**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**





x
            **Annual
                Report under Section 13 or 15(d) of the Securities Exchange Act of
                1934
                for the fiscal year ended November 30, 2006.**Commission
                File Number: 001-10221**MultiCell
                Technologies, Inc**.
              (Name
                of small business issuer in its charter)**DELAWARE**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **52-1412493**
              (IRS
                Employer Identification No.)**701
                George Washington Highway**
              **Lincoln,
                RI 02865**
              **401-333-0610**
              (Address
                and telephone number of principal executive offices)Securities
                registered under Section 12(b) of the Exchange Act:
              **None**Securities
                registered pursuant to Section 12(g) of the Act:**Common
                Stock, $0.01 par value per
                share**




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days. Yes
x No
o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




State
      issuer's revenues for its most recent fiscal year: $679,881.




State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity as of a specified
      date within the past 60 days (based upon shares held by non-affiliates and
      the
      closing price of $.20 per share for the common stock on the over-the counter
      market as of February 28, 2007: $ 8,168,779




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 40,843,896 shares of common stock as of
      February 28, 2007.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Portions
      of the registrant’s Proxy Statement for the 2007 Annual Meeting of Stockholders
      are incorporated by reference in Part III of this Form 10-KSB.




Transitional
      Small Business Disclosure Format (check one): Yes o No
      x







**MULTICELL
      TECHNOLOGIES, INC.**





**FORM
      10-KSB**





**INDEX**


**PART
                I**
            
            **PAGE**Item
                1.
            DESCRIPTION
                OF BUSINESS
            3Item
                2.
            DESCRIPTION
                OF PROPERTY
            30Item
                3.
            LEGAL
                PROCEEDINGS
            30Item
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            30**PART
                II**Item
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
            31Item
                6.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS
            32Item
                7.
            FINANCIAL
                STATEMENTS
            40Item
                8.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            41Item
                8A.
            CONTROLS
                AND PROCEDURES
            41Item
                8B.
            OTHER
                INFORMATION
            42**PART
                III**Item
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
            42Item
                10.
            EXECUTIVE
                COMPENSATION
            43Item
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            43Item
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            43Item
                13.
            EXHIBITS
            43Item
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            44SIGNATURES
            45EXHIBIT
                INDEX
            46-83CONSOLIDATED
                FINANCIAL STATEMENTS
            F1
                - F41




2





FORWARD
      LOOKING STATEMENTS




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. 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: the initiation, progress, timing, scope and anticipated date of
      completion of preclinical research, clinical trials and development of our
      drug
      candidates and potential drug candidates by ourselves or our partners, including
      the dates of initiation and completion of patient enrollment, and numbers of
      patients enrolled and sites utilized for clinical trials; the size or growth
      of
      expected markets for our potential drugs; our plans or ability to commercialize
      drugs, with or without a partner; market acceptance of our potential drugs;
      increasing losses, costs, expenses and expenditures; hiring
      plans; the sufficiency of existing resources to fund our operations; expansion
      of our research and development programs and the scope and size of research
      and
      development efforts; potential competitors; our estimates of future financial
      performance; our estimates regarding anticipated operating losses, capital
      requirements and our needs for additional financing; future payments under
      lease
      obligations and equipment financing lines; expected future sources of revenue
      and capital; our plans to obtain limited product liability insurance; protection
      of our intellectual property; and increasing the number of our employees and
      recruiting additional key personnel.




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 and elsewhere in this document.





**PART
      I**





**DESCRIPTION
      OF BUSINESS**





**About
      MultiCell Technologies, Inc.**





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 701 George Washington Highway, Lincoln,
      RI 02865. Our telephone number is (401) 333-0610.





3


Following
      the formation of MultiCell Immunotherapeutics, Inc. during September 2005 and
      the recent in-licensing of drug candidates, the Company is pursuing research
      and
      development of therapeutics in addition to continuing to advance its cellular
      systems business. Historically, the Company has specialized in developing
      primary liver cell immortalization technologies to produce cell-based assay
      systems for use in drug discovery. The Company seeks to become an integrated
      biopharmaceutical company that will use its proprietary cell-based systems
      and
      immune system modulation technologies to discover, develop and commercialize
      new
      therapeutics itself and with strategic partners.




***Our
      Therapeutic Programs*** MultiCell is pursuing research and development targeting degenerative
      neurological diseases, including multiple sclerosis, or MS, metabolic and
      endocrinological disorders, including Type-1 diabetes, infectious diseases,
      including hepatitis, sepsis and influenza, and degenerative ocular diseases,
      including macular degeneration. MultiCell’s primary focus is advancing its lead
      drug candidate for the treatment of relapse remitting MS, and its lead drug
      candidate for the treatment of Type-1 diabetes.




**Toll-like
      Receptor and T-Cell Targeting Technology Platform** :
      When
      humans encounter a pathogen that the body recognizes as foreign, the body’s
      adaptive immune system seeks to neutralize the invader pathogen and rid the
      body
      of its presence. Typically, this process occurs in a relatively short period
      of
      time. If the body’s adaptive immune systems encounter a pathogen it does not
      recognize, the body’s innate immune system is activated to dispense with the
      pathogen. The innate immune system recognizes generic classes of molecules
      produced by a variety of disease causing agents and pathogens. When the innate
      immune system detects such foreign molecules, an inflammatory response is
      triggered in which certain cells attempt to isolate the invader and halt its
      spread. The activity of these cells precipitates the redness and swelling at
      the
      site of injuries, and accounts for the fever, body aches, and flu-like symptoms,
      which accompany many types of infections.




Toll-like
      receptors, or TLRs, are an ancient family of proteins that mediate the innate
      immunity in many species from fruit flies to humans. If the TLRs fail, the
      entire immune system fails, leaving a person open to infection. If the TLRs
      are
      over-stimulated, they can induce disorders marked by chronic inflammation such
      as arthritis, lupus and even cardiovascular disease.




MultiCell’s
      Toll-like receptor and T-cell targeting technologies are used to study how
      drug
      candidates modulate the immune system and suppress the pro-inflammatory response
      elements common in autoimmune disorders such as Type-1 diabetes and multiple
      sclerosis, or mobilized during an immune response due to bacterial or viral
      infections.




