MCET MultiCell Technologies Inc (CE)

 

 

U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

☒          Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended August 31, 2015.

 

or

 

☐          Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ___________ to ______________

 

Commission File Number
001-10221

 

 

MultiCell Technologies, Inc.
(Exact name of registrant as specified in its charter)

 

DELAWARE (State or other jurisdiction of incorporation or organization)	52-1412493 (IRS Employer Identification No.)

68 Cumberland Street, Suite 301
Woonsocket, RI 02895
(Address of principal executive offices, Zip Code)

 

401-762-0045
(Registrant’s telephone number, including area code)

 

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. 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). 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. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	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 ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 8, 2015, the issuer had 5,000,948,700 shares of Common Stock, $.01 par value, outstanding.

 

 

 

TABLE OF CONTENTS

 

	Page
PART I FINANCIAL INFORMATION	3
Item 1: FINANCIAL STATEMENTS	3
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26
Item 4. CONTROLS AND PROCEDURES	26
PART II. OTHER INFORMATION	27
Item 1: LEGAL PROCEEDINGS	27
Item 1A: RISK FACTORS	27
Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27
Item 3: DEFAULTS UPON SENIOR SECURITIES	27
Item 4: MINE SAFETY DISCLOSURES	27
Item 5: OTHER INFORMATION	27
Item 6: EXHIBITS:	27
SIGNATURES	28

 

 

PART I FINANCIAL INFORMATION 

Item 1: Financial Statements

 

MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		August 31,				November 30,
		2015				2014
ASSETS
Current assets
Cash and cash equivalents		$	281,123			$	112,533
Other current assets			13,790				13,410
Total current assets			294,913				125,943
Property and equipment, net of accumulated depreciation of $40,257 and $40,166 at August 31, 2015 and November 30, 2014, respectively			817				—
Other assets			280				280
Total assets		$	296,010			$	126,223
LIABILITIES AND EQUITY (DEFICIENCY)
Current liabilities
Accounts payable and accrued expenses		$	1,094,454			$	915,666
Payable to related party			50,000				50,000
Advance from warrant holder			113,750				166,150
Convertible debenture			35,326				—
Current portion of deferred revenue			243,400				49,318
Total current liabilities			1,536,930				1,181,134
Non-current liabilities
Convertible debenture			—				36,426
Deferred revenue, net of current portion			363,118				400,106
Derivative liability related to Series B convertible preferred stock			16,684				25,731
Total non-current liabilities			379,802				462,263
Total liabilities			1,916,732				1,643,397
Commitments and contingencies			—				—
Equity (Deficiency)
MultiCell Technologies, Inc. equity (deficiency)
Undesignated preferred stock, $0.01 par value; 963,000 shares authorized; zero shares issued and outstanding			—				—
Series B convertible preferred stock, 17,000 shares designated; 3,448 shares issued and outstanding; liquidation value of $470,316			461,835				461,835
Series I convertible preferred stock, 20,000 shares designated; zero shares issued and outstanding			—				—
Common stock, $0.01 par value; 10,000,000,000 shares authorized; 5,000,948,700 and 4,552,800,552 shares issued and outstanding at August 31, 2015 and November 30, 2014, respectively			50,009,487				45,528,006
Additional paid-in capital			—				—
Accumulated deficit			(50,738,697	)			(46,134,117	)
Total MultiCell Technologies, Inc. stockholders’ equity (deficiency)			(267,375	)			(144,276	)
Noncontrolling interests			(1,353,347	)			(1,372,898	)
Total equity (deficiency)			(1,620,722	)			(1,517,174	)
Total liabilities and equity (deficiency)		$	296,010			$	126,223

 

See accompanying notes to condensed consolidated financial statements

 

 

MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		August 31,								August 31,
		2015				2014				2015				2014
Revenue
License revenue		$	12,329			$	12,329			$	536,988			$	36,988
Research revenue			182,443				—				255,918				—
Total revenue			194,772				12,329				792,906				36,988
Cost of revenue			148,538				—				216,924				—
Gross margin			46,234				12,329				575,982				36,988
Operating expenses
Selling, general and administrative			216,764				197,341				691,930				619,500
Research and development			4,202				66,493				115,707				283,276
Stock-based compensation			2,220				(450,194	)			6,169				(385,097	)
Total operating expenses			223,186				(186,360	)			813,806				517,679
Income (loss) from operations			(176,952	)			198,689				(237,824	)			(480,691	)
Other income (expense)
Interest expense			(606	)			(584	)			(1,949	)			(10,271	)
Change in fair value of derivative liability			5,561				2,301				9,047				(14,916	)
Interest income			—				13				9				38
Total other income (expense)			4,955				1,730				7,107				(25,149	)
Net income (loss)			(171,997	)			200,419				(230,717	)			(505,840	)
Less net income (loss) attributable to the noncontrolling interests			(12,699	)			(24,610	)			19,551				(129,106	)
Net income (loss) attributable to MultiCell Technologies, Inc.		$	(159,298	)		$	225,029			$	(250,268	)		$	(376,734	)
Net income (loss) per common share:
Basic		$	(0.00	)		$	0.00			$	(0.00	)		$	(0.00	)
Diluted		$	(0.00	)		$	0.00			$	(0.00	)		$	(0.00	)
Weighted-average common shares outstanding:
Basic			5,000,948,700				3,971,690,410				4,886,495,469				3,519,485,044
Diluted			5,000,948,700				5,072,336,768				4,886,495,469				3,519,485,044

 

See accompanying notes to condensed consolidated financial statements.

 

 

MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY)

For the Nine Months Ended August 31, 2014 and 2015

(Unaudited)

		Series B Preferred Stock								Common Stock								Additional Paid in				Accumulated				Noncontrolling				Total Equity
		Shares				Amount				Shares				Par Value				Capital				Deficit				Interests				(Deficiency)
Balance at November 30, 2013			3,448			$	461,835				2,610,793,503			$	26,107,935			$	16,556,524			$	(43,489,211	)		$	(1,204,504	)		$	(1,567,421	)
Issuance of common stock for conversion of 4.75%debenture			—				—				1,595,600,327				15,956,003				(15,948,533	)			—				—				7,470
Issuance of common stock for exercise of warrants			—				—				747,000				7,470				806,760				—				—				814,230
Stock-based compensation			—				—				—				—				(365,459	)			—				(19,638	)			(385,097	)
Net loss			—				—				—				—				—				(376,734	)			(129,106	)			(505,840	)
Balance at August 31, 2014			3,448			$	461,835				4,207,140,830			$	42,071,408			$	1,049,292			$	(43,865,945	)		$	(1,353,248	)		$	(1,636,658	)
Balance at November 30, 2014			3,448			$	461,835				4,552,800,552			$	45,528,006			$	—			$	(46,134,117	)		$	(1,372,898	)		$	(1,517,174	)
Issuance of common stock for conversion of 4.75%debenture			—				—				448,038,148				4,480,381				(124,969	)			(4,354,312	)			—				1,100
Issuance of common stock for exercise of warrants			—				—				110,000				1,100				118,800				—				—				119,900
Stock-based compensation			—				—				—				—				6,169				—				—				6,169
Net income (loss)			—				—				—				—				—				(250,268	)			19,551				(230,717	)
Balance at August 31, 2015			3,448			$	461,835				5,000,948,700			$	50,009,487			$	—			$	(50,738,697	)		$	(1,353,347	)		$	(1,620,722	)

 

See accompanying notes to condensed consolidated financial statements.

 

 

MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Nine Months Ended
		August 31,
		2015				2014
Cash flows from operating activities
Net loss		$	(230,717	)		$	(505,840	)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Stock-based compensation			6,169				(385,097	)
Depreciation			90				—
Change in fair value of derivative liability			(9,047	)			14,916
Changes in assets and liabilities
Other current assets			(380	)			20,370
Accounts payable and accrued liabilities			178,788				103,176
Deferred revenue			157,094				(36,988	)
Net cash provided by (used in) operating activities			101,997				(789,463	)
Cash flows from investing activities
Purchase of property and equipment			(907	)			—
Net cash used in investing activities			(907	)			—
Cash flows from financing activities
Proceeds from the exercise of stock warrants			119,900				814,230
Change in advance from warrant holder			(52,400	)			(39,550	)
Net cash provided by financing activities			67,500				774,680
Net increase (decrease) in cash and cash equivalents			168,590				(14,783	)
Cash  and cash equivalents at beginning of period			112,533				146,205
Cash and cash equivalents at end of period		$	281,123			$	131,422
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest		$	1,541			$	1,486
Noncash Investing and Financing Activities:
Issuance of common stock for conversion of 4.75% debenture			1,100				7,470

 

See accompanying notes to condensed consolidated financial statements

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS, BASIS OF PRESENTATION, AND RECENT ACCOUNTING PRONOUNCEMENTS

 

ORGANIZATION AND NATURE OF OPERATIONS

 

MultiCell Technologies, Inc. (“MultiCell”), operates two subsidiaries, Xenogenics Corporation (“Xenogenics”) and MultiCell Immunotherapeutics, Inc. (“MCIT”). MultiCell holds 95.3% of the outstanding shares (on an as-if-converted to common stock basis) of Xenogenics. On August 15, 2014, MultiCell’s ownership of MCIT was increased to 85.1% (from approximately 67%) of the outstanding shares (on an as-if-converted to common stock basis) as a result of the conversion of $1,165,867 of inter-company liabilities into shares of common stock of MCIT. As used herein, the “Company” refers to MultiCell, together with Xenogenics and MCIT.

 

The Company’s therapeutic development platform includes several patented techniques used to: (i) isolate, characterize and differentiate stem cells from human liver; (ii) control the immune response at transcriptional and translational levels through double-stranded RNA (“dsRNA”)-sensing molecules such as the Toll-like Receptors (“TLRs”), RIG-I-like receptor (“RLR”), and Melanoma Differentiation-Associated protein 5 (“MDA-5”) signaling; (iii) generate specific and potent immunity against key tumor targets through a novel immunoglobulin platform technology; and (iv) modulate the noradrenaline-adrenaline neurotransmitter pathway. The Company’s medical device development platform is based on the design of a next-generation bioabsorbable stent, the Ideal BioStent™, for interventional cardiology and peripheral vessel applications.

