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EX-10.1 - EXHIBIT 10.1 - Amarantus Bioscience Holdings, Inc.ex10_1.htm
EX-31.1 - EXHIBIT 31.1 - Amarantus Bioscience Holdings, Inc.ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - Amarantus Bioscience Holdings, Inc.ex32_1.htm
EX-31.2 - EXHIBIT 31.2 - Amarantus Bioscience Holdings, Inc.ex31_2.htm
EX-10.2 - EXHIBIT 10.2 - Amarantus Bioscience Holdings, Inc.ex10_2.htm
EXCEL - IDEA: XBRL DOCUMENT - Amarantus Bioscience Holdings, Inc.Financial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2012
 
[   ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from  to  __________
 
Commission File Number: 333-148922

 

Amarantus BioSciences, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 26-0690857
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 
675 Almanor Ave., Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (408) 737-2734
 

 _________________________________________________________________ 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X ] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer Accelerated filer [ ] Non-accelerated filer
[X] Smaller reporting company

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 224,259,805 common shares as of November 16, 2012.

 

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 12
Item 4: Controls and Procedures 13

 

PART II - OTHER INFORMATION

 

Item 1: Legal Proceedings 14
Item 1A: Risk Factors 14
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Mine Safety Disclosures 14
Item 5: Other Information 14
Item 6: Exhibits 15

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011;
F-2 Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and September 30, 2011 and for the period from January 14, 2008 (Date of Inception) to September 30, 2012 (unaudited);
F-3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011 and for the period from January 14, 2008 (Date of Inception) to September 30, 2012 (unaudited);
F-4 Notes to Financial Statements

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2012 are not necessarily indicative of the results that can be expected for the full year. 

3

 AMARANTUS BIOSCIENCES, INC.

(A Development Stage Company)

BALANCE SHEETS

AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, 2011 

 

   (Unaudited)   
   September 30, 2012  December 31, 2011
ASSETS      
       
CURRENT ASSETS:          
 Cash and cash equivalents  $580   $870 
 Prepaid expenses and other current assets   303,810    335,498 
           
           Total current assets   304,390    336,368 
           
PROPERTY AND EQUIPMENT - Net   —      18,389 
           
OTHER ASSETS   420,643    —   
           
TOTAL ASSETS  $725,033   $354,757 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable  $2,605,264   $2,052,764 
Accrued liabilities   153,481    77,208 
Related Party liabilities   222,230    222,230 
Note Payable   190,440    150,000 
Current portion of warrant liability   255,451    281,143 
Current portion of derivative liability   30,092    45,180 
Current portion of convertible promissory notes   1,158,176    714,261 
           
           Total current liabilities   4,615,134    3,542,786 
           
STOCK WARRANT LIABILITY   —      2,788 
           
DERIVATIVE LIABILITY – Net of current portion   —      95,526 
           
CONVERTIBLE PROMISSORY NOTES - Net of current portion   —      63,600 
           
          Total liabilities   4,615,134    3,704,700 
           
COMMITMENTS AND CONTINGENCIES (Note 9)   —      —   
           
STOCKHOLDERS’ DEFICIT:          
Convertible preferred stock, $0.001 par value - authorized, 10,000,000  shares, 250,000 shares designated as Series A, par value $0.001, 250,000 shares issued and outstanding as of September 30, 2012 and none as of December 31, 2011   250    —   
Common stock, $0.001 par value - authorized 250,000,000 shares; issued and outstanding 141,156,196 shares at September 30, 2012 and, 80,836,592 shares at December 31, 2011   141,157    80,937 
Additional paid-in capital   5,566,563    3,295,549 
Deficit accumulated during the development stage   (9,598,072)   (6,726,429)
           
          Total stockholders’ deficit   (3,890,102)   (3,349,943)
           
TOTAL  $725,033   $354,757 

 

See notes to financial statements. 

F-1

 AMARANTUS BIOSCIENCES, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2012 AND 2011, AND

FOR THE PERIOD FROM JANUARY 14, 2008 (DATE OF INCEPTION) TO SEPTEMBER 30, 2012 

 

   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
   Three Months Ended  Three Months Ended  Nine Months Ended  Nine Months Ended  (Date of Inception)
   September 30, 2012  September 30, 2011  September 30, 2012  September 30, 2011  to September 30, 2012
                
NET REVENUES  $—     $35,280   $—     $213,588   $415,998 
                          
OPERATING EXPENSES:                         
 Research and development   32,837    132,496    466,081    897,982    2,071,868 
 General and administrative   558,668    360,805    2,423,370    1,336,312    6,867,816 
                          
          Total costs and expenses   591,505    493,301    2,889,451    2,234,294    8,939,684 
                          
INCOME (LOSS) FROM OPERATIONS   (591,505)   (458,022)   (2,889,451)   (2,020,706)   (8,523,688)
                          
INTEREST & OTHER INCOME (EXPENSE)                         
Interest Expense   (197,577)   (254,775)   (485,141)   (485,121)   (1,696,316)
Other Income (Expense)   (1,129)   (135,000)   (1,129)   (135,000)   86,556 
Change in fair value of warrant & derivatives liabilities   225,832    176,177    504,078    339,359    901,246 
                          
          Total interest & other income (Expense)   27,126    (213,598)   17,808    (280,762)   (708,514)
                          
NET INCOME  / (LOSS)  $(564,378)  $(671,620)  $(2,871,643)  $(2,301,468)  $(9,232,202)
                          
NET INCOME / (LOSS) PER SHARE, BASIC  $—     $(0.01)  $(0.03)  $(0.09)     
                          
COMMON SHARES OUTSTANDING - BASIC   113,190,278    67,016,206    99,478,308    26,944,660      

  

See notes to financial statements.

F-2

 AMARANTUS BIOSCIENCES, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (Unaudited), AND

FOR THE PERIOD FROM JANUARY 14, 2008 (DATE OF INCEPTION) TO SEPTEMBER 30, 2012 (Unaudited) 

 

   (Unaudited)
Nine Months Ended
September 30, 2012
    (Unaudited)
Nine Months Ended
September 30, 2011
     (Unaudited)
Period From
January 14, 2008
(Date of Inception) to
September 30, 2012 
 
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net loss $(2,871.643)  $(2,301,468)   $(9,232,202)
Adjustments to reconcile net loss to net cash used in operating activities:               
  Depreciation and amortization  7,260    11,152     33,014 
  Gain (loss) on disposal of equipment  1,129    —       (2,621)
  Stock-based compensation  75,178    656,252     1,141,906 
  Non-cash interest expense related to warrants and derivatives  378,590    447,361     1,141,906 
   Change in fair value of warrant and derivative liabilities  (504,078)   (339,360)    (896,478)
   Gain on settlement of convertible note and warrants  —      —       (137,632)
   Changes in operating assets and liabilities:               
     Prepaid expenses and other current assets  30,688    (69,192)    (304,810)
     Accounts payable  848,252    709,016     3,054,792 
     Accrued liabilities  81,791    215,846     199,341 
     Related party liabilities  —      (65,232)    (143,640)
                
          Net cash used in operating activities  (1,952,832)   (735,624)    (5,531,724)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Proceeds from sale of property and equipment  10,000    —       10,000 
 Purchases of property and equipment  —      (19,421)    (40,392)
                
          Net cash used in investing activities  10,000    (19,421)    (30,392)
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
 Proceeds from borrowings  365,690    590,000     1,523,238 
 Repayment of borrowings  —      —       (100,000)
 Proceeds from issuance of common stock  1,326,852    143,712     3,124,792 
Proceeds from the issuance of stock options  —      —       200,818 
 Proceeds from issuance of convertible preferred stock  250,000    (26,186)    790,000 
 Costs of financings  —      —       (76,187)
 Proceeds from sale of warrant  —      —       35 
                
          Net cash provided by financing activities  1,942,542    707,526     5,562,696 
                
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  (290)   (47,521)    580 
                
CASH AND CASH EQUIVALENTS - Beginning of period  870    47,521       
                
CASH AND CASH EQUIVALENTS - End of period $580   $—      $580 
                
NONCASH INVESTING AND FINANCING ACTIVITIES:               
 Exchange of convertible promissory notes for preferred stock $—     $—      $195,342 
                
 Issuance of warrants to investors $—     $23,329    $371,180 
                
 Bifurcation of derivatives embedded in convertible notes $—     $250,622    $548,053 
                
 Preferred stock warrants reclassified from liabilities to equity $2,032   $—      $37,110 
                
 Issuance of convertible notes in lieu of payment of payable $284,313   $21,250    $438,090 
                
 Dividend to founder for assumption of debts $—     $—      $365,870 
                

 

  See notes to financial statements.

F-3

AMARANTUS BIOSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS

 

1. GENERAL

 

Amarantus BioSciences, Inc. (the “Company”) was incorporated on January 14, 2008 in the state of Delaware. The Company is a development stage 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 September 30, 2012, the Company has been primarily engaged in biotechnology research and development and raising capital.

 

2. DEVELOPMENT STAGE 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. Accordingly, the Company is considered to be in the development stage as of September 30, 2012, as defined by the Financial Accounting Standard Board, or FASB, Accounting Standard Codification, or ASC 915. 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. As of September 30, 2012, the Company has been funded by 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 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. As of September 30, 2012, the Company had cash and cash equivalents of $580. During the three months ended September 30, 2012, the Company incurred a net loss of $564,378 and had negative cash flows from operating activities of $390,245. In addition, the Company had an accumulated deficit of $9,598,072 at September 30, 2012. 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 or equity financings. Management plans to seek additional debt and/or equity financing for the Company 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 this uncertainty.

 

F-4

3. SIGNIFICANT ACCOUNTING POLICIES

 

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. Actual results could differ from those estimates.

 

Certain Significant Risks and Uncertainties - The Company participates in a global dynamic highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows: ability to obtain future financing; advances and trends in new technologies and industry standards; regulatory approval and market acceptance of the Company’s products; development of the necessary manufacturing capabilities and to obtain adequate resources of necessary materials; development of sales channels; certain strategic relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth.

 

Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents with domestic financial institutions that are federally insured within statutory limits.

 

Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Property and Equipment - Property and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives as follows:

 

Equipment 3 years
Computer equipment 2 years
Furniture and fixtures 3 years

 

The Company reviews the carrying value of long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. There have been no such impairments.

 

Property and equipment at September 30, 2012 and December 31, 2011, consisted of the following:

 

   September 30,  December 31,
   2012  2011
Equipment  $—     $34,851 
Computer equipment   —      3,179 
Furniture and fixtures   —      2,363 
    —      40,393 
Less accumulated depreciation   —      (22,004)
Property and equipment - net  $—     $18,389 
           
    September 30,    September 30, 
    2012    2011 
Depreciation Expense:          
   Three months ended  $1,452   $4,132 
   Inception to Date   33,014      
F-5

Revenue Recognition - The Company recognizes revenue when the earnings process is complete, which under SEC Staff Accounting Bulletin No. 104, Topic No. 13, "Revenue Recognition" ("SAB 104"), is when revenue is realized or realizable and earned, there is persuasive evidence a revenue arrangement exists, delivery of goods or services has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. 

 

The Company accounts for milestones related to research and development activities in accordance with the milestone method of revenue recognition of Accounting Standards Codification Topic 605-28, under which consideration contingent on the achievement of a substantive milestone is recognized in its entirety in the period when the milestone is achieved. A milestone is considered to be substantive when it meets all of the following criteria: the milestone is commensurate with either the performance required to achieve the milestone or the enhancement of the value of the delivered items resulting from the performance required to achieve the milestone; the milestone relates solely to past performance; and, the milestone is reasonable relative to all of the deliverables and payment terms within the agreement.

 

To date, the Company has only received research grant revenue and contract revenue. Research grant revenue and contract revenue is recognized as the Company provides the services stipulated in the underlying agreement based on the time and expenditures incurred, and all milestones required in the agreement have been met.  Amounts received in advance of services provided are recorded as deferred revenue and amortized as revenue when the services are provided and the milestones are met.  The Company received and recognized total research grant revenue of $-0- for both the three months ended September 30, 2012 and 2011, respectively, as the Company incurred all of the qualifying expenses and all applicable milestones were met. See Note 5 to the financial statements for further information on the research grant revenue received and recognized to date.

 

Research and Development Expenditures - Research and development expenses consist of personnel costs, including salaries, benefits and stock-based compensation, materials and supplies, licenses and fees, and overhead allocations consisting of various administrative and facilities related costs. Research and development activities are also separated into three main categories: research, clinical development, and biotechnology development. Research costs typically consist of preclinical and toxicology costs. Clinical development costs include costs for Phase 1 and 2 clinical studies. Biotechnology development costs consist of expenses incurred in connection with product formulation and analysis. The Company charges research and development costs, including clinical study costs, to expense when incurred, consistent with the guidance of FASB ASC 730, Research and Development.