**T-Cell
      Tolerance Technology Platform** :
      MultiCell’s T-cell tolerance technology platform involves the delivery of
      specific epitopes to the immune system to generate a desired immune response,
      a
      process we call Epitope-based T-Cell Immunotherapy (“ETI”). Our ETI technology
      has the ability to control the magnitude and profile of the immune response,
      namely immune suppression in the case of an autoimmune disease, or immune
      stimulation in the case of infectious disease or cancer. The uniqueness of
      MultiCell’s ETI technology is related to the use of a delivery vehicle, namely
      the use of immunoglobulins that are engineered to bear specific
      disease-associated epitope peptides “IgPs” or fusion molecules to greatly
      improve the pharmacokinetics of delivered epitopes to target antigen presenting
      cells (“APCs”) and to regulate the profile of the immune response. Unlike
      general immunotherapeutics, ETI is intended to selectively affect the T-cell
      response to disease-associated molecules by specifically targeting the
      autoaggressive T-lymphocytes, while leaving the rest of the immune system
      functional. Other technologies have relied upon non-engineered peptides or
      native protein antigens to modify immune or inflammatory reactions. Some of
      these competing technologies have been based on the use of live vectors that
      may
      trigger deleterious immune responses to vector-associated antigens. These
      earlier approaches resulted in therapies with limited specificity and reduced
      efficacy, as well as side effects due to interference with normal immune
      responses. ETI is an in vivo technology that we believe is applicable to all
      patient groups and does not require patient-customized processing. In addition,
      ETI does not involve viral or cell-based vectors, and thus does not elicit
      the
      untoward immune responses associated with these vectors.




**Multiple
      Sclerosis Therapeutic Program** :
      Multiple Sclerosis, or MS, is an autoimmune disease in which immune cells attack
      and destroy the myelin sheath, which insulates neurons in the brain and spinal
      cord. When the myelin is destroyed, nerve messages are sent more slowly and
      less
      efficiently. Scar tissue then forms over the affected areas, disrupting nerve
      communication. MS symptoms occur when the brain and spinal cord nerves cease
      to
      communicate properly with other parts of the body.





4


Approximately
      350,000 individuals have been diagnosed with MS in the United States and more
      than one million persons worldwide are afflicted with MS. An estimated 10,000
      new MS cases are diagnosed in the USA annually. Initial symptoms typically
      manifest themselves between the ages of 20 and 40; symptoms rarely begin before
      15 or after 60 years of age. Women are almost twice as likely to get MS as
      men,
      especially in their early years. People of northern European heritage are more
      likely to be affected than people of other racial backgrounds, and MS rates
      are
      higher in the United States, Canada, and Northern Europe than in other parts
      of
      the world. MS is very rare among Asians, North and South American Indians,
      and
      Eskimos.





**MCT-125
      for the treatment of fatigue in patients with multiple
      sclerosis**





Fatigue
      is the most common symptom in MS. Overall, greater than 75% of persons with
      MS
      report having fatigue, and 50% to 60% report it as the worst symptom of their
      disease. Fatigue can severely affect an individual's quality of life and
      functioning, even if the level of disability appears to be insignificant to
      the
      outside observer. Many MS care providers are unaware that fatigue is also a
      major reason for unemployment, especially for those individuals with otherwise
      minor disability. Moreover, fatigue in MS has a severe effect on patients'
      ability to feel as if they have control over their illness. Perhaps the most
      dramatic evidence that fatigue is a distinct symptom of MS comes from the
      clinical characteristics that have been recognized by clinicians for years.
      These characteristics include the sensitivity of MS fatigue patients to heat
      as
      well as the fact that in about 30% of MS patients, fatigue predates other
      symptoms of MS. In addition, clinical observation has shown that MS fatigue
      exhibits relapsing-remitting characteristics. Many individuals appear to have
      "fatigue relapses".





Individuals
      can suffer from weeks of extraordinary fatigue for no apparent reason, then
      report feeling not fatigued for a period of time followed by a relapse of
      feeling fatigued; these episodes may or may not be associated with the typical
      symptoms of an MS relapse. All of these characteristics suggest that fatigue
      is
      not a secondary effect of MS, but is a primary part of the disease
      itself.





In
      January 2006, MultiCell exclusively licensed LAX-202 from Amarin Corporation
      plc
      for the treatment of fatigue in patients suffering from multiple sclerosis.
      MultiCell renamed LAX-202 to MCT-125, and will further evaluate MCT-125 in
      a
      pivotal Phase IIb/III clinical trial. In a 138 patient, multi-center,
      double-blind placebo controlled Phase II clinical trial conducted in the UK
      by
      Amarin, LAX-202 demonstrated efficacy in significantly reducing the levels
      of
      fatigue in MS patients enrolled in the study. LAX-202 proved to be effective
      within 4 weeks of the first daily oral dosing, and showed efficacy in MS
      patients who were moderately as well as severely affected. LAX-202 demonstrated
      efficacy in all MS patient sub-populations including relapsing-remitting,
      secondary progressive and primary progressive. Patients enrolled in the Phase
      II
      trial conducted by Amarin also reported few if any side effects following daily
      oral dosing of LAX-202. MultiCell intends to proceed with the anticipated
      pivotal Phase IIb/III trial of MCT-125 using the data generated by Amarin for
      LAX-202 following discussions with the regulatory authorities.





**MCT-175
      for the treatment of relapsing-remitting multiple
      sclerosis**





Currently
      there is no cure for MS, but there are treatments both to slow down the course
      of the disease and to mitigate against its effects. These drugs are called
      disease modifying drugs. Disease modifying drugs such as the beta interferons
      and glatiramer acetate work by suppressing, or altering, the activity of the
      body's immune system. These therapies are based on the theory that MS is, at
      least in part, a result of an abnormal response of the body's immune system
      that
      causes it to attack the myelin sheath surrounding nerves. These medications
      work
      to reduce the frequency and severity of attacks, and help to minimize the
      development of new brain lesions. Disease modifying drugs help to improve the
      quality of life for many people with MS. Therefore, most doctors suggest
      patients be treated with one of these drugs as soon as a diagnosis of
      relapsing-remitting MS has been made.





MultiCell
      is developing MCT-175 as a disease modifying therapy to slow the progression
      of
      relapsing-remitting multiple sclerosis. MCT-175 was developed using MultiCell's
      epitope-based T-cell immunotherapy, or ETI, technology platform. MCT-175 is
      a
      myelin proteolipid protein chimeric IgG construct, which has demonstrated proof
      of concept in the preclinical experimental autoimmune encephalomyletisis, or
      EAE, mouse model.