 

BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements and related notes of MultiCell and its subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for a fair presentation have been included. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended November 30, 2014, previously filed with the SEC. The results of operations for the three-month and nine-month periods ended August 31, 2015, are not necessarily indicative of the operating results for the fiscal year ending November 30, 2015. The condensed consolidated balance sheet as of November 30, 2014, has been derived from the Company’s audited consolidated financial statements.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 will be effective for the Company’s fiscal year beginning December 1, 2016 and subsequent interim periods, with earlier adoption permitted. Management is currently evaluating the impact of the pending adoption of ASU 2015-03 on the Company’s consolidated financial statements.

  

In August 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, (“ASU 2014-15”). ASU 2014-15 requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. ASU 2014-15 will be effective for the Company’s fiscal year beginning December 1, 2016 and subsequent interim periods. Management is currently evaluating the impact of the pending adoption of ASU 2014-15 on the Company’s consolidated financial statements.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 will be effective for the Company retrospectively beginning December 1, 2018, with early adoption not permitted. Management has not yet selected a transition method and is currently evaluating the impact of the pending adoption of ASU 2014-09 on the Company’s consolidated financial statements.

  

NOTE 2. GOING CONCERN

 

These condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of August 31, 2015, the Company has operating and liquidity concerns and, as a result of recurring losses, has incurred an accumulated deficit of $50,738,697. The Company will have to raise additional capital in order to initiate Phase IIb/III clinical trials for MCT-125, its therapeutic product for the treatment of fatigue in multiple sclerosis patients, conduct further research on MCT-465 and MCT-485, its therapeutic products for the treatment of primary liver cancer, and initiate clinical trials for Xenogenic’s bioabsorbable, drug eluting stent, the Ideal BioStent™. The Company’s management is evaluating several sources of financing for the Company’s clinical trial program. Additionally, with its strategic shift in focus to therapeutic programs and technologies, management expects the Company’s future cash requirements to increase significantly as it advances the Company’s therapeutic programs into clinical trials. Until the Company is successful in raising additional funds, it may have to prioritize its therapeutic programs and delays may be necessary in some of the Company’s development programs.

 

Since March 2008, the Company has operated on working capital provided by La Jolla Cove Investors, Inc. (“LJCI”). As further described in Note 4 to these condensed consolidated financial statements, under the terms of the LJCI Agreement (as defined below), LJCI can convert a portion of the Debenture (as defined below) by simultaneously exercising the LJCI Warrant (as defined below) at $1.09 per share. As of August 31, 2015, there were 3,532,629 shares remaining on the LJCI Warrant and a balance of $35,326 remaining on the Debenture. Should LJCI continue to exercise all of its remaining warrants, approximately $3.8 million of cash would be provided to the Company. The LJCI Agreement limits LJCI’s investment to an aggregate ownership that does not exceed 9.99% of the common stock of MultiCell. The Debenture matures, and the LJCI Warrant expires on February 28, 2016. No assurance can be given that LJCI will elect to, or will be able to convert some or all of the Debenture and exercise some or all of the Warrant prior to the February 28, 2016 expiration dates.

 

These factors, among others, create an uncertainty about the Company’s ability to continue as a going concern. There can be no assurance that LJCI will continue to exercise its warrant to purchase MultiCell’s common stock, or that the Company will be able to successfully acquire the necessary capital to continue its on-going research and other efforts and bring its products to the commercial market. Management’s plans to acquire future funding include the potential sale of shares of the Company’s common and/or preferred stock, the sale of warrants, and continued sales of the Company’s proprietary media, immortalized cells and primary cells to the pharmaceutical industry; including potential strategic partnerships. Additionally, the Company continues to pursue research projects, government grants and capital investment. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3. – PAYABLES TO RELATED PARTIES

  

In connection with an acquisition in September 2005, the Company assumed certain liabilities in the amount of $200,000, payable to an individual who is a current director of the Company. The liability is to be paid to this individual over time as determined by the remainder of the members of the board of directors. The balance of the liability owed to this director is $50,000 as of August 31, 2015 and November 30, 2014.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company is indebted to officers and directors in the amounts of $18,924 and $5,174 for unpaid director fees and other expenses at August 31, 2015 and November 30, 2014, respectively. These amounts are included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.

  

NOTE 4. CONVERTIBLE DEBENTURES

 

MultiCell entered into a Securities Purchase Agreement with LJCI on February 28, 2007 (“the LJCI Agreement”) pursuant to which MultiCell agreed to sell a convertible debenture in the principal amount of $100,000 and originally scheduled to mature on February 28, 2012 (the “Debenture”). On August 16, 2011, MultiCell and LJCI amended the Debenture to extend the maturity date to February 28, 2014. On February 20, 2014, MultiCell and LJCI amended the Debenture to further extend the maturity date to February 28, 2016. The Debenture accrues interest at 4.75% per year, payable in cash or shares of MultiCell’s common stock at the option of LJCI. In connection with the Debenture, MultiCell issued LJCI a warrant to purchase up to 10 million shares of its common stock (the “LJCI Warrant”) at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007. On August 16, 2011, MultiCell and LJCI amended the LJCI Warrant to extend the expiration date to February 28, 2014. On February 20, 2014, MultiCell and LJCI amended the LJCI Warrant to further extend the expiration date to February 28, 2016. Pursuant to the terms of the LJCI Warrant, upon the conversion of any portion of the principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the warrant shares equal to the percentage of the dollar amount of the Debenture being converted. Therefore, as an example, for each $1,000 of the principal converted, LJCI would be required to simultaneously purchase 100,000 shares under the LJCI Warrant at $1.09 per share. The LJCI Agreement limits LJCI’s investment to an aggregate common stock ownership that does not exceed 9.99% of the outstanding shares of common stock of MultiCell.

 

The Debenture is convertible at the option of LJCI at any time up to maturity into the number of shares of MultiCell’s common stock determined by the dollar amount of the Debenture being converted multiplied by 110, minus the product of the Conversion Price (as defined below) multiplied by 100 times the dollar amount of the Debenture being converted, with the entire result divided by the Conversion Price. The “Conversion Price” is equal to the lesser of $1.00 or 80% of the average of the three lowest volume-weighted average prices during the twenty trading days prior to the election to convert. LJCI converted $1,100 and $7,470 of the Debenture into 448,038,148 and 1,595,600,327 shares, respectively, of the Company’s common stock during the nine months ended August 31, 2015 and 2014, respectively. Simultaneously with these conversions, LJCI exercised warrants to purchase 110,000 shares and 747,000 shares of the Company’s common stock during the nine months ended August 31, 2015 and 2014, respectively. Proceeds from the exercise of the warrants were $119,900 and $814,230 for the nine months ended August 31, 2015 and 2014, respectively. At times, LJCI makes advances to the Company prior to the exercise of warrants. At August 31, 2015 and November 30, 2014, LJCI had advanced $113,750 and $166,150, respectively, to the Company in advance of LJCI’s exercise of warrants.

 

As of August 31, 2015, the remainder of the Debenture in the amount of $35,326 could have been converted by LJCI into approximately 24 billion shares of the Company’s common stock, which would require LJCI to simultaneously exercise and purchase all of the remaining 3,532,629 shares of the Company’s common stock under the LJCI Warrant at $1.09 per share. As of November 30, 2014, the balance of the Debenture was $36,426. For the Debenture, upon receipt of a conversion notice from the holder, MultiCell may elect to immediately redeem that portion of the Debenture that the holder elected to convert in such conversion notice, plus accrued and unpaid interest. MultiCell, at its sole discretion, has the right, without limitation or penalty, to redeem the outstanding principal amount of the Debenture not yet converted by the holder into common stock, plus accrued and unpaid interest thereon.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 5. RESEARCH AND LICENSE AGREEMENTS

 

Oxis Biotech, Inc.

 

On March 10, 2015, MultiCell Immunotherapeutics, Inc. (“MCIT”), entered into a Research Agreement with Oxis Biotech, Inc. (“Oxis”) to create three novel antibody-drug conjugates (“ADCs”) containing Oxis’ lead drug candidates, and by using MCIT’s proprietary ADC platform technology. The Research Agreement contains a License Agreement between MCIT and Oxis wherein MCIT licenses to Oxis the exclusive right to sell the three ADCs product candidates. Under the terms of the Research Agreement, Oxis paid to MCIT a fee of $500,000 for the licenses granted to Oxis and for the synthesis of a certain drug candidate being investigated by Oxis, and will pay MCIT up to $1.125 million as consideration for performance of the research project. Oxis will also pay up to $12.75 million in clinical development milestones, and was granted an option to purchase manufacturing rights to the three ADCs upon payment of an additional $10 million. Additionally, Oxis will pay MCIT a royalty of 3% of net yearly worldwide sales and 30% of net sublicense revenue upon marketing approval of the ADCs.

 

MCIT is recognizing revenue under the Research Agreement consistent with the effort expended in fulfillment of the contract as measured by the percent of costs incurred compared to total estimated contract costs. During the three months and the nine months ended August 31, 2015, MCIT has recognized $182,443 and $255,918 under the Research Agreement. During the nine months ended August 31, 2015, MCIT received payments of $450,000 under the Research Agreement, of which $194,082 has been deferred to be recognized as performance of the contract proceeds. MCIT recognized the entire $500,000 fee received under the License Agreement as license revenue because the payment is non-refundable and MCIT has no further service obligations under the License Agreement.

