I figured that it was long overdue to post [on this board] a current financial report for Multicell Technologies, Inc. There seems to be a large amount of shares being traded recentely, imho, but with no real news of why! Shawn
Form 10QSB for MULTICELL TECHNOLOGIES, INC.
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15-Jul-2008
biz.yahoo.com
Quarterly Report
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This document contains forward-looking statements that are based upon current expectations within the meaning of the Private Securities 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 in the "Risk Factors" section of our Form 10-KSB.
Overview
MultiCell Technologies, Inc. was incorporated in Delaware on April 28, 1970 as Exten Ventures, Inc., subsequently the Company changed its name to Exten Industries, Inc. ("Exten"). An agreement of merger between Exten and MultiCell was entered into on March 20, 2004 whereby MultiCell ceased to exist and all of its assets, property, rights and powers, as well as all debts due it, were transferred to and vested in Exten as the surviving corporation. Effective April 1, 2004 Exten changed its name to MultiCell Technologies, Inc. ("MultiCell"). MultiCell operates three subsidiaries, MCT Rhode Island Corp., Xenogenics Corporation ("Xenogenics"), and as of September 2005, MultiCell holds approximately 67% of the outstanding shares (on an as if converted basis) of a newly formed subsidiary, MultiCell Immunotherapeutics, Inc. ("MCTI"). As used herein, the "Company" refers to MultiCell, together with MCT Rhode Island Corp., Xenogenics, and MCTI. Our principal offices are at 68 Cumberland Street, Suite 301, Woonsocket, RI 02895. Our telephone number is (401) 762-0045.
Following the formation of MultiCell Immunotherapeutics, Inc. during September 2005 and the recent in-licensing of drug candidates, we are pursuing research and development of therapeutics. 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 its proprietary immune system modulation technologies to discover, develop and commercialize new therapeutics itself and with strategic partners.
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Regardless of the outcome of our negotiations with potential partners or acquirers of our cell line business, we have operated and will continue to operate our business and seek to minimize expenses. Our largest expenses relate to personnel and meeting the legal and reporting requirements of being a public company. By utilizing consultants whenever possible, and asking employees to manage multiple responsibilities, operating costs are minimized. Additionally, several employees and our Board of Directors receive Company stock in lieu of cash as all or part of their compensation to help in the effort to minimize monthly cash flow. With our strategic shift in focus on therapeutic programs and technologies, however, we expect our future cash expenditures to increase significantly as we advance our therapeutic programs into clinical trials.
As funding permits, we intend to gradually add scientific and support personnel. We want to add specialists for our key research areas. These strategic additions will help us expand our product offerings leading us to additional revenues and profits. As revenues increase, additional administrative personnel will be necessary to meet the added workload. Other expenses, such as sales and customer service, will be added commensurate with increased revenues. Our current research and development efforts focus on development of future cell lines and therapeutic products and improvement of existing products. Due to the ongoing nature of this research, we are unable to ascertain with certainty the estimated completion dates and total costs associated with this research. As with any research efforts, there is uncertainty and risk associated with whether these efforts will produce results in a timely manner so as to enhance our market position . Company sponsored research and development costs related to future products and redesign of present products are expensed as incurred. For the three months ended May 31, 2008 and May 31, 2007, research and development costs were $94,138 and $103,892, respectively. The decrease in research and development expenses of $9,754 is primarily attributable to the licensing of the cellular products business to Corning, Inc. and the concomitant reduction in laboratory space and personnel. Research and development costs include such costs as license payments, salaries, employee benefits, costs determined utilizing the Black-Scholes option-pricing model for options issued to the Scientific Advisory Board, and supplies.
Results of Operations
The following discussion is included to describe our consolidated financial position and results of operations. The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.