5


**Type-1
      Diabetes Therapeutic Program:** Diabetes
      is the name given to disorders in which the body has trouble regulating its
      blood glucose, or blood sugar levels. There are two major types of diabetes:
      Type-1 and Type-2. Type-1 diabetes, also called juvenile diabetes or
      insulin-dependent diabetes, is a disorder of the body’s immune system. Type-1
      diabetes occurs when the body’s immune system attacks and destroys certain cells
      in the pancreas, an organ about the size of a hand that is located behind the
      lower part of the stomach. These cells, known as beta cells, are contained,
      along with other types of cells, within small islands of endocrine cells called
      the pancreatic islets. Beta cells normally produce insulin, a hormone that
      helps
      the body move the glucose contained in food into cells throughout the body,
      which the body uses for energy. But when the beta cells are destroyed, no
      insulin can be produced, and the glucose stays in the blood, where it can cause
      serious damage to all the organ systems of the body. Roughly 5%-15% of all
      cases
      of diabetes are Type 1 diabetes. It is the most common metabolic disease of
      childhood, with a yearly incidence of 15 cases per 100,000 people younger than
      18 years. Approximately 1 million Americans have Type-1 diabetes, and physicians
      diagnose 10,000 new cases every year. Many forms of insulin are used to treat
      Type-1 diabetes. They are classified by how fast they start to work and how
      long
      their effects last. The types of insulin include: rapid-acting, short-acting,
      intermediate-acting, long-acting, and pre-mixed.




MultiCell’s
      lead diabetes drug candidate MCT-275 is indicated for the treatment of Type-1
      diabetes. MCT-275 is a chimeric immunoglobulin therapeutic derived using the
      company’s ETI and T-cell tolerance technologies, which contains antigenic
      peptide sequences from GAD 65 and insulin that can be presented on DR4/DQ8
      HLA
      class II molecules. The binding of these epitope bearing immunoglobulins to
      Fc
      receptors results in endocytosis allowing the specific peptide to be presented
      on MHC class II molecules. Because this chimeric immunoglobulin is able to
      present in the absence of inflammatory signals, MultiCell believes it is likely
      that the presentation of these peptides on MHC class II molecules will result
      in
      anergy in antigen reactive CD4 cells and/or the induction of T regulatory cells.
      In the case of autoimmune diseases such as Type-1 diabetes, the immune response
      generated by the fusion proteins located on the chimeric immunoglobulin
      suppresses the otherwise unwanted T1 cytokine pro-inflammatory response that
      occurs in autoimmune diseases. MCT-275 will be tested for use in treating Type-1
      diabetes and is expected to enter Phase I/II trials in mid 2008 subject to
      external private or government funding.







We
      are
      focusing our efforts primarily on advancing MCT-175 and MCT-275. If funds are
      sufficient, we intend to pursue one or more of our other therapeutics programs
      and our technologies described below.





**Influenza
      A Therapeutic Program** :
      Epidemics of influenza A infection typically occur during the winter months
      in
      temperate regions and have been responsible for an average of approximately
      36,000 deaths/year in the United States during 1990-1999. Influenza viruses
      also
      can cause pandemics, during which rates of illness and death from
      influenza-related complications can increase worldwide. The rates of influenza
      A
      infection are highest among children, but rates of serious illness and death
      are
      highest among persons aged > 65
      years,
      children aged <2 years, and persons of any age who have medical conditions
      that place them at increased risk for complications from influenza A infection.





Influenza
      vaccination is the primary method for preventing influenza A infection and
      its
      severe complications.





Vaccination
      is associated with reductions in influenza-related respiratory illness and
      physician visits among all age groups, hospitalization and death among persons
      at high risk, middle ear infections among children, and work absenteeism among
      adults. Although influenza vaccination levels increased substantially in the
      1990s, further increases in vaccination coverage levels are needed, chiefly
      among persons aged greater than 65 years who are at increased risk for
      influenza-related complications among all racial and ethnic groups, among blacks
      and Hispanics aged less than 65 years, among children aged 6-23 months, and
      among healthcare workers. Although influenza vaccination remains the cornerstone
      for the control and treatment of influenza, there is a strong need for new
      antiviral medications as an adjunct to vaccine therapy.





MultiCell’s
      drug candidate MCT-465 is indicated as a prospective anti-viral therapy for
      the
      treatment of influenza A infections. MCT-465 is a dsRNA molecule designed to
      exploit the body’s TLRs ability to recognize generic molecules related to
      pathogens. In preclinical studies, originally published in the Journal
      of Clinical Investigation ,
      MCT-465
      reduced pulmonary influenza A H1N1 virus titers by 1,000-fold in mouse models,
      resulting in barely detectable levels of the virus. The results suggest MCT-465
      may also be able to reduce influenza A H5N1 viral load, also known as the “bird
      flu” or “avian flu” virus. The H5N1 strain of influenza A virus is genetically
      similar to the H1N1 strain of influenza A virus. MultiCell is planning further
      preclinical studies to determine the effectiveness of MCT-465 to induce immunity
      in mice infected by the H5N1 influenza A virus in 2007 with academic
      collaborators.





6


**Hepatitis
      C Infection Program** :
      MultiCell has entered into a research collaboration with Thomas Jefferson
      University, Philadelphia’s premier medical and health sciences university, to
      evaluate the Company’s immortalized human hepatocytes as model systems to
      identify new drugs to treat hepatitis C viral (HCV) infection. Successful
      completion of these studies could lead to the development of new high throughput
      assays (high speed drug testing kits) to screen for antiviral drugs using the
      Company’s proprietary immortalized human hepatocytes. The recent discovery of a
      human liver tumor T-cell line that replicates the full length HCV genome
      provides the impetus for the collaboration. There is an urgent need for normal
      human hepatocyte cell lines that not only model the viral life cycle but also
      retain the capability to metabolize antiviral drugs. The collaborative studies
      are being directed by Dr. Mark Feitelson, a world renowned leader in viral
      hepatitis. There are an estimated 170 million people chronically infected with
      HCV (hepatitis C virus) worldwide who are at high risk for the development
      of
      chronic hepatitis, cirrhosis, and liver cancer. We believe the lack of
      cell-based models capable of supporting infection and replication of HCV has
      hampered the identification of new drugs to treat HCV related diseases.




***Our
      Cellular System Technologies:*** MultiCell Technologies has specialized in developing primary cell
      immortalization technologies to produce cell-based assay systems for use in
      drug
      discovery. While we plan to focus our efforts on our lead drug candidates,
      if we
      can raise sufficient funds we also intend to continue to pursue our cellular
      technologies initiatives.