 

Corning Incorporated

 

The Company has an exclusive license and purchase agreement (the “Agreement”) with Corning Incorporated (“Corning”) of Corning, New York. Under the terms of the Agreement, Corning has the right to develop, use, manufacture, and sell the Company’s Fa2N-4 cell lines and related cell culture media for use as a drug discovery assay tool, including biomarker identification for the development of drug development assay tools, and for the performance of absorption, distribution, metabolism, elimination and toxicity assays (“ADME/Tox assays”). The Company retained and will continue to support all of its existing licensees. The Company retains the right to use the Fa2N-4 cells for use in applications not related to drug discovery or ADME/Tox assays. The Company also retains rights to use the Fa2N-4 cell lines and other cell lines to further develop its Sybiol® liver assist device, to produce therapeutic proteins using the Company’s BioFactories™ technology, to identify drug targets and for other applications related to the Company’s internal drug development programs. In consideration for the license granted, Corning paid the Company $750,000. The Company is recognizing the income ratably over a 17-year period. The Company recognized $11,029 and $33,088, respectively, in income for each of the three months and nine months ended August 31, 2015 and 2014. The balance of deferred revenue from this license was $400,736 and $433,824 at August 31, 2015 and November 30, 2014, respectively, and will be amortized into revenue through October 2024.

 

Pfizer Inc.

 

The Company has another license agreement with Pfizer Inc. (“Pfizer”), for which revenue is being deferred. The Company recognized $1,300 and $3,900, respectively, in income for each of the three months and nine months ended August 31, 2015 and 2014. The balance of deferred revenue from this license was $11,700 and $15,600 at August 31, 2015 and November 30, 2014, respectively, and will be amortized into revenue through January 2018.

 

The Foreclosure Sale Agreement and the Rutgers License Agreement

 

On September 30, 2010, Xenogenics entered into a Foreclosure Sale Agreement (“Foreclosure Sale Agreement”) with Venture Lending & Leasing IV, Inc., Venture Lending & Leasing V, Inc. and Silicon Valley Bank (collectively, the “Sellers”). Pursuant to the Foreclosure Sale Agreement, Xenogenics acquired all of the Sellers’ interests in certain bioabsorbable stent assets (known as “Ideal BioStent™”) and related technologies. In consideration for the purchase of the assets, Xenogenics made cash payments to the Sellers in the aggregate amount of $400,000.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Xenogenics is also required to make cash payments to the Sellers as follows based on the achievement of certain milestones:

  

·

$300,000 is payable upon the earlier to occur of (i) initiation of pivotal Generation 2 stent human clinical trials, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $3,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments), and (iii) a “change of control” of Xenogenics;

  

·

$1,000,000 is payable upon the earlier to occur of (i) regulatory approval by any regulatory authority in a European Union member country, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics; and

  

·

$3,000,000 is payable upon the earlier to occur of (i) regulatory approval by the U.S. Food and Drug Administration, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics.

  

None of these milestones were achieved as of August 31, 2015 and, accordingly, none of these obligations have accrued. Xenogenics’ obligations under the Foreclosure Sale Agreement had been previously extended pursuant to Amendments No. 1, No. 2, No. 3, and No. 4 dated September 30, 2011, October 23, 2012, October 11, 2013, and December 1, 2014. As a result of these various amendments to extend the dates for achievement of the milestones, the Company is in compliance with the requirements of the Foreclosure Sale Agreement, as amended. Xenogenics is required to use Good Faith Reasonable Efforts (as defined in the Foreclosure Sale Agreement) to achieve these milestones. Failure to achieve any of these milestones shall result in all milestone payments, totaling $4.3 million, becoming immediately due and payable, unless Xenogenics’ failure to use Good Faith Reasonable Efforts is due to Technical Difficulties (as defined in the Foreclosure Sale Agreement) or to Financial Hardship (as defined in the Foreclosure Sale Agreement), in which case Xenogenics can elect to (i) pay all remaining milestone payments and continue commercialization efforts, or (ii) assign all intellectual property acquired by Xenogenics under the agreement to the counterparties to the agreement and cease all development and commercialization efforts. Accordingly, Xenogenics has not accrued the $4.3 million commitment because the dates for achieving the milestones have been extended under the amendments to the Foreclosure Sale Agreement, and because Xenogenics also believes that the Financial Hardship exemption in the Foreclosure Sale Agreement would protect it in the future from any requirement to pay the $4.3 million.

  

To supplement the technology acquired under the Foreclosure Sale Agreement, Xenogenics also entered in to a license agreement (the “Rutgers License Agreement”) with Rutgers, The State University of New Jersey (“Rutgers”) effective September 30, 2010. Pursuant to the Rutgers License Agreement, Rutgers granted Xenogenics a worldwide exclusive license to exploit and commercialize certain patents and other intellectual property rights, as further described in the Rutgers License Agreement, relating to bioabsorbable stents for interventional cardiology and peripheral vascular applications.

  

However, it became apparent during the evaluation and development of the Ideal BioStent™ that the use of intellectual property licensed from Rutgers would have introduced complications in the design of the Ideal BioStent. As a result, Xenogenics abandoned the use of the Rutgers technology effective January 2014. On January 31, 2014, Rutgers notified Xenogenics of its alleged default of the provisions in the Rutgers License Agreement. On May 9, 2014, Rutgers issued a notice of termination of the Rutgers License Agreement, and demanded payment of unpaid license fees of $25,000, unpaid patent costs of $75,665, and accrued interest of $8,375. All of these claimed fees, costs, and interest have been accrued in the accompanying condensed consolidated financial statements. Management is currently evaluating the merits of these claims.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 6. SERIES B CONVERTIBLE PREFERRED STOCK

 

The Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of these shares of preferred stock. The Board of Directors originally designated 17,000 shares as Series B convertible preferred stock. The Series B convertible preferred stock does not have voting rights.

 

The Series B shares are convertible at any time into shares of the Company common stock at a conversion price determined by dividing the purchase price per share of $100 by the conversion price. The conversion price was originally $0.32 per share. Upon the occurrence of an event of default (as defined in the applicable Series B convertible preferred stock purchase agreement), the conversion price of the Series B shares shall be reduced to 85% of the then-applicable conversion price of such shares. The conversion price is subject to equitable adjustment in the event of any stock splits, stock dividends, recapitalizations and the like. In addition, the conversion price is subject to weighted average anti-dilution adjustments in the event the Company sells common stock or other securities convertible into or exercisable for common stock at a per share price, exercise price or conversion price lower than the conversion price then in effect in any transaction (other than in connection with an acquisition of the securities, assets or business of another company, a joint venture and/or the issuance of employee stock options). As a result of the Company issuing shares of its common stock upon conversion of convertible debentures and upon the exercise of warrants both at prices lower than the conversion price of the Series B convertible preferred stock, and due to the Company not paying the Series B dividends on a monthly basis (as discussed below), the conversion price of the Series B convertible preferred stock has been reduced to $0.0062 per share as of August 31, 2015 and to $0.0067 per share as of November 30, 2014. Pursuant to the applicable Series B convertible preferred stock purchase agreement, each investor may only convert that number of shares of Series B convertible preferred stock into that number of shares of the Company’s common stock that does not exceed 9.99% of the outstanding shares of common stock of the Company on the date of conversion.

 

Commencing on the date of issuance of the Series B convertible preferred stock until the date a registration statement registering the shares of the Company’s common stock underlying the preferred stock and warrants issued is declared effective by the SEC, the Company was required to pay on each outstanding share of Series B convertible preferred stock a preferential cumulative dividend at an annual rate equal to the product of multiplying $100 per share by the higher of (i) the Wall Street Journal Prime Rate plus 1%, or (ii) 9%. In no event was the dividend rate to be greater than 12% per annum. The dividend was payable monthly in arrears in cash on the last day of each month based on the number of shares of Series B convertible preferred stock outstanding as of the first day of that month. In the event the Company did not pay the Series B convertible preferred dividends when due, the conversion price of the Series B preferred shares was reduced to 85% of the otherwise applicable conversion price. The Company did not pay the required monthly Series B preferred dividends beginning on November 30, 2006, which, in part, caused the conversion price to be reduced. Subsequent to November 30, 2010, the Company received an opinion of outside counsel providing for the removal of the restrictive legend on the Series B convertible preferred stock, which in turn terminated the requirement to accrue the related dividends. Accordingly, no dividends have been accrued since November 30, 2010. Total accrued but unpaid preferred dividends recorded in the accompanying condensed consolidated balance sheet as of August 31, 2015 and November 30, 2014 are $290,724, of which $125,516 are recorded in permanent equity with the Series B convertible preferred stock and $165,208 are recorded as a current liability in accounts payable and accrued expenses.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

 

The conversion feature which gives the holders of the Series B convertible preferred stock the right to acquire shares of the Company’s common stock is an embedded derivative. As of August 31, 2015 and November 30, 2014, there were 3,448 shares of Series B convertible preferred stock that were convertible into 55,612,903 and 51,462,687 shares of common stock of the Company, respectively. The fair value of the conversion feature was estimated at $16,684 ($0.0003 per share of common stock) and $25,731 ($0.0005 per share of common stock) at August 31, 2015 and November 30, 2014, respectively, and has been estimated using the Black-Scholes option-pricing model using the following assumptions:

 

		August 31, 2015				May 31, 2015				February 28, 2015				November 30, 2014
Fair value of common stock		$	0.0003			$	0.0004			$	0.0003			$	0.0005
Conversion price of preferred stock		$	0.0062			$	0.0062			$	0.0063			$	0.0067
Risk free interest rate			2.21	%			2.12	%			2.00	%			2.18	%
Expected life			10 Years				10 Years				10 Years				10 Years
Dividend yield			—				—				—				—
Volatility			149	%			145	%			144	%			143	%

 

Pursuant to the Certificate of Designation of the Series B convertible preferred stock, in the event of any dissolution or winding up of the Company, whether voluntary or involuntary, holders of each outstanding share of Series B convertible preferred stock shall be entitled to be paid second in priority to the Series I preferred stockholders out of the assets of the Company available for distribution to stockholders, an amount equal to $100 per share of Series B convertible preferred stock held plus any declared but unpaid dividends. However, as discussed below, no shares of the Company’s Series I convertible preferred stock were outstanding at August 31, 2015. After such payment has been made in full, such holders of Series B convertible preferred stock shall be entitled to no further participation in the distribution of the assets of the Company. 

