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 U.S. Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, they do not
include all of the information and disclosures required by accounting principles generally accepted in the United States of America
(“GAAP”) for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring
adjustments considered necessary for a fair presentation have been included. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s
annual report on Form 10-K for the year ended November 30, 2013, previously filed with the SEC. The results of operations for the
three-month and six-month periods ended May 31, 2014, are not necessarily indicative of the operating results for the fiscal year
ending November 30, 2014. The condensed consolidated balance sheet as of November 30, 2013, has been derived from the Company’s
audited consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(“ASU
2014-09”), which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer;
(2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price
to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 will be effective for the Company retrospectively beginning December 1, 2017, with early adoption not permitted. Management
is currently evaluating the impact of the pending adoption of ASU 2014-09 on the Company’s consolidated financial statements.
In July 2013, the FASB issued Accounting
Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax
Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”) to provide guidance on the presentation of unrecognized tax
benefits. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as
a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except
as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available
at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result
from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the
entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the
financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective January 1, 2015,
with earlier adoption permitted. ASU 2013-11 should be applied prospectively with retroactive application permitted. Management
is currently evaluating the impact of the pending adoption of ASU 2013-11 on the Company’s consolidated financial statements.
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 May 31, 2014, the Company has operating
and liquidity concerns and, as a result of recurring losses, has incurred an accumulated deficit of $44,090,974. The Company will
have to raise additional capital in order to initiate Phase IIb/III clinical trials for MCT-125, its therapeutic product for the
treatment of fatigue in multiple sclerosis patients, conduct further research on MCT-465 and MCT-485, its therapeutic products
for the treatment of primary liver cancer, and initiate clinical trials for Xenogenic’s bioabsorbable, drug eluting stent,
the Ideal BioStent™. The Company’s management is evaluating several sources of financing for the Company’s clinical
trial program. Additionally, with its strategic shift in focus to therapeutic programs and technologies, management expects the
Company’s future cash requirements to increase significantly as it advances the Company’s therapeutic programs into
clinical trials. Until the Company is successful in raising additional funds, it may have to prioritize its therapeutic programs
and delays may be necessary in some of the Company’s development programs.
Since March 2008, the Company has operated
on working capital provided by La Jolla Cove Investors, Inc. (“LJCI”). As further described in Note 3 to these condensed
consolidated financial statements, under the terms of the LJCI Agreement (as defined below), LJCI can convert a portion of the
Debenture (as defined below) by simultaneously exercising the LJCI Warrant (as defined below) at $1.09 per share. As of May 31,
2014, there are 3,907,629 shares remaining on 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 the Company. The LJCI
Agreement limits LJCI’s investment to an aggregate ownership that does not exceed 9.99% of the common stock of MultiCell.
The Company expects that LJCI will continue to exercise the warrants and convert the Debenture through February 28, 2016, the date
that the Debenture is due and the LJCI Warrant expires, subject to the limitations of the LJCI Agreement and 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 in the principal amount of $100,000 and originally scheduled to mature on February 28, 2012 (the “Debenture”).
On August 16, 2011, MultiCell and LJCI amended the Debenture to extend the maturity date to February 28, 2014. On February 20,
2014, MultiCell and LJCI amended the Debenture to further extend the maturity date to February 28, 2016. The Debenture accrues
interest at 4.75% per year, payable in cash or shares of MultiCell’s common stock at the option of LJCI. In connection with
the Debenture, MultiCell issued LJCI a warrant to purchase up to 10 million shares of its common stock (the “LJCI Warrant”)
at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement
dated February 28, 2007. On August 16, 2011, MultiCell and LJCI amended the LJCI Warrant to extend the expiration date to February
28, 2014. On February 20, 2014, MultiCell and LJCI amended the LJCI Warrant to further extend the expiration date to February 28,
2016. Pursuant to the terms of the LJCI Warrant, upon the conversion of any portion of the principal amount of the Debenture, LJCI
is required to simultaneously exercise and purchase that same percentage of the warrant shares equal to the percentage of the dollar
amount of the Debenture being converted. Therefore, as an example, for each $1,000 of the principal converted, LJCI would be required
to simultaneously purchase 100,000 shares under the LJCI Warrant at $1.09 per share. The LJCI Agreement limits LJCI’s investment
to an aggregate common stock ownership that does not exceed 9.99% of the outstanding shares of common stock of MultiCell.
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 of MultiCell’s common stock determined by the dollar amount
of the Debenture being converted multiplied by 110, minus the product of the Conversion Price (as defined below) multiplied by
100 times the dollar amount of the Debenture being converted, with the entire result divided by the Conversion Price. The “Conversion
Price” is equal to the lesser of $1.00 or 80% of the average of the three lowest volume-weighted average prices during the
twenty trading days prior to the election to convert. LJCI converted $6,070 and $5,780 of the Debenture into 1,288,959,667 and
594,747,473 shares, respectively, of the Company’s common stock during the six months ended May 31, 2014 and 2013, respectively.
Simultaneously with these conversions, LJCI exercised warrants to purchase 607,000 shares and 578,000 shares of the Company’s
common stock during the six months ended May 31, 2014 and 2013, respectively. Proceeds from the exercise of the warrants were $661,630
and $630,020 for the six months ended May 31, 2014 and 2013, respectively. At times, LJCI makes advances to the Company prior to
the exercise of warrants. At November 30, 2013, LJCI had advanced $61,950 to the Company in advance of LJCI’s exercise of
warrants. At May 31, 2014, LJCI did not have any advances outstanding to the Company for the exercise of warrants.
As of May 31, 2014, the remainder of the
Debenture in the amount of $39,076 could have been converted by LJCI into approximately 6.7 billion shares of the Company’s
common stock, which would require LJCI to simultaneously exercise and purchase all of the remaining 3,907,629 shares of the Company’s
common stock under the LJCI Warrant at $1.09 per share. As of November 30, 2013, the balance of the Debenture was $45,146. 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. LICENSE AGREEMENTS AND DEFERRED
REVENUE
Corning Incorporated
The Company has an exclusive license and
purchase agreement (the “Agreement”) with Corning Incorporated (“Corning”) of Corning, New York. Under
the terms of the Agreement, Corning has the right to develop, use, manufacture, and sell the Company’s Fa2N-4 cell lines
and related cell culture media for use as a drug discovery assay tool, including biomarker identification for the development of
drug development assay tools, and for the performance of absorption, distribution, metabolism, elimination and toxicity assays
(“ADME/Tox assays”). The Company retained and will continue to support all of its existing licensees. The Company retains
the right to use the Fa2N-4 cells for use in applications not related to drug discovery or ADME/Tox assays. The Company also retains
rights to use the Fa2N-4 cell lines and other cell lines to further develop its Sybiol® liver assist device, to produce therapeutic
proteins using the Company’s BioFactories™ technology, to identify drug targets and for other applications related
to the Company’s internal drug development programs. In consideration for the license granted, Corning paid the Company $375,000
upon execution of the Agreement, and an additional $375,000 upon the completion of a transition period. In addition, Corning purchased
inventory and equipment from the Company and reimbursed the Company for laboratory costs and other expenses during a transition
period. The Company is recognizing the income ratably over a 17-year period. The Company recognized $11,030 and $22,059, respectively,
in income for each of the three months and six months ended May 31, 2014 and 2013. The balance of deferred revenue from this license
was $455,883 and $477,942 at May 31, 2014 and November 30, 2013, respectively, and will be amortized into revenue through October
2024.
Pfizer Inc.
The Company has another license agreement
with Pfizer Inc. (“Pfizer”), for which revenue is being deferred. The Company recognized $1,300 and $2,600, respectively,
in income for each of the three months and six months ended May 31, 2014 and 2013. The balance of deferred revenue from this license
was $18,200 and $20,800 at May 31, 2014 and November 30, 2013, respectively, and will be amortized into revenue through January
2018.
Rutgers License Agreement
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.
