NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS,
BASIS OF PRESENTATION, AND RECLASSIFICATIONS
ORGANIZATION AND NATURE OF
OPERATIONS
MultiCell Technologies, Inc. (“MultiCell”),
has two subsidiaries, Xenogenics Corporation (“Xenogenics”) and MultiCell Immunotherapeutics, Inc. (“MCTI”).
MultiCell holds 95.3% of the outstanding shares (on an as-if-converted to common stock basis) of Xenogenics. MultiCell holds approximately
67% of the outstanding shares (on an as-if-converted to common stock basis) of MCTI. As used herein, the “Company”
refers to MultiCell, together with Xenogenics and MCTI.
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 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, 2012, previously filed with the SEC. The results of operations for the three-month
and nine-month periods ended August 31, 2013, are not necessarily indicative of the operating results for the fiscal year ending
November 30, 2013. The condensed consolidated balance sheet as of November 30, 2012, has been derived from the Company’s
audited consolidated financial statements.
RECLASSIFICATIONS
Certain amounts of operating expenses from
the condensed consolidated statement of operations for the three months and the nine months ended August 31, 2012, have been reclassified
in the current presentation to conform to the presentation of operating expenses for the three months and nine months ended August
31, 2013. These reclassifications had no effect on the total amount of operating expenses, on the amount of net loss, or on the
basic and diluted loss per common share for the three months and the nine months ended August 31, 2012.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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, 2013, the Company has
operating and liquidity concerns and, as a result of recurring losses, has incurred an accumulated deficit of $43,158,172. The
Company will have to raise additional capital in order to initiate Phase IIb 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 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 3 to these condensed
consolidated financial statements, under the terms of the LJCI Agreement (as defined below), LJCI can convert a portion of the
convertible debenture by simultaneously exercising a warrant at $1.09 per share. As of August 31, 2013, there are 4,659,629 shares
remaining on the stock purchase warrant and a balance of $46,596 remaining on the convertible debenture. Should LJCI continue to
exercise all of its remaining warrants, approximately $5.1 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 outstanding shares of the Company. The
Company expects that LJCI will continue to exercise the warrants and convert the debenture through February 28, 2014, the date
that the debenture is due and the warrants expire, subject to the limitations of the LCJI Agreement and the availability of authorized
common stock of the Company.
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 the Company’s common stock, or that the Company will be able to successfully acquire
the necessary capital to continue its on-going research 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. 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. 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 to LJCI 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. The Debenture accrues
interest at 4.75% per year, payable in cash or 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 the Company’s 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. 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.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
The Debenture is convertible at the option
of LJCI at any time up to maturity into the number of shares 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 $9,430 and $7,290 of the Debenture into 1,040,493,584 and 323,936,571 shares, respectively, of the Company’s
common stock during the nine months ended August 31, 2013 and 2012, respectively. Simultaneously with these conversions, LJCI exercised
warrants to purchase 943,000 shares and 729,000 shares of the Company’s common stock during the nine months ended August
31, 2013 and 2012, respectively. Proceeds from the exercise of the warrants were $1,027,870 and $794,610 for the nine months ended
August 31, 2013 and 2012, respectively. At times, LJCI makes advances to MultiCell prior to the exercise of warrants. At August
31, 2013 and November 30, 2012, LJCI had advanced $0 and $50,000, respectively, to MultiCell in advance of LJCI’s exercise
of warrants. At August 31, 2013 MultiCell had a receivable from LJCI of $130,800 for proceeds from LJCI’s exercise of warrants
in excess of advances previously received. This receivable was collected on September 5, 2013.
As of August 31, 2013, the remainder of
the Debenture in the amount of $46,596 could have been converted by LJCI into approximately 5.8 billion shares of the Company’s
common stock, which would require LJCI to simultaneously exercise and purchase all of the remaining 4,659,629 shares of the Company’s
common stock under the LJCI Warrant at $1.09 per share. As of November 30, 2012, the balance of the Debenture was $56,026. 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.
NOTE 4. 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’s 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 $0.0124 per share as of August 31, 2013 and
to $0.0215 per share as of November 30, 2012. 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.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 sheets as of August 31, 2013, and as of November 30, 2012, 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.
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, 2013 and November 30, 2012, there were 3,448 shares of Series B convertible preferred stock that were
convertible into 27,806,452 and 16,037,209 shares of common stock of the Company, respectively. The fair value of the conversion
feature was estimated at $30,587 ($0.0011 per share of common stock) and $19,245 ($0.0012 per share of common stock) at August
31, 2013 and November 30, 2012, respectively, and has been estimated using the Black-Scholes option-pricing model using the following
assumptions:
|
|
August 31,
2013
|
|
|
May 31,
2013
|
|
|
February 28,
2013
|
|
|
November 30,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock
|
|
$
|
0.0012
|
|
|
$
|
0.0014
|
|
|
$
|
0.0038
|
|
|
$
|
0.0013
|
|
Conversion price of preferred stock
|
|
$
|
0.0124
|
|
|
$
|
0.0151
|
|
|
$
|
0.0190
|
|
|
$
|
0.0215
|
|
Risk free interest rate
|
|
|
2.78
|
%
|
|
|
2.16
|
%
|
|
|
1.89
|
%
|
|
|
1.62
|
%
|
Expected life
|
|
|
10 Years
|
|
|
|
10 Years
|
|
|
|
10 Years
|
|
|
|
10 Years
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Volatility
|
|
|
148
|
%
|
|
|
148
|
%
|
|
|
147
|
%
|
|
|
141
|
%
|
The fair value of the conversion feature
increased by $902 and by $11,342 during the three months and the nine months ended August 31, 2013, respectively, which has been
recorded as a loss from the change in the fair value of the derivative liability. The fair value of the conversion feature decreased
by $60,562 and by $104,526 during the three months and nine months ended August 31, 2012, respectively, which has been recorded
as a gain from the change in the fair value of the derivative liability.
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 first in priority 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. 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.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 5. 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, 2013 and November 30, 2012, all of the shares of Series I convertible preferred stock have been converted into shares
of the common stock of the Company and no shares of the Company’s Series I convertible preferred stock are outstanding.
NOTE 6. LICENSE AGREEMENTS AND DEFERRED
REVENUE
On October 9,
2007, MultiCell executed 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 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). MultiCell retained and will continue to support its existing licensee, Pfizer, Inc. (“Pfizer”).
MultiCell retains the right to use the Fa2N-4 cells for use in applications not related to drug discovery or ADME/Tox assays. MultiCell
also retains 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. Corning paid
MultiCell $750,000 in consideration for the license granted. 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,
2013 and 2012. The balance of deferred revenue from this license is $488,971 at August 31, 2013 and will be amortized into revenue
through October 2024.
The Company has another license agreement
with Pfizer, for which revenue is being deferred. The Company recognized revenue from the agreement with Pfizer in the amount of
$1,300 and $3,900 for the three months and the nine months ended each of August 31, 2013 and 2012, respectively. The balance of
deferred revenue from the agreement with Pfizer is $22,100 at August 31, 2013, which will be amortized into revenue through January
2018.
NOTE 7. STOCK COMPENSATION PLANS
On July 11,
2011, at the Company’s Annual Meeting of Stockholders, the stockholders approved an amendment to increase the number of shares
reserved under the 2004 Equity Incentive Plan (the “2004 Plan”) to a total of 70,974,213 shares. Additionally, an annual
increase in the number of shares reserved under the plan was approved and certain prior increases in the number of shares reserved
for issuance under the plan were ratified. Furthermore, on each of December 1, 2011 and on December 1, 2012, the number of shares
reserved under the 2004 Plan was increased by an additional 1,500,000 shares pursuant to the provisions of the 2004 Plan.
The
purpose of the 2004 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 the Company’s common stock through granting of incentive stock options (ISO), non-statutory
stock options, stock purchase awards, stock bonus awards, stock appreciation rights, stock unit awards and other stock awards.
As amended, there are 22,074,710
shares of common stock available for future awards under the 2004 Plan at August 31, 2013.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
GAAP treatment for stock options requires
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 requires 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.
A summary of the status of stock options
granted by MultiCell at August 31, 2013, 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, 2012
|
|
|
26,068,947
|
|
|
$
|
0.0084
|
|
|
3.1 years
|
|
$
|
-
|
|
Granted
|
|
|
30,000,000
|
|
|
|
0.0011
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(5,669,444
|
)
|
|
|
0.0090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2013
|
|
|
50,399,503
|
|
|
$
|
0.0040
|
|
|
3.9 years
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 31, 2013
|
|
|
19,017,559
|
|
|
$
|
0.0086
|
|
|
2.2 years
|
|
$
|
-
|
|
On August 16, 2013, the MultiCell Board
of Directors granted an option to each of the five members of its Board of Directors to purchase 5,000,000 shares of the Company’s
common stock at $0.0011 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 5,000,000 shares of common stock at $0.0011 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 June 1, 2012, the MultiCell Board of Directors
granted an option to each of the five members of its Board of Directors to purchase 1,000,000 shares of the Company’s common
stock at $0.0032 per share, the closing price of the Company’s common stock on the date of grant. 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 1,000,000 shares of common stock at $0.0032 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, 2013 was $0.0011 per share.
The weighted-average assumptions used for options granted during the nine months ended August 31, 2013 were risk-free interest
rate of 1.60%, volatility of 175%, 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, 2012 was $0.0030 per share. The weighted-average assumptions used for options
granted during the nine months ended August 31, 2012 were risk-free interest rate of 0.62%, volatility of 170%, 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, 2013
and 2012, MultiCell reported stock-based compensation expense for services related to stock options of $1,893 and $9,521, respectively.
For the nine months ended August 31, 2013 and 2012, MultiCell reported stock-based compensation expense for services related to
stock options of $10,705 and $32,759, respectively. As of August 31, 2013, there is approximately $35,000 of unrecognized compensation
cost related to stock-based payments that will be recognized over a weighted average period of approximately 1.4 years. The intrinsic
values at August 31, 2013 are based on a closing price of $0.0012.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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 originally adopted, the 2010 Plan provided that the number of shares of Xenogenics’ common
stock that could be issued pursuant to stock awards could not exceed 5,000,000 shares of common stock. On February 3, 2011, the
2010 Plan was amended such that 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 granting
of incentive stock options (“ISO”), non-statutory stock options, stock bonus awards, stock appreciation rights, and
rights to acquire restricted stock. ISO’s may be granted only to employees. The exercise price of each ISO granted under
the plan must equal 100% of the market price of Xenogenics’ stock on the date of the grant. A 10% stockholder shall not be
granted an ISO unless the exercise price of such option is at least 110% of the fair market value of Xenogenics’ common stock
on the date of the grants and the option is not exercisable after the expiration of five years from the date of the grant. The
Board of Directors of Xenogenics, in its discretion, shall determine the exercise price of each nonstatutory stock option. An option’s
maximum term is 10 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 shares 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.
In March 2011, Xenogenics granted options
to other prospective officers and to the members of its scientific advisory board to purchase an aggregate of 3,000,000 shares
of its common stock, exercisable at $0.246 per share of common stock and having a term of approximately five years. 50% of the
options vested immediately and the remaining 50% were to vest upon the closing of a Qualified Financing by December 31, 2011. A
“Qualified Financing” meant a single sale, or a related series of sales, by Xenogenics of its common stock (or common
stock equivalents) in which the aggregate gross proceeds (before costs and commissions) received by Xenogenics was equal to or
exceed $5,000,000. The fair value of these options was estimated to be $692,700, or $0.2309 per share, as estimated using the Black-Scholes
option-pricing model, using a risk-free interest rate of 2.20%, volatility of 165%, expected lives of five years, and dividend
yield of zero. A Qualified Financing was not closed by December 31, 2011, and accordingly, options to acquire 1,500,000 shares
of Xenogenics common stock were forfeited. As described in the following paragraph, Xenogenics granted replacement options to four
of five of these individuals whose options expired on December 31, 2011. The replacement of the options to the four individuals
was treated as a modification under GAAP. The forfeiture of the option to the fifth individual resulted in the reversal of $57,725
of previously-recognized stock-based compensation expense in the three months ended February 29, 2012.
On February 28, 2012, Xenogenics granted
replacement options to four of five of those individuals whose options expired on December 31, 2011, as described in the previous
paragraph. The replacement options to purchase 1,250,000 shares of Xenogenics’ common stock are exercisable at $0.253 per
share and vest monthly over one year. These replacement options have a term of five years, provided a Qualified Financing has closed
by February 28, 2013. No Qualified Financing closed by February 28, 2013. Consequently, these replacement options expired on February
28, 2013. The fair value of these options was estimated to be $298,500, or $0.2338 per share, as estimated using the Black-Scholes
option-pricing model, using a risk-free interest rate of 0.84%, volatility of 170%, expected lives of five years, and dividend
yield of zero.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
On July 28, 2013, Xenogenics granted an
option to a consultant to purchase 500,000 shares of Xenogenics’ common stock at $0.246 per share. The option vests in equal
increments of 125,000 on each of July 28, 2013, October 1, 2013, January 1, 2014, and April 1, 2014, subject to continuing service
to Xenogenics on each such vesting date, and expires five years after grant. The fair value of these options was estimated to be
$117,000, or $0.234 per share, as estimated using the Black-Scholes option-pricing model, using a risk-free interest rate of 1.37%,
volatility of 175%, expected lives of five years, and dividend yield of zero.
For the three months and nine months ended
August 31 2013, Xenogenics reported stock-based compensation of $51,052 and $165,161, respectively. For the three months ended
August 31, 2012, Xenogenics reported stock-based compensation expense for options of $95,925. For the nine months ended August
31, 2012, Xenogenics reported stock-based compensation expense for options of $251,128, less the reversal of previously recognized
stock-based compensation in the amount of $57,725, for net stock-based compensation of $193,403. As of August 31, 2013, there is
approximately $83,000 of unrecognized compensation cost related to stock-based payments that will be recognized over a weighted
average period of approximately 0.5 years.
NOTE 8. 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 3 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 the Company’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. During the nine months ended August 31, 2013, LJCI exercised warrants to purchase
943,000 shares of the Company’s common stock, resulting in proceeds to the Company of $1,027,870. During the nine months
ended August 31, 2012, LJCI exercised warrants to purchase 729,000 shares of the Company’s common stock, resulting in proceeds
to the Company of $794,610.
A summary of the status of warrants at
August 31, 2013, 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, 2012
|
|
|
9,277,030
|
|
|
$
|
0.7535
|
|
|
2.2 years
|
|
$
|
-
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(943,000
|
)
|
|
|
1.0900
|
|
|
|
|
|
|
|
Expired
|
|
|
(360,000
|
)
|
|
|
0.5000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2013
|
|
|
7,974,030
|
|
|
$
|
0.7251
|
|
|
1.7 years
|
|
$
|
-
|
|
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 9. LOSS PER SHARE
Basic loss per share is computed on the
basis of the weighted-average number of shares of the Company’s common stock outstanding during the period. Diluted loss
per share is computed on the basis of the weighted-average number of shares of the Company’s common stock and all dilutive
potentially issuable shares of the Company’s common stock outstanding during the year. Shares of the Company’s common
stock issuable upon conversion of debt and preferred stock, or exercise of stock options and stock warrants have not been included
in the loss per share for the three months and the nine months ended August 31, 2013 or 2012, as they are anti-dilutive.
The potential shares of the Company’s
common stock issuable upon exercise of options or warrants, or upon conversion of other convertible securities issued by the Company,
as of August 31, 2013 and 2012, are as follows:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
7,974,030
|
|
|
|
9,963,030
|
|
Stock options
|
|
|
50,399,503
|
|
|
|
24,168,947
|
|
Series B Convertible Preferred Stock
|
|
|
27,806,452
|
|
|
|
47,049,793
|
|
Series I Convertible Preferred Stock
|
|
|
-
|
|
|
|
2,293,600
|
|
LJCI Debenture
|
|
|
5,819,876,621
|
|
|
|
6,055,511,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,906,056,606
|
|
|
|
6,138,986,953
|
|
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 3, upon the conversion of any portion of the remaining $46,596 principal amount of the Debenture, LJCI
is required to simultaneously exercise and purchase that same percentage of the remaining 4,659,629 warrant shares equal to the
percentage of the dollar amount of the Debenture being converted. The 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 10. 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, 2013 and November 30, 2012, are summarized as follows:
|
|
August 31, 2013
|
|
|
November 30, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
30,587
|
|
|
$
|
-
|
|
|
$
|
30,587
|
|
|
$
|
-
|
|
|
$
|
19,245
|
|
|
$
|
-
|
|
|
$
|
19,245
|
|
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
As further described in Note 4, the fair
value of the derivative liability is determined using the Black-Scholes pricing model.
NOTE 11. SUBSEQUENT EVENTS
Stock Issued for Conversion of
Debenture and Exercise of Warrants
As more fully discussed in Note 3 to these
consolidated financial statements, MultiCell sold the Debenture to LJCI and issued LJCI a stock warrant in connection with the
Debenture. During the period subsequent to August 31, 2013 through the date of issuance of the condensed consolidated financial
statements, LJCI converted $1,000 of the Debenture into 122,122,222 shares of the Company’s common stock. Simultaneously
with the conversions of the Debenture, LJCI was required to exercise warrants to purchase 100,000 shares of the Company’s
common stock at $1.09 per share. The total proceeds from the exercise of the warrants were $109,000.
Sponsored Research Agreement
On September
27, 2013, MultiCell entered into
a new sponsored research agreement with Anand Ghanekar, M.D., Ph.D, of the University Health
Network’s Toronto General Hospital expanding the scope of the current research project with the University Health Network
(“UHN”) to evaluate MCT-485 in animal models for the treatment of primary liver cancer (the “Ghanekar Agreement”).
On July 5, 2011, the Company had previously entered into a sponsored research agreement with UHN pursuant to which UHN evaluated
the Company’s product candidates, MCT-465 and MCT-485, in
in vitro
models for the treatment of primary liver cancer
(the “UHN Agreement”). The mechanism of action of MCT-465 and MCT-485 and their potential selective effect on liver
cancer stem cells were also evaluated. Under the terms of each of the Ghanekar Agreement and the UHN Agreement, the Company retains
exclusive access to the research findings and intellectual property resulting from the research activities preformed by each of
Dr. Ghanekar and UHN, respectively.
Ideal
BioStent™ — Amendment of Foreclosure Sale Agreement
On September 30, 2010, Xenogenics entered
into a Foreclosure Sale Agreement (“Foreclosure Sale Agreement”). 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. 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 these milestones
under the Foreclosure Sale Agreement by an additional twelve months. Xenogenics is required to use good faith reasonable efforts
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.