 

NOTE 7. SERIES I CONVERTIBLE PREFERRED STOCK  

 

The Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of these shares of preferred stock. The Board of Directors originally designated 20,000 shares as Series I convertible preferred stock. On July 13, 2004, the Company completed a private placement of Series I convertible preferred stock and a total of 20,000 shares were originally sold to accredited investors. As of August 31, 2015 and November 30, 2014, all of the shares of Series I convertible preferred stock had been converted into shares of the common stock of the Company and no shares of the Company’s Series I convertible preferred stock were outstanding.

 

NOTE 8. COMMON STOCK 

 

On March 11, 2015, the Company held an annual meeting of stockholders. At the meeting, the stockholders approved the Certificate of Amendment of Certificate of Incorporation of MultiCell Technologies, Inc. to increase the number of authorized shares of common stock of MultiCell from five billion to ten billion. The Certificate of Amendment of Certificate of Incorporation of MultiCell Technologies, Inc. was filed with the State of Delaware on April 13, 2015. 

 

NOTE 9. STOCK COMPENSATION PLANS 

 

On March 11, 2015, at the Company’s Annual Meeting of Stockholders, the stockholders approved the Company’s 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan had been adopted by the Company’s board of directors on October 24, 2014 and will terminate on October 24, 2024. The purpose of the 2014 Plan is to provide a means by which eligible recipients of stock awards could be given the opportunity to benefit from increases in the value of the Company’s common stock through granting of stock options and stock awards. The initial number of shares reserved for stock awards under the 2014 Plan is 500 million shares, which can only be increased by amendment with the approval of the Company’s shareholders. As of August 31, 2015, there are 440 million shares of common stock available for future awards under the 2014 Plan.

 

Prior to the approval of the 2014 Plan, stock options and stock awards were granted under the 2004 Equity Incentive Plan (the “2004 Plan”). However, the 2004 Plan terminated on March 2, 2014, and as such, there are no additional shares of common stock available for future awards under the 2004 Plan. 

 

Generally accepted accounting principles for stock options require the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements, which is measured based on the grant date fair value of the award, and require the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period), net of estimated forfeitures. The estimation of forfeitures requires significant judgment, and to the extent actual results or updated estimates differ from the current estimates, such resulting adjustment will be recorded in the period estimates are revised. No income tax benefit has been recognized for stock-based compensation arrangements and no compensation cost has been capitalized in the consolidated balance sheets. 

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED) 

 

A summary of the status of stock options granted by MultiCell at August 31, 2015, and changes during the nine months then ended is presented in the following table:

 

										Weighted
						Weighted				Average
		Shares				Average				Remaining				Aggregate
		Under				Exercise				Contractual				Intrinsic
		Option				Price				Life				Value
Outstanding at November 30, 2014			69,630,266			$	0.0020				3.4 years			$	—
Granted			60,000,000				0.0004
Exercised			—				—
Expired or forfeited			(4,305,556	)			0.0075
Outstanding at August 31, 2015			125,324,710			$	0.0011				3.9 years			$	—
Exercisable at August 31, 2015			62,900,541			$	0.0017				2.9 years			$	—

 

On July 27, 2015, the MultiCell Board of Directors granted an option to each of the five members of its Board of Directors to purchase 10,000,000 shares of the Company’s common stock at $0.0004 per share. The options vest quarterly over one year, subject to continuing service as a director on each such vesting date, and expire five years after grant. Additionally, the Board of Directors granted an option to an employee to purchase 10,000,000 shares of common stock at $0.0004 per share. This option vests monthly over three years, subject to continuing service as an employee on each such vesting date, and expires five years after grant. On January 15, 2014, the MultiCell Board of Directors granted an option to each of the five members of the Board of Directors to purchase 4,600,000 shares of MultiCell’s common stock at $0.0008 per share. The options vested quarterly over one year, subject to continuing service as a director on each such vesting date, and expire five years after grant. Additionally, the Board of Directors granted an option to an employee to purchase 2,074,710 shares of MultiCell’s common stock at $0.0008 per share. This option vests monthly over three years, subject to continuing service as an employee on each such vesting date, and expires five years after grant.

 

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average fair value of stock options granted during the nine months ended August 31, 2015 was $0.0003 per share. The weighted-average assumptions used for options granted during the nine months ended August 31, 2015 were risk-free interest rate of 1.58%, volatility of 126%, expected life of 5.0 years, and dividend yield of zero. The weighted-average fair value of stock options granted during the nine months ended August 31, 2014 was $0.0007 per share. The weighted-average assumptions used for options granted during the nine months ended August 31, 2014 were risk-free interest rate of 1.68%, volatility of 140%, expected life of 5.0 years, and dividend yield of zero. The assumptions employed in the Black-Scholes option pricing model include the following: (i) the expected life of stock options represents the period of time that the stock options granted are expected to be outstanding prior to exercise; (ii) the expected volatility is based on the historical price volatility of the Company’s common stock; (iii) the risk-free interest rate represents the U.S. Treasury Department’s constant maturities rate for the expected life of the related stock options; and (iv) the dividend yield represents anticipated cash dividends to be paid over the expected life of the stock options.

 

For the three months ended August 31, 2015 and 2014, MultiCell reported stock-based compensation expense for services related to stock options of $2,220 and $10,806, respectively. For the nine months ended August 31, 2015 and 2014, MultiCell reported stock-based compensation expense for services related to stock options of $6,169 and $32,741, respectively. As of August 31, 2015, there was approximately $19,000 of unrecognized compensation cost related to stock-based payments that will be recognized over a weighted average period of approximately 1.2 years. The intrinsic values at August 31, 2015 are based on a closing price of $0.0003.

 

In October 2010, Xenogenics adopted the 2010 Stock Incentive Plan (the “2010 Plan”) which authorized the granting of stock awards to Xenogenics’ employees, directors, and consultants. As amended, the number of shares of Xenogenics’ common stock that could be issued pursuant to stock awards could not exceed 8,000,000 shares of common stock. The purpose of the 2010 Plan is to provide a means by which eligible recipients of stock awards may be given the opportunity to benefit from increases in the value of Xenogenics’ common stock through the granting of stock options and stock awards. An option’s maximum term is 10 years.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

 

A summary of the status of Xenogenics’ stock options at August 31, 2015, and changes during the nine months then ended is presented in the following table:

 

										Weighted
						Weighted				Average
		Shares				Average				Remaining
		Under				Exercise				Contractual
		Option				Price				Life
Outstanding at November 30, 2014			1,250,000			$	0.246				2.2 years
Granted			—				—
Exercised			—				—
Expired or forfeited			—				—
Outstanding at August 31, 2015			1,250,000			$	0.246				1.4 years
Exercisable at August 31, 2015			1,250,000			$	0.246				1.4 years

 

In November 2010, Xenogenics granted an option to a prospective executive officer to purchase an aggregate of 2,500,000 shares of its common stock, exercisable at $0.246 per share of common stock and having an expiration date in November 2015. The option to acquire 500,000 of the shares vested on the grant date and the remaining 2,000,000 option shares were to vest in the future upon the achievement of specified milestones. The fair value of these options was estimated to be $576,250, or $0.2305 per share, as estimated using the Black-Scholes option-pricing model, using a risk-free interest rate of 1.23%, volatility of 165%, expected life of five years, and dividend yield of zero. This prospective executive officer resigned in May 2014 and the rights under this option were forfeited in August 2014. At the date of the forfeiture, only the initial option to acquire 500,000 shares had vested, and the remaining 2,000,000 option shares remained unvested because the specified milestones had not been achieved. The share-based compensation related to these 2,000,000 option shares ($461,000) had been recognized over the periods of time, originally estimated on the date of grant, that management expected each of the specified milestones was likely to be achieved. As of the date of forfeiture, all of the share-based compensation related to these performance-based options had been recognized in the condensed consolidated financial statements. Under GAAP, if vesting is based solely on one or more performance or service conditions, any previously recognized compensation cost is reversed if the award does not vest (that is, the requisite service is not rendered). Accordingly, Xenogenics reversed the compensation cost for these options in the amount of $461,000 during the three months ended August 31, 2014 when the options were forfeited. For the nine months ended August 31 2014, Xenogenics reported a net reversal of stock-based compensation in the amount $417,838, representing stock-based compensation of $43,162 less the reversal of $461,000.

 

For the three and nine months ended August 31, 2015, Xenogenics reported no stock-based compensation. As of August 31, 2015, there was no unrecognized compensation cost related to stock-based payments to be recognized in the future for option grants through August 31, 2015.

 

NOTE 10. STOCK WARRANTS

 

Since the Company’s inception, it has financed its operations primarily through the issuance of debt or equity instruments, which have often included the issuance of warrants to purchase shares of the Company’s common stock.

 

As further described in Note 4 to these condensed consolidated financial statements, MultiCell entered into the LJCI Agreement pursuant to which MultiCell agreed to sell the Debenture in the principal amount of $100,000. In connection with the Debenture, MultiCell issued LJCI a warrant to purchase up to 10 million shares of MultiCell’s common stock at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007. Pursuant to the terms of the LJCI Warrant, upon the conversion of any portion of the principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the warrant shares equal to the percentage of the dollar amount of the Debenture being converted. Therefore, as an example, for each $1,000 of the principal of the Debenture converted, LJCI would be required to simultaneously purchase 100,000 shares under the warrant at $1.09 per share. As further described to Note 4 to these condensed consolidated financial statements, on February 20, 2014, MultiCell and LJCI amended the LJCI Warrant to extend the expiration date of the warrants to February 28, 2016. During the nine months ended August 31, 2015, LJCI exercised warrants to purchase 110,000 shares of MultiCell’s common stock, resulting in proceeds to the Company of $119,900. During the nine months ended August 31, 2014, LJCI exercised warrants to purchase 747,000 shares of MultiCell’s common stock, resulting in proceeds to the Company of $814,230.

 

 

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

 

A summary of the status of warrants at August 31, 2015, and changes during the nine months then ended is presented in the following table:

 

										Weighted
						Weighted				Average
		Shares				Average				Remaining				Aggregate
		Under				Exercise				Contractual				Intrinsic
		Warrants				Price				Life				Value
Outstanding at November 30, 2014			6,823,030			$	0.68				1.7 years			$	—
Issued			—				—
Exercised			(110,000	)			1.09
Expired			—				—
Outstanding at August 31, 2015			6,713,030			$	0.67				1.0 years			$	—

 

NOTE 11. NET INCOME (LOSS) PER COMMON SHARE

 

Basic net income (loss) per common share is computed by dividing net income (loss) for the period by the weighted-average number of shares of outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and warrants is reflected in diluted net income (loss) per common share by application of the treasury stock method. The dilutive effect of the conversion of the Series B convertible preferred stock and the convertible debentures is reflected in diluted net income (loss) per common share by application of the as-if converted method. The calculation of diluted net income (loss) per common share excludes all anti-dilutive common shares. The following table sets forth the computation of basic and diluted income (loss) per common share for the periods indicated:

 

		For the Three Months Ended								For the Nine Months Ended
		August 31,								August 31,
		2015				2014				2015				2014
Numerator:
Net income (loss)		$	(159,298	)		$	225,029			$	(250,268	)		$	(376,734	)
Interest on convertible debentures			—				451				—				—
Numerator for diluted income (loss) per common share		$	(159,298	)		$	225,480			$	(250,268	)		$	(376,734	)
Denominator:
Weighted-average shares of common stock - basic			5,000,948,700				3,971,690,410				4,886,495,469				3,519,485,044
Dilutive effect of:
Conversion of Series B converible preferred stock			—				44,205,128				—				—
Conversion of convertible debentures and exercise of LJCI warrants			—				1,056,441,230				—				—
Weighted-average shares of common stock - diluted			5,000,948,700				5,072,336,768				4,886,495,469				3,519,485,044
Net income (loss) per common share - basic		$	(0.00	)		$	0.00			$	(0.00	)		$	(0.00	)
Net income (loss) per common share - diluted		$	(0.00	)		$	0.00			$	(0.00	)		$	(0.00	)

  

  

MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED)

 

Common stock equivalents excluded from income (loss) per common share calculations because their effect would have been anti-dilutive are as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		August 31,								August 31,
		2015				2014				2015				2014
Warrants			6,713,030				3,180,401				6,713,030				6,948,030
Stock options			125,324,710				71,444,213				125,324,710				71,444,213
Series B convertible preferred stock			55,612,903				—				55,612,903				47,232,877
Convertible debenture			24,283,291,746				—				24,283,291,746				8,630,382,163
			24,470,942,389				74,624,614				24,470,942,389				8,756,007,283

 

At current trading prices of its common stock, MultiCell does not currently have sufficient authorized shares of its common stock to meet the commitments entered into under the Debenture and the related LJCI Warrants. As further discussed in Note 4 to the condensed consolidated financial statements, upon the conversion of any portion of the remaining $35,326 principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the remaining 3,532,629 warrant shares equal to the percentage of the dollar amount of the Debenture being converted. The LJCI agreement limits LJCI’s investment to an aggregate common stock ownership that does not exceed 9.99% of the outstanding shares of common stock of the Company. Furthermore, MultiCell has the right to redeem that portion of the Debenture that the holder may elect to convert and also has the right to redeem the outstanding principal amount of the Debenture not yet converted by the holder into common stock, plus accrued and unpaid interest thereon.

 

NOTE 12. FAIR VALUE MEASUREMENTS

 

For assets and liabilities measured at fair value, the Company uses the following hierarchy of inputs:

 

·

Level one — Quoted market prices in active markets for identical assets or liabilities;

 

·

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

 

·

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the Company and reflect those assumptions that a market participant would use.

       

Liabilities measured at fair value on a recurring basis at August 31, 2015 and November 30, 2014, are summarized as follows:

 

		August 31, 2015																November 30, 2014
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Derivative liability		$	—			$	16,684			$	—			$	16,684			$	—			$	25,731			$	—			$	25,731

 

As further described in Note 6, the fair value of the derivative liability is determined using the Black-Scholes pricing model.

 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This document contains forward-looking statements that are based upon current expectations within the meaning of the Private Securities Litigation Reform Act of 1995. It is our intent that such statements be protected by the safe harbor created thereby. This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report. Operating results are not necessarily indicative of results that may occur in future periods.

Forward-looking statements involve risks and uncertainties and our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to, statements about or relating to: our plans to pursue research and development of therapeutics in addition to continuing to advance our cellular systems business; our plans to become an integrated biopharmaceutical company; our use of proprietary cell-based systems and immune system modulation technologies to discover, develop and commercialize new therapeutics; our plans to continue to operate our business and minimize expenses; our expectations regarding future cash expenditures increasing significantly; our intent to gradually add scientific and support personnel; the expansion of our product offerings; additional revenues and profits; our ability to complete strategic mergers and acquisitions of product candidates; plans to increase further our operating expenses and administrative resources; future potential direct product sales; the sale of additional equity securities; debt financing; and/or the sale or licensing of our technologies.

Such forward-looking statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties relating to difficulties or delays in development, testing, obtaining regulatory approval, and undertaking production and marketing of our drug candidates; difficulties or delays in patient enrollment for our clinical trials; unexpected adverse side effects or inadequate therapeutic efficacy of our drug candidates that could slow or prevent product approval (including the risk that current and past results of clinical trials or preclinical studies are not indicative of future results of clinical trials); activities and decisions of, and market conditions affecting, current and future strategic partners; pricing pressures; accurately forecasting operating and clinical trial costs; uncertainties of litigation and other business conditions; our ability to obtain additional financing if necessary; changing standards of care and the introduction of products by competitors or alternative therapies for the treatment of indications we target; the uncertainty of protection for our intellectual property or trade secrets, through patents or otherwise; and potential infringement of the intellectual property rights or trade secrets of third parties. In addition such statements are subject to the risks and uncertainties discussed under the “Risk Factors” section included in our Annual Report filed on Form 10-K for the fiscal year ended November 30, 2014.

Overview

MultiCell is a biopharmaceutical company which owns a majority interest in its two subsidiary companies, MCIT and Xenogenics. MultiCell and its subsidiaries are developing novel therapeutics and discovery tools to address unmet medical needs for the treatment of neurological disorders, hepatic disease, cancer and interventional cardiology and peripheral vessel applications.

 

MultiCell has an exclusive license and purchase agreement with Corning Incorporated (“Corning”) of Corning, New York. Under the terms of such agreement, Corning has the right to develop, use, manufacture and sell MultiCell’s Fa2N-4 cell lines and related cell culture media for use as a drug discovery assay tool, including biomarker identification for the development of drug development assay tools, and for the performance of absorption, distribution, metabolism, elimination and toxicity assays (ADME/Tox assays). Corning paid MultiCell a non-refundable license fee, purchased certain inventory and equipment related to MultiCell’s Fa2N-4 cell line business, hired certain MultiCell scientific personnel, and paid for access to MultiCell’s laboratories during the transfer of the Fa2N-4 cell lines to Corning. MultiCell retained and continues to support all of its existing licensees. MultiCell retained the right to use the Fa2N-4 cells for use in applications not related to drug discovery or ADME/Tox assays. MultiCell also retained rights to use the Fa2N-4 cell lines and other cell lines to further develop its Sybiol® liver assist device, to identify drug targets and for other applications related to the Company’s internal drug development programs.

Our Therapeutic Platform

 

Our therapeutic development platform includes several patented techniques used to: (i) control the immune response at transcriptional and translational levels through double-stranded RNA (“dsRNA”)-sensing molecules such as the Toll-like Receptors (“TLRs”), RIG-I-like receptor (“RLR”), and Melanoma Differentiation-Associated protein 5 (“MDA-5”) signaling; (ii) generate specific and potent immunity against key tumor targets through a novel immunoglobulin platform technology; (iii) modulate the noradrenaline-adrenaline neurotransmitter pathway and (iv) develop next-generation antibody drug conjugates (ADCs) which provide for the simultaneous targeted delivery of multiple drugs from a single antibody. Our medical device development platform is based on the design of a next-generation bioabsorbable stent, the Ideal BioStent™, for interventional cardiology and peripheral vessel applications.

 

 

 

Our therapeutic new drug candidate, MCT-125, we believe offers several key advantages, including selective modulation of noradrenergic neurons without influencing seratoninergic neurons to inhibit the reuptake of noradrenaline (norepinephrine) while promoting increased tyrosine hydroxylase activity for the treatment of primary multiple sclerosis-related fatigue (PMSF) affecting over 70% of all persons with multiple sclerosis (“MS”).

 

Unlike other immune modulating compounds, our use of novel synthetic dsRNAs (MCT-485 and MCT-465) is not species or sequence-specific yet enables selective control of critical immune signaling pathways, and therefore has the potential in a broader spectrum of therapeutic applications as a monotherapy or in combination with other therapies.

 

Coupling our synthetic dsRNA platform technology with our therapeutic antibody-drug conjugate (ADC) technology we believe maximizes the potential creates a novel class of potentially more effective anticancer therapeutics.

 

Our portfolio of lead drug candidates is in various stages of discovery optimization, and preclinical and clinical development, and includes the following:

 

·

MCT-125, a Phase 2 therapeutic candidate for the treatment of PMSF which has demonstrated efficacy in a 138-patient Phase IIa clinical trial;

 

·

MCT-465, a preclinical synthetic dsRNA therapeutic candidate and potent immune enhancer for the treatment of solid tumor cancers such as those expressing TLR-3; and,

 

·

MCT-485, a discovery stage dsRNA therapeutic candidate with tumor cytolytic properties for the treatment of certain cancers.

 

Our Therapeutic Programs

 

MultiCell is pursuing research and development targeting multiple sclerosis-related fatigue degenerative and cancer.

 

Our therapeutics candidates address unmet medical needs and are designed to augment current therapeutic strategies via:

 

·

Modulation of the noradrenaline-adrenaline neurotransmitter pathway (MCT-125) for the treatment of primary multiple sclerosis fatigue (PMSF) affecting over 70% of all persons with MS;

·

Triggering the adaptive immune response thru Toll-like Receptor 3 (TLR3) signaling of the innate immune system using dsRNA (MCT-465) to treat cancer;

·

Triggering cytolysis using dsRNA (MCT-485) via activation of stromal macrophages and release of tumor necrosis factor alpha (“TNF-alpha”), interleukin 6 (“IL-6”) and other pro-inflammatory cytokines; and

·

Development of next-generation antibody drug conjugates (ADCs) which provide for the simultaneous targeted delivery of multiple drugs from a single antibody.

 

We believe our therapeutic development platform has several advantages over those of our competitors:

 

·

Modulation of noradrenergic neurons without effecting seratoninergic neurons to inhibit the reuptake of noradrenaline (norepinephrine);

	·	Unlike DNA-based immunostimulatory CpG motifs or antisense and small interfering RNA (siRNA) technologies, our use of dsRNA signaling thru TLR3 is not species or sequence-specific, and therefore has the potential to have application in a broader spectrum of therapeutic applications. SiRNA, sometimes known as short interfering RNA or silencing RNA, is a class of dsRNA molecures 20-25 base pairs in length;

	·	Using very small dsRNA to trigger direct cytotoxic activity (cytolysis) via activation of stromal macrophages and release of TNF-alpha, IL-6 and other pro-inflammatory cytokines; and

·

Able to deliver two different drugs simultaneously using a single targeted antibody-drug conjugates.

 

  

Our portfolio of lead drug candidates is in various stages of preclinical and clinical development and includes:

 

·

MCT-125, a Phase IIb therapeutic candidate for the treatment of PMSF with demonstrated efficacy in 138 patients;

·

MCT-465, a preclinical adjuvant therapeutic candidate for the treatment of TLR3+ cancers; and

·

MCT-485, a preclinical therapeutic candidate that appears to have direct cytotoxic activity (cytolysis) via activation of stromal macrophages and release of TNF-alpha, IL-6 and other pro-inflammatory cytokines.

 

On July 5, 2011, MultiCell entered into a sponsored research agreement with the University Health Network, or UHN, a not-for-profit corporation incorporated under the laws of Canada. Under this agreement UHN evaluated our product candidates, MCT-465 and MCT-485, in its in vitro models for the treatment of primary liver cancer. The mechanism of action of MCT-465 and MCT-485 and their potential selective effect on liver cancer stem cells was also be evaluated. Under the terms of this agreement, we retained exclusive access to the research findings and intellectual property resulting from the research activities preformed by UHN. On September 27, 2013, MultiCell entered into a new sponsored research agreement with Anand Ghanekar, M.D., Ph.D, of UHN’s Toronto General Hospital expanding the scope of the current research project with UHN to evaluate MCT-485 in animal models for the treatment of primary liver cancer (the “Ghanekar Agreement”). Under the terms of the Ghanekar Agreement, the Company retained exclusive access to the research findings and intellectual property resulting from the research activities preformed by of Dr. Ghanekar. As of November 30, 2014, this sponsored research arrangement had concluded, but this research is continuing in a non-academic setting.

In December 2005, MultiCell exclusively licensed LAX-202 from Amarin for the treatment of fatigue in patients suffering from MS.  MultiCell renamed LAX-202 to MCT-125, and intends to further evaluate MCT-125 in a pivotal Phase IIb/III clinical trial.  In a 138- patient, multi-center, double-blind placebo controlled Phase II clinical trial conducted in the United Kingdom by Amarin, LAX-202 demonstrated efficacy in significantly reducing the levels of fatigue in MS patients enrolled in the study.  LAX-202 proved to be effective within four weeks of the first daily oral dosing, and showed efficacy in MS patients who were moderately as well as severely affected.  LAX-202 demonstrated efficacy in all MS patient sub-populations including relapsing-remitting, secondary progressive and primary progressive.  Patients enrolled in the Phase II trial conducted by Amarin also reported few if any side effects following daily oral dosing of LAX-202.  MultiCell intends to proceed with the anticipated Phase IIb/III trial of MCT-125 using the data generated by Amarin for LAX-202 following discussions with the regulatory authorities.

Our Medical Device Platform

 

Our medical device development platform is based on the design of a next-generation bioabsorbable stent, the Ideal BioStent™, for interventional cardiology and peripheral vessel applications. Xenogenics’ bioabsorbable stent technology allows for the ability to layer different combinations of polymers and drugs, enabling the optimization of the delivery of combination drug therapies to provide superior clinical results. We believe the Ideal BioStent™ represents a significant advance over currently available stents, including:

 

·

The ability to promote positive vessel remodeling;

·

A significant reduction in late-stent thrombosis risk;

·

No metal artifact remaining in the patient’s body after vessel healing; and

·

The reduced need for long-term and costly anti-platelet therapy.

 

In animal testing and initial human use, the Ideal BioStent™ demonstrated equivalence in safety, short-term efficacy and structural integrity when compared with today’s leading bare metal stent and drug-eluting metal stent. Unlike other bioabsorbable stent technologies, the Ideal BioStent™ showed no stent recoil, either acute or at six month follow up, remaining well apposed to the vessel wall. Furthermore, the Ideal BioStent™ is designed to be fully absorbed at 12 months, leaving no artifact behind and allowing the vessel to heal and return to its natural state.

 

 

On September 30, 2010, Xenogenics entered into the Foreclosure Sale Agreement with Venture Lending & Leasing IV, Inc., Venture Lending & Leasing V, Inc., and Silicon Valley Bank (collectively, the “Sellers”).  Pursuant to the Foreclosure Sale Agreement, Xenogenics acquired all of the Sellers’ interests in certain bioabsorbable stent assets, known as the Ideal BioStent™, and related technologies. Under the Foreclosure Sale Agreement, Xenogenics is also required to make cash payments totaling $4.3 million to the Sellers based on the achievement of certain milestones at certain dates. None of these milestones were achieved as of August 31, 2015. Xenogenics’ obligations under the Foreclosure Sale Agreement have been extended pursuant to Amendments No. 1, No. 2, No. 3, and No. 4, dated September 30, 2011, October 23, 2012, October 11, 2013, and December 1, 2014, each extending the deadlines for the achievement of the milestones under the Foreclosure Sale Agreement by an additional 12 months. Xenogenics is required to use Good Faith Reasonable Efforts (as defined in the Foreclosure Sale Agreement) to achieve these milestones. Failure to achieve any of these milestones could result in all milestone payments, totaling $4.3 million, becoming immediately due and payable, unless Xenogenics’ failure to use Good Faith Reasonable Efforts is due to Technical Difficulties (as defined in the Foreclosure Sale Agreement) or to Financial Hardship (as defined in the Foreclosure Sale Agreement), in which case Xenogenics can elect to (i) pay all remaining milestone payments and continue commercialization efforts, or (ii) assign all intellectual property acquired by Xenogenics under the agreement to the counterparties to the agreement and cease all development and commercialization efforts. Accordingly, Xenogenics has not accrued the $4.3 million commitment because the dates for achieving the milestones have been extended under the amendments to the Foreclosure Sale Agreement, and because Xenogenics also believes that the Financial Hardship exemption in the Foreclosure Sale Agreement would protect it in the future from any requirement to pay the $4.3 million.

Effective September 30, 2010, Xenogenics entered into the Rutgers License Agreement with Rutgers.  Pursuant to the Rutgers License Agreement, Rutgers granted Xenogenics a worldwide exclusive license to exploit and commercialize certain patents and other intellectual property rights, as further described in the Rutgers License Agreement, relating to bioabsorbable stents for interventional cardiology and peripheral vascular applications. This agreement was terminated on May 9, 2014.

Recent Events

On March 10, 2015, MultiCell Immunotherapeutics, Inc. (“MCIT”), entered into a Research Agreement (the “Agreement”) with Oxis Biotech, Inc. (“Oxis”) to create three novel antibody-drug conjugates (“ADCs”) containing Oxis’ lead drug candidates, and by using MCIT’s proprietary ADC platform technology. The Agreement contains a License Agreement between MCIT and Oxis wherein MCIT licenses to Oxis the exclusive right to sell the three ADCs product candidates. Under the terms of the Agreement, Oxis paid MCIT a fee of $500,000 for the licenses granted to Oxis and for the synthesis of a certain drug candidate being investigated by Oxis, and is paying MCIT up to $1.125 million as consideration for performance of the research project. Oxis will also pay up to $12.75 million in clinical development milestones, and was granted an option to purchase manufacturing rights to the three ADCs upon payment of an additional $10 million. Additionally, Oxis will pay MCIT a royalty of 3% of net yearly worldwide sales and 30% of net sublicense revenue upon marketing approval of the ADCs.

Results of Operations

The following discussion is included to describe our consolidated financial position and results of operations. The condensed consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.

Three Months Ended August 31, 2015 Compared to the Three Months Ended August 31, 2014

Revenue and Cost of Revenue. Total revenue for the three months ended August 31, 2015 was $194,772 compared to total revenue for the three months ended August 31, 2014 of $12,329, representing an increase of $182,443. This increase results from the revenue recognized under the research portion of the OXIS Agreement executed on March 10, 2015. Cost of revenue for the three months ended August 31, 2015 totaled $148,538 and consisted of direct costs for consulting, materials, and supplies incurred in connection with the research portion of the OXIS Agreement.

All of the remaining revenue for the three months ended August 31, 2015 and August 31, 2014 is from the amortization of deferred revenue under license agreements with Corning and Pfizer.

Operating Expenses. Total operating expenses for the three months ended August 31, 2015 were $223,186, compared to operating expenses for the three months ended August 31, 2014 of $(186,360), representing an increase of $409,546. This increase was primarily due to a non-cash accounting reversal in August of the prior year of previously recognized stock-based compensation of $461,000 as a result of the forfeiture of certain performance-based stock options, which decreased the prior year operating expenses. Additionally, there was a decrease in professional fees of $47,498and a net decrease in other operating expenses of $3,956.