To supplement the technology acquired under
the Foreclosure Sale Agreement, Xenogenics also entered in to a license agreement (the “Rutgers License Agreement”)
with Rutgers, The State University of New Jersey (“Rutgers”) effective September 30, 2010. 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.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
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. In consideration for the license and other rights granted under the Rutgers License Agreement,
Xenogenics paid Rutgers a license fee of $50,000. In addition, under the Rutgers License Agreement, Xenogenics was obligated to
pay Rutgers a license maintenance fee of $25,000 on the third anniversary of the Rutgers License Agreement, and $50,000 on the
fourth anniversary. Additionally, Xenogenics agreed to pay Rutgers for unpaid costs of $136,000 incurred by Rutgers prior to the
effective date of the Rutgers License Agreement for preparing, filing, prosecuting, defending, and maintaining all United States
patent applications and patents covered under the Rutgers License Agreement. Additionally, Xenogenics was also required to make
additional cash payments to Rutgers upon the achievement of certain milestones. None of these milestones were ever achieved, and
accordingly, none of these obligations have accrued. Furthermore, upon the sale of products commercialized using the technology
licensed pursuant to the Rutgers License Agreement, Xenogenics was required to make royalty payments to Rutgers in an amount equal
to three percent of the annual aggregate gross amounts charged for such products less deductions for expenses such as sales/use
taxes, transportation charges and trade discounts. No sales were ever made that required the payment of any royalty.
It became apparent during the evaluation
and development of the Ideal BioStent™ that the use of intellectual property licensed from Rutgers would have introduced
complications in the design of the Ideal BioStent. As a result, Xenogenics abandoned the use of the Rutgers technology effective
January 2014. On January 31, 2014, Rutgers notified Xenogenics of its alleged default of the provisions in the Rutgers License
Agreement. On May 9, 2014, Rutgers issued a notice of termination of the Rutgers License Agreement, and demanded payment of unpaid
license fees of $25,000, unpaid patent costs of $75,665, and accrued interest of $8,375. All of these claimed fees, costs, and
interest are accrued in the accompanying condensed consolidated financial statements. Management is currently evaluating the merits
of these claims.
NOTE 5. SERIES B CONVERTIBLE PREFERRED
STOCK
The Company’s Board of Directors
has the authority, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions of these shares of preferred stock. The Board of Directors
originally designated 17,000 shares as Series B convertible preferred stock. The Series B convertible preferred stock does not
have voting rights.
The Series B shares are convertible at
any time into shares of the Company common stock at a conversion price determined by dividing the purchase price per share of $100
by the conversion price. The conversion price was originally $0.32 per share. Upon the occurrence of an event of default (as defined
in the applicable Series B convertible preferred stock purchase agreement), the conversion price of the Series B shares shall be
reduced to 85% of the then-applicable conversion price of such shares. The conversion price is subject to equitable adjustment
in the event of any stock splits, stock dividends, recapitalizations and the like. In addition, the conversion price is subject
to weighted average anti-dilution adjustments in the event the Company sells common stock or other securities convertible into
or exercisable for common stock at a per share price, exercise price or conversion price lower than the conversion price then in
effect in any transaction (other than in connection with an acquisition of the securities, assets or business of another company,
a joint venture and/or the issuance of employee stock options). As a result of the Company issuing shares of its common stock upon
conversion of convertible debentures and upon the exercise of warrants both at prices lower than the conversion price of the Series
B convertible preferred stock, and due to the Company not paying the Series B dividends on a monthly basis (as discussed below),
the conversion price of the Series B convertible preferred stock has been reduced to $0.0078 per share as of May 31, 2014 and to
$0.0114 per share as of November 30, 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 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 sheet as of May 31, 2014 and November 30, 2013 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 May 31, 2014 and November 30, 2013, there were 3,448 shares of Series B convertible preferred stock that were
convertible into 44,205,128 and 30,245,614 shares of common stock of the Company, respectively. The fair value of the conversion
feature was estimated at $35,364 ($0.0008 per share of common stock) and $18,147 ($0.0006 per share of common stock) at May 31,
2014 and November 30, 2013, respectively, and has been estimated using the Black-Scholes option-pricing model using the following
assumptions:
|
|
May 31,
2014
|
|
|
February 28,
2014
|
|
|
November 30,
2013
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock
|
|
$
|
0.0008
|
|
|
$
|
0.0008
|
|
|
$
|
0.0007
|
|
Conversion price of preferred stock
|
|
$
|
0.0078
|
|
|
$
|
0.0095
|
|
|
$
|
0.0114
|
|
Risk free interest rate
|
|
|
2.48
|
%
|
|
|
2.66
|
%
|
|
|
2.75
|
%
|
Expected life
|
|
|
10 Years
|
|
|
|
10 Years
|
|
|
|
10 Years
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Volatility
|
|
|
144
|
%
|
|
|
142
|
%
|
|
|
142
|
%
|
Pursuant to the Certificate of Designation
of the Series B convertible preferred stock, in the event of any dissolution or winding up of the Company, whether voluntary or
involuntary, holders of each outstanding share of Series B convertible preferred stock shall be entitled to be paid second in priority
to the Series I preferred stockholders out of the assets of the Company available for distribution to stockholders, an amount equal
to $100 per share of Series B convertible preferred stock held plus any declared but unpaid dividends. However, as discussed below,
no shares of the Company’s Series I convertible preferred stock were outstanding at May 31, 2014. After such payment has
been made in full, such holders of Series B convertible preferred stock shall be entitled to no further participation in the distribution
of the assets of the Company.
NOTE 6. 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 May 31, 2014 and November 30, 2013, 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 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.
Under the provisions of the 2004 Plan, the 2004 Plan terminated on March 2, 2014, and as such, there are no additional shares of
common stock available for future awards under the 2004 Plan.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Generally accepted accounting principles
for stock options require the recognition of the cost of employee services received in exchange for an award of equity instruments
in the financial statements, which is measured based on the grant date fair value of the award, and require the stock option compensation
expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the
vesting period), net of estimated forfeitures. The estimation of forfeitures requires significant judgment, and to the extent actual
results or updated estimates differ from the current estimates, such resulting adjustment will be recorded in the period estimates
are revised. No income tax benefit has been recognized for stock-based compensation arrangements and no compensation cost has been
capitalized in the consolidated balance sheets.
A summary of the status of stock options
granted by MultiCell at May 31, 2014, and changes during the six 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, 2013
|
|
|
50,399,503
|
|
|
$
|
0.0040
|
|
|
3.7 years
|
|
$
|
-
|
|
Granted
|
|
|
25,074,710
|
|
|
|
0.0008
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(30,000
|
)
|
|
|
0.0110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 31, 2014
|
|
|
75,444,213
|
|
|
$
|
0.0029
|
|
|
3.6 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at May 31, 2014
|
|
|
45,530,582
|
|
|
$
|
0.0042
|
|
|
3.1 years
|
|
$
|
-
|
|
On January 15, 2014, the MultiCell Board
of Directors granted an option to each of the five members of its Board of Directors to purchase 4,600,000 shares of the Company’s
common stock at $0.0008 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 2,074,710 shares of common stock at $0.0008 per share. This option vests monthly over three years, subject to continuing
service as an employee on each such vesting date, and expires five years after grant. No options were granted during the six months
ended May 31, 2013. 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 six months ended May 31, 2014 was $0.0007 per share.
The weighted-average assumptions used for options granted during the six months ended May 31, 2014 were risk-free interest rate
of 1.68%, volatility of 140%, expected life of 5.0 years, and dividend yield of zero. The assumptions employed in the Black-Scholes
option pricing model include the following: (i) the expected life of stock options represents the period of time that the stock
options granted are expected to be outstanding prior to exercise; (ii) the expected volatility is based on the historical price
volatility of the Company’s common stock; (iii) the risk-free interest rate represents the U.S. Treasury Department’s
constant maturities rate for the expected life of the related stock options; and (iv) the dividend yield represents anticipated
cash dividends to be paid over the expected life of the stock options.
For the three months ended May 31, 2014
and 2013, MultiCell reported stock-based compensation expense for services related to stock options of $12,027 and $4,406, respectively.
For the six months ended May 31, 2014 and 2013, MultiCell reported stock-based compensation expense for services related to stock
options of $21,935 and $8,812, respectively. As of May 31, 2014, there was approximately $23,000 of unrecognized compensation cost
related to stock-based payments that will be recognized over a weighted average period of approximately 1.0 years. The intrinsic
values at May 31, 2014 are based on a closing price of $0.0008.
In October 2010, Xenogenics adopted the
2010 Stock Incentive Plan (the “2010 Plan”) which authorized the granting of stock awards toXenogenics’ 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 that 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 ISOs, non-statutory stock options, stock bonus awards, stock appreciation rights, and rights to acquire restricted
stock. ISOs 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.
MULTICELL TECHNOLOGIES, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
A summary of the status of Xenogenics’
stock options at May 31, 2014, and changes during the six months then ended is presented in the following table:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Remaining
|
|
|
Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Option
|
|
|
Price
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2013
|
|
|
4,250,000
|
|
|
$
|
0.246
|
|
|
2.3 years
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
Expired or forfeited
|
|
|
(500,000
|
)
|
|
$
|
0.246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 31, 2014
|
|
|
3,750,000
|
|
|
$
|
0.246
|
|
|
1.9 years
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at May 31, 2014
|
|
|
1,750,000
|
|
|
$
|
0.246
|
|
|
2.3 years
|
For the three months ended May 31, 2014
and 2013, Xenogenics reported stock-based compensation expense for services related to stock options of $11,058 and $18,647, respectively.
For the six months ended May 31, 2014 and 2013, Xenogenics reported stock-based compensation expense for services related to stock
options of $43,162 and $114,109, respectively. As of May 31, 2014, there was no unrecognized compensation cost related to stock-based
payments to be recognized in the future for option grants through May 31, 2014.
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. As further described to Note 3 to these condensed consolidated financial statements,
on February 20, 2014, MultiCell and LJCI amended the LJCI Warrant to extend the expiration date of the warrants to February 28,
2016. During the six months ended May 31, 2014, LJCI exercised warrants to purchase 607,000 shares of the Company’s common
stock, resulting in proceeds to the Company of $661,630. During the six months ended May 31, 2013, LJCI exercised warrants to purchase
578,000 shares of the Company’s common stock, resulting in proceeds to the Company of $630,020.
A summary of the status of warrants at
May 31, 2014, and changes during the six 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, 2013
|
|
|
7,829,030
|
|
|
$
|
0.72
|
|
|
1.5 years
|
|
$
|
-
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(607,000
|
)
|
|
$
|
1.09
|
|
|
|
|
|
|
|
Expired
|
|
|
(134,000
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 31, 2014
|
|
|
7,088,030
|
|
|
$
|
0.69
|
|
|
2.2 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 or the six months ended May 31, 2014 or 2013, 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 May 31, 2014 and 2013, are as follows:
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
7,088,030
|
|
|
|
8,339,030
|
|
Stock options
|
|
|
75,444,213
|
|
|
|
21,093,947
|
|
Series B Convertible Preferred Stock
|
|
|
44,205,128
|
|
|
|
22,834,437
|
|
LJCI Debenture
|
|
|
6,712,329,715
|
|
|
|
5,752,362,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,839,067,086
|
|
|
|
5,804,630,181
|
|
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 to the condensed consolidated financial statements, upon the conversion of any portion of the remaining
$39,076 principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the
remaining 3,907,629 warrant shares equal to the percentage of the dollar amount of the Debenture being converted. The LJCI Agreement
limits LJCI’s investment to an aggregate common stock ownership that does not exceed 9.99% of the outstanding shares of common
stock of MultiCell. 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 May 31, 2014 and November 30, 2013, are summarized as follows:
|
|
May 31, 2014
|
|
|
November 30, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
35,364
|
|
|
$
|
-
|
|
|
$
|
35,364
|
|
|
$
|
-
|
|
|
$
|
18,147
|
|
|
$
|
-
|
|
|
$
|
18,147
|
|
As further described in Note 5, the fair
value of the derivative liability is determined using the Black-Scholes pricing model.