 

Stock-Based Compensation - Stock-based compensation is measured at the grant date based on the fair value of the award. The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has been reduced by an estimated forfeiture rate. The forfeiture rate is determined at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

Expected Term — The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin No. 110, Certain Assumptions Used in Valuation Methods.

 

Expected Volatility — As the Company has limited stock price history, expected volatility has been estimated based on the volatilities of similar companies that are publicly traded.

 

Risk-Free Interest Rate — The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

 

Expected Dividend — The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

 

The Company recognizes fair value of stock options granted to nonemployees as stock-based compensation expense over the period in which the related services are received.

F-6

Stock Warrants - Certain warrants to purchase the Company’s stock are classified as liabilities in the balance sheets. These warrants are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense). Other warrants to purchase the Company’s convertible preferred stock are classified as equity in the balance sheet and are not subject to remeasurement.

 

Derivative Liability - Certain derivatives embedded within convertible promissory notes have been bifurcated and recorded as derivatives in the balance sheets because they are not clearly and closely related. These derivatives are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense).

 

Income Taxes - The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

 

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.

 

The Company recognizes the tax benefit from uncertain tax positions in accordance with GAAP, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s tax return.

 

Fair Value of Financial Instruments -The carrying amount reported in the balance sheets for cash and cash equivalents, accounts payable, and accrued liabilities approximates their value due to the short-term maturities of such instruments.

 

Net income (loss) per share attributable to Amarantus common stockholders

 

Basic net income (loss) per share attributable to Amarantus common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares outstanding for the period. In accordance with FASB ASC 260, because there was a net loss for the period, zero incremental shares were included for diluted earnings per share because the effect would be anti-dilutive.

 

Recently Adopted Accounting Guidance

 

Variable Interest Entities. In September 2009, the FASB issued new accounting guidance relating to consolidation of variable interest entities (“VIEs”), which amends the current accounting guidance for determining whether an entity is a VIE and defining the primary beneficiary. This guidance also requires additional disclosures relating to involvement with a VIE. We adopted this guidance during the first quarter of our fiscal 2010. The adoption of this guidance did not have a material effect on our Financial Statements and disclosures.

 

Fair Value Measurements. In January 2010, the FASB issued new accounting guidance requiring additional disclosures about the different classes of assets and liabilities measured at fair value, valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1 and 2. It also clarified guidance around disaggregation and disclosures of inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The current guidance is effective beginning with the first quarter of our fiscal 2010, except for the new disclosures relating to the Level 3 reconciliation, which was effective for the first quarter of our fiscal 2011. Refer to Note 6 – Fair Value Measurements for our Company’s fair value measurements and disclosures.

F-7

Recently Issued Accounting Pronouncements

 

In May 2011, the FASB issued updated accounting guidance to amend existing requirements for fair value measurements and disclosures. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets and liabilities as well as instruments classified in shareholders’ equity. The guidance is effective for annual and interim periods beginning after December 15, 2011. The implementation of this guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In September 2011, the FASB issued guidance concerning the presentation of Comprehensive Income in the financial statements. Entities will have the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate, but consecutive statements. The disclosure requirements are effective for annual and interim periods beginning after December 15, 2011 and should be retrospectively applied. The implementation of this guidance is not expected to have any impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In September 2011, the FASB issued guidance on annual and interim goodwill impairment tests. An entity may now first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The implementation of this guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

F-8

4. AGREEMENT AND PLAN OF MERGER

 

On May 25, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Amarantus Biosciences, Inc., a privately held Delaware corporation (“Amarantus”), and JKIK Acquisition Corp. (“Acquisition Sub”), our newly formed wholly-owned Delaware subsidiary. In connection with the closing of this merger transaction, Amarantus merged with and into Acquisition Sub (the “Merger”) on May 25, 2011, with the filing of articles of merger with the Delaware Secretary of State.

 

In addition, pursuant to the terms and conditions of the Merger Agreement:

 

  · Each share of Amarantus common stock and each share of Amarantus preferred stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive a pro-rata portion of a total of 1,820,000 shares of our common stock. As a result, the shareholders of Amarantus received 1,820,000 newly issued shares of our common stock.
  · Our board of directors was reconstituted to consist of Martin D. Cleary, Chairman, together with Dr. John W. Commissiong, Gerald E. Commissiong, Arnold T. Grisham, Robert L. Harris, and Eugene Mancino, who prior to the Merger were the directors of Amarantus.
  · Our sole officer and director immediately prior to the Merger, Richard Douglas, resigned from the board and from all offices.
  · Our board appointed Martin D. Cleary as our Chief Executive Officer, Dr. John Commissiong as our Chief Scientific Officer, Gerald E. Commissiong as our Chief Operating Officer, and Marc E. Faerber as our Chief Financial Officer, Treasurer, and Secretary.
  · In connection with the Merger, our former sole officer and director immediately prior to the Merger, Richard Douglas, received a transfer of all assets and agreed to assume all liabilities related to our pre-merger business.
  · Following the closing of the merger, Mr. Douglas canceled and returned all 10,000,000 shares of his common stock.
  · Following the closing of the merger, in a separate transaction, we authorized a forward split of 25 shares for each share of our common stock issued and outstanding at the time of the split.
  · Following the closing of the merger, our board of directors and shareholders approved a change in the name of the company to Amarantus BioSciences, Inc.”  
  · As a result, following these events, there were 67,000,000 shares of our common stock issued and outstanding.
  · In connection with the Merger, we adopted Amarantus’ 2008 Stock Plan and confirmed all options issued thereunder.  In addition, we adopted and assumed certain convertible notes and warrants issued by Amarantus prior to the Merger. 
  · Amarantus provided customary representations and warranties and complied with standard closing conditions, including approval of the Merger by its voting stockholders. 

 

Expenses incurred with the merger were $26,186 and were recorded as part of Stockholders’ Equity.

 

The Merger was accounted for as a reverse recapitalization. Reverse recapitalization accounting applies when a non-operating public shell company (Jumpkicks) acquires a private operating company (Amarantus) and the owners and management of the private operating company have actual or effective voting and operating control of the combined company. A reverse recapitalization is equivalent to the issuance of stock by the private operating company for the net monetary assets of the public shell corporation accompanied by a recapitalization with accounting similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets are recorded. In the Merger transaction, Jumpkicks qualified as a non-operating public shell company because all pre-merger business assets and liabilities were transferred to and assumed by the sole officer and director of Jumpkicks, prior to the completion of the Merger. The reverse recapitalization accounting is attributable to a long-held position of the staff of the Securities and Exchange Commission as the acquisition of a non-operating public shell company does not qualify as a business for business combination purposes, as described in Accounting Standards Codification Topic 805, Business Combinations.

 

Complete information regarding the merger was included in our Form 8K/A filed on June 3, 2011.

F-9

5. MICHAEL J. FOX FOUNDATION GRANT

 

In April 2010, the Company was awarded a grant from the Michael J. Fox Foundation for Parkinson’s Research (“MJFF”). Pursuant to the MJFF grant, the Company performed research related to comparison and analysis of certain genes in rodent models of Parkinson’s disease. The grant provided for the reimbursement of expenses as incurred up to a maximum of $370,716, payable in two installments with targeted payments in April 2010 and October 2010, and it established two milestones. During the three months ended March 31, 2011, the Company achieved certain milestones and received payment and recorded revenue of $178,308. To date, through September 30, 2012, the Company has received a total of $370,716 from the MJFF.

 

6. FAIR VALUE MEASUREMENTS

 

Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows:

 

Level 1 — Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

 

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, by level within the fair value hierarchy, are as follows:

 

Fair Value Measurements at September 30, 2012
Level 1 Level 2 Level 3 Total
Warrant Liability $ 255,451 $ 255,451
Derivative Liability 30,092 30,092
Total $ —   $ —   $ 285,543 $ 285,543

 

Fair Value Measurements at December 31, 2011
Level 1 Level 2 Level 3 Total
Warrant Liability $ 283,931 $ 283,931
Derivative Liability 140,706 140,706
Total $ —   $ —   $ 424,637 $ 424,637

 

F-10

The following table provides a summary of changes in the fair value of the Company’s Level 3 financial liability mentioned above for the year ended December 31, 2011, for the period ended September 30, 2012 and for the period from January 14, 2008 (date of inception) to September 30, 2012:

 

Warrant   Derivative    
  Liability   Liability   Total
January 14, 2008 (date of inception) $ -       $ -       $ -    
Issuance of warrants   52,665                52,665   
Issuance of convertible notes           9,377        9,377   
Changes in fair value   (15,960  )     (4,402  )     (20,362  )
                     
December 31, 2008   36,705        4,975        41,680   
Changes in fair value   (1,692  )     (4,975  )     (6,667  )
                     
December 31, 2009   35,013              35,013   
Issuance of warrants   3,680                3,680   
Issuance of convertibles notes           281,466        281,466   
Reclassification of warrants to equity   (37,110  )             (37,110  )
Cancellation of warrants   (65,082  )             (65,082  )
Changes in fair value   67,915        6,081        73,996   
                     
December 31, 2010 $ 4,416      $ 287,547      $ 291,963   
Issuance of warrants   314,835                314,835   
Issuance of convertible notes           257,210        257,210   
Changes in fair value   (35,320)       (404,051)       (439,371)  
                     
December 31, 2011 $ 283,931      $ 140,706      $ 424,637   
Issuance of warrants                      
Issuance of convertible notes           369,910        369,910   
Changes in fair value   (26,448  )     (480,524  )     (506,972  )
Reclassification of warrants to equity   (2,032  )             (2,032  )
                     
September 30, 2012 $ 255,451      $ 30,092      $ 285,543   

 

The valuation of the convertible stock warrant liability is discussed in Note 8.

 

7. ACCRUED LIABILITIES

 

Accrued liabilities at September 30, 2012 and December 31, 2011, consisted of the following:

 

September 30, December 31,
2012 2011
Accrued compensation and related benefits $ 18,746 $ 18,746
Accrued interest 134,735 58,462
Total $ 153,481 $ 77,208
F-11

8. CONVERTIBLE PROMISSORY NOTES AND DERIVATIVE LIABILITY

 

The Company owes the principal amount of $230,000 to a total of six (6) investors who were issued Convertible Promissory Notes under the terms of a Convertible Promissory Note Agreement dated December 13, 2010 and amended on March 23, 2011 as follows:

 

 Principal Amount   Issue Date  Maturity Date
$100,000   12-13-10  12-13-12
$25,000   4-11-11  4-11-13
$35,000   4-15-11  4-15-13
$10,000   4-22-11  4-22-13
$50,000   4-27-11  4-27-13
$10,000   6-6-11  6-6-13

 

These notes bear interest at a rate of 5% per annum, with all principal and accrued interest payable on the maturity date. Principal and unpaid accrued interest due under these notes shall be automatically converted into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to one-third of the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into shares of our most recently closed equity financing, based on a conversion price equal to one-third of the price per share of the most recently closed equity financing. On May 30th, 2012, at the request of a majority of the noteholders, the Company modified the conversion terms to allow these notes to convert at a fixed price of $0.04 at any time, with all other provisions remaining exactly the same.

 

In addition, we previously owed the principal sum of $41,537 to Molecular Medicine Research Institute (MMRI”), who was issued a series of Convertible Promissory Notes under the terms of a Note and Warrant Purchase Agreement as follows:

 

 Principal Amount   Issue Date  Maturity Date   
$16,037   11-1-10  11-1-12  Note principal and accrued interest assigned June, 2012
$4,250   12-1-10  12-1-12  Note principal and accrued interest assigned June, 2012
$4,250   1-1-11  1-1-13  Note principal and accrued interest assigned June, 2012
$4,250   2-1-11  2-1-13   
$4,250   3-1-11  3-1-13   
$4,250   4-1-11  4-1-13   
$4,250   5-1-11  5-1-13   

 

These notes bear interest at a rate of 5% per annum, with all principal and accrued interest payable on demand by the holder on or after the maturity date. Principal and unpaid accrued interest due under these notes shall be converted, at the option of the holder, into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into a new class of Preferred Stock, with the conversion price per share to be based upon a pre-money valuation of the company at that time of $2,000,000. These notes also include 20% warrant coverage which expires seven years from the date of the note. In September 2012, $24,537 of the note principal plus accrued interest was assigned to a new investor. Along with this assignment the warrants associated with these specific notes have been cancelled.