**BioFactories** **TM** **Therapeutic Protein Program** :
      MultiCell has developed an immortalized human hepatocyte cell line that secretes
      clinically relevant plasma proteins including clotting factors and
      alpha-1-antitrypsin that are virtually indistinguishable from plasma-derived
      proteins. Traditional methods to commercially produce therapeutic proteins
      include purification from plasma and expression of recombinant proteins in
      nonhuman producer cells. Unfortunately there are limitations to both of these
      approaches that lead to a market shortage of therapeutic proteins. The global
      supply of human plasma is limited and there will always be the risk of unknown
      viral contamination. MultiCell believes its therapeutic protein
      BioFactories TM offer
      the potential to become next generation producer cells the manufacture of
      important bio-molecules.




**Unique
      Liver Proteins:** A
      number
      of therapeutic plasma proteins are naturally made and secreted by mammalian
      hepatocytes. Our immortalized hepatocytes are producing several therapeutic
      proteins in culture that have immediate value in the commercial markets. A
      partial list of these proteins includes albumin, alpha one antitrypsin, blood
      clotting factors, and transferrin. Several of these proteins require liver
      specific processing for full biological activity. The Company believes that
      it
      will be able to “scale up” production of its cell lines.




MultiCell
      received a Small Business Innovation Research (SBIR) award in August 2005 to
      create proprietary BioFactoriesTM that express a serine protease inhibitor
      recently implicated as a novel treatment for sepsis.




Sepsis
      is
      the leading cause of death in the non-cardiac intensive care unit and the tenth
      leading cause of death overall in the United States. Sepsis is a systematic
      and
      overwhelming response to infection. Once triggered, an uncontrolled cascade
      of
      coagulation, impaired fibrinolysis, and inflammation occur, causing further
      disease progression. This results in damage to the lungs, liver, kidney and
      cardiovascular system, leading to multiple organ failure, which is usually
      followed by death. Presently the treatment viewed as the best for severe sepsis
      is Eli Lilly’s Xigris, however this product only reduces the absolute risk of
      death by six percent. The annual cost to treat patients with severe sepsis
      in
      U.S. hospitals is nearly $17 billion.




MultiCell’s
      highly functional, immortalized human hepatocytes naturally produce plasma
      proteins including inter-alpha-inhibitor proteins (I(alpha)Ip), serine protease
      inhibitors that have been found valuable as a treatment for sepsis in
      preclinical studies. Presently, the only source of I(alpha)Ip is to purify
      it
      from human plasma. The biochemical complexity and critical post-translation
      modifications of I(alpha)Ip preclude expressing the recombinant protein by
      conventional systems.




7


The
      goal
      of this Phase I SBIR project is to genetically engineer the Company’s
      proprietary cell lines to express high levels of recombinant I(alpha)Ip that
      are
      biochemically identical to the native protein. If successful, the goal of the
      Phase II SBIR project will then be to create stable cell lines that express
      I(alpha)Ip and to scale up the production and purification of recombinant
      I(alpha)Ip for preclinical evaluation.




**Immortalized
      Human Hepatocytes:** We are a
      leading producer of immortalized human liver cells (“hepatocytes”). We believe
      our intellectual property portfolio positions us as a leader in the creation
      of
      highly functional, immortalized, non-tumorigenic human hepatocyte cell lines.
      We
      believe our proprietary human cell lines are ideal for developing highly
      predictive, high throughput drug discovery assays and enable innovative clinical
      approaches for treating a variety of liver-related diseases. We believe we
      are
      unique due to our understanding of the function, engineering and culturing
      of
      liver cells.




We
      believe we are differentiated by: our understanding of the function and
      manipulation of the liver cell, and our understanding of stem cells, cell
      therapy and cell transplantation. Our intellectual property portfolio positions
      us for use of non-tumorgenic immortalized mammalian hepatocytes for treating
      liver disease. We have established a worldwide reputation as a source of
      licensed immortalized liver cell lines. We are developing cell-related
      technologies and products to treat a variety of liver diseases and have
      identified four clinically relevant applications for its cell-based products.




•
            
            High
                throughput screening assays for drug discovery, lead optimization,
                and
                pharmacogenomic studies.




•
            
            Stem
                cells and cell transplantation to treat metabolic liver deficiencies.




•
            
            Cellular
                component of liver assist devices used to treat patients suffering
                from
                acute and chronic liver failure.




•
            
            Production
                of natural therapeutic plasma proteins.




According
      to a Bain and Company study, it costs approximately $1.7 billion to discover,
      test and launch a new drug. In spite of this large investment of time, effort
      and money, drugs continue to be withdrawn from human clinical trials and the
      commercial market. Bain and Company estimate that failures or U.S. Food and
      Drug
      Administration (“FDA”) rejections of new drug applications due to unanticipated
      toxicity and/or drug-drug interactions costs the pharmaceutical industry about
      $2 billion each year. According to the FDA, a ten percent improvement in
      predicting failures before clinical trials could save a pharmaceutical company
      $100 million in development costs per drug.





Most
      drugs that enter the body are metabolized by liver cells called hepatocytes.
      Unfortunately, the overall disposition of the drug may vary from patient to
      patient because of genetic and environmental factors. These factors affect
      drug
      metabolism and drug transport and may lead to unforeseen adverse drug reactions
      and/or altered metabolism and clearance of the drug itself. We believe there
      is
      an urgent need for highly predictive, high-throughput cell-based models to
      identify the impact of genetics on what the body does to the drug and what
      the
      drug does to the body. Although primary human hepatocytes are used to screen
      for
      potential toxicities and drug-drug interactions, their expense, limited supply,
      variable quality, and rapid loss of functions in culture may prohibit the
      routine use of these cells during the early stages of drug development.




MultiCell’s
      immortalized human hepatocyte cell lines have demonstrated the ability to
      replace the continuous need for primary cells for many absorption, distribution,
      metabolism, excretion and toxicity applications. Expanded from our cell banks,
      we believe our cell lines have significant cost and quality control advantages
      over primary cell sources. We believe our proprietary hepatic cell lines
      radically differ from other liver cell lines in that they are non-tumorigenic
      yet regenerate while maintaining liver function. A prolific cell without liver
      function is of little value. We believe our cell lines provide a consistent
      and
      functional resource for drug discovery and toxicology research, and can also
      be
      clinically utilized for cell-based therapies to supplement liver function and
      regeneration.




