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MCET > SEC Filings for MCET > Form 10-Q on 15-Jul-2014All Recent SEC Filings

Show all filings for MULTICELL TECHNOLOGIES, INC.

Form 10-Q for MULTICELL TECHNOLOGIES, INC.


15-Jul-2014

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 fiscal year ended November 30, 2013.

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.

MultiCell has 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 dsRNA-sensing molecules such as TLRs, RLRs, and 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. 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.

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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 performed 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 retains exclusive access to the research findings and intellectual property resulting from the research activities performed by Dr. Ghanekar.

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 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.

On September 30, 2010, Xenogenics entered into the Foreclosure Sale Agreement with 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 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 September 30, 2013. Xenogenics' obligations under the Foreclosure Sale Agreement had been previously extended pursuant to Amendments No. 1 and No. 2, dated September 30, 2011 and October 23, 2012, respectively. On October 11, 2013, Xenogenics entered into Amendment No. 3 to the Foreclosure Sale Agreement which further extended 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 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 (1) pay all remaining milestone payments or
(2) assign the Ideal BioStent™ technologies back to the Sellers.

To supplement the technology acquired under the Foreclosure Sale Agreement, Xenogenics also entered into the Rutgers License Agreement effective September 30, 2010. The term of the Rutgers License Agreement commenced on the effective date of the agreement, and was to terminate on the earlier of (i) the expiration of all valid patents granted with respect to the licensed technology (or products commercialized therefrom) in a country, and (ii) ten years from the date of first commercial sale in a country. 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. 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, Xenogenics received the Notice of Default from Rutgers stating that Xenogenics was in default under the Rutgers License Agreement for failing to make certain payments, submit certain program reports, and use "good faith reasonable efforts" to meet certain milestones pursuant to the terms of the agreement. The Notice of Default stated that absent a full and complete cure of the mentioned issues, Rutgers would terminate the Rutgers License Agreement within 90 days of the date of the Notice of Default. 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 are accrued in the accompanying condensed consolidated financial statements. Management is currently evaluating the merits of these claims.

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.

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Three Months Ended May 31, 2014 Compared to the Three Months Ended May 31, 2013

Revenue. Total revenue for the three months ended May 31, 2014 and May 31, 2013 was $12,330. All of the revenue for the three months ended May 31, 2014 and May 31, 2013 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, 2014 were $382,217, compared to operating expenses for the three months ended May 31, 2013 of $312,754, representing an increase of $69,463. This increase was due to an increase of $70,264 in consulting fees and an increase of $14,583 in license expense recognized on the Rutgers License Agreement, offset by a decrease in other operating expenses of $15,384. The increase in consulting fees relates to services rendered 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. The increase in the license expense for the three months relates to the amortization of all remaining license costs as a result of the termination of the license by Rutgers.

Other income/(expense). Other income (expense) amounted to net expense of $18,932 for the three months ended May 31, 2014 as compared to net income of $36,840 for the three months ended May 31, 2013. Other income (expense) for the three months ended May 31, 2014 was composed of (A) interest expense of $8,987, (B) a loss from the change in fair value of derivative liability of $9,958, and
(C) interest income of $13. 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 $25.

For the three months ended May 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 three months ended May 31, 2014 and 2013 principally is composed of interest on the 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, 2014 was $388,819, as compared to a net loss of $263,584 for the same period in the prior fiscal year, representing an increase in the net loss of $125,235. This increase in net loss in the current period is principally due to the increase in consulting fees, the increase in the license and interest expense recognized as a result of the termination of the Rutgers License Agreement, and the increase in the amount of the loss recognized from the change in fair value of the derivative liability, all as explained above.

Six Months Ended May 31, 2014 Compared to the Six Months Ended May 31, 2013

Revenue. Total revenue for the six months ended May 31, 2014 and May 31, 2013 was $24,659. All of the revenue for the six months ended May 31, 2014 and May 31, 2013 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, 2014 were $704,039, compared to operating expenses for the six months ended May 31, 2013 of $662,432, representing an increase of $41,607. This increase was due to an increase of $84,509 in consulting and legal fees and an increase of $20,833 in license expense recognized on the Rutgers License Agreement, offset by a decrease of $57,856 in the amount of stock-based compensation and a decrease in other operating expenses of $5,879. The increase in consulting and legal fees principally relates to consulting services rendered 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. The increase in the license expense for the six months relates to the amortization of all remaining license costs as a result of the termination of the Rutgers License Agreement. Most of our stock-based compensation relates to the options granted by our subsidiary, Xenogenics. Xenogenics granted options to certain prospective officers and to the members of its scientific advisory board in November 2010, March 2011, February 2012, and July 2013. During the six months ended May 31, 2014, stock-based compensation included $43,162 related to the Xenogenics options. During the six months ended May 31, 2013, stock-based compensation included $114,109 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.

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Other income/(expense). Other income (expense) amounted to net expense of $26,879 for the six months ended May 31, 2014 as compared to net expense of $11,656 for the six months ended May 31, 2013. Other income (expense) for the six months ended May 31, 2014 was composed of (A) interest expense of $9,687, (B) a loss from the change in fair value of derivative liability of $17,217, and
(C) interest income of $25. 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.

For the six months ended May 31, 2014, interest expense includes $8,375 for interest claimed by Rutgers in its notice of termination of its license agreement with Xenogenics. Otherwise interest expense for the six months ended May 31, 2014 and 2013 principally is composed of 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 six months ended May 31, 2014 was $706,259, as compared to a net loss of $649,429 for the same period in the prior fiscal year, representing an increase in the net loss of $56,830. This increase in net loss in the current period is principally due to the increase in consulting and legal fees, the increase in the license and interest expense recognized as a result of the termination of the Rutgers License Agreement, offset by the decrease in the amount of stock-based compensation, all as explained above.

Liquidity and Capital Resources



The following is a summary of our key liquidity measures at May 31, 2014 and
2013:



                             May 31, 2014      May 31, 2013

Cash and cash equivalents    $     170,804     $     209,619

Current assets               $     182,264     $     224,636
Current liabilities             (1,224,222 )      (1,230,319 )

Working capital deficiency   $  (1,041,958 )   $  (1,005,683 )

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 and issuance of convertible debentures and other debt. 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 MCTI 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™. 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.

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.

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The Debenture is convertible at the option of LJCI at any time up to maturity into the number of shares of the Company'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 May 31, 2014, 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, the Company 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 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 a discussed in more detail below. The warrants are exercisable at $1.09 per share. As of July 9, 2014 there were 3,907,629 shares remaining under the LJCI Warrant and a balance of $39,076 remaining on the Debenture. Should LJCI continue to exercise all of its remaining warrants approximately $4.3 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.

We expect that LJCI will continue to exercise the LJCI Warrant and convert the Debenture over the next year, subject to the limitations of the LJCI Agreement and availability of our authorized common stock, but cannot assure that LJCI will do so. We anticipate that our future cash requirements may be fulfilled by potential direct product sales, the sale of additional equity securities, debt financing and/or the sale or licensing of our technologies. 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 or are not available on acceptable terms, we may 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.

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 $0.0078 per share as of May 31, 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 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 May 31, 2014 and November 30, 2013 are . . .

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