrants (2)
|
|
|
25,284,713
|
|
|
|
0.24
|
|
|
|
|
|
Outstanding
as of March 31, 2016
|
|
|
52,839,329
|
|
|
$
|
0.39
|
|
|
|
4.63
|
|
|
(1)
|
The
warrants contain “down round protection” and the Company classifies these
warrant instruments as liabilities at their fair value and adjusts the instruments to
fair value at each reporting period.
|
|
(2)
|
Certain
warrants contain aggregate exercise provisions, and upon a reset the exercise price is
decreased and the amount of common stock available under the warrant agreement increases. During
the 1st quarter a reset occurred decreasing the exercise price from $2.00 to $0.24, and
increasing the amount of common stock available to be issued from 12,727,000 to 38,011,000
|
11.
STOCK OPTION PLANS
Stock-based
compensation expense for all plans is classified in the statements of operations as follows (dollars in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2016
|
|
|
2015
|
|
Research
and development
|
|
$
|
39
|
|
|
$
|
184
|
|
General
and administrative
|
|
|
122
|
|
|
|
304
|
|
Total
|
|
$
|
161
|
|
|
$
|
488
|
|
At
March 31, 2016, there was a total of approximately $1.9 million of unrecognized compensation cost, related to non-vested stock
option awards, which is expected to be recognized over a weighted-average period of approximately 2.1 years.
12.
RELATED-PARTY TRANSACTIONS
Convertible
Notes Receivable
See footnote 4 for a discussion of related party convertible notes receivable.
Notes
Payable
The Company has a demand promissory note with Neurotrophics, which is due 365 days upon demand of the holder.
At the option of the Company, the note and the accrued interest owed can be repaid by issuing shares of its common stock based
on the closing price of the Company’s common stock on the day of the conversion. The conversion price if converted on March
31, 2016 would be $0.05 related to the note and accrued interest on the note and would convert to approximately 5.2 million shares.
AMARANTUS
BIOSCIENCE HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13.
SUBSEQUENT EVENTS
Subsequent to April 1, 2016, the Company issued shares of its common stock as follows:
|
●
|
3.4 million
shares of common stock upon conversion of 80 shares of Series E Preferred Stock in accordance with the original terms;
|
|
●
|
10.3
million shares of common stock upon conversion of 251 of Series H Preferred Stock in accordance with the original terms;
|
|
|
|
|
●
|
0.8
million shares of common stock as payment of dividends on its Series H Preferred Stock;
|
See below for more detail regarding certain debt and equity
related transactions.
Debt
Financing
On April 14, 2016, the Company entered into
a Securities Purchase Agreement (the “Notes SPA”) with three institutional investors for the sale of an aggregate
principal amount $1,500,000 (including 10% OID) 10% Senior Secured Convertible Promissory Notes due April 17, 2017 (the “Senior
Secured Notes”) with an annual interest rate of 12% and a warrant to purchase 1,350,000 shares of common stock (the “Warrant”)
in a private placement offering (the “Offering”). The gross proceeds to the Company from the Offering were $1,350,000
Pursuant to the terms of the Notes
SPA, the investors agreed to purchase additional aggregate principal amount of $1,555,556 (including 10% OID) of Senior Secured
Notes with an annual interest rate of 12% and Warrants to purchase 1,400,000 shares of the Company’s common stock on the
first trading date after the registration statement which is the subject of the registration rights agreement is filed, and an additional $1,388,889 (including 10% OID) of Senior Secured Notes and Warrants to purchase 1,250,000 shares of
the Company’s common stock on the 61st day after such registration statement is declared effective or such earlier date as
mutually agreed to among the investors, subject to the satisfaction of customary closing conditions.
In connection with the issuance
of the Senior Secured Notes and Warrants, the Company entered into a Security Agreement and an Intellectual Property Security Agreement
with the investor (the “Security Agreement”) pursuant to which the Company agreed to grant a security interest in all
of its assets to the investor in order to secure the prompt payment, performance and discharge in full of all of the Company’s
obligations under the Senior Secured Notes.
In addition, each of the Company’s
wholly owned subsidiaries entered into a Subsidiary Guarantee, pursuant to which each of the subsidiaries, jointly and severally,
agreed to guarantee the obligations of the Company under the Senior Secured Notes.
Acquisition
of Amarantus Diagnostics by Avant Diagnostics, Inc.
On May 11, 2016 (the “Effective Date”), Amarantus, Amarantus Diagnostics, Inc., a wholly-owned
subsidiary of Amarantus (“AMDX”), and Avant Diagnostics, Inc. (“Avant”) entered into a Share Exchange Agreement
(the “Exchange Agreement”). Pursuant to the terms of the Exchange Agreement, Avant purchased 100% of the outstanding
capital stock of AMDX from Amarantus (the “AMDX Acquisition”). The AMDX Acquisition closed upon the execution of the
Exchange Agreement. Gerald Commissiong, President and Chief Executive Officer of Amarantus, became a member of Avant’s Board
of Directors upon closing of the AMDX Acquisition.
Avant paid to Amarantus aggregate
consideration of 80,000,000 shares of Avant’s common stock for the AMDX Acquisition, subject to the issuance of additional
shares upon the occurrence of certain events set forth in the Exchange Agreement (the “AMDX Consideration”). Each share
of Avant common stock received in connection with the AMDX Acquisition shall be subject to a lock-up beginning on the Effective
Date and ending on the earlier of (i) eighteen (18) months after such date or (ii) a Change in Control (as defined in
the Exchange Agreement).
In connection with the Exchange
Agreement, on the Effective Date, the Avant issued to Amarantus a convertible promissory note in the principal amount
of $50,000 (the "Note"). The Note bears interest at 12% per annum and matures one year from the date of issuance. The
Note will be convertible at the option of the Amarantus at any time into shares of Avant’s common stock, at an initial conversion
price equal to $0.20, subject to adjustment. The conversion price of the Note is subject to customary adjustments provisions for
stock splits, stock dividends, recapitalizations and the like. Amarantus has contractually agreed to restrict its ability to convert
the Note such that the number of shares of Avant’s common stock held by Amarantus and its affiliates after such conversion
does not exceed 4.99% of Avant's then issued and outstanding shares of common stock.
Note Receivable from Theranostics Health
Acquisition
On May 11, 2016, Avant entered into an Asset Purchase Agreement with Theranostics Health, Inc. (“THI”).
Pursuant to the terms of the purchase agreement between Avant and THI, the note receivable in the principal amount of $400,000 issued by THI
to the Company on March 1, 2016 was assumed by Avant. The note is currently an obligation of Avant and is convertible into shares
of common stock of Avant upon its original terms.