If
      funds
      are sufficient we intend to continue developing new cell lines to better model
      the impact of genetic differences on drug disposition. We envision that
      validated cell lines could be incorporated into medium-to-high throughput assays
      to identify potential adverse drug reactions economically and rapidly prior
      to
      expensive clinical studies.




8


**Liver
      Stem Cell and Other Stem Cell Programs:** In
      December 2003, we acquired the exclusive worldwide rights to US Patent 6,129,911
      for liver stem cells. This patent involved methods for the identification and
      extraction of stem cells from adult liver tissue. In April, 2005, the Company
      was granted US Patent 6,872,389 which covers a method of obtaining a population
      of liver stem cell clusters from adult stem cells, and is an important
      enhancement to the Company’s adult stem cell portfolio.




Stem
      cells have two overall characteristics:




•
            
            Cells
                developed from stem cells produce all the kinds of mature cells making
                up
                the particular organ or tissue; and




•
            
            They
                are multi- or pluripotent and self renew, that is, other cells developed
                from stem cells are themselves new stem cells.




Stem
      cells are known to or thought to exist for many systems of the human body,
      including the blood and immune system, cardiovascular, the central and
      peripheral nervous systems and the liver, pancreas endocrine, and the skin
      systems. These cells are responsible for organ regeneration during normal cell
      replacement or after trauma to a specific organ.




It
      is our
      goal to obtain broader patent protection on liver stem cell technology followed
      by diversification into other stem cell fields such as cardiovascular and
      pancreatic stem cell technologies. If funds are sufficient, we intend to
      continue to advance our internal research programs to characterize the liver
      stem and/or progenitor cells. Liver stem cells may be useful in the treatment
      of
      diseases such as hepatitis, liver failure, blood-clotting disorder, cirrhosis
      of
      the liver and liver cancer. Our adult stem cell (ASCs) technology has two
      distinct advantages over embryonic stem cells (ESCs): (1) it has a non-fetal
      origin and, therefore, is less or non-controversial, and (2) it has no animal
      protein contamination.




MultiCell
      has extensive expertise in primary cell and stem cell immortalization
      techniques. MultiCell’s fundamental knowledge of stem cell biology, regulation
      and regeneration, has been validated by several major pharmaceutical companies
      including Pfizer and Hoffman La Roche which use our cell-based systems to
      evaluate drug candidates for cytochrome P450 induction and toxicity. We believe
      our knowledge and expertise also allows us to protect stem cells from immune
      system targeting thereby preventing their destruction in vivo. We believe
      MultiCell’s immortalization technology renders human cells non-tumorigenic, and
      does so in a very specific manner which preserves cellular function that is
      comparable to what we observe in the original non-immortalized cells. Based
      on
      our experience working with stem cells, and our ability to control their
      biology, we believe we may be able to utilize our proprietary stem cell
      knowledge-base to discover new medicines for the treatment of several human
      diseases.




**Proprietary
      Cell Proliferation** :
      Using
      our proprietary know-how, we are able to immortalize primary human hepatocytes
      those cells in such a way that we preserve their biological function and cause
      them to proliferate (“grow”) in vitro and in vivo. These proliferating primary
      human hepatocytes are fully functional biologically, and are capable of
      secreting several important biomolecules such as human serum albumin, Factor
      VIII, Factor XI, and a-1-Antitrypsin. We can also use these proliferating human
      hepatocytes to determine how a drug candidate influences their growth and
      biology. We believe being able to evaluate drug candidates for Cytochrome P450
      induction and toxicity as well as the cells’ ability to manufacture and secrete
      a wide variety of proteins may be important to understanding if a drug candidate
      will have success in the clinic.




We
      believe possessing a means to reproducibly isolate liver stem cells is important
      to the understanding of a variety of diseases. Liver stem cells are located
      in a
      unique anatomical niche defined by its association with neighboring cell types.
      Stem cells reside between an adjacent hepatocyte and a biliary ductule cell.
      MultiCell exploits this anatomical relationship to identify and isolate liver
      stem cells from adult human livers. In combination with immunological markers,
      liver stem cells can be identified by their junctional association with
      neighboring hepatocytes. MultiCell has been awarded several patents related
      to
      stem cell technology and primary cell immortalization, isolation and growth
      technologies.




9


**Liver
      Assist Device:** Xenogenics, our majority-owned (56.4%) subsidiary, owns all of the rights to
      the
      Sybiol ® synthetic bio-liver device, for which a United States patent (patent #
      6,858,146) has been issued. The Sybiol “artificial liver” is intended to act as
      a substitute liver for a patient whose own liver is healing from injury or
      disease or for use as an artificial liver “bridge” for transplant patients
      awaiting a donor organ. The device may also be used to assist and improve the
      quality of life for patients with chronic liver disease; or episodic liver
      trauma. The key to our device, or other devices attempting to gain approval,
      is
      the functionality of the cells. The Company plans to use its proprietary
      immortalized human hepatocytes in the Sybiol device. The Company will need
      to
      demonstrate sufficient process controls to meet strict standards for a complex
      medical system. This means the cell production facility will need to meet the
      same standards as those pertaining to a pharmaceutical company. The cells may
      be
      produced in our own facility, or by a manufacturing partner with the requisite
      skills and equipment that meets FDA requirements. Both the device and the cells
      will require FDA approval. The Company has not yet initiated FDA approved
      clinical trials for the Sybiol device, and has no plans to do so in the
      immediate future.





**Patents
      and Proprietary Technology**





Our
      success depends in part on intellectual property protection and the ability
      of
      our licensees to preserve those rights.





We
      use
      certain licenses granted to us under various licensing agreements. We also
      use
      trade secrets and proprietary knowledge unprotected by patents, that we protect,
      in part, by confidentiality agreements. It is our policy to require our
      employees, directors, consultants, licensees, outside contractors and
      collaborators, scientific advisory board members and other advisors to execute
      confidentiality agreements upon the commencement of their relationships with
      us.
      These agreements provide that all confidential information made known to the
      individual in the course of the individual's relationship with the Company
      be
      kept as confidential and not be disclosed to third parties except in specific
      limited and agreed upon circumstances. We also require signed confidentiality
      or
      material transfer agreements from any company that is to receive our
      confidential information. In the case of employees, consultants and contractors,
      the agreements generally provide that all inventions conceived by the individual
      while rendering services to us shall be assigned to us as the exclusive property
      of the Company. There can be no guarantee that these agreements will not be
      violated or that we would have adequate remedies for such violation or that
      our
      trade secrets or proprietary knowledge will not become known by or independently
      developed by competitors.





Any
      proprietary protection that our Company can obtain and maintain will be
      important to our business.





On
      September 7, 2005, MCTI, entered into an Asset Contribution Agreement (the
      “Agreement”) with MultiCell Technologies, Alliance Pharmaceutical Corp.
      ("Alliance"), and Astral, Inc. ("Astral," and together with Alliance,
      ("Transferors"). Pursuant to the Agreement, MCTI issued 490,000 shares of common
      stock to Alliance in consideration for the acquisition of certain assets and
      the
      assumption of certain liabilities relating to Transferors' business. The
      intellectual property acquired by MCTI includes ten United States and twenty
      foreign issued and pending patents and patent applications related to chimeric
      antibody technology, treatment of Type 1 diabetes, T-cell tolerance, toll-like
      receptor technology, dendritic cells, dsRNA technology and
      immunosuppression





In
      December 2003, we acquired the exclusive worldwide rights to US Patent #
      6129911, for Liver Stem Cells from Rhode Island Hospital. We agreed to pay
      an
      annual license fee of $20,000 for the first three years of the agreement and
      $10,000 per annum thereafter until a product is developed. Once a product is
      developed, if ever, the annual license fee will end and we will pay Rhode Island
      Hospital a 5% royalty on net sales of any product we sell covered by the patent
      until we pay an aggregate of $550,000 in royalties and a 2% royalty thereafter
      until the expiration of the patent. In April, 2005, the Company was granted
      US
      Patent # 6872389 for the liver stem cell invention of Dr. Ron Faris, MultiCell’s
      Senior Vice President and Chief Scientific Officer. This patent contains
      twenty-four claims to a method of obtaining a population of liver cell clusters
      from adult stem cells and is an important enhancement to the Company’s adult
      stem cell portfolio. The Company has an exclusive, long-term license agreement
      with Rhode Island Hospital for use of the following patents owned by the
      hospital related to liver cell lines and Liver Assist Devices
      (LADs):





10


US
                Patent #6,017,760, Isolation and Culture of Porcine Hepatocytes,
                expires
                October 9, 2015;US
                Patent #6,107,043, Immortalized Hepatocytes, expires February 8,
                2019;US
                Patent #5,043,260, Perfusion Device for Hepatocytes, expires August
                27,
                2008;US
                Patent #6,129,911, Liver Stem Cell, expires October 10,
                2017;US
                Patent # 6,858,146 Artificial Liver Apparatus and Method (Sybiol),
                expires
                on February 20, 2019; andUS
                Patent # 6,872,389 Liver Stem Cell expires on July 8, 2019.





If
      we
      generate revenues and pay royalties, the annual license fee structure does
      not
      apply. Our agreement provides that we would pay a 5% royalty until we pay Rhode
      Island Hospital an aggregate of $550,000. After that, the royalty percentage
      decreases to 2% for the life of the patents.





On
      November 3, 2003, Xenogenics was notified by the United States Patent and
      Trademark Office that its patent application for an "Artificial Liver Apparatus
      And Method", the Sybiol® Synthetic Bio-Liver Device, will be allowed. United
      States patent 6,858,146 was issued in 2005. The Sybiol®  trademark
      is registered in the United States Patent and Trademark Office, number
      2,048,080.





**Government
      Regulation**





The
      FDA
      and comparable regulatory agencies in state and local jurisdictions and in
      foreign countries impose substantial requirements upon the clinical development,
      manufacture, marketing and distribution of drugs. These agencies and other
      federal, state and local entities regulate research and development activities
      and the testing, manufacture, quality control, safety, effectiveness, labeling,
      storage, record keeping, approval, advertising and promotion of our drug
      candidates and drugs.





In
      the
      United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic
      Act and implementing regulations. The process required by the FDA before our
      drug candidates may be marketed in the United States generally involves the
      following:





•
            completion
                of extensive preclinical laboratory tests, preclinical animal studies
                and
                formulation studies, all performed in accordance with the FDA’s good
                laboratory practice, or GLP,
                regulations;





•
            submission
                to the FDA of an IND application which must become effective before
                clinical trials may begin;





•
            performance
                of adequate and well-controlled clinical trials to establish the
                safety
                and efficacy of the drug candidate for each proposed
                indication;





•
            submission
                of a new drug application, or NDA, to the FDA;





•
            satisfactory
                completion of an FDA preapproval inspection of the manufacturing
                facilities at which the product is produced to assess compliance
                with
                current GMP, or cGMP, regulations;
                and





•
            FDA
                review and approval of the NDA prior to any commercial marketing,
                sale or
                shipment of the drug.





This
      testing and approval process requires substantial time, effort and financial
      resources, and we cannot be certain that any approvals for our drug candidates
      will be granted on a timely basis, if at all.





11


Preclinical
      tests include laboratory evaluation of product chemistry, formulation and
      stability, as well as studies to evaluate toxicity in animals. The results
      of
      preclinical tests, together with manufacturing information and analytical data,
      are submitted as part of an IND application to the FDA. The IND automatically
      becomes effective 30 days after receipt by the FDA, unless the FDA, within
      the
      30-day time period, raises concerns or questions about the conduct of the
      clinical trial, including concerns that human research subjects will be exposed
      to unreasonable health risks. In such a case, the IND sponsor and the FDA must
      resolve any outstanding concerns before the clinical trial can begin. Our
      submission of an IND, or those of our collaborators, may not result in FDA
      authorization to commence a clinical trial. A separate submission to an existing
      IND must also be made for each successive clinical trial conducted during
      product development. Further, an independent institutional review board, or
      IRB,
      for each medical center proposing to conduct the clinical trial must review
      and
      approve the plan for any clinical trial before it commences at that center
      and
      it must monitor the clinical trial until completed. The FDA, the IRB or the
      clinical trial sponsor may suspend a clinical trial at any time on various
      grounds, including a finding that the subjects or patients are being exposed
      to
      an unacceptable health risk. Clinical testing also must satisfy extensive Good
      Clinical Practice, or GCP, regulations and regulations for informed
      consent.





*Clinical
      Trials* :
      For
      purposes of an NDA submission and approval, clinical trials are typically
      conducted in the following three sequential phases, which may
      overlap:





•
            Phase
                I: The clinical trials are initially conducted in a limited population
                to
                test the drug candidate for safety, dose tolerance, absorption,
                metabolism, distribution and excretion in healthy humans or, on occasion,
                in patients, such as cancer patients. In some cases, particularly
                in
                cancer trials, a sponsor may decide to run what is referred to as
                a “Phase
                Ib” evaluation, which is a second, safety-focused Phase I clinical trial
                typically designed to evaluate the impact of the drug candidate in
                combination with currently approved
                drugs.





•
            Phase
                II: These clinical trials are generally conducted in a limited patient
                population to identify possible adverse effects and safety risks,
                to
                determine the efficacy of the drug candidate for specific targeted
                indications and to determine dose tolerance and optimal dosage. Multiple
                Phase II clinical trials may be conducted by the sponsor to obtain
                information prior to beginning larger and more expensive Phase III
                clinical trials. In some cases, a sponsor may decide to run what
                is
                referred to as a “Phase IIb” evaluation, which is a second, confirmatory
                Phase II clinical trial that could, if positive and accepted by the
                FDA,
                serve as a pivotal clinical trial in the approval of a drug
                candidate.





•
            Phase
                III: These clinical trials are commonly referred to as pivotal clinical
                trials. If the Phase II clinical trials demonstrate that a dose range
                of
                the drug candidate is effective and has an acceptable safety profile,
                Phase III clinical trials are then undertaken in large patient populations
                to further evaluate dosage, to provide substantial evidence of clinical
                efficacy and to further test for safety in an expanded and diverse
                patient
                population at multiple, geographically dispersed clinical trial
                sites.





In
      some
      cases, the FDA may condition approval of an NDA for a drug candidate on the
      sponsor’s agreement to conduct additional clinical trials to further assess the
      drug’s safety and effectiveness after NDA approval. Such post-approval trials
      are typically referred to as Phase IV clinical trials.





*New
      Drug Application* .
      The
      results of drug candidate development, preclinical testing and clinical trials
      are submitted to the FDA as part of an NDA. The NDA also must contain extensive
      manufacturing information. Once the submission has been accepted for filing,
      by
      law the FDA has 180 days to review the application and respond to the applicant.
      The review process is often significantly extended by FDA requests for
      additional information or clarification. The FDA may refer the NDA to an
      advisory committee for review, evaluation and recommendation as to whether
      the
      application should be approved. The FDA is not bound by the recommendation
      of an
      advisory committee, but it generally follows such recommendations. The FDA
      may
      deny approval of an NDA if the applicable regulatory criteria are not satisfied,
      or it may require additional clinical data or an additional pivotal Phase III
      clinical trial. Even if such data are submitted, the FDA may ultimately decide
      that the NDA does not satisfy the criteria for approval. Data from clinical
      trials are not always conclusive and the FDA may interpret data differently
      than
      we or our collaborators do. Once issued, the FDA may withdraw a drug approval
      if
      ongoing regulatory requirements are not met or if safety problems occur after
      the drug reaches the market. In addition, the FDA may require further testing,
      including Phase IV clinical trials, and surveillance programs to monitor the
      effect of approved drugs which have been commercialized. The FDA has the power
      to prevent or limit further marketing of a drug based on the results of these
      post-marketing programs. Drugs may be marketed only for the approved indications
      and in accordance with the provisions of the approved label. Further, if there
      are any modifications to a drug, including changes in indications, labeling
      or
      manufacturing processes or facilities, we may be required to submit and obtain
      FDA approval of a new NDA or NDA supplement, which may require us to develop
      additional data or conduct additional preclinical studies and clinical
      trials.





12


*Fast
      Track Designation* .
      The
      FDA’s fast track program is intended to facilitate the development and to
      expedite the review of drugs that are intended for the treatment of a serious
      or
      life-threatening condition for which there is no effective treatment and which
      demonstrate the potential to address unmet medical needs for the condition.
      Under the fast track program, the sponsor of a new drug candidate may request
      the FDA to designate the drug candidate for a specific indication as a fast
      track drug concurrent with or after the filing of the IND for the drug
      candidate. The FDA must determine if the drug candidate qualifies for fast
      track
      designation within 60 days of receipt of the sponsor’s request.





If
      fast
      track designation is obtained, the FDA may initiate review of sections of an
      NDA
      before the application is complete. This rolling review is available if the
      applicant provides and the FDA approves a schedule for the submission of the
      remaining information and the applicant pays applicable user fees. However,
      the
      time period specified in the Prescription Drug User Fees Act, which governs
      the
      time period goals the FDA has committed to reviewing an application, does not
      begin until the complete application is submitted. Additionally, the fast track
      designation may be withdrawn by the FDA if the FDA believes that the designation
      is no longer supported by data emerging in the clinical trial
      process.





In
      some
      cases, a fast track designated drug candidate may also qualify for one or more
      of the following programs:





•
            *Priority
                Review*.
                Under FDA policies, a drug candidate is eligible for priority review,
                or
                review within a six-month time frame from the time a complete NDA
                is
                accepted for filing, if the drug candidate provides a significant
                improvement compared to marketed drugs in the treatment, diagnosis
                or
                prevention of a disease. A fast track designated drug candidate would
                ordinarily meet the FDA’s criteria for priority review. We cannot
                guarantee any of our drug candidates will receive a priority review
                designation, or if a priority designation is received, that review
                or
                approval will be faster than conventional FDA procedures, or that
                FDA will
                ultimately grant drug approval.





•
            *Accelerated
                Approval*.
                Under the FDA’s accelerated approval regulations, the FDA is authorized to
                approve drug candidates that have been studied for their safety and
                effectiveness in treating serious or life-threatening illnesses,
                and that
                provide meaningful therapeutic benefit to patients over existing
                treatments based upon either a surrogate endpoint that is reasonably
                likely to predict clinical benefit or on the basis of an effect on
                a
                clinical endpoint other than patient survival. In clinical trials,
                surrogate endpoints are alternative measurements of the symptoms
                of a
                disease or condition that are substituted for measurements of observable
                clinical symptoms. A drug candidate approved on this basis is subject
                to
                rigorous post-marketing compliance requirements, including the completion
                of Phase IV or post-approval clinical trials to validate the surrogate
                endpoint or confirm the effect on the clinical endpoint. Failure
                to
                conduct required post-approval studies, or to validate a surrogate
                endpoint or confirm a clinical benefit during post-marketing studies,
                will
                allow the FDA to withdraw the drug from the market on an expedited
                basis.
                All promotional materials for drug candidates approved under accelerated
                regulations are subject to prior review by the
                FDA.





When
      appropriate, we and our collaborators intend to seek fast track designation
      or
      accelerated approval for our drug candidates. We cannot predict whether any
      of
      our drug candidates will obtain a fast track or accelerated approval
      designation, or the ultimate impact, if any, of the fast track or the
      accelerated approval process on the timing or likelihood of FDA approval of
      any
      of our drug candidates.





Satisfaction
      of FDA regulations and requirements or similar requirements of state, local
      and
      foreign regulatory agencies typically takes several years and the actual time
      required may vary substantially based upon the type, complexity and novelty
      of
      the product or disease. Typically, if a drug candidate is intended to treat
      a
      chronic disease, as is the case with some of our drug candidates, safety and
      efficacy data must be gathered over an extended period of time. Government
      regulation may delay or prevent marketing of drug candidates for a considerable
      period of time and impose costly procedures upon our activities. The FDA or
      any
      other regulatory agency may not grant approvals for new indications for our
      drug
      candidates on a timely basis, if at all. Even if a drug candidate receives
      regulatory approval, the approval may be significantly limited to specific
      disease states, patient populations and dosages. Further, even after regulatory
      approval is obtained, later discovery of previously unknown problems with a
      drug
      may result in restrictions on the drug or even complete withdrawal of the drug
      from the market. Delays in obtaining, or failures to obtain, regulatory
      approvals for any of our drug candidates would harm our business. In addition,
      we cannot predict what adverse governmental regulations may arise from future
      United States or foreign governmental action.





13


*Other
      regulatory requirements* .
      Any
      drugs manufactured or distributed by us or our collaborators pursuant to FDA
      approvals are subject to continuing regulation by the FDA, including
      recordkeeping requirements and reporting of adverse experiences associated
      with
      the drug. Drug manufacturers and their subcontractors are required to register
      their establishments with the FDA and certain state agencies, and are subject
      to
      periodic unannounced inspections by the FDA and certain state agencies for
      compliance with ongoing regulatory requirements, including cGMPs, which impose
      certain procedural and documentation requirements upon us and our third-party
      manufacturers. Failure to comply with the statutory and regulatory requirements
      can subject a manufacturer to possible legal or regulatory action, such as
      warning letters, suspension of manufacturing, seizure of product, injunctive
      action or possible civil penalties. We cannot be certain that we or our present
      or future third-party manufacturers or suppliers will be able to comply with
      the
      cGMP regulations and other ongoing FDA regulatory requirements. If our present
      or future third-party manufacturers or suppliers are not able to comply with
      these requirements, the FDA may halt our clinical trials, require us to recall
      a
      drug from distribution, or withdraw approval of the NDA for that
      drug.





The
      FDA
      closely regulates the post-approval marketing and promotion of drugs, including
      standards and regulations for direct-to-consumer advertising, off-label
      promotion, industry-sponsored scientific and educational activities and
      promotional activities involving the Internet. A company can make only those
      claims relating to safety and efficacy that are approved by the FDA. Failure
      to
      comply with these requirements can result in adverse publicity, warning letters,
      corrective advertising and potential civil and criminal penalties. Physicians
      may prescribe legally available drugs for uses that are not described in the
      drug’s labeling and that differ from those tested by us and approved by the FDA.
      Such off-label uses are common across medical specialties. Physicians may
      believe that such off-label uses are the best treatment for many patients in
      varied circumstances. The FDA does not regulate the behavior of physicians
      in
      their choice of treatments. The FDA does, however, impose stringent restrictions
      on manufacturers’ communications regarding off-label use.





**Need
      for Government Approval**





The
      use
      of immortalized hepatocytes for drug discovery purposes does not require FDA
      approval. However, some of our products will be subject to regulation in the
      United States by the FDA and by comparable regulatory authorities in foreign
      jurisdictions. The Sybiol synthetic bio-liver device will be classified as
      a
      "biologic" regulated under the Public Health Service Act and the Food, Drug
      and
      Cosmetic Act. The use of human immortalized liver cells for this application
      will also be regulated by the FDA. Development of therapeutic products for
      human
      use is a multi-step process. The
      process required by the FDA before our drug candidates may be marketed in the
      United States generally involves the following:




•
            completion
                of extensive preclinical laboratory tests, preclinical animal studies
                and
                formulation studies all performed in accordance with the FDA’s good
                laboratory practice, or GLP, regulations;•
            submission
                to the FDA of an IND application which must become effective before
                clinical trials may begin;




14




•
            performance
                of adequate and well-controlled clinical trials to establish the
                safety
                and efficacy of the product candidate for each proposed
                indication;•
            submission
                of a new drug application, or NDA, to the FDA;•
            satisfactory
                completion of an FDA preapproval inspection of the manufacturing
                facilities at which the product is produced to assess compliance
                with
                current GMP, or cGMP, regulations; and•
            FDA
                review and approval of the NDA prior to any commercial marketing,
                sale or
                shipment of the drug.




The
      testing and approval process requires substantial time, effort and financial
      resources, and we cannot be certain that any approvals for our drug candidates
      will be granted on a timely basis, if at all.




**Research
      and Development**




In
      fiscal
      year 2006, our Company spent $2,252,250 on research and development. Research
      and development costs during fiscal year 2005 were $947,764. These efforts
      have
      been towards improving the functionality of our immortalized hepatocytes,
      introducing products utilizing these cells and expanding our intellectual
      property base. Improvements in the function of our immortalized hepatocytes
      will
      open more markets and expand the usage in the current markets for our cells.




Our
      research and development has also been funded by the National Institute of
      Health (“NIH”), Small Business Innovative Research (“SBIR”) and other grants.




**Competition**





We
      compete in the segments of the pharmaceutical and biotechnology markets that
      are
      highly competitive. We face significant competition from most pharmaceutical
      companies a well as biotechnology companies that are also researching and
      selling products similar to ours. Many of our competitors have significantly
      greater financial, manufacturing, marketing and drug development resources
      than
      we do. Large pharmaceutical companies in particular have extensive experience
      in
      clinical testing and in obtaining regulatory approvals for drugs. These
      companies also have significantly greater research capabilities than we do.
      In
      addition, many universities and private and public research institutes are
      active in research, some in direct competition with us. We believe that our
      ability to successfully compete will depend on, among other things:





·
            Our
                drug candidates’ efficacy, safety and
                reliability;


·
            The
                speed at which we develop our drug
                candidates;


·
            The
                completion of clinical development and laboratory testing and obtaining
                regulatory approvals for drug
                candidates;


·
            The
                timing and scope of regulatory approvals for our drug
                candidates;


·
            Our
                ability to manufacture and sell commercial quantities of a drