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MCET > SEC Filings for MCET > Form 10-Q on 12-Jul-2013All Recent SEC Filings

Show all filings for MULTICELL TECHNOLOGIES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MULTICELL TECHNOLOGIES, INC.


12-Jul-2013

Quarterly Report


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 year ended November 30, 2012.

Overview

MultiCell is a biopharmaceutical company 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. Historically, we have specialized in developing primary liver cell immortalization technologies to produce cell-based assay systems for use in drug discovery. We seek to become an integrated biopharmaceutical company that will use our immune system modulation technologies to discover, develop and commercialize new therapeutics ourself and with strategic partners.

On October 9, 2007, MultiCell executed an exclusive license and purchase agreement with 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 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 Toll-like receptor (TLR), 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; (iv) modulate the noradrenaline-adrenaline neurotransmitter pathway. Our medical device development platform is based on the design of next-generation bioabsorbable stents, the Ideal BioStent™, for interventional cardiology and peripheral vessel applications.

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 will evaluate the Company's 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 will also be evaluated. Under the terms of this agreement, we will retain exclusive access to the research findings and intellectual property resulting from the research activities preformed by UHN.

In December 2005, MultiCell exclusively licensed LAX-202 from Amarin Neuroscience Limited ("Amarin") for the treatment of fatigue in patients suffering from multiple sclerosis ("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 4 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 pivotal Phase IIb/III trial of MCT-125 using the data generated by Amarin for LAX-202 following discussions with the regulatory authorities.

On September 30, 2010, Xenogenics entered into a Foreclosure Sale Agreement (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, as amended on September 30, 2011, and on October 23, 2012, Xenogenics acquired all of the Sellers' interests in certain bioabsorbable stent assets (known as "Ideal BioStent™") and related technologies.

Effective September 30, 2010, Xenogenics entered into a license agreement (the "Rutgers License Agreement") with Rutgers, The State University of New Jersey ("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.

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 May 31, 2013 Compared to the Three Months Ended May 31, 2012

Revenue. Total revenue for the three months ended May 31, 2013 and 2012 was $12,330. All of the revenue for the three months ended May 31, 2013 and 2012 is from the amortization of deferred revenue under license agreements with Corning and Pfizer.

Operating Expenses. Total operating expenses for the three months ended May 31, 2013 were $312,754, compared to operating expenses for the three months ended May 31, 2012 of $462,977, representing a decrease of $150,223. This decrease was due to a decrease of $84,491 in the amount of stock-based compensation and a decrease of $82,936 in legal fees, offset by an increase in all other operating expenses of $17,204. Substantially all of the decrease in stock-based compensation relates to the options granted by our subsidiary, Xenogenics. As more fully discussed in Note 7 to the accompanying condensed consolidated financial statements, Xenogenics granted options to certain prospective officers and to the members of its scientific advisory board in November 2010, March 2011, and February 2012. During the three months ended May 31, 2013, stock-based compensation included $18,647 related to these options. During the three months ended May 31, 2012, stock-based compensation included $95,925 related to these options. The decrease between the two periods relates to the vesting patterns of the options granted and the number of options that are vested in each period.

Other income/(expense). Other income (expense) amounted to net expense of $36,840 for the three months ended May 31, 2013 as compared to net income of $42,138 for the three months ended May 31, 2012. Other income (expense) for the three months ended May 31, 2013 consists of (i) interest expense of $680, (ii) a gain from the change in fair value of derivative liability of $37,460, and (iii) interest income of $60. Other income (expense) for the three months ended May 31, 2012 was composed of (i) interest expense of $812, (ii) a gain from the change in fair value of derivative liability of $42,737, and (iii) interest income of $213.

Interest expense for the three months ended May 31, 2013 and 2012 principally includes interest on the 4.75% debenture.

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.

Net Loss. Net loss for the three months ended May 31, 2013 was $263,584, as compared to a net loss of $408,509 for the same period in the prior fiscal year, representing a decrease in the net loss of $144,925. The primary reasons for this decrease in net loss in the current period are due to the decreases in stock-based compensation and in legal fees, all as explained above.

Six Months Ended May 31, 2013 Compared to the Six Months Ended May 31, 2012

Revenue. Total revenue for the six months ended May 31, 2013 and 2012 was $24,659. All of the revenue for the six months ended May 31, 2013 and 2012 is from the amortization of deferred revenue under license agreements with Corning and Pfizer.

Operating Expenses. Total operating expenses for the six months ended May 31, 2013 were $662,432, compared to operating expenses for the six months ended May 31, 2012 of $760,847, representing a decrease of $98,415. This decrease was substantially due to a decrease of $101,441 in legal, consulting, and other professional fees, offset by a net increase in all other operating expenses of $3,026.

Other income/(expense). Other income (expense) amounted to net expense of $11,656 for the six months ended May 31, 2013 as compared to net income of $37,789 for the six months ended May 31, 2012. Other income (expense) for the six months ended May 31, 2013 consists of (i) interest expense of $1,351, (ii) a loss from the change in fair value of derivative liability of $10,440, and (iii) interest income of $135. Other income (expense) for the six months ended May 31, 2012 was composed of (i) interest expense of $6,662, (ii) a gain from the change in fair value of derivative liability of $43,964, and (iii) interest income of $487.

