Healthcare Industry News:  Stem Cell Innovations 

Regenerative Medicine Mergers & Acquisitions

 News Release - February 15, 2006

Stem Cell Innovations (Formerly Interferon Sciences) and Amphioxus Cell Technologies Announce Merger and Related Events

SCOTCH PLAINS, N.J.--(HSMN NewsFeed)--Feb. 15, 2006--Stem Cell Innovations, Inc. (IFSC.OB), formerly known as Interferon Sciences, Inc., and Amphioxus Cell Technologies, Inc., a privately held company, today announced the merger of the two companies, a new management team, the completion of an approximately $3.8 million private placement, and certain debt exchanges. Amphioxus had acquired all of the assets of Plurion, Inc. immediately prior to the merger. The merged entity will continue the businesses of Amphioxus and Plurion, focusing on cell biology.

In the merger, a wholly-owned subsidiary of Stem Cell merged with Amphioxus and Amphioxus' common stockholders (including the former Plurion stockholders) were issued shares of Stem Cell Series 1 Voting Convertible Preferred Stock, which will automatically convert into 757,821,430 shares of Stem Cell common stock upon authorization of sufficient shares of Stem Cell common stock. The Stem Cell Series 1 Voting Convertible Preferred Stock votes with Stem Cell common stock on an as-converted basis, and the former common stockholders of Amphioxus held approximately 95% of the combined voting power of Stem Cell (88% on a fully diluted basis) after the merger but before the financing and debt exchanges described below. Amphioxus' Class B common stock and Series A preferred stock, all of which was owned by Eaglestone Investment Partners I, L.P., were converted in the merger into 2 million shares of Stem Cell Series 2 Preferred Stock. Stem Cell Series 2 Preferred Stock generally has no voting rights and is redeemable by Stem Cell for $3,065,000. Stem Cell common stock outstanding prior to the merger was unchanged by the merger.

The Board of Directors of Stem Cell will consist of James H. Kelly, Ph.D., Mark S. Germain, and Norman Sussman, each of whom had been a director of Amphioxus. Stem Cell will send to the holders of Stem Cell Series 1 Voting Convertible Preferred Stock and Stem Cell common stock a notice of the change in its board, and the new directors will join the board shortly thereafter. Eaglestone, as holder of the Stem Cell Series 2 Preferred Stock, has the right to name an additional director or an advisory director, and the holders of the convertible notes issued in the private placement described below have the right to name an additional director. Neither Eaglestone nor such holders has exercised its right. Lawrence Gordon, Stem Cell's former chief executive officer, will remain on the Stem Cell board as the sole director until the new directors take office, at which time he will resign.

James H. Kelly, Ph.D., President and Chief Executive Officer of Amphioxus, has been elected to the same offices with Stem Cell. Interferon Sciences' management stepped down upon completion of the merger, but will remain employees of Stem Cell.

Amphioxus, based in Houston, Texas, is an early stage cell biology company with a core technology centered around developing, growing, and manipulating cells in the laboratory utilizing its proprietary intellectual property. By growing pure cultures of individual cell types, such as liver cells, Amphioxus is able to carry out tests and studies, primarily in the areas of drug discovery and development, that would be difficult or impossible in the whole organism.

Amphioxus' products, ACTIVTox® and PREDICTIVTox(TM), are the first coupled experimental system and database for in vitro toxicology. ACTIVTox®, based on a patented human liver cell line, provides a simple, high throughput system to examine toxicity early in the drug development process. PREDICTIVTox(TM) is a collection of compounds that have been screened in the ACTIVTox® assays and provides a context in which to examine structure-toxicity relationships. ACTIVTox® can also be used to examine toxicity in nutraceuticals and chemical development.

The assets purchased by Amphioxus from Plurion consist of intellectual property applicable to the development and use of Plurion's human pluripotent cells, including rights under certain patents and patent applications to develop differentiated cell lines from Plurion's pluripotent cells, adding to the cell types that may be used as a screen for drug discovery and toxicity, as well as for cellular replacement therapy.

"The acquisition of Plurion will provide Amphioxus with the patent rights to dramatically expand the ACTIVTox® and PREDICTIVTox(TM) toxicology testing products," said James H. Kelly, PhD, President and CEO of Stem Cell Innovations. "Coupled with the access to the public capital markets Amphioxus now has as a wholly-owned subsidiary of Stem Cell, Amphioxus is poised to deliver some of the first pluripotent stem cell based products to the drug discovery community. Amphioxus' human liver cell-based ACTIVTox® line and its accompanying database, PREDICTIVTox(TM), provide a well developed platform on which to base Amphioxus' new products and build Stem Cell's future."

Simultaneously with the merger:

(1) Stem Cell sold, for gross proceeds of $2.35 million, units consisting of an aggregate of $2.35 million principal amount of three-year, interest-free notes, convertible at $.03 per share into 78,333,333 shares of Stem Cell common stock, together with five-year warrants to purchase an aggregate of 39,166,667 shares of Stem Cell common stock at $.06 per share. The notes are not convertible and the warrants are not exercisable until Stem Cell has authorized sufficient shares of Stem Cell common stock.

(2) Stem Cell sold, for gross proceeds of $1,463,500, units consisting of shares of Stem Cell Series 1 Voting Preferred Stock, which will automatically convert into 48,783,333 shares of Stem Cell common stock upon authorization of sufficient shares of Stem Cell common stock, and five-year warrants to purchase an aggregate of 24,391,667 shares of Stem Cell common stock at $.06 a share, which are not exercisable until Stem Cell has authorized sufficient shares of Stem Cell common stock.

(3) Stem Cell sold to former members of Stem Cell's management, for gross proceeds of $510,000, units consisting of shares of Stem Cell Series 1 Voting Preferred Stock, which will automatically convert into 17,000,000 shares of Stem Cell common stock upon authorization of sufficient shares of Stem Cell common stock, and five-year warrants to purchase an aggregate of 8,500,000 shares of Stem Cell common stock at $.06 a share, which are not exercisable until Stem Cell has authorized sufficient shares of Stem Cell common stock.

(4) Holders of $303,750 principal amount of Stem Cell debt and $3,274,768 principal amount of Amphioxus debt exchanged their debt for units consisting of shares of Stem Cell Series 1 Voting Preferred Stock, which will automatically convert into of an aggregate of 170,950,597 shares of Stem Cell common stock upon authorization of sufficient shares of Stem Cell common stock, and five-year warrants to purchase an aggregate of 46,725,303 shares of Stem Cell common stock at $.06 a share, which are not exercisable until Stem Cell has authorized sufficient shares of Stem Cell common stock.

(5) Eaglestone exchanged $3,376,638 principal amount (including accrued interest) of Amphioxus debt it held for $2,935,000 principal amount of Stem Cell debt and a paid up royalty to receive 2.5% of the gross revenue attributable to Amphioxus' C3A cell line.

The holders of shares of Stem Cell common stock outstanding prior to the merger hold approximately 3.6% of the combined voting power of Stem Cell (7.9% on a fully diluted basis) after the merger, financing, and debt exchanges described above. Stem Cell intends to call a meeting of stockholders later this year to authorize additional shares of Stem Cell common stock.

Stem Cell has filed with the Securities and Exchange Commission a Current Report on Form 8-K with additional details of the transactions, including pro forma financial information.


Source: Stem Cell Innovations

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