Quarter Ended May 31, 2008 Compared to the Quarter Ended May 31, 2007
Revenue. Total revenue for the three months ended May 31, 2008 was $44,482, as compared to revenue of $34,381 for the same quarter in the prior fiscal year, an increase of $10,101. Substantially all of the revenue for the quarter ended May 31, 2008 is from license revenue under agreements with Corning, Pfizer, and Eisai. The increase is primarily due to the increase in license revenue from Corning and Eisai.
Operating Expenses. Total operating expenses for the three months ended May 31, 2008 were $344,992, compared to operating expenses for the three months ended May 31, 2007 of $594,935, representing a decrease of $249,943. This decrease resulted from the Company reducing its laboratory space and administrative and technical personnel. Selling, general and administrative expenses decreased by $233,274. The decrease in selling, general and administrative expenses is primarily attributable to a reduction in costs related to personnel, legal, accounting, occupancy, and related expenses.
Other income (expense). Other income (expense) amounted to a net expense of $2,874 for the three months ended May 31, 2008 as compared to net expense of $26,199 for the corresponding quarter of the prior year. In 2008, other income (expense) was principally composed of interest expense on the debentures, offset by a gain on the sale of equipment. In 2007, the other income (expense) was the result of interest expense from the newly-issued debentures.
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Net Loss. Net loss for the three months ended May 31, 2008 was $303,384, as compared to a net loss of $586,753 for the same period in the prior fiscal year, representing a decrease in the net loss of $283,369. The primary reason for this decreased loss in the current year is due to the decrease in operating expenses as explained above.
Six Months Ended May 31, 2008 Compared to the Six Months Ended May 31, 2007
Revenue. Total revenue for the six months ended May 31, 2008 was $101,528, as compared to revenue of $81,267 for the same period in the prior fiscal year, an increase of $20,261. Most of the revenue for the six months ended May 31, 2008 is from license revenue under agreements with Corning, Pfizer, and Eisai. The increase in revenue is primarily due to the increase in license revenue from Corning and Eisai.
Operating Expenses. Total operating expenses for the six months ended May 31, 2008 were $690,107, compared to operating expenses for the six months ended May 31, 2007 of $2,271,280, representing a decrease of $1,581,173. Generally, this decrease resulted from the Company reducing its laboratory space and administrative and technical personnel. Selling, general and administrative expenses decreased by $1,304,300. The decrease in selling, general and administrative expenses is primarily attributable to a reduction in costs related to personnel, consulting, legal, accounting, occupancy, Board of Directors, and related expenses.
Other income (expense). Other income (expense) amounted to net income of $9,481 for the six months ended May 31, 2008 as compared to net expense of $12,644 for the corresponding period of the prior year. In 2008, other income (expense) was principally composed of a gain on the sale of equipment, offset by interest expense on the debentures. In 2007, the other income (expense) was the result of interest expense from the newly-issued debentures, offset by a decrease in minority interest in net loss of subsidiary.
Net Loss. Net loss for the six months ended May 31, 2008 was $579,098, as compared to a net loss of $2,202,657 for the same period in the prior fiscal year, representing a decrease in the net loss of $1,623,559. The primary reason for this decreased loss in the current year is due to the decrease in operating expenses as explained above.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
issuance of debt or equity instruments. The following is a summary of our key
liquidity measures at May 31, 2008 and May 31, 2007:
May 31, 2008 May 31, 2007
Cash and cash equivalents $ 78,779 $ 12,445
Current assets $ 109,632 $ 63,825
Current liabilities (1,509,205 ) (1,661,054 )
Working capital deficiency $ (1,399,573 ) $ (1,597,229 )
The Company will have to raise additional capital in order to initiate Phase IIb/III clinical trials for MCT-125, the Company's therapeutic product for the treatment of fatigue in multiple sclerosis patients. Management is evaluating several sources of financing for its clinical trial program, including potential licensing and/or partnership agreements. 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 or secure development funding through licensing and/or partnership agreements, we may have to prioritize our therapeutic programs and delays may be necessary in some of our development programs.