Interest expense principally includes interest on the 4.75% debentures, including amortization of discount in the amount of $5,000 through February 28, 2012, the end of the original term of the debentures.

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.

Net Loss. Net loss for the six months ended May 31, 2013 was $649,429, as compared to a net loss of $698,399 for the same period in the prior fiscal year, representing a decrease in the net loss of $48,970. The primary reasons for this decrease in net loss in the current period is due to the net effects of the decrease in legal, consulting, and other professional fees, offset by the difference in the change in fair value of derivative liability between the two periods, all as explained above.

Liquidity and Capital Resources



Since our inception, we have financed our operations primarily through the
issuance of debt or equity instruments. The following is a summary of our key
liquidity measures at May 31, 2013 and 2012:



                             May 31, 2013      May 31, 2012

Cash and cash equivalents    $     209,619     $     335,853

Current assets               $     224,636     $     345,464
Current liabilities             (1,230,319 )      (1,481,823 )

Working capital deficiency   $  (1,005,683 )   $  (1,136,359 )

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. Our management is evaluating several sources of financing for our clinical trial program. Additionally, with our strategic shift in focus to therapeutic programs and technologies, we expect our future cash requirements to increase significantly as we advance our therapeutic programs into clinical trials. Until we are successful in raising additional funds, we may have to prioritize our therapeutic programs and delays may be necessary in some of our development programs.

Commencing in March 2008, we have operated on working capital provided by LJCI, in connection with its exercise of warrants issued to it by MultiCell (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 May 31, 2013, there were 5,024,629 shares remaining on the LJCI Warrant. Should LJCI continue to exercise all of its remaining warrants, approximately $5.5 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. In August 2011, the Debenture and the warrant agreement were amended to extend the maturity date of the Debenture and the expiration date of the warrants to February 28, 2014. We expect that LJCI will continue to exercise the warrants and convert the Debenture through February 28, 2014, subject to the limitations of the LJCI Agreement and the availability of our authorized common stock. We are also investigating the possible sale or license of certain assets that we did not already license to Corning in October 2007. We are presently pursuing discussions with companies operating in the stem cell research market and the general life science research market.

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 $0.0151per share as of May 31, 2013. 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 paid 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. 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. As of May 31, 2013, there are 3,448 shares of Series B convertible preferred stock outstanding.

In the event of any dissolution or winding up of our company, whether voluntary or involuntary, holders of each outstanding share of Series B convertible preferred stock shall be entitled to be paid first in priority out of our assets 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. 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 our assets.

We entered into the LJCI Agreement pursuant to which we agreed to sell convertible debentures in the principal amount of $100,000 and originally scheduled to mature on February 28, 2012. 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 warrant agreement to extend the maturity date of the Debenture and the expiration date of the warrants to February 28, 2014.

The Debenture is convertible at the option of LJCI at any time up to maturity at a conversion price equal to the lesser of the fixed conversion price of $1.00, or 80% of the average of the lowest three daily volume weighted average trading prices per share of our common stock during the twenty trading days immediately preceding the conversion date. The Debenture accrues interest at 4.75% per year payable in cash or our common stock. Through May 31, 2013, interest is being paid in cash. If paid in stock, the stock will be valued at the rate equal to the conversion price of the Debenture in effect at the time of payment.

For the Debenture, upon receipt of a conversion notice from the holder, we 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. After February 28, 2008, we, at our sole discretion, have the right, without limitation or penalty, to redeem the outstanding principal amount of the Debenture not yet converted by holder into shares of our common stock, plus accrued and unpaid interest thereon.

Cash provided by (used in) operating, investing and financing activities for the six month periods ended May 31, 2013 and 2012 is as follows:

                                                        May 31, 2013        May 31, 2012

Operating activities                                   $      (568,068 )   $      (367,169 )
Investing activities                                                 -                   -
Financing activities                                           578,215             297,695

Net increase (decrease) in cash and cash equivalents   $        10,147     $       (69,474 )

Operating Activities

For the six months ended May 31, 2013, the differences between our net loss and net cash used in operating activities are due to non-cash charges totaling $133,361 included in our net loss for stock-based compensation and change in fair value of derivative liability, less changes in non-cash working capital totaling $52,000. For the six months ended May 31, 2012, the differences between our net loss and net cash provided by operating activities are due to net non-cash charges totaling $81,752 included in our net loss for stock-based compensation, interest, and change in fair value of derivative liability, plus changes in non-cash working capital totaling $249,478 (principally the collection of the grant receivable of $303,102).

Investing Activities

We had no cash flows from investing activities during the six months ended May 31, 2013 and 2012.

Financing Activities

During the six months ended May 31, 2013 and 2012, cash flows from financing activities are related to LJCI's payments to us of $578,215 and $297,695, respectively, which are applied towards the exercise of common stock warrants.

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