 

The reversal of $461,000 of stock-based compensation in the three months ended August 31, 2014 is more fully described in Note 9 to the accompanying condensed consolidated financial statements. In November 2010, Xenogenics granted an option to a prospective executive officer to purchase an aggregate of 2,500,000 shares of its common stock, exercisable at $0.246 per share of common stock and having an expiration date in November 2015. The option to acquire 500,000 of the shares vested on the grant date and the remaining 2,000,000 option shares were to vest in the future upon the achievement of specified milestones. The fair value of these options was estimated to be $576,250, or $0.2305 per share. This prospective executive officer resigned in May 2014 and the rights under this option were forfeited in August 2014. At the date of the forfeiture, only the initial option to acquire 500,000 shares had vested, and the remaining 2,000,000 option shares remained unvested because the specified milestones had not been achieved. The share-based compensation related to these 2,000,000 option shares ($461,000) had been recognized over the periods of time, originally estimated on the date of grant, that management expected each of the specified milestones was likely to be achieved. As of the date of forfeiture, all of the share-based compensation related to these performance-based options had been recognized in the consolidated financial statements. Under GAAP, if vesting is based solely on one or more performance or service conditions, any previously recognized compensation cost is reversed if the award does not vest (that is, the requisite service is not rendered). Accordingly, Xenogenics reversed the compensation cost for these options in the amount of $461,000 during the three months ended August 31, 2014 when the options were forfeited.

The decrease in professional fees consists principally of consulting fees related to services rendered in the prior year in support of the sponsored research agreement with UHN’s Toronto General Hospital to evaluate MCT-485 in animal models for the treatment of primary liver cancer, which research has concluded.

Other income/(expense). Other income (expense) amounted to net income of $4,955 for the three months ended August 31, 2015 as compared to net income of $1,730 for the three months ended August 31, 2014. Other income (expense) for the three months ended August 31, 2015 was composed of (1) interest expense of $606 and (2) a gain from the change in fair value of derivative liability of $5,561. Other income (expense) for the three months ended August 31, 2014 consisted of (1) interest expense of $584, (2) a gain from the change in fair value of derivative liability of $2,301, and (3) interest income of $13.

The change in fair value of derivative liability is related to the embedded conversion feature in the Series B convertible preferred stock. The valuation of the derivative liability is dependent upon a number of factors beyond our control. As such, the amount of other income or expense that we report related to the change in the fair value of the derivative liability is somewhat unpredictable, but may be significant, and will continue to be reported until the holders of the Series B convertible preferred stock have converted their shares into shares of our common stock.

For the three months ended August 31, 2015 and 2014, interest expense is principally composed of interest on the Debenture.

Net Income (Loss). Net loss for the three months ended August 31, 2015 was $171,997, as compared to net income of $200,419 for the same period in the prior fiscal year, representing a difference of $372,416. This change in net income (loss) is principally due to the increase in revenue and cost of revenue recognized during the three months ended August 31, 2015 and the changes in elements of operating expenses, as described above.

Nine Months Ended August 31, 2015 Compared to the Nine Months Ended August 31, 2014

Revenue and Cost of Revenue. Total revenue for the nine months ended August 31, 2015 was $792,906 compared to total revenue for the nine months ended August 31, 2014 of $36,988, representing an increase of $755,918. This increase results from the revenue recognized under the OXIS Agreement executed on March 10, 2015, including $500,000 recognized under the license agreement and $255,918 recognized pursuant to the research portion of the Agreement. Cost of revenue for the nine months ended August 31, 2015 totaled $255,918 and consisted of direct costs for consulting, materials, and supplies incurred in connection with the research portion of the OXIS Agreement.

All of the remaining revenue for the nine months ended August 31, 2015 and August 31, 2014 is from the amortization of deferred revenue under license agreements with Corning and Pfizer.

Operating Expenses. Total operating expenses for the nine months ended August 31, 2015 were $813,806, compared to operating expenses for the nine months ended August 31, 2014 of $517,679, representing an increase of $296,127. This increase was principally due to a reversal of $461,000 of stock-based compensation in August of the prior year, as explained in detail above. Additionally, other changes in operating expenses were due to 1) a decrease of $149,944 in professional fees, primarily composed of decreases in consulting costs; 2) a decrease of $69,734 in the recognition of other stock-based compensation; 3) an increase of $46,706 in research materials and supplies; and 4) a net increase in other operating expenses of $8,099.

 

The decrease in professional fees principally relates to consulting fees rendered in the prior year in support of the sponsored research agreement with UHN’s Toronto General Hospital to evaluate MCT-485 in animal models for the treatment of primary liver cancer, which research has concluded.

The decrease in stock-based compensation results from the timing of stock option grants, the fair value measured for stock option grants, and the vesting patterns of stock options.

The increase in research materials and supplies results from the materials needed for research being conducted by our subsidiary, MultiCell Immunotherapeutics, Inc.

Other income/(expense). Other income (expense) amounted to net income of $7,107 for the nine months ended August 31, 2015 as compared to net expense of $25,149 for the nine months ended August 31, 2014. Other income (expense) for the nine months ended August 31, 2015 was composed of (1) interest expense of $1,949, (2) a gain from the change in fair value of derivative liability of $9,047, and (3) interest income of $9. Other income (expense) for the nine months ended August 31, 2014 consisted of (1) interest expense of $10,271, (2) a loss from the change in fair value of derivative liability of $14,916, and (3) interest income of $38.

The change in fair value of derivative liability is related to the embedded conversion feature in the Series B convertible preferred stock. The valuation of the derivative liability is dependent upon a number of factors beyond our control. As such, the amount of other income or expense that we report related to the change in the fair value of the derivative liability is somewhat unpredictable, but may be significant, and will continue to be reported until the holders of the Series B convertible preferred stock have converted their shares into shares of our common stock.

For the nine months ended August 31, 2014, interest expense includes $8,375 for interest claimed by Rutgers in its notice of termination of the Rutgers License Agreement with Xenogenics. Otherwise interest expense for the nine months ended August 31, 2015 and 2014 principally is composed of interest on the Debenture.

Net Loss. Net loss for the nine months ended August 31, 2015 was $230,717, as compared to a net loss of $505,840 for the same period in the prior fiscal year, representing a difference of $275,123. This decrease in net loss is principally due to the increase in revenue and cost of revenue recognized during the nine months ended August 31, 2015 and the changes in elements of operating expenses, as described above.

Liquidity and Capital Resources

The following is a summary of our key liquidity measures at August 31, 2015 and 2014:

		August 31, 2015				August 31, 2014
Cash and cash equivalents		$	281,123			$	131,422
Current assets		$	294,913			$	143,652
Current liabilities			(1,536,930	)			(1,297,416	)
Working capital deficiency		$	(1,242,017	)		$	(1,153,764	)

Since our inception, a significant portion of our financing has been provided through private placements of preferred and common stock, the exercise of stock options and warrants, the issuance of convertible debentures and other debt, and the licensing of our technologies. We have in the past increased, and if funding permits plan to further increase, our operating expenses in order to fund higher levels of product development, undertake and complete the regulatory approval process, and increase our administrative resources in anticipation of future growth. In addition, acquisitions such as MCIT increase operating expenses and therefore negatively impact, in the short term, the liquidity position of the Company. We will have to raise additional capital in order to initiate Phase IIb clinical trials for MCT-125, our therapeutic product for the treatment of fatigue in MS patients, conduct further research on MCT-465 and MCT-485 for the treatment of primary liver cancer, and initiate clinical trials for Xenogenic’s bioabsorbable, drug eluting stent, the Ideal BioStent™. Additionally, if we implement our strategic shift in focus to therapeutic programs and technologies, we expect our future cash requirements will increase significantly as we advance our therapeutic programs into clinical trials. However, we currently do not have the capital necessary to either implement our new focus on therapeutic programs or to fund our other product development or growth plans. Until we are successful in raising additional funds, we will have to defer most, or all, of these plans and prioritize or defer all of our therapeutic programs and other plans. As a result of having insufficient capital, we have deferred work on almost all of our activities other than the work being performed by MCIT under the Research Agreement with OXIS.

 

La Jolla Cove Investors, Inc.We entered into the LJCI Agreement with LJCI on February 28, 2007 pursuant to which we agreed to sell the Debentures. In addition, we issued to LJCI a warrant to purchase up to 10 million shares of our common stock at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007. In August 2011, we and LJCI amended the Debenture and the LJCI Warrant to extend the maturity date of the Debenture and the expiration date of the LJCI Warrant to February 28, 2014. On February 20, 2014, we and LJCI amended the Debenture and the LJCI Warrant to further extend the maturity date of the Debenture and the expiration date of the LJCI Warrant to February 28, 2016.

The Debenture is convertible at the option of LJCI at any time up to maturity into the number of shares of MultiCell’s common stock determined by the dollar amount of the Debenture being converted multiplied by 110, minus the product of the Conversion Price (defined below) multiplied by 100 times the dollar amount of the Debenture being converted, with the entire result divided by the Conversion Price. The “Conversion Price” is equal to the lesser of $1.00 or 80% of the average of the three lowest volume-weighted average prices during the 20 trading days prior to the election to convert. The Debenture accrues interest at 4.75% per year payable in cash or shares of common stock. Through August 31, 2015, interest is being paid in cash. If paid in shares of our common stock, the stock will be valued at the rate equal to the Conversion Price of the Debenture in effect at the time of payment. Upon receipt of a conversion notice from the holder, MultiCell may elect to immediately redeem that portion of the Debenture that the holder elected to convert in such conversion notice, plus accrued and unpaid interest. Since February 28, 2008, we, at our sole discretion, have had the right, without limitation or penalty, to redeem the outstanding principal amount of the Debenture not yet converted by the holder into shares of our common stock, plus accrued and unpaid interest thereon.

Commencing in March 2008, we have principally operated on working capital provided by LJCI in connection with its exercise of warrants issued to it by us (which LJCI must exercise whenever it converts amounts owed under the Debenture it holds), all as discussed in more detail below. The warrants are exercisable at $1.09 per share. As of October 8, 2015 there were 3,532,629 shares remaining under the LJCI Warrant and a balance of $35,326 remaining on the Debenture. Should LJCI continue to exercise all of its remaining warrants approximately $3.8 million of cash would be provided to us. However, the LJCI Agreement limits LJCI’s stock ownership in our common stock to 9.99% of the outstanding shares of our common stock.

LJCI has the right to exercise the LJCI Warrant and to convert the Debenture through February 28, 2016, the date that the Debenture is due and the LJCI Warrant expires, subject to the limitations of the LJCI Agreement and availability of our authorized common stock. However no assurance can be given that LJCI will elect to, or be able to, acquire additional shares under the Warrant and Debenture. Since LJCI’s Warrant exercises have provided us with substantial working capital in the past, LJCI’s election not to or inability to exercise the Warrant in the future will negatively affect our ability to fund our working capital requirements. While our goal is to fund our future cash requirements from direct product sales, the sale of additional equity securities, debt financing and/or the sale or licensing of our technologies, we currently do not have agreements in place that will fund our immediate working capital requirements. We also anticipate the need for additional financing in the future in order to fund continued research and development and to respond to competitive pressures. We cannot guarantee, however, that enough future funds will be generated from operations or from the aforementioned or other potential sources. If adequate funds are not available, we will be unable to fund expansion, develop new or enhance existing products and services or respond to competitive pressures, any of which could have a material adverse effect on our business, results of operations and financial condition. In addition, if additional funding is not obtained, there is a likelihood that we will have to drastically reduce, or even cease our operations, and that we will thereafter have to either dispose of our business and assets or cease operations altogether.

Series B Convertible Preferred Stock

On July 14, 2006, we completed a private placement of Series B convertible preferred stock. A total of 17,000 shares of Series B convertible preferred stock were sold to accredited investors at a price of $100 per share. Originally, the Series B shares were convertible at any time into shares of our common stock at a conversion price determined by dividing the purchase price per share of $100 by $0.32 per share (the “Series B Conversion Price”). The Series B Conversion Price was reduced to 85% of the then applicable Series B Conversion Price as a result of an event of default in the payment of preferred dividends. The Series B Conversion Price is also subject to equitable adjustment in the event of any stock splits, stock dividends, recapitalizations and the like. In addition, the Series B Conversion Price is subject to weighted average anti-dilution adjustments in the event that we sell shares of our common stock or other securities convertible into or exercisable for shares of our common stock at a per share price, exercise price or conversion price lower than the Series B Conversion Price then in effect in any transaction (other than in connection with an acquisition of the securities, assets or business of another company, a joint venture and/or the issuance of employee stock options). As a result of these adjustments, the Series B Conversion Price has been reduced to $0.0062 per share as of August 31, 2015. Pursuant to the applicable Series B convertible preferred stock purchase agreement, each investor may only convert that number of shares of Series B convertible preferred stock into that number of shares of our common stock that does not exceed 9.99% of the outstanding shares of our common stock on the date of conversion. The Series B convertible preferred stock does not have voting rights.

 

Commencing on the date of issuance of the Series B convertible preferred stock until the date a registration statement registering the common shares underlying the preferred stock and warrants issued was declared effective by the SEC, we were required to pay on each outstanding share of Series B convertible preferred stock a preferential cumulative dividend at an annual rate equal to the product of multiplying $100 per share by the higher of (a) the Wall Street Journal Prime Rate plus 1%, or (b) 9%. In no event was the dividend rate greater than 12% per annum. The dividend was payable monthly in arrears in cash on the last day of each month based on the number of shares of Series B preferred stock outstanding as of the first day of that month. In the event we did not pay the Series B preferred dividends when due, the conversion price of the Series B preferred shares was reduced to 85% of the otherwise applicable conversion price. We did not pay the required monthly Series B preferred dividends beginning November 30, 2006, which, in part, has caused the conversion price to be reduced. Subsequent to November 30, 2010, we received an opinion of outside counsel providing for the removal of the restrictive legend on the Series B convertible preferred stock, which in turn terminated the requirement to accrue the related dividends. Accordingly, no dividends have been accrued since November 30, 2010. Total accrued but unpaid preferred dividends recorded in the accompanying condensed consolidated balance sheets as of August 31, 2015 and November 30, 2014 are $290,724, of which $125,516 is recorded in permanent equity with the Series B preferred stock and $165,208 is recorded as a current liability in accounts payable and accrued expenses. As of August 31, 2015 and November 30, 2014, there were 3,448 shares of Series B convertible preferred stock outstanding.

Oxis Biotech, Inc. Research Agreement

On March 10, 2015, MultiCell Immunotherapeutics, Inc. (“MCIT”), entered into a Research Agreement with Oxis Biotech, Inc. (“Oxis”) to create three novel antibody-drug conjugates (“ADCs”) containing Oxis’ lead drug candidates, and by using MCIT’s proprietary ADC platform technology. The Research Agreement contains a License Agreement between MCIT and Oxis wherein MCIT licenses to Oxis the exclusive right to sell the three ADCs product candidates. Under the terms of the Research Agreement, Oxis paid to MCIT a fee of $500,000 for the licenses granted to Oxis and for the synthesis of a certain drug candidate being investigated by Oxis, and is paying MCIT up to $1.125 million as consideration for performance of the research project, of which $450,000 has been paid through August 31, 2015, and three additional quarterly payments of $225,000 each are scheduled to be paid as performance progresses. Oxis will also pay up to $12.75 million in clinical development milestones, and was granted an option to purchase manufacturing rights to the three ADCs upon payment of an additional $10 million. Additionally, Oxis will pay MCIT a royalty of 3% of net yearly worldwide sales and 30% of net sublicense revenue upon marketing approval of the ADCs.

Cash provided by (used in) operating, investing and financing activities for the nine months ended August 31, 2015 and 2014 is as follows:

		August 31, 2015				August 31, 2014
Operating activities		$	101,997			$	(789,463	)
Investing activities			(907	)			—
Financing activities			67,500				774,680
Net increase (decrease) in cash and cash equivalents		$	168,590			$	(14,783	)

Operating Activities

For the nine months ended August 31, 2015, the differences between our net loss and net cash provided by operating activities were due to net non-cash credits totaling $2,788 included in our net loss for stock-based compensation, depreciation, and change in fair value of derivative liability, plus changes in non-cash working capital totaling $335,502. For the nine months ended August 31, 2014, the differences between our net loss and net cash used in operating activities are due to non-cash credits totaling $370,181 included in our net loss for stock-based compensation and change in fair value of derivative liability, plus changes in non-cash working capital totaling $86,558.

Investing Activities

During the nine months ended August 31, 2015, cash flows from investing activities were $907 and were for the purchase of office equipment. We had no cash flows from investing activities during the nine months ended August 31, 2014.

 

Financing Activities

During the nine months ended August 31, 2015 and 2014, cash flows from financing activities related to LJCI’s payments to us of $67,500 and $774,680, respectively, to be applied towards the exercise of common stock warrants.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

Item 4. CONTROLS AND PROCEDURES

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2015, and concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted material weaknesses as discussed below. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of our financial statements for the current reporting period.

Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As of August 31, 2015, the following material weaknesses existed:

1.

Entity-Level Controls: We did not maintain effective entity-level controls as defined by the framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control –Integrated Framework (1992). Specifically, we did not effectively segregate certain accounting duties due to the small size of our accounting staff, or maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting.

2.

Information Technology: We did not maintain effective controls over the segregation of duties and access to financial reporting systems. Specifically, key financial reporting systems were not appropriately configured to ensure that certain transactions were properly processed with segregated duties among personnel and to ensure that unauthorized individuals did not have access to add or change key financial data.

3.

Material Adjustment: During the current fiscal year, the Company did not adequately evaluate the application of generally accepted accounting principles in connection with revenue recognition, which resulted in a material adjustment to the consolidated financial statements.

Due to these material weaknesses, management has concluded that our internal control over financial reporting was not effective as of August 31, 2015.

In order to mitigate these material weaknesses to the fullest extent possible, all financial reports are reviewed by the Chief Financial Officer, who has limited system access. In addition, regular meetings are held with our Board of Directors and the Audit Committee. If at any time we determine a new control can be implemented to mitigate these risks at a reasonable cost, it is implemented as soon as possible.

There were no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2015, that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

Effective December 15, 2014, COSO’s 1992 framework was superceded by COSO’s 2013 framework. Management is currently evaluating the impact of the new framework and plans to perform its evaluation of internal controls in conjunction with the annual audit under COSO’s 2013 framework.

 

PART II. OTHER INFORMATION

 

Item 1: LEGAL PROCEEDINGS

None.

Item 1A: RISK FACTORS

Not required for “smaller reporting companies.”

Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3: DEFAULTS UPON SENIOR SECURITIES

None.

Item 4: MINE SAFETY DISCLOSURES

Not applicable.

Item 5: OTHER INFORMATION

None.

Item 6: EXHIBITS:

Exhibit Number	Exhibit Description
31.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302. *
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*
101 INS	XBRL Instance Document*
101 SCH	XBRL Schema Document*
101 CAL	XBRL Calculation Linkbase Document*
101 LAB	XBRL Labels Linkbase Document*
101 PRE	XBRL Presentation Linkbase Document*
101 DEF	XBRL Definition Linkbase Document*

* Filed herewith

 

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.

	MULTICELL TECHNOLOGIES, INC.
October 14, 2015	By: /s/ W. Gerald Newmin
	W. Gerald Newmin
	(Chief Executive Officer and Chief Financial Officer)

 

 

EXHIBIT 31.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, W. Gerald Newmin, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of MultiCell Technologies, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: October 14, 2015
By:	/s/ W. Gerald Newmin
Name	W. Gerald Newmin
	Chief Executive Officer and Chief Financial Officer

 

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of MultiCell Technologies, Inc. (the “Company”) on Form 10-Q for the period ended August 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Gerald Newmin, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

Dated: October 14, 2015
By:	/s/ W. Gerald Newmin
Name:	W. Gerald Newmin
	Chief Executive Officer and Chief Financial Officer