On May 3, 2006, MultiCell entered into a common stock purchase agreement with Fusion Capital, which was amended and restated on October 5, 2006, and ultimately terminated on July 18, 2007. Under the agreement, Fusion Capital was obligated, under certain conditions, to purchase shares from the Company up to an aggregate amount of $8 million from time to time over a 25-month period. MultiCell authorized 8,000,000 shares of its common stock for sale to Fusion Capital under the agreement. For the nine months ended August 31, 2007 the Company received $450,000 from Fusion Capital of which 25% of the gross proceeds were payable to Series B preferred shareholders. During the year, the Company redeemed 615 shares of Series B preferred stock by paying $61,500.
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As consideration for entering into the original transaction on May 3, 2006, MultiCell issued to Fusion Capital 1,572,327 shares of its common stock and warrants to purchase an additional 1,572,327 shares of its common stock at a price of $0.01 per share. Upon execution of the amended and restated purchase agreement on October 5, 2006, Fusion Capital will retain the original 1,572,327 shares of common stock and returned the warrant to the Company.
On July 14, 2006, the Company completed a private placement of Series B convertible preferred stock. A total of 17,000 Series B shares were sold to accredited investors at a price of $100 per share. The Series B shares are convertible at any time into common stock at a conversion price determined by dividing the purchase price per share of $100 by $0.32 per share (the "Conversion Price"). 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, joint venture and employee stock options). The conversion of the Series B preferred stock is limited for each investor to 9.99% of the Company's common stock outstanding on the date of conversion. The Series B preferred stock does not have voting rights. Commencing on the date of issuance of the Series B preferred stock until the date a registration statement registering the common shares underlying the preferred stock and warrants issued is declared effective by the SEC, the Company will pay on each outstanding share of Series B 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 will the dividend rate be greater than 12% per annum. The dividend will be 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 the Company does not pay the Series B preferred dividends when due, the conversion price of the Series B preferred shares will be reduced to 85% of the otherwise applicable conversion price.
Until the earlier of (a) two (2) years after the closing date or (b) the date upon which all of the Series B Shares have been converted into common stock, the purchasers shall have a right of first refusal on any financing in which the Company is the issuer of debt or equity securities. If (a) the Company raises debt or equity financing during the right of first refusal period, (b) the Company's common stock is trading below the conversion price of the Series B Shares at the time of such financing, and (c) the purchasers do not exercise their right of first refusal, then the Company shall, at the option of any purchaser, use 25% of the net proceeds from such financing to redeem such purchasers' shares of Series B preferred stock or common stock, as determined by such purchaser. The redemption price shall be determined in the same manner as any redemption set forth in the preceding paragraph. In addition, if an event of default (as defined in the agreement) occurs, the conversion price of the Series B Shares (as set forth below) shall be reduced to 85% of the then applicable conversion price of such shares.
In addition, the purchasers also received warrants to acquire up to 10,500,000 shares of the Company's common 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 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 preferred stock held plus any declared but unpaid dividends. After such payment has been made in full, such holders of Series B preferred stock shall be entitled to no further participation in the distribution of the assets of the Company.
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On February 28, 2007, we entered into a Debenture Purchase Agreement with LJCI (the "Debenture Purchase Agreement") pursuant to which we sold a convertible debenture to LJCI in a principal amount of $1,000,000 with an annual interest rate of 7.75% and expiring on February 28, 2008 (the "Initial Debenture"). We also agreed to issue another convertible debenture in the amount of $1,000,000 to LJCI with the same terms as the initial debenture no later than 30 days after the principal amount outstanding under the initial debenture is less than $250,000.
We also entered into a Securities Purchase Agreement with LJCI on February 28, 2007 (the "Securities Purchase Agreement") pursuant to which we agreed to sell a convertible debenture in a principal amount of $100,000 with an annual interest rate of 4.75% and expiring on February 28, 2012 (the "Second Debenture", and together with the Initial Debenture, the "Debentures"). In addition, we issued to LJCI a warrant to purchase up to 10 million shares of our 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. Pursuant to the terms of the LJCI Warrant, upon the conversion of any portion of the principal amount of the Second 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 Second Debenture being converted. For example, if the principal amount of the Second Debenture is $100,000 and if LJCI elects to convert $1,000 of the principal amount of the Second Debenture, LJCI would be required to simultaneously purchase 100,000 shares under the LJCI Warrant at $1.09 per share. Accordingly, if the total outstanding principal under the Second Debenture were converted, LJCI would be required to simultaneously exercise the purchase of all of the 10 million shares under the warrant, which would yield $10.9 million in cash to the Company. Furthermore, the Company has the right to redeem that portion of the Second Debenture that the holder may elect to convert.
The Debentures will be convertible at the option of LJCI at any time up to maturity. The Initial Debenture accrued interest at 7.75% per year payable in cash or our common stock. The Second Debenture accrues interest at 4.75% per year payable in cash or our common stock. If paid in stock, the stock will be valued at the rate equal to the conversion price of the Debentures in effect at the time of payment. Interest and principal payments on the Initial Debenture were due on the maturity date of February 28, 2008. During the six months ended May 31, 2008, LJCI completed the conversion of the remaining $47,919 of the Initial Debenture into common stock of the Company. Interest on the Second Debenture is due on each conversion day and principal on the Second Debenture is due on the maturity date of February 28, 2012.
For the Second Debenture, upon receipt of a conversion notice from the holder, we may elect to immediately redeem that portion of the debenture that holder elected to convert in such conversion notice, plus accrued and unpaid interest. During the quarter ended May 31, 2008, LJCI converted $330 of the Second Debenture into 3,821,372 shares of our common stock. Simultaneously with this conversion, LJCI exercised warrants to purchase 33,000 shares of our common stock at $1.09 per share. After February 28, 2008, the Company, at its sole discretion, shall have the right, without limitation or penalty, to redeem the outstanding principal amount of this debenture not yet converted by holder into Common Stock, plus accrued and unpaid interest thereon. It is the Company's intention, subject to available cash, to redeem the remaining balance of the 4.75% Convertible Debenture.
Cash provided by (used in) operating, investing and financing activities for the six months ended May 31, 2008 and May 31, 2007 is as follows:
May 31, 2008 May 31, 2007
Operating activities $ (381,859 ) $ (790,656 )
Investing activities 12,977 -
Financing activities 35,970 725,490
Net decrease in cash and cash equivalents $ (332,912 ) $ (65,166 )
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Operating Activities
For the six months ended May 31, 2008, the most significant differences between our net loss and our net cash used in operating activities is due to non-cash charges included in our net loss for services that are paid through the issuance of common stock and for depreciation, plus changes in working capital. For the six months ended May 31, 2007, the most significant differences between our net loss and our net cash used in operating activities is also due to non-cash charges included in our net loss for services that are paid through the issuance of common stock in the amount of $911,474 and for depreciation in the amount of $54,756, plus changes in working capital, which included an increase in accounts payable and accrued liabilities of $451,908.
Investing Activities
Net cash provided by investing activities in 2008 was related to the sale of property and equipment for cash and collections of principal on a note receivable.
Financing Activities
During the six months ended May 31, 2008 LJCI converted $330 of the 4.75% Convertible Debenture into common stock and exercised warrants to purchase 33,000 shares of common stock at a price of $1.09 per share. In addition, the remaining balance of $47,919 of the 7.75% Convertible Debenture was converted into common stock during the six months ended May 31, 2008. For the six months ended May 31, 2007, cash provided by financing activities primarily related to the issuance of common stock to Fusion Capital and issuance of debentures to LJCI.
Through May 31, 2008, 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. We have in the past increased, and if funding permits plan to increase further, 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 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. |
