Posted on August 10th, 2014
by Gerald Commissiong
On Friday, August 8th, 2014, we filed a preliminary proxy statement with the United States Securities and Exchange Commission describing several matters that will be put before our shareholders for approval at the Company’s first Annual Shareholders Meeting. The Shareholders Meeting will be held on September 22, 2014 in San Francisco.
Among the various matters for which we are seeking shareholder approval are modifications to the Company’s capitalization structure that the Board and management believe are necessary to achieve our stated goal of up-listing the Company’s common shares to either the NASDAQ or NYSE:MKT. Additionally, we believe that these changes to our capitalization structure will make the Company more attractive to the broader investment community.
After discussion with several large institutional investment funds, investment bankers and research analysts, it is clear that there are certain requirements that the larger, more seasoned investment community would like to see when an issuer within the development-stage biotechnology space presents itself to the mature capital markets in the United States:
Here are the key facts regarding our current capitalization structure:
As of this date, however, the Company requires additional authorized shares to assure the capital markets and investors that the Company has adequate common shares available to complete M&A activity if an attractive opportunity presents itself, raise additional funds if needed, and offer adequate equity compensation to enable recruitment of the best talent the Company will be seeking to bring on full-time as employees. The Company has been advised by various stakeholders in the larger capital markets community that it is best for the Company to achieve an appropriate capital structure while still on the OTC Markets so that the cap structure risk is mitigated once on a national exchange. In addition to an increase in the number of our authorized shares, we are seeking shareholder approval for various other matters that will better position the Company for the up-list to a national exchange.
The Preliminary Proxy Statement (Matters for Which Shareholder Approval is Requested)
Of greatest note in this preliminary proxy statement is the fact that the Company has not put forth a request for a reverse split of the common shares. Many of you are likely asking how the Company can possibly expect to up-list to a national exchange in 2014 without the need for a reverse split of its common shares. The answer is that the Company does not know where its common shares will be priced towards the end of this year, and therefore cannot project what will be required in terms of a reverse split or if a reverse split will be needed. However, we remain optimistic that we can significantly increase shareholder value through value building events both from a scientific and clinical perspective, as well as a capital markets perspective:
Despite all of these activities, it remains very possible that the Company’s share price will not achieve the $2 minimum bid price (which represents a roughly 1900% increase from current levels) required to achieve a listing on a national exchange. At this juncture, I think it is important to draw our shareholder’s attention to actions the Company took in April 2013 in moving the Company’s state of incorporation to Nevada.
The Typical Problem with Reverse Splits, and why a Potential Reverse Split of Amarantus is Different
Of note, the Company did not submit a reverse split resolution to a vote of the shareholders at our September 22nd, 2014 shareholder meeting. The reason for this is that under the laws of the State of Nevada, the Company’s Board of Directors can implement a proportional reverse split of the common shares without the need for a shareholder vote. It is absolutely critical for shareholders to understand what this means and why a reverse split of the authorized shares with an equal and proportional reverse split of the common shares outstanding will protect shareholders from the typical outcome seen in reverse splits. Concurrently, it is important to note that the Company is fully aware of the potential negative outcome of reverse splits, and will only implement a reverse split in conjunction with a listing on a national exchange, where history tells us that we typically see an 18% increase in shareholder value, as opposed to typical reverse splits with no national listings that typically lead to an 18% decrease in shareholder value.
I will note here an example of a typical reverse split scenario and compare it with the Amarantus situation:
In this scenario, the Company has effectively increased the potential dilution for shareholders by a factor of over two-fold (2.5x) as the percentage current shareholders own in a worst-case scenario is 37.5:500 (15%) as compared with 750:2000 (37.5%), which is what they originally held.
In this situation, the Company has maintained our shareholder’s percentage ownership at 37.5% of what they originally had, and no potential additional dilution is created. The fundamendal value of our shareholders’ equity is maintain, and in the Amarantus scenario the shares are now listed on a national exchange.
The Company understands that in order for a ‘new, higher share price’ to be respected and maintained following any reverse split will require fundamental value-building events to occur immediately after effecting a reverse split, and with the milestones described above that we expect to occur in the second half of 2014, we believe we can achieve that standard for a positive outcome as well.
In conclusion, we believe we are taking the correct, prudent path for preparing the Company, its management team, Board of Directors, and most importantly its shareholders for the steps necessary to achieve a national exchange listing in the most positive manner possible. We recognize the risks associated with companies that trade on the OTCQB and are taking the steps necessary to mitigate these risks as much as we can to protect shareholder value in the immediate future. In the last 2 years, we have created, year over year, between 200%-300% returns for our shareholders and we believe that in order to continue that trend we must take the important step of moving from the OTC to a national listing. In doing so, larger institutional investors can participate in a meaningful way in the value creation here at Amarantus, and give the Company better negotiating leverage with end-buyers in the biopharmaceutical arena who use lack of resources as the primary leverage point with any smaller potential partner with compelling science. We believe the scientific and clinical work our team is endeavoring upon is second to none in the areas of Alzheimer’s disease, Parkinson’s disease and Retinitis Pigmentosa, and we intend to leverage the value we have created to date into new business opportunities the Company believes are equally attractive consistent with our track record.
We thank you for taking the time to read this blog, and look forward to interacting with shareholders in the weeks ahead in preparation for our Annual Shareholders Meeting.
President & CEO
Robert Farrell, JD
Chief Financial Officer
Forward Looking Statements
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