F-12

We are currently party to a Sponsored Research Agreement (“SRA”) with MMRI under which we are provided office and laboratory space, use of research equipment, and other items within MMRI’s research facility in exchange for a monthly Sponsor Research Fee. The notes detailed above, in conjunction with certain warrants to purchase stock, were issued in payment of 50% of the respective monthly fees due under this agreement. In September 2012 we terminated our SRA and entered into a month to month Storage Agreement which provides storage for the frozen cell lines.

 

In addition, we owe the principal sum of $12,240 to The Parkinson’s Institute, which was issued a Convertible Promissory Note under the terms of a Note and Warrant Purchase Agreement dated August 25, 2010. This note bears interest at a rate of 5% per annum, with all principal and accrued interest payable on demand by the holder on or after the maturity date of August 25, 2012. Principal and unpaid accrued interest due under this note shall be automatically converted into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into a new class new class of Preferred Stock, with the conversion price per share to be based upon a pre-money valuation of the company at that time of $2,000,000. In addition the note holder has warrant coverage equal to 5% of the note principal with a warrant exercise price equal to the next equity financing per share price, and expiration seven years from the date of the note. In September 2012, $12,240 of the note principal plus accrued interest was assigned to a new investor. Along with this assignment the warrants associated with these notes have been cancelled.

 

In June, 2012, we entered into a convertible note agreement with an investor for a principal amount of $39,831. This note bears an interest rate of 12% per annum, compounded monthly, and has a maturity date of June 5, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. We have the option to prepay the note at any time in the amount of 150% of the principal and unpaid accrued interest. This note represents the assignment of the Parkinson’s and MMRI notes discussed earlier. In June 2012 the note holder converted $9,831 into common stock. In August 2012 the note holder assigned their remaining balance, $30,000, plus accrued interest to a new note holder.

 

Also, in June 2012, we entered into a convertible note agreement with an investor for a principal amount of $21,500. This note bears an interest rate of 12% per annum and has a maturity date of January 6, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the average of the three lowest trading prices over the prior ten trading days from the date of conversion. We have the option to prepay note at any time in the amount of 150% of the principal and unpaid accrued interest within the first ninety days.

 

In August, 2012, we entered into a convertible note agreement with an investor for a principal amount of $30,880. This note bears an interest rate of 12% per annum, compounded monthly, and has a maturity date of June 5, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. We have the option to prepay the note at any time in the amount of 150% of the principal and unpaid accrued interest. This note is an assignment of a previous note. Also in September, 2012, the note holder converted $10,805 of the principal into common shares of the Company.

 

In September, 2012, we entered into a two separate convertible note agreement with an investor for a principal amount of $30,000 and $42,000, both the result of prior issued note assignments. These notes bear an interest rate of 12% per annum, and have a maturity date of September 14, 2013 and September 27, 2013, respectively. The note holder has the option to convert the notes into common stock at any time, conversion at 50% of the lowest trading price over the prior twenty trading days from the date of conversion. We have the option to prepay the note at any time in the amount of 125% of the principal and unpaid accrued interest. Also in September, 2012, the note holder converted all of the $30,000 note principal into common shares of the Company.

F-13

We also owe the principal sum of $500,000 to a total of ten (10) investors who were issued Secured Convertible Promissory Notes under the terms of a Senior Secured Convertible Promissory Note Agreement dated December 28, 2010, as amended May 20, 2011 as follows:

 

 Principal Amount   Issue Date  Maturity Date   Assigned      
$125,000   12-28-10  12-6-11  $42,000    Assigned August 2012 
$62,500   12-28-10  12-6-11          
$100,000   4-15-11  12-6-11          
$25,000   4-18-11  12-6-11          
$25,000   5-13-11  12-6-11          
$50,000   5-19-11  12-6-11          
$25,000   5-24-11  12-6-11          
$25,000   5-24-11  12-6-11          
$31,250   6-7-11  12-6-11          
$31,250   6-9-11  12-6-11          

 

Principal and interest, accrued at the rate of 5% per annum, are due and payable on December 6, 2011, unless earlier converted into equity securities of the company. Principal and unpaid accrued interest shall be converted, at the option of the holder, into equity securities of the company at the closing of our next equity financing in which gross aggregate proceeds to the Company exceed $1,750,000 and the Company registers its stock for sale pursuant to the Securities and Exchange Act of 1934. The conversion price shall be equal to one-third of the price per share of this financing. If this financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted, at the option of the holders of a majority of the aggregate principal amount of the senior secured convertible promissory notes, into common stock of the Company. These notes were formerly secured by collateral consisting of substantially all assets of the company. Under the May 20, 2011 amendment to the Senior Secured Convertible Promissory Note Agreement, this security interest was terminated. Under the terms of the agreement as amended, we may not incur any indebtedness for borrowed money except pursuant to an agreement that provides that repayment of such indebtedness will be subordinated to repayment of the Notes. In addition, we may not encumber any of our property during such time as the Notes remain due and owing. As provided in the amendment the note holders have warrant coverage equal to 100% of the note principal at an exercise price equal to 100% of that to outside investors in the closing of the next equity financing of $1,175,000, but not to be less than $0.60 per share. The warrants expire five years from the date of the next equity financing closing. We are currently in default on these notes. See footnote 9 Commitments and Contingencies for further information.

 

During the twelve months ended December 31, 2011, the Company issued convertible promissory notes to various investors for aggregate proceeds of $90,000. Principal and interest on these convertible notes, accrued at the rate of 6% per annum, are due and payable 180 days from the issuance date, unless earlier converted into equity securities of the Company, at the option of the Holder of the promissory note. Conversion of the principal and interest will be at either $0.10 or $0.20 per share. In addition, the Company issued warrants to the note holders to purchase a number of shares of capital stock issued to investors at the equivalent of 100% of the principal amount of the notes divided by the respective price per share of the stock which the principal of the note converts into. The warrants expire one year from the date of the note. During the nine month ended September 30, 2012, $57,000 of these convertible notes converted to Company Common shares and another $20,000 was assigned to another note holder in September 2012.

F-14
Principal Amount Issue Date Maturity Date Converted to Equity Assigned Assigned or Conversion Date
$ 21,000 7-28-11 1-24-12 $ 21,000 February 2012
$ 21,000 7-28-11 1-24-12 $ 21,000 February 2012
$ 10,000 8-16-11 2-12-12 $    
$ 20,000 8-18-11 2-14-12 $ 20,000 September 2012 
$ 5,000 9-6-11 3-4-12 $ 5,000 February 2012
$ 5,000 9-9-11 3-7-12 $ 5,000 February 2012
$ 3,000 9-26-11 3-24-12
$ 5,000 11-2-11 4-30-12 $ 5,000 February 2012

 

During the period October, 2011 through September 30, 2012, the Company issued convertible promissory notes to various investors for aggregate proceeds of $283,688. Principal and interest on these convertible notes accrue at the rate of 6% per annum, are due and payable 180 days from the issuance date, unless earlier converted into equity securities of the Company, at the option of the Holder of the promissory note. Conversion of the principal and interest will be at either $0.01 or $0.165 per share.

 

Principal Amount Issue Date Maturity Date Converted to Equity Conversion Date
$ 5,000 10-27-11 4-24-12 $ 5,000 February 2012
$ 10,000 11-23-11 5-21-12
$ 30,000 11-30-11 5-28-12 $ 30,000 February 2012
$ 10,000 12-8-11 6-5-12 $ 10,000 February 2012
$ 5,000 12-14-11 6-11-12 $ 5,000 February 2012
$ 5,000 12-30-11 6-27-12 $ 5,000 February 2012
$ 3,638 1-5-12 7-3-12
$ 100,000     1-17-12     7-15-12            
$ 7,800. 2-8-12 8-6-12
$ 3,750 2-21-12 8-19-12 $ 3,750 February 2012
$ 25,000 4/2/12 9/29/12 $ 25,000 April 2012
$ 5,000 5/18/12 11/14/12 $    
$ 13,000 6/6/12 12/3/12    
$ 5,000     7/10/12     1/6/13            
$ 50,000     8/23/12     2/19/13            
$ 5,500     9/4/12     3/3/13            

 

In March, 2012, $9,500 of convertible note principle was issued as part of a unit debt instrument which consisted of a return on investment (“ROI”) agreement and a convertible promissory note in return for $10,000. The ROI has a redemption value of $10,500 due on demand and the convertible promissory note is for $9,500, non-interest bearing, due September 20, 2012, and is convertible to common shares after six months from the date of the note at a conversion price that is 50% of the lowest trading price over the 20 prior trading dates from the date of conversion notice. In September 2012 the convertible note converted to common stock.

 

In August, 2012, $6,066 of convertible note principle was issued as part of a unit debt instrument which consisted of a return on investment (“ROI”) agreement and a convertible promissory note in return for $6,066. The ROI has a redemption value of $672.44 due on demand and the convertible promissory note is for $6,066, non-interest bearing, due February 21, 2013, and is convertible to common shares after six months from the date of the note at a conversion price that is 50% of the lowest trading price over the 20 prior trading dates from the date of conversion notice. In September 2012 the convertible note converted to common stock.

 

During the six months ended June 30, 2012, the Company issued two convertible promissory notes to one investor totaling $39,325 Principal and interest on these convertible notes accrued at the rate of 12% per annum. The holder of the note can convert the note to common shares of the Company at any at 50% of lowest trading bid price for prior twenty trading days before conversion. Both notes were converted on the same day as the issuance date.

F-15


 Principal Amount   Issue Date  Maturity Date   Converted to Equity   Conversion Date
$15,000   3/9/12  10-27-12  $15,000   3/9/12
$24,325   5/4/12  11/4/12  $24,250   5/4/12

 

During the six months ended June 30, 2012, the Company issued four convertible promissory notes to one investor totaling $91,500. Principal and interest on these convertible notes accrue at the rate of 8% per annum. The holder of the note can convert the note to common shares of the Company any time after the initial 180 days of the note at a conversion price that is a percentage of an average of the market low over for a certain number days over a greater number of prior number of trading days from the date of notice to convert.

 

 Principal Amount   Issue Date  Maturity Date    Converted to Equity  Conversion Date
$37,500   2-7-12  10-27-12  $
$
24,000
2,767
  August 2012
September 2012
$17,000   3/19/12  12-21-12       
$13,000   5/3/12  2/7/13       
$24,000   6/13/12  5/13/12        

 

In January, 2012, a vendor convertible their trade account to convertible promissory notes for the amount due them at the time of the note plus future billings, amounting to $244,988. These notes accrue interest at 8.5% and have the option to convert to common stock at any time by the note holder, at a conversion price of $0.11 per share. These notes are payable upon demand.

 

A number of Company’s convertible notes contain embedded derivatives wherein their automatic conversion, which is contingent upon a future equity raise, can accelerate the realization of the expected payout for each note. This feature creates the possibility of a greater than expected return for the note holder and thus a higher than expected liability for the Company. The value of this feature was estimated for each note using the probability expected return method, in which the payout of distinct potential early conversion scenarios was discounted to the present using the expected IRR of the note and compared with the present value of the note if held to maturity. Probabilities were applied to the value of early conversion in each scenario to arrive at a probability weighted value of the early conversion feature.

 

As of September 30, 2012 and December 31, 2011, the fair value of the derivative liability was $30,092 and $140,706, respectively. The changes in fair value for the three month periods ended September 30, 2012 and September 30, 2011 of $226,429 and $152,453 respectively, and for the nine month periods ended September 30, 2012 and September 30, 2011 of $480,524 and $312,907 respectively, and the period from January 14, 2008 (date of inception) to September 30, 2012 of $889,742 have been recorded in the accompanying statements of operations as a component of other income (expense).

 

F-16

9. COMMITMENTS AND CONTINGENCIES

 

Commitments — The Company leases its main office facility and a second facility for research in Sunnyvale, CA under sublease agreements that provide for month-to-month extensions by the Company.

 

Rent expense for the three months ended September 30, 2012 and September 30, 2011 was $11,036 and $30,336, respectively, and for the nine months ended September 30, 2012 and September 30, 2011 rent expense was $27,950 and $91,825, respectively. For the period from January 14, 2008 (date of inception) to September 30, 2012, rent expense was $280,169

 

Effective November 1, 2011 the Company entered into a consulting agreement where the consultant is to receive a stock option for common stock of 500,000 shares, fully vested, to be priced upon the Board of Directors approving such grant.

 

Contingencies — From time to time, the Company may become involved in litigation. On January 6, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract, Specific Performance and Common Counts) against the Company by a former consultant to the Company, Peter Freeman v. Amarantus BioSciences, Inc. In August, 2012, the company reached a settlement with Mr. Freeman whereby he will receive payment of $44,000, in monthly installments of $5,000 until fully paid.

 

On April 17, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract, Account Stated, and Reasonable Value) against the Company by Trinet HR, a former payroll services provider to the Company, Trinet HR v. Amarnatus Biosciences, Inc. The suite of for a total of $12,196 for services previously provided to the Company.

 

On August 8, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract) against the Company by On Assignment Staffing Services, Inc., a temporary staffing agency, for outstanding debts of $36,414 allegedly due On Assignment Staffing Services, Inc.

 

In addition the Company is in default on payment of certain Convertible Notes that were due as of December 6, 2011 and is also late with regard to making payments to various trade account vendors for goods and services received, of which some accounts are currently with collection agencies and could possibly result in lawsuits with the Company.

 

The Company agreed to compensate certain vendors for services rendered contingent upon the occurrence of future financings as follows:

 

Future financing with proceeds of at least
         
$ 1,000,000 $ 50,000
1,250,000 20,000
1,500,000 26,000
2,000,000 50,000
5,000,000 50,000
6,000,000 20,000
 
Total $ 216,000
           

 

The Company incurred various obligations related to the original acquisition of its intellectual property around the time the Company was founded. These transactions are described more fully below in Note 16, including a reference to contingent obligations reflected in the financial statements.

F-17

10. COMMON STOCK

 

The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 250,000,000 shares of $0.001 par value common stock. Common stockholders are entitled to dividends when and if declared by the Board of Directors. The holder of each share of common stock is entitled to one vote. As of September 30, 2012, no dividends had been declared.

 

Common stock that the Company had reserved for issuance at September 30, 2012, is as follows:

 

Exercise and conversion of common stock warrants  $1,743,056 
Stock options outstanding   1,829,030 
Stock options available for future grants under the 2008 Stock Plan  1,535,876 
Total shares of common stock reserved  $5,107,962 

 

As of September 30, 2012 the Company had outstanding $1,311,800 of convertible note principal. These convertible notes, along with related accrued interest, convert upon the Next Equity Financing or at the option of the note holder. These notes convert at various rates ranging from established conversion prices to variable discounted prices calculated as an average or the lowest trading prices over a certain number or prior trading days. Some notes have warrants that range from

 

$17,000 of convertible debt principal have interest at 5% and warrants equivalent to 20% of the principal balance, respectively, and convert upon the next equity financing.

 

$500,000 of convertible note principal and related accrued interest convert at two-thirds the price per share of the Next Equity Financing and have warrants equivalent to 100% of the principal balance

 

$230,000 of convertible note principle and related accrued interest convert at $0.04 per share.

 

$283,688 of convertible note principal having interest at 6%, can convert at prices ranging from $0.002 to $0.165 per share at anytime at the option of the note holder, and have no warrants. As of September 30, 2012, $83,750 of the principal of this $283,688 convertible debt has converted to common shares.

 

$90,000 of convertible note principal having interest at 6%, can convert at $0.10 or $0.20 per share at anytime at the option of the note holder and warrants equivalent to 100%. As of September 30, 2012, $57,000 of the principal of this $90,000 convertible debt has converted to common shares.

F-18

$244,988 of convertible note principal, having an interest rate of 8.5%. no warrants, can convert at $0.11 per share at anytime at the option of the note holder.

 

$91,500 of convertible note principal, having and interest rate of 8%, no warrants, can convert at 50-55% of the average of the two-three lowest trading days of the prior 10-60 trading days, there is a 180 day waiting period before the holder has the option to convert to common shares. As of September 30, 2012, $26,767 has converted to common stock.

 

$9,500 of convertible note principle was issued as part of a unit debt instrument which consisted of a return on investment (“ROI”) agreement and a convertible promissory note in return for $10,000. The ROI has a redemption value of $10,500 due on demand and the convertible promissory note is for $9,500, non-interest bearing, due September 20, 2012, and is convertible to common shares after six months from the date of the note at a conversion price that is 50% of the lowest trading price over the 20 prior trading dates from the date of conversion notice. The common share effect of the convertible debt is not included in the above schedule since the number of shares will not be determinable until the Next Equity Financing. (See Note 8). This convertible note converted to common shares in September 2012.

 

$30,000 of convertible note principal, having interest of 12% per annum, compounded monthly, can convert any time at the option of the note holder, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. As of September, 2012 this note has been assigned.

 

$21,500 of convertible note principal, having interest of 12% per annum, can convert anytime at the option of the note holder, can convert at 55% of the average of the three lowest trading prices over the prior ten trading days from the date of conversion.

 

$30,880 of convertible note principal, having interest of 12% per annum, compounded monthly, can convert any time at the option of the note holder, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. As of September, 2012 this note has been assigned. Also in September, 2012, the note holder converted $10,805 of the principal into common shares of the Company.

 

$72,000 of convertible notes principal, having interest of 12% per annum, compounded monthly, can convert any time at the option of the note holder, conversion at 50% of the lowest trading price over the prior twenty trading days from the date of conversion. As of September, 2012 this note has been assigned. Also in September, 2012, the note holder converted all of the $30,000 note principal into common shares of the Company.

 

The common share effect of the warrants related to the following convertible debt has been included in the above schedule.

 

During the nine months ended September 30, 2012 the Company issued $1,746,497 worth of common stock, $1,272,412 to various consultants for services, it paid $54,442 of trade accounts payable with shares of common stock in settlement of the trade debt and it paid $419,643 to acquire rights to certain technology.

F-19

11. STOCK OPTION PLAN

 

The Company’s Board of Directors has approved the 2008 Stock Plan (the “Plan”). Under the Plan, the Board of Directors may grant up to 10,742,127 shares of incentive stock options, nonqualified stock options, or stock awards to eligible persons, including employees, nonemployees, 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 generally have a contractual life of 10 years and vest over periods ranging from being fully vested as of the grant dates to four years.

 

      Outstanding Options
         Weighted-  Weighted-
   Shares     Average  Average
   Available for  Number of  Exercise  Remaining
   Grant  Shares  Price  Contractual Term
Balance - January 14, 2008                    
  (date of inception)                    
                     
  Shares added to the plan   6,085,136                
                     
Balance - December 31, 2008   6,085,136                
                     
Balance - December 31, 2009   6,085,136                
                     
  Shares added to the plan   4,656,991         0.01      
                     
Options granted (weighted average fair values of $0.0237)   (3,206,494)   3,206,494    0.01    9.2 
                     
Balance - December 31, 2010   7,535,633    3,206,494    0.01    9.2 
                     
  Shares added to the plan                    
                     
Options granted (weighted average fair value of $0.0237)                    
      Employee   (4,610,422)   4,610,422    0.01      
      Non-Employee   (3,601,407)   3,601,407    0.01      
                     
      Cancelled Shares   2,212,071    (2,212,071)   0.01      
                     
      Options exercised        (7,532,454)   0.01      
                     
Balance   - December 31, 2011   1,535,875    1,673,797           
                     
Options vested-                    
  September 30,2012   6,899,011                
                     
Options vested and expected to vest-                    
  September 30, 2012   7,951,362                
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Stock-based compensation expense for the three and nine month periods ended September 30, 2012 and September 30, 2011, and the period from January 14, 2008 (date of inception) to September 30, 2011, is classified in the statements of operations as follows:

 

               Period From
   Three  Three  Nine  Nine  January 14, 2008
   Months Ended  Months Ended  Months Ended  Months Ended  Date of Inception
   September 30,  September 30,  September 30,  September 30,  to September 30,
   2012  2011  2012  2011  2012
Research and development  $17,931   $33,438   $24,857   $492,717   $567,348 
General and administrative   38,187    12,871    50,321    106,428    189,258 
                          
Total  $56,118   $46,309   $75,178   $599,145   $756,606 

 

At September 30, 2012, there was a total of $18,044 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock option awards, which is expected to be recognized over a weighted-average period of approximately 2.0 years.

 

The fair value of the Company’s stock-based awards during the year ended December 31, 2011, and the period from January 14, 2008 (date of inception) to September 30, 2012, was estimated using the following weighted-average assumptions:

 

         Period From
         January 14, 2008
   Nine Months Ended  Mine Months Ended  (Date of Inception)
   September 30,  September 30,  to September 30,
   2012  2011  2012
Weighted-average volatility   71.0%   71.0%   71.0%
Expected term (in years)   5    5    5 
Expected dividends   None    None    None 
Risk-free interest rate   0.72%   1.76%   1.76%

 

12. SEGMENT REPORTING

 

The Company operates in one reportable segment. The Company's Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company's operations as a whole and reviews financial information presented on this basis, for purposes of evaluating financial performance and allocating resources.

 

13. RELATED-PARTY TRANSACTIONS

 

The Company was co-founded in 2008 by Mr. Gerald Commissiong and Dr. John Commissiong under the original name of CNS Protein Therapeutics, Inc. (“CNS”), and changed its name to Amarantus BioSciences, Inc. in 2010. Dr. Commisiong is currently the Chief Scientific Officer, a member of the Board of Directors (appointed in March 2011) and majority shareholder of the Company. Mr. Gerald Commissiong is currently the Chief Operating Officer, a member of the Board of Directors, and a significant shareholder of the Company. Dr. Commissiong also founded Neurotrophics, Inc., a Canadian company, in 2003. In 2007, Neurotrophics established an agreement with EMS Development Group to acquire the intellectual property rights to a protein compound, mesencephalic astrocyte-derived neurotrophic factor (“MANF”), from Prescient Neuropharma Co. MANF was discovered by Dr. Commissiong while working for Prescient in 2002, as a drug candidate with promising therapeutic properties for treatment of syndromes such Parkinson’s Disease.

F-21

EMS received $59,000 in 2007 in funding from Neurotrophics to purchase the MANF intellectual property rights. Prior to this payment, Neurotrophics received a total of $100,000 in investments from certain outside parties. The same investors provided $100,000 in funding to CNS in 2008, and CNS renegotiated and assumed the $100,000 convertible note investment made into Neurotrophics. The investors directed Neurotrophics and EMS to assign the MANF intellectual property rights to CNS and CNS agreed to assume certain other liabilities related to the technology transfer. CNS will compensate these creditors on a future date mutually agreeable between the parties., In addition, CNS agreed to compensate EMS for its assistance in acquiring the rights to MANF by making installment payments in an aggregate amount of $95,000.

 

The technology transfer transaction created a contingent liability for the Company. Legal counsel to the Company has advised that transfers of assets out of the usual course of business, referred to under applicable Canadian law as “bulk sales”, must comply with certain rules in order to avoid a potential voiding of the sale or transfer, making the purchaser liable to unpaid trade creditors, or creating an encumbrance on the assets transferred or sold. The transfer of the MANF rights by Neurotrophics to CNS may impose such obligations on CNS, as a purchaser. Counsel further advised that upon payment in full of all of the Neurotrophics debts outstanding as of March 5, 2008, no action can be successfully maintained to void or set aside the transfer of the MANF rights to CNS, and thus to the Company.

 

To remedy this contingent liability, CNS agreed to compensate Neurotrophics to repay its creditors on a future date mutually agreeable between the parties, and agreed to assume debts owed to John Commissiong and Gerald Commissiong by Neurotrophics.

 

The Company has recorded a total of $287,462 and $222,230 as of December 2010 and 2011, respectively in obligations reflecting this liability in its financial statements. The Company recorded the assumption of the Neurotrophics debts as a dividend distribution in 2008.

 

In February 2011, the Company and Neurotrophics agreed to enter into two agreements regarding compensation for the March 5, 2008 transfer of the rights to MANF and issued notes in the amounts of $222,083 and $59,319, in favor of Neurotrophics and John and Gerald Commissiong, respectively. These notes bear interest at the rate of 2% per annum, and have maturity dates of March 5, 2015 and December 30, 2015, respectively. The loans may be repaid at the Company’s option on or before the maturity dates in the form of common stock of the Company at the then fair market value.

 

In October 2010, the Company entered into an agreement with the founders, Gerald Commissiong and John Commissiong, where they will receive a 2.5% (1.25% each for Gerald Commissiong and John Commissiong) Royalty from the gross commercial revenue of patents derived from the Company’s proprietary PhenoGuard platform technology, including patents associated with the MANF Protein and related Gene.

 

The Company obtained the services of its Chairman Martin D. Cleary through a consulting agreement. During the years ended December 31, 2010, 2011, and the period from January 14, 2008 (date of inception) to December 31, 2011, consulting services of $200,000, $200,000, and $479,166, respectively are included in the statement of operations. This agreement also includes a change of control clause whereby the Company shall pay Mr. Cleary a bonus of 5% of the gross proceeds to the Company resulting from the change of control. Upon his election and in his sole discretion, and in lieu of the change of control bonus, the Company shall issue to him shares of the Company’s common stock equal to 2.5% of the Company’s fully diluted capitalization as of the date of termination of the agreement.

 

In March 2012, a former and an existing Board of Director member converted a Convertible Promissory Note in the amount of $21,000, each plus accrued interest. This resulted in 217,280 shares of Common Stock to each party.

F-22

On August 23, 2012 we entered into a Convertible Promissory Note (the “Note”) with PENSCO Trust Co. FBO Robert L. Harris. Mr. Harris is currently a member of our board of directors and has lent us the principal sum of $50,000 under the terms of the Note. The Note accrues interest at a rate of six percent (6%) per annum and is due and payable within 180 days unless extended by agreement of the parties. The Note may be prepaid without penalty. The Note may be converted in whole or in part, at the election of the holder, into shares of our common stock at a price of $0.015 per share. The conversion price will be adjusted proportionately in the event of any split, reorganization, or reclassification of our common stock. In the event of our default, the Note will bear interest at the rate of twelve percent (12%) per annum.

 

Effective July 31, 2012, Martin D. Cleary resigned from his position as director and the Chairman of our Board of Directors. Also effective July 31, 2012, Eugene Mancino resigned from his position as a director. There was no known disagreement with Mr. Cleary or Mr. Mancino on any matter relating to the Company’s operations, policies, or practices.

 

In July, 2012, the Board of Directors designated 2,500,000 shares of the 10,000,000 shares of authorized Preferred Stock as Series B Convertible Preferred Stock (“Series B”). The Series B stock have a par value of $0.001 per share, have no liquidation rights or rights to a dividend, has a conversion feature of fifty shares of Common stock for each share of Series B, Series B cannot convert to Common until the second annual anniversary of the designation of the Series B Preferred, or a change in control occurs (defined as a 50% change in the voting power of the outstanding shares occurs). The holders of Series B shall be entitled to vote along with the Common Shares, at the same rate as if the Series B shares have been fully converted into Common Shares. In July, 2012 the Board of Directors granted 1,248,250 options to purchase Series B stock to certain officers and directors in consideration for services performed from inception to May 26, 2011 for which no consideration was paid. The Series B shall grant the Company a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or disability). In addition, the Series B is subject to the following vesting schedule: 25% vests immediately upon issuance, and the balance of the shares shall vest at the rate of one thirty-sixth (1/36) of the amount of shares based upon each year being a 12 month period, so that the shares will be vesting pro rata. For example, if 48,000 Series B shares are granted, 12,000 Series B shares shall vest immediately and 1,000 shares shall vest on a monthly basis for 36 months.

 

Further in July, 2012, the 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. The purposes of this 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 the Company’s business.

 

14. SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date its financial statements were available for issuance. The Company determined that the financial statements were available for issuance on November 17, 2012.

 

On January 16, 2012 the Company entered into a License Agreement with Power3 Medical Products, Inc (“Power3”) to license the NuroPro diagnostic test for Parkinson's disease to Amarantus BioSciences (the "License"). As part of the License, Amarantus was granted an option to acquire the Parkinson's Intellectual Property, and a right of first refusal to acquire the entire diagnostic platform for neurodegenerative diseases (collectively the "IP").  This license may have been granted at a time when Power3 did not have the authority to grant a license in some of its intellectual property (IP). On March 15th, 2012 Power3 filed for bankruptcy and the Receiver sold Power3's IP in receivership to NeoGenomics, Inc.  Although this sale may be subject to the avoidance powers of the Chapter 7 Trustee, at this time NeoGenomics has title to certain IP. Amarantus has put NeoGenomics on notice of the licensing agreement entered into with Power3 in order to provide equitable defenses in the event NeoGenomics makes an infringement claim against Amarantus. Amarantus is currently reviewing its legal options with respect to material misrepresentations made by the Executive Officers of Power3 at the time of the Licensing Agreement. Amarantus has also initiated discussions with NeoGenomics to acquire the IP related to the assignment made by the Receiver and expects those discussions to continue throughout the Power3's bankruptcy process. At this point the Company does not know how long the bankruptcy process may take. In August, 2012, the Company learned that the IP now belongs to the bankruptcy estate, and the Trustee has provided notice to the Patent and Trademark Office of the change in ownership. Further the Trustee willing to work with Amarantus with complying with Power 3’s original agreement with Amarantus, and has put forth a proposal which the Company in reviewing. In November 2012, the Company responded to the Trustee’s proposal and is currently waiting for a formal reply from the Trustee.

F-23

In November, 2012 the Board of Directors granted 1,250,000 options to purchase Series B stock to certain officers and directors in consideration for services performed from May 27, 2011 to June 30, 2012 for which no consideration was paid.  The Series B shall grant the Company a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or disability). In addition, the Series B is subject to the following vesting schedule: 25% vests immediately upon issuance, and the balance of the shares shall vest at the rate of one thirty-sixth (1/36) of the amount of shares based upon each year being a 12 month period, so that the shares will be vesting pro rata. For example, if 48,000 Series B shares are granted, 12,000 Series B shares shall vest immediately and 1,000 shares shall vest on a monthly basis for 36 months.

 

The Company issued a Convertible Promissory Note to Joseph Rubinfeld, co-founder of Amgen, in the principle amount of $10,000. The Note bears interest at the rate of six percent (6%) per annum until paid in full and can convert into shares of the Company’s common stock at a price of $0.01 per share.

 

The Company issued a Convertible Promissory Note to an undisclosed high-net worth individual investor in the principle amount of $50,000. The Note bears interest at the rate of six percent (6%) per annum until paid in full and can convert into shares of the Company’s common stock at a price of $0.05 per share, subject to certain provisions met by the Company. Certain uses of proceeds were required with the funding.

 

In November 2012, the Company issued a Convertible Promissory Note to an Dominion Capital, LLC (the “Investor”) in the principal amount of $600,000. The Note bears interest at the rate of ten percent (10%) per annum until paid in full and can convert into shares of the Company’s common stock at a price of $0.10 per share, subject to certain provisions met by the Company.  The note is not convertible into common shares for 6 months, and the Company has the option to pay the note in cash at its discretion at any time. Monies will be paid to the Company in four separate tranches of $150,000 over a 6 week period, subject to certain milestones. The Investor agreed to “no shorting” provisions.

 

In November 2012, the Company entered into another unrelated equity financing arrangement with Ironridge Global IV Ltd, a long-only institutional fund (the “Fund”) that assists public companies in financing operations and expansion.  The Company settled over $500,000 in accounts payable, which the fund had acquired from various creditors of the Company, in exchange for shares of common stock. The transaction substantially reduced the Company's liabilities, including a portion of its outstanding accounts payable balance. Fund investor agreed to “no shorting” provisions.

 

In July 2012, the Company became aware of the escalation of a patent dispute, in the form of a formal hearing with the European brought forth by Hermo Pharma, Oy (“Hermo”) based in Helsinki, Finland. Hermo had had sought to invalidate the Company’s European Union composition of matter patents (“European Patents”) based upon what the Company believed to be frivolous grounds. At a hearing held November 6th, 2012 the Opposition Division of the European Patent Office upheld the Company’s European Patents relating to neurotrophic factor MANF, following opposition by rival Hermo . The Opposition Division held that the Opponent’s arguments did not prejudice the maintenance of the European Patents as originally granted, with broad claims covering MANF and its derivatives. Hermo had not contested the validity of the European Patents on the basis of novelty or inventive step, but had objected to the broad scope of the claims. However, after due consideration of comprehensive legal and technical oral submissions from both sides, the Opposition Division rejected Hermo’s arguments and upheld the European Patents claims without restriction.

F-24

At a meeting held November 13th, 2012, the Board of Directors approved an increase in the authorized common shares of the corporation from 250,000,000 to 1,000,000,000. This increase was ratified by a written majority of voting of the common shares of the corporation in order to position the corporation for long-term growth. In conjunction with this decision, the Board and majority shareholders also approved relocating the Company’s state of incorporation from Delaware to Nevada primarily due to certain tax considerations for the corporation going forward.

 

At a meeting held November 13th, 2012, the Board of Directors approved an increase in the 2008 Stock Option plan from 18,242,127 common shares to 50,000,000 common shares. The Company intends to be extremely diligent in issuing common shares under this Option Plan, with the primary purpose to incentivize and reward employees, significant consultants and advisors who will be contributing to the future success of the Company.

 

On November 16th, 2012, the Company became aware of a lawsuit filed by Alpha Capital Ansalt (“Alpha”) in Federal court related to Alpha’s April 24th, 2012 assignment of a non-convertible promissory note in the principle amount of $150,000 dated October 4th, 2011 from Dr. Samuel Herschkowitz, a former advisor to the Company. It is the Company’s understanding that Alpha paid $165,000 to acquire the note from Dr. Herschkowitz and that in the Assignment and Escrow Agreement dated April 24th, Dr. Herschkowitz assigned the note to Alpha free and clear of all liens, mortgages, pledges, security interests, encumbrances or charges of any kind or description and upon consummation of the transaction, good title in the Note shall vest in Alpha, free of all liens and other charges. On November 8th, 2012 the Company repaid $10,000 against the principle of the note by way of wire transfer. The Company intends to defend the corporation against this lawsuit and is reviewing legal options with counsel.

 

In January, 2012, the Company entered into a consulting agreement with MD Global Partners, LLC (“MD Global”) related to certain broker-dealer advisory and consulting services for the Company. The Company worked with MD Global with the purpose of improving shareholder value and issued to MD Global 250,000 of Series A Preferred stock in consideration for services. The Company is currently negotiating a settlement of the Series A Preferred.

 

Effective November 14th, 2012, we appointed VStock Transfer as our transfer agent.

F-25

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

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements.” These forward-looking statements generally are identified by the words believes,” project,” expects,” anticipates,” estimates,” intends,” strategy,” plan,” may,” will,” would,” will be,” will continue,” will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Overview

 

Amarantus BioSciences, Inc. is a California-based development-stage biotechnology company founded in January 2008. We focus on developing our intellectual property and proprietary technology to develop drug candidates to treat human disease. We own the intellectual property rights to a therapeutic protein known as Mesencephalic-Astrocyte-derived Neurotrophic Factor (MANF”).

 

MANF is a protein that corrects protein misfolding. Protein misfolding is one of the major causes of apoptosis (cell death). This property provides a compelling rationale for the research and development of MANF-based products as therapeutics for human disease. Our lead MANF product development effort is centered on a therapy for Parkinson’s disease.

 

We also own an inventory of 88 cell lines that we refer to as PhenoGuard Cell Lines. MANF was the first therapeutic protein discovered from a PhenoGuard Cell Line. We believe that we may identify additional therapeutic proteins from its inventory of PhenoGuard Cell Lines.

 

Principal Products

 

Our philosophy is to acquire in-license, discover and develop biologics with the potential to address critically important biological pathways involved in human disease. Since our inception, we have been focused on developing MANF as a therapeutic for Parkinson’s disease, and other apoptosis-related disorders. Our business plans are focused in these specific areas:

 

- Development of MANF to treat Parkinson’s disease

- Development of MANF to treat other apoptosis-related disorders

- Exploration of our PhenoGuard Cell Lines for therapeutic protein discovery

- Evaluation of external drug candidates for potential in-licensure or acquisition

 

MANF: Overview

 

We own the intellectual property rights to a novel therapeutic protein called MANF acquired from EMS Development Group in 2008. MANF is a novel, endogenous, evolutionally conserved and widely expressed secreted human protein. We believe that MANF is the first of a new class of therapeutic proteins that are secreted in response to stressful physiological conditions in the body. MANF is believed to have mechanisms of action that are fundamentally different from other therapeutic proteins; MANF decreases the activity of apoptosis-causing enzymes, corrects protein misfolding and increases neurotransmitter release.

 

4

MANF: Development Plan

 

We will focus on developing MANF as a therapeutic protein for Parkinson’s disease with the intention of gaining Investigational New Drug Status with the FDA in order to initiate human clinical studies in the United States. We will gather further information on additional MANF applications and will evaluate product development programs as data becomes available.

 

For the next 12 months, we will focus our product development efforts on the completion of experiments in non-human primate models of Parkinson’s disease. This will provide the experimental rationale for moving forward into human clinical studies for the treatment of Parkinson’s disease.

 

Parkinson’s Disease Overview

 

Parkinson’s disease (PD) is a severe neurological disorder characterized by tremor, muscle rigidity, and an inability to walk with a steady gait. PD was first reported by James Parkinson in 1817. It is currently widely accepted that PD is primarily associated with the degeneration of a specific set of dopaminergic (DA) neurons in the human brain located in the midbrain. According to the NIH, symptoms begin to appear when 60-80% of these DA neurons have become dysfunctional or have died. Humans have roughly 1 million of these critical DA neurons in the midbrain that play a vital role in controlling motor functions such as walking, stability and overall muscle control. DA neurons release the neurotransmitter dopamine, which plays a critical role in motor function. When a person is diagnosed with PD, roughly 600,000 to 800,000 of these DA neurons have already degenerated or have died. The remaining DA neurons continue to degenerate as PD progresses until such a time when there aren’t enough DA neurons left for the body to function. PD progresses at different rates in different patients. Ultimately, every patient becomes incapable of functioning independently at a certain point in the progression of his or her PD. According to the NIH, it is estimated that at least 500,000 people are afflicted with this disorder in the United States. PD generally affects patients later in life, with an average onset age of 60. NIH estimates the total cost to the nation exceeds $6 billion annually.

 

Parkinson’s Disease Market

 

According to a 2008 report generated by DataMonitor, there are over 1.5 million PD in the United States, Western Europe and Japan. It is widely accepted that with the increasing trend towards a longer lifespan coupled with the baby-boomer population approaching retirement, the incidence of Parkinson’s disease is likely to double by in the next 20 years.

 

Deep Brain Stimulation

 

Deep brain stimulation (DBS) is a surgical procedure used to treat the symptoms associated with Parkinson’s disease.  At present, the procedure is used only for patients whose symptoms cannot be adequately controlled with medications. DBS uses a surgically implanted, battery-operated medical device called a neurostimulator, which is similar to a heart pacemaker and approximately the size of a stopwatch, to deliver electrical stimulation to targeted areas in the brain that control movement.

 

Unlike previous surgeries for PD, DBS minimizes tissue damage by focusing on neura pathways. Instead the procedure blocks electrical signals from targeted areas in the brain. Thus, if newer, more promising treatments develop in the future, the DBS procedure can be reversed. Stimulation from the neurostimulator is adjustable without further surgical intervention. Although most patients still need to take medication after undergoing DBS, many patients experience considerable reduction of their PD symptoms and are able to greatly reduce their medications.  The amount of reduction varies from patient to patient but can be considerably reduced in most patients. 

 

Competition: Disease-modifying Treatment in Development

 

There are several disease-modifying treatments under development seeking to address the key unmet medical need in Parkinson’s disease treatment.

5

A. MedGenesis licensed GDNF protein rights from Amgen in January 2010. GDNF is a promising disease-modifying therapy for Parkinson’s Disease.

B. Ceregene reported Phase II data in 2010 of their neurturin gene therapy, showing improvement in Parkinson’s symptoms (UPDRS) at 18 months vs. placebo. Genzymed licensed ex-US rights to this product. Ceregene is currently planning an additional Phase II study.

C. Amsterdam Molecular has a preclinical GDNF gene therapy program under an exclusive license from Amgen for GDNF in gene therapy.

 

MANF is belongs to this category of therapies. Effective disease modifying treatments that become commercially available would dramatically affect the PD market, shifting the market from symptomatic drugs in favor of new disease modifying treatments and potentially growing the overall market

 

Manufacture of GMP quality MANF

 

We will outsource the manufacturing of the MANF Parkinson’s Disease product to a Contract Manufacturing Organization (“CMO”), with special capabilities to manufacture biological drug candidates for submission and clinical testing under Food & Drug Administration (“FDA”) guidelines.

 

Distribution & Marketing

 

We intend to develop its drug candidates and utilize its deep industry connections to effect partnering transactions with biopharmaceutical drug companies seeking to strategically fortify pipelines and fund the costly clinical development required to achieve successful commercialization. As such, we do not anticipate selling products directly into the marketplace; rather we will effect partnering transaction which will give us a distribution and marketing partner to sell our products into the marketplace, allowing us to focus on the research and product development which represent our core competencies.

 

Regulatory Compliance

 

Drug Development and distribution in the biotechnology and pharmaceutical industries in the United States is heavily regulated by the FDA. These regulations and policies relate to the safety and efficacy of drug candidates being developed for the US market. These regulations and policies are continually being updated to reflect the current state of the art in our understanding of science and human biology. The Affordable Healthcare for America Act passed in 2010 is an example of how the landscape in the healthcare and biotechnology space is continually evolving and subject to significant political influence.

 

The FDA imposed requirements represent a critical component to the overall development plan for Amarantus’ drug development candidates. Management will use all resources available to it to ensure that the Company develops its drug candidates in compliance with all applicable laws and regulations.

 

Intellectual Property

 

1. EU MANF Composition of Matter Patent

2. US MANF Composition of Matter Patent Application

3. US MANF Method of Use Patent Application

4. EU MANF Method of Use Patent Application

5. Japanese Method of Use Patent Application

6. Canadian Method of Use Patent Application

7. Chinese MANF Method of Use Patent Application

8. Indian MANF Method of Use Patent Application

9. Brazilian MANF Method of Use Patent Application

10. PCT Neurodegenerative disorders Method of Use Patent Application

 

6

Personnel

 

We currently have three (3) employees/consultants. Our current internal departments include Business Development, Finance, Research & Development and Administration. We are led by a management team that includes an engineer, a scientist, a finance executive and a business executive. We intend to expand our management team as operations ramp up to include additional technical staff required to achieve our business objectives.

 

Expected Changes In Number of Employees, Plant, and Equipment

 

We do not currently plan to purchase specific additional physical plant and significant equipment within the immediate future. We do not currently have specific plans to change the number of our employees during the next twelve months.

 

Results of Operations For Amarantus Biosciences, Inc. For The Three Months Ended September 30, 2012 and September 30, 2011

 

During the three months ended September 30, 2012, Amarantus generated no revenue and incurred $591,504 in operating expenses, resulting in a loss from operations of $591,504. Operating expenses consisted of research and development costs of $32,837 and general and administrative expenses of $558,668. During the three months ended September 30, 2012, Amarantus incurred interest expense of $197,577 and other income of $225,832 related to a change in fair value of warrant and derivative liabilities. Amarantus’ net loss for the three months September 30, 2012 was $564,378. Stock based compensation accounted for $56,118 of the $564,378 net loss for the three months ended September 30, 2012.

 

During the three months ended September 30, 2011, Amarantus generated revenue of $35,280 and incurred $493,301 in operating expenses, resulting in a loss from operations of $458,022. Operating expenses consisted of research and development costs of $132,496 and general and administrative expenses of $360,805. During the three months ended September 30, 2011, Amarantus incurred interest expense of $254,775 and other income of $176,177 related to a change in fair value of warrant and derivative liabilities. Amarantus’ net loss for the three months September 30, 2011 was $671,620. Stock compensation of $46,310 was included in the $671,620 of net loss for the three months ended September 30, 2011.

 

Results of Operations For Amarantus Biosciences, Inc. For The Nine Months Ended September 30, 2011 and September 30, 2010

 

During the nine months ended September 30, 2012, Amarantus generated no revenue and incurred $2,889,451 in operating expenses, resulting in a loss from operations of $2,889,451. Operating expenses consisted of research and development costs of $466,081 and general and administrative expenses of $2,423,370. During the nine months ended September 30, 2012, Amarantus incurred interest expense of $485,141 and other income of $504,078 related to a change in fair value of warrant and derivative liabilities. Amarantus’ net loss for the nine months September 30, 2012 was $2,871,643. Stock compensation accounted for $75,178 of the $2,871,643 net loss for the nine months ended September 30, 2012.

 

During the nine months ended September 30, 2011, Amarantus generated $213,588 of revenue and incurred $2,234,294 in operating expenses, resulting in a loss from operations of $2,020,706. Operating expenses consisted of research and development costs of $897,982 and general and administrative expenses of $1,336,312. During the nine months ended September 30, 2011, Amarantus incurred interest expense of $485,121, other income of $339,359 related to a change in fair value of warrant and derivative liabilities. Amarantus’ net loss for the nine months September 30, 2011 was $2,301,468. Stock compensation accounted for $599,145 of the $2,301,468 net loss for the nine months ended September 30, 2011.

 

Inflation adjustments have had no material impact on the Company.

7

Off-balance-sheet arrangements.

 

Pursuant to the terms of certain contractual agreements, we have agreed to compensate certain vendors for services rendered contingent upon the occurrence of future financings. These transactions are described more fully under Liquidity and Capital Resources, below, and in Note 12 to our financial statements. These obligations are not reflected in our accounts and represent an off balance sheet liability contingent upon achieving the respective funding levels specified in the relevant agreements.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had current assets in the amount of $304,390 consisting of $580 in cash and cash equivalents and $303,810 in prepaid expenses and other current assets. As of September 30, 2012, we had current liabilities in the amount of $4,615,135, consisting of $2,605,264 in accounts payable, $153,481 in accrued liabilities, $222,230 in related party liabilities, $190,440 in notes payable, $255,451 in current portion of warrant liability, $30,092 in the current portion of derivative liabilities, and $1,158,176 in the current portion of convertible promissory notes. As of September 30, 2012, we had a working capital deficit in the amount of $4,310,745.

 

The Company owes the principal amount of $230,000 to a total of six (6) investors who were issued Convertible Promissory Notes under the terms of a Convertible Promissory Note Agreement dated December 13, 2010 and amended on March 23, 2011 as follows:

 

Principal Amount Issue Date Maturity Date
$ 100,000 12-13-10 12-13-12
$ 25,000 4-11-11 4-11-13
$ 35,000 4-15-11 4-15-13
$ 10,000 4-22-11 4-22-13
$ 50,000 4-27-11 4-27-13
$ 10,000 6-6-11 6-6-13

 

These notes bear interest at a rate of 5% per annum, with all principal and accrued interest payable on the maturity date. Principal and unpaid accrued interest due under these notes shall be automatically converted into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to one-third of the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into shares of our most recently closed equity financing, based on a conversion price equal to one-third of the price per share of the most recently closed equity financing.

 

In addition, we previously owed the principal sum of $41,537 to Molecular Medicine Research Institute (MMRI”), who was issued a series of Convertible Promissory Notes under the terms of a Note and Warrant Purchase Agreement as follows:

 

Principal Amount Issue Date Maturity Date
$ 16,037 11-1-10 11-1-12 Note principal and accrued interest assigned June, 2012
$ 4,250 12-1-10 12-1-12 Note principal and accrued interest assigned June, 2012
$ 4,250 1-1-11 1-1-13 Note principal and accrued interest assigned June, 2012
$ 4,250 2-1-11 2-1-13
$ 4,250 3-1-11 3-1-13
$ 4,250 4-1-11 4-1-13
$ 4,250 5-1-11 5-1-13
8

These notes bear interest at a rate of 5% per annum, with all principal and accrued interest payable on demand by the holder on or after the maturity date. Principal and unpaid accrued interest due under these notes shall be converted, at the option of the holder, into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into a new class of Preferred Stock, with the conversion price per share to be based upon a pre-money valuation of the company at that time of $2,000,000. These notes also include 20% warrant coverage which expires seven years from the date of the note. In September 2012, $24,537 of the note principal plus accrued interest was assigned to a new investor. Along with this assignment the warrants associated with these specific notes have been cancelled.

 

We are currently party to a Sponsored Research Agreement (“SRA”) with MMRI under which we are provided office and laboratory space, use of research equipment, and other items within MMRI’s research facility in exchange for a monthly Sponsor Research Fee. The notes detailed above, in conjunction with certain warrants to purchase stock, were issued in payment of 50% of the respective monthly fees due under this agreement. In September 2012 we terminated our SRA and entered into a month to month Storage Agreement which provides storage for the frozen cell lines.

 

In addition, we owe the principal sum of $12,240 to The Parkinson’s Institute, which was issued a Convertible Promissory Note under the terms of a Note and Warrant Purchase Agreement dated August 25, 2010. This note bears interest at a rate of 5% per annum, with all principal and accrued interest payable on demand by the holder on or after the maturity date of August 25, 2012. Principal and unpaid accrued interest due under this note shall be automatically converted into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into a new class new class of Preferred Stock, with the conversion price per share to be based upon a pre-money valuation of the company at that time of $2,000,000. In addition the note holder has warrant coverage equal to 5% of the note principal with a warrant exercise price equal to the next equity financing per share price, and expiration seven years from the date of the note. In September 2012, $12,240 of the note principal plus accrued interest was assigned to a new investor. Along with this assignment the warrants associated with these notes have been cancelled.

 

In June, 2012, we entered into a convertible note agreement with an investor for a principal amount of $39,831. This note bears an interest rate of 12% per annum, compounded monthly, and has a maturity date of June 5, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. We have the option to prepay the note at any time in the amount of 150% of the principal and unpaid accrued interest. This note represents the assignment of the Parkinson’s and MMRI notes discussed earlier. In June 2012 the note holder converted $9,831 into common stock. In August 2012 the note holder assigned their remaining balance, $30,000, plus accrued interest to a new note holder.

 

Also, in June 2012, we entered into a convertible note agreement with an investor for a principal amount of $21,500. This note bears an interest rate of 12% per annum and has a maturity date of January 6, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the average of the three lowest trading prices over the prior ten trading days from the date of conversion. We have the option to prepay note at any time in the amount of 150% of the principal and unpaid accrued interest within the first ninety days.

 

In August, 2012, we entered into a convertible note agreement with an investor for a principal amount of $30,880. This note bears an interest rate of 12% per annum, compounded monthly, and has a maturity date of June 5, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. We have the option to prepay the note at any time in the amount of 150% of the principal and unpaid accrued interest. This note is an assignment of a previous note. Also in September, 2012, the note holder converted $10,805 of the principal into common shares of the Company.

9

In September, 2012, we entered into a two separate convertible note agreement with an investor for a principal amount of $30,000 and $42,000, both the result of prior issued note assignments. These note bear an interest rate of 12% per annum, and have a maturity date of September 14, 2013 and September 27, 2013, respectively. The note holder has the option to convert the notes into common stock at any time, conversion at 50% of the lowest trading price over the prior twenty trading days from the date of conversion. We have the option to prepay the note at any time in the amount of 125% of the principal and unpaid accrued interest. Also in September, 2012, the note holder converted all of the $30,000 note principal into common shares of the Company.

 

We also owe the principal sum of $500,000 to a total of ten (10) investors who were issued Secured Convertible Promissory Notes under the terms of a Senior Secured Convertible Promissory Note Agreement dated December 28, 2010, as amended May 20, 2011 as follows:

 

Principal Amount Issue Date Maturity Date Assigned
$ 125,000 12-28-10 12-6-11 $ 42,000 Assigned August 2012
$ 62,500 12-28-10 12-6-11 $
$ 100,000 4-15-11 12-6-11 $
$ 25,000 4-18-11 12-6-11 $
$ 25,000 5-13-11 12-6-11 $
$ 50,000 5-19-11 12-6-11 $
$ 25,000 5-24-11 12-6-11 $
$ 25,000 5-24-11 12-6-11 $
$ 31,250 6-7-11 12-6-11 $
$ 31,250 6-9-11 12-6-11 $

 

 

Principal and interest, accrued at the rate of 5% per annum, are due and payable on December 6, 2011, unless earlier converted into equity securities of the company. Principal and unpaid accrued interest shall be converted, at the option of the holder, into equity securities of the company at the closing of our next equity financing in which gross aggregate proceeds to the Company exceed $1,750,000 and the Company registers its stock for sale pursuant to the Securities and Exchange Act of 1934. The conversion price shall be equal to one-third of the price per share of this financing. If this financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted, at the option of the holders of a majority of the aggregate principal amount of the senior secured convertible promissory notes, into common stock of the Company. These notes were formerly secured by collateral consisting of substantially all assets of the company. Under the May 20, 2011 amendment to the Senior Secured Convertible Promissory Note Agreement, this security interest was terminated. Under the terms of the agreement as amended, we may not incur any indebtedness for borrowed money except pursuant to an agreement that provides that repayment of such indebtedness will be subordinated to repayment of the Notes. In addition, we may not encumber any of our property during such time as the Notes remain due and owing. As provided in the amendment the note holders have warrant coverage equal to 100% of the note principal at an exercise price equal to 100% of that to outside investors in the closing of the next equity financing of $1,175,000, but not to be less than $0.60 per share. The warrants expire five years from the date of the next equity financing closing. We are currently in default on these notes. See footnote 9 Commitments and Contingencies for further information.

 

During the twelve months ended December 31, 2011, the Company issued convertible promissory notes to various investors for aggregate proceeds of $90,000. Principal and interest on these convertible notes, accrued at the rate of 6% per annum, are due and payable 180 days from the issuance date, unless earlier converted into equity securities of the Company, at the option of the Holder of the promissory note. Conversion of the principal and interest will be at either $0.10 or $0.20 per share. In addition, the Company issued warrants to the note holders to purchase a number of shares of capital stock issued to investors at the equivalent of 100% of the principal amount of the notes divided by the respective price per share of the stock which the principal of the note converts into. The warrants expire one year from the date of the note. During the nine months ended September 30, 2012, $57,000 of these convertible notes converted to Company Common shares and another $20,000 was assigned to another note holder in September 2012.

10
Principal Amount Issue Date Maturity Date Converted to Equity   Assigned Assigned or Conversion Date
$ 21,000 7-28-11 1-24-12 $ 21,000   $ February 2012
$ 21,000 7-28-11 1-24-12 $ 21,000   $ February 2012
$ 10,000 8-16-11 2-12-12 $     $  
$ 20,000 8-18-11 2-14-12   $ 20,000 September 2012 
$ 5,000 9-6-11 3-4-12 $ 5,000   $ February 2012
$ 5,000 9-9-11 3-7-12 $ 5,000   $ February 2012
$ 3,000 9-26-11 3-24-12   $
$ 5,000 11-2-11 4-30-12 $ 5,000   $ February 2012

 

During the period October, 2011 through September 30, 2012, the Company issued convertible promissory notes to various investors for aggregate proceeds of $283,688. Principal and interest on these convertible notes accrue at the rate of 6% per annum, are due and payable 180 days from the issuance date, unless earlier converted into equity securities of the Company, at the option of the Holder of the promissory note. Conversion of the principal and interest will be at either $0.01 or $0.165 per share.

 

Principal Amount Issue Date Maturity Date Converted to Equity Conversion Date
$ 5,000 10-27-11 4-24-12 $ 5,000 February 2012
$ 10,000 11-23-11 5-21-12
$ 30,000 11-30-11 5-28-12 $ 30,000 February 2012
$ 10,000 12-8-11 6-5-12 $ 10,000 February 2012
$ 5,000 12-14-11 6-11-12 $ 5,000 February 2012
$ 5,000 12-30-11 6-27-12 $ 5,000 February 2012
$ 3,638 1-5-12 7-3-12
$ 100,000     1-17-12     7-15-12            
$ 7,800. 2-8-12 8-6-12
$ 3,750 2-21-12 8-19-12 $ 3,750 February 2012
$ 25,000 4/2/12 9/29/12 $ 25,000 April 2012
$ 5,000 5/18/12 11/14/12 $    
$ 13,000 6/6/12 12/3/12    
$ 5,000     7/10/12     1/6/13            
$ 50,000     8/23/12     2/19/13            
$ 5,500     9/4/12     3/3/13            

 

In March, 2012, $9,500 of convertible note principle was issued as part of a unit debt instrument which consisted of a return on investment (“ROI”) agreement and a convertible promissory note in return for $10,000. The ROI has a redemption value of $10,500 due on demand and the convertible promissory note is for $9,500, non-interest bearing, due September 20, 2012, and is convertible to common shares after six months from the date of the note at a conversion price that is 50% of the lowest trading price over the 20 prior trading dates from the date of conversion notice. In September 2012 the convertible note converted to common stock.

 

In August, 2012, $6,066 of convertible note principle was issued as part of a unit debt instrument which consisted of a return on investment (“ROI”) agreement and a convertible promissory note in return for $6,066. The ROI has a redemption value of $672.44 due on demand and the convertible promissory note is for $6,066, non-interest bearing, due February 21, 2013, and is convertible to common shares after six months from the date of the note at a conversion price that is 50% of the lowest trading price over the 20 prior trading dates from the date of conversion notice. In September 2012 the convertible note converted to common stock.

11

During the six months ended June 30, 2012, the Company issued two convertible promissory notes to one investor totaling $39,325 Principal and interest on these convertible notes accrued at the rate of 12% per annum. The holder of the note can convert the note to common shares of the Company at any at 50% of lowest trading bid price for prior twenty trading days before conversion. Both notes were converted to on the same day as the issuance date.

 

Principal Amount Issue Date Maturity Date Converted to Equity Conversion Date
$ 15,000 3/9/12 10-27-12 $ 15,000 3/9/12
$ 24,325 5/4/12 11/4/12 $ 24,250 5/4/12

 

During the six months ended June 30, 2012, the Company issued four convertible promissory notes to one investor totaling $91,500. Principal and interest on these convertible notes accrue at the rate of 8% per annum. The holder of the note can convert the note to common shares of the Company any time after the initial 180 days of the note at a conversion price that is a percentage of an average of the market low over for a certain number days over a greater number of prior number of trading days from the date of notice to convert.

 

Principal Amount Issue Date Maturity Date Converted to Equity Conversion Date
$ 37,500 2-7-12 10-27-12

$

 

24,000

2,767

August 2012

September 2012

$ 17,000 3/19/12 12-21-12 $
$ 13,000 5/3/12 2/7/13 $
$ 24,000 6/13/12 5/13/12 $

 

 

In January, 2012, a vendor convertible their trade account to convertible promissory notes for the amount due them at the time of the note plus future billings, amounting to $244,988. These notes accrue interest at 8.5% and have the option to convert to common stock at any time by the note holder, at a conversion price of $0.11 per share. These notes are payable upon demand.

 

A number of Company’s convertible notes contain embedded derivatives wherein their automatic conversion, which is contingent upon a future equity raise, can accelerate the realization of the expected payout for each note. This feature creates the possibility of a greater than expected return for the note holder and thus a higher than expected liability for the Company. The value of this feature was estimated for each note using the probability expected return method, in which the payout of distinct potential early conversion scenarios was discounted to the present using the expected IRR of the note and compared with the present value of the note if held to maturity. Probabilities were applied to the value of early conversion in each scenario to arrive at a probability weighted value of the early conversion feature.

 

As of September 30, 2012 and December 31, 2011, the fair value of the derivative liability was $30,092 and $140,706, respectively. The changes in fair value for the three month periods ended September 30, 2012 and September 30, 2011 of $226,429 and $152,453 respectively, and for the nine month periods ended September 30, 2012 and September 30, 2011 of $480,524 and $312,907 respectively, and the period from January 14, 2008 (date of inception) to September 30, 2012 of $889,742 have been recorded in the accompanying statements of operations as a component of other income (expense).

 

In connection with certain liabilities incurred in connection with our June 5, 2008 acquisition of the intellectual property rights to the MANF protein compound, we have an outstanding Promissory Note issued as follows:

 

Note Payable To: Amount Due Date
Neurotrophics, Inc. $ 222,083 3-5-15

 

This note bears interest at the rate of 2% per annum.

12

On April 24, 2012 the note that existed between Dr. Samuel Herschkowitz and the Company was assigned to Alpha Capital Anstat.

 

Note Payable To: Amount Due Date
Alpha Capital Anstalt $ 150,000 4-1-12

 

The balance due under the Note bears interest at the rate of twenty percent (20%) per year.

 

November 14, 2012, the Company issued a Convertible Promissory Note to an undisclosed institutional investor (the “Investor”) in the principal amount of $600,000. The Note bears interest at the rate of ten percent (10%) per annum until paid in full and can convert into shares of the Company’s common stock at a price of $0.10 per share, subject to certain provisions met by the Company.  The note is not convertible into common shares for 6 months, and the Company has the option to pay the note in cash at its discretion at any time. Monies will be paid to the Company in four separate tranches of $150,000 over a 6 week period, subject to certain milestones. The Investor agreed to “no shorting” provisions.

 

Also on November 14, 2012, the Company entered into an another unrelated equity financing arrangement with a separate long-only institutional fund (the “Fund”) that assists public companies in financing operations and expansion.  The Company settled over $500,000 in accounts payable, which the fund had acquired from various creditors of the Company, in exchange for shares of common stock. The transaction substantially reduced the Company's liabilities, including a portion of its outstanding accounts payable balance. Fund investor agreed to “no shorting” provisions.

 

We will need to raise significant financing in order to continue to operate and execute our business plan. It will cost roughly $1,000,000 to complete our next major milestone. Additionally, we will need ongoing operating capital to retain employees, pay creditors and ongoing expenses, as well as execute non-core aspects of our business plan, which management believes will yield significant value to its shareholders.

 

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 b e less than anticipated, or should our expenses be greater than anticipated, then we may seek to obtain business capital through the use of private equity fundraising or shareholders loans. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. 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 its disposal to raise sufficient capital to run its operations on a go forward basis.

 

We were founded in 2008 to advance novel therapies for human disease. We were seeking to raise capital from new investors when the financial-collapse of 2008 resulted in a prolonged depression. This financial collapse dramatically altered the financing environment for biotechnology companies seeking to access the capital markets to obtain financing to advance their research and development activities. The trend of difficult access to the capital markets has continued through to the current fundraising environment and has been evidenced by reduced pricing and lower capital raises in many biotechnology-related initial public offerings.

 

We have been successful in raising convertible note financing from various individual investors over the last several months. This is an encouraging trend that we expect to continue as we continue operations. We will use commercially-reasonable efforts going forward to raise equity financing and other financing instruments to raise sufficient capital to continue operations and meet our major milestones.

13

Off Balance Sheet Arrangements

 

Pursuant to the terms of certain contractual agreements, we have agreed to compensate certain vendors for services rendered contingent upon the occurrence of future financings. These transactions are described more fully under Liquidity and Capital Resources, below, and in Note 9 to our financial statements. These obligations are not reflected in our accounts and represent an off balance sheet liability contingent upon achieving the respective funding levels specified in the relevant agreements.

 

Going Concern

 

We are a development stage company engaged in biotechnology research and development. We have suffered recurring losses from operations since inception, have a working capital deficit, and have generated negative cash flow from operations. For these reasons, our auditors have raised a substantial doubt about our ability to continue as a going concern.

 

Critical Accounting Policies

 

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. Actual results could differ from those estimates.

 

Certain Significant Risks and Uncertainties - The Company participates in a global dynamic highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows: ability to obtain future financing; advances and trends in new technologies and industry standards; regulatory approval and market acceptance of the Company’s products; development of the necessary manufacturing capabilities and to obtain adequate resources of necessary materials; development of sales channels; certain strategic relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth.

 

Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents with domestic financial institutions that are federally insured within statutory limits.

 

Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Property and Equipment - Property and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives as follows:

 

Equipment 3 years
Computer equipment 2 years
Furniture and fixtures 3 years

 

 

The Company reviews the carrying value of long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. There have been no such impairments.

 

14

Revenue Recognition - The Company recognizes revenue when the earnings process is complete, which under SEC Staff Accounting Bulletin No. 104, Topic No. 13, "Revenue Recognition" ("SAB 104"), is when revenue is realized or realizable and earned, there is persuasive evidence a revenue arrangement exists, delivery of goods or services has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. 

 

The Company accounts for milestones related to research and development activities in accordance with the milestone method of revenue recognition of Accounting Standards Codification Topic 605-28, under which consideration contingent on the achievement of a substantive milestone is recognized in its entirety in the period when the milestone is achieved. A milestone is considered to be substantive when it meets all of the following criteria: the milestone is commensurate with either the performance required to achieve the milestone or the enhancement of the value of the delivered items resulting from the performance required to achieve the milestone; the milestone relates solely to past performance; and, the milestone is reasonable relative to all of the deliverables and payment terms within the agreement.

 

Research and Development Expenditures - Research and development expenses consist of personnel costs, including salaries, benefits and stock-based compensation, materials and supplies, licenses and fees, and overhead allocations consisting of various administrative and facilities related costs. Research and development activities are also separated into three main categories: research, clinical development, and biotechnology development. Research costs typically consist of preclinical and toxicology costs. Clinical development costs include costs for Phase 1 and 2 clinical studies. Biotechnology development costs consist of expenses incurred in connection with product formulation and analysis. The Company charges research and development costs, including clinical study costs, to expense when incurred, consistent with the guidance of FASB ASC 730, Research and Development.

 

Stock-Based Compensation - Stock-based compensation is measured at the grant date based on the fair value of the award. The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has been reduced by an estimated forfeiture rate. The forfeiture rate is determined at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

Expected Term — The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin No. 110, Certain Assumptions Used in Valuation Methods.

 

Expected Volatility — As the Company has limited stock price history, expected volatility has been estimated based on the volatilities of similar companies that are publicly traded.

 

Risk-Free Interest Rate — The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

 

Expected Dividend — The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

 

The Company recognizes fair value of stock options granted to nonemployees as stock-based compensation expense over the period in which the related services are received.

 

Stock Warrants - Certain warrants to purchase the Company’s stock are classified as liabilities in the balance sheets. These warrants are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense). Other warrants to purchase the Company’s convertible preferred stock are classified as equity in the balance sheet and are not subject to remeasurement.

 

15

Derivative Liability - Certain derivatives embedded within convertible promissory notes have been bifurcated and recorded as derivatives in the balance sheets because they are not clearly and closely related. These derivatives are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense).

 

Income Taxes - The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

 

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.

 

The Company recognizes the tax benefit from uncertain tax positions in accordance with GAAP, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s tax return.

 

Fair Value of Financial Instruments -The carrying amount reported in the balance sheets for cash and cash equivalents, accounts payable, and accrued liabilities approximates their value due to the short-term maturities of such instruments.

 

Net income (loss) per share attributable to Amaratus common stockholders

 

Basic net income (loss) per share attributable to Amarantus common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares outstanding for the period. In accordance with FASB ASC 260, because there was a net loss for the period, zero incremental shares were included for diluted earnings per share because the effect would be antidilutive.

 

Recently Issued Accounting Pronouncements

 

Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2012.  This evaluation was carried out under the supervision and with the participation of Gerald Commissiong, our Chief Executive Officer, and Marc E. Faerber, our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012, our disclosure controls and procedures were ineffective as of the end of the period covered, due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines.  Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.  We will be unable to remediate the material weakness in our disclosure controls and procedures until we can hire additional employees. As of December 31, 2012, we did not have sufficient funds to hire another employee. There have been no changes in our internal controls over financial reporting during the quarter ended December 31, 2012.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On January 6, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract, Specific Performance and Common Counts) against the Company by a former consultant to the Company, Peter Freeman v. Amarantus Biosciences, Inc. The Company intends to defend ourselves vigorously. The Company is unable to predict the likelihood of an unfavorable outcome or estimate its potential liability, if any, and no provision has been made in its financial statements for this matter. In August, 2012, the company reached a settlement with Mr. Freeman whereby he will receive payment of $44,000 in monthly installments of $5,000 until fully paid.

 

On August 8, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract) against the Company by On Assignment Staffing Services, Inc., a temporary staffing agency, for outstanding debts of $36,414 allegedly due On Assignment Staffing Services, Inc.

 

In addition the Company is in default on payment of certain Convertible Notes that were due as of December 6, 2011 and is also late with regard to making payments to various trade account vendors for goods and services received, of which some accounts are currently with collection agencies and could possibly result in lawsuits with the Company.

 

Power3 Medical Products, Inc. (“Power3”) entered into a License Agreement with Amarantus BioSciences, Inc. (“our”, “us”, or “we”) on January 16, 2012 to, among other things, license the NuroPro diagnostic test for Parkinson's disease to us (the "Agreement"). As part of the Agreement, we were granted an option to acquire certain intellectual property, and a right of first refusal to acquire certain intellectual property (collectively the "IP").  We recently found out the Agreement was entered into at a time when Power3 may not have had the authority to enter into the Agreement. 

 

On June 26th, 2012, we became aware of a previously undisclosed legal dispute between Power3 and NeoGenomics, Inc. ("NeoGenomics") where certain intellectual property assets of Power3 were placed into receivership in September 2011 in the State of Texas as a result of an unpaid note to NeoGenomics. On June 15, 2012 Power3 filed for Chapter 7 bankruptcy.  However, on June 7th, 2012, the receiver sold, among other things, Power3's IP to NeoGenomics.  Although this sale may be considered a preference in the Power3 Bankruptcy, at this time NeoGenomics may have title to certain intellectual property of Power3.

  

On April 12, 2012 our representatives appeared at bankruptcy related meeting of creditors of Power3.   Ira Goldknopf, the President of Power3, testified for Power3.  In the meeting it was discussed, among other things, that (i) Power3 had not transferred any of ourstock, other than providing $25,000 worth of our stock to its attorney; (ii) that another entity may own a portion of the IP; (iii) NeoGenomics was not a secured creditor when they credit bid their claim in the receivership; and (iv) the status of the license and ownership of the IP is still in question.

 

In August, 2012, the Company learned that the IP now belongs to the bankruptcy estate, and the Trustee has provided notice to the Patent and Trademark Office of the change in ownership. Further the Trustee willing to work with Amarantus with complying with Power 3’s original agreement with Amarantus, and has put forth a proposal which the Company in reviewing. In November 2012, the Company responded to the Trustee’s proposal and is currently waiting for a formal reply from the Trustee.

 

We are continuing to review our legal options with respect to the material misrepresentations made by the officers of Power3 and our rights in the IP.

 

On April 17, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract, Account Stated, and Reasonable Value) against the Company by Trinet HR, a former payroll services provider to the Company, Trinet HR v. Amarnatus Biosciences, Inc. The suite of for a total of $12,196 for services previously provided to the Company.

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On August 8, 2012 the Company was served a summons regarding the filing of a lawsuit (Complaint for Breach of Contract) against the Company by On Assignment Staffing Services, Inc., a temporary staffing agency, for outstanding debts of $36,414 allegedly due On Assignment Staffing Services, Inc.

 

In July 2012, the Company became aware of the escalation of a patent dispute, in the form of a formal hearing with the European Union brought forth by Hermo Pharma, Oy (“Hermo”) based in Helsinki, Finland. Hermo had sought to invalidate the Company’s European composition of matter patents (“European Patents”) based upon what the Company believed to be frivolous grounds. At a hearing held November 6th, 2012 the Opposition Division of the European Patent Office upheld the Company’s European Patents relating to neurotrophic factor MANF, following opposition by rival Hermo . The Opposition Division held that the Opponent’s arguments did not prejudice the maintenance of the European Patents as originally granted, with broad claims covering MANF and its derivatives. Hermo had not contested the validity of the European Patents on the basis of novelty or inventive step, but had objected to the broad scope of the claims. However, after due consideration of comprehensive legal and technical oral submissions from both sides, the Opposition Division rejected Hermo’s arguments and upheld the European Patents claims without restriction.

 

On November 16th, 2012, the Company became aware of a lawsuit filed by Alpha Capital Ansalt (“Alpha”) in Federal court related to Alpha’s April 24th, 2012 assignment of a non-convertible promissory note in the principle amount of $150,000 dated October 4th, 2011 from Dr. Samuel Herschkowitz, a former advisor to the Company. It is the Company’s understanding that Alpha paid $165,000 to acquire the note from Dr. Herschkowitz and that in the Assignment and Escrow Agreement dated April 24th, Dr. Herschkowitz assigned the note to Alpha free and clear of all liens, mortgages, pledges, security interests, encumbrances or charges of any kind or description and upon consummation of the transaction, good title in the Note shall vest in Alpha, free of all liens and other charges. On November 8th, 2012 the Company repaid $10,000 against the principle of the note by way of wire transfer. The Company intends to defend the corporation against this lawsuit and is reviewing legal options with counsel.

 

In January, 2012, the Company entered into a consulting agreement with MD Global Partners, LLC (“MD Global”) related to certain broker-dealer advisory and consulting services for the Company. The Company worked with MD Global with the purpose of improving shareholder value and issued to MD Global 250,000 of Series A Preferred stock in consideration for services. The Company is currently negotiating the settlement of the Series A Preferred.

 

Item 1A: Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

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

 

None

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None

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Item 5. Other Information

 

We issued a Convertible Promissory Note to Dominion Capital, LLC (the “Investor”) in the principal amount of $600,000. The Note bears interest at the rate of ten percent (10%) per annum until paid in full and can convert into shares of our common stock at a price of $0.10 per share, subject to our meeting certain provisions.  The note is not convertible into common shares for 6 months, and we have the option to pay the note in cash at our discretion at any time. Monies will be paid to us in four separate tranches of $150,000 over a 6 week period, subject to certain milestones. The Investor agreed to “no shorting” provisions.

 

We entered into another unrelated equity financing arrangement with Ironridge Global IV Ltd (the “Ironridge”) that assists public companies in financing operations and expansion.  We settled over $511,310 in accounts payable, which the fund had acquired from various creditors of the Company, in exchange 23 million shares of the Company’s common stock.The settlement, which was approved by the Court, provided for issuance of that number of Company common shares that would equal the debt amount plus eight (8%), plus attorney fees divided by eighty (80%) of the closing price of the Company’s common stock on the day prior to the Court’s approval of the Settlement Agreement. If the number of shares required to be issued pursuant to the settlement calculation is more or less than 23 million shares, Ironridge must return shares or be entitled to receive more shares. Ironridge agreed to “no shorting” provisions.

 

Item 6. Exhibits

 

Exhibit Number  Description of Exhibit 
10.1 Convertible Promissory Note issued to Dominion Capital, LLC
10.2 Stipulation and Order with Ironridge Global IV, Ltd.
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

 

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

 

  Amarantus BioSciences, Inc.
 
Date: November 19, 2012
 
 

By: /s/ Gerald E. Commissiong

Gerald E. Commissiong

Title: Chief Executive Officer and Director

 

By: /s/ Marc E. Faerber

Marc E. Faerber

Title: Chief Financial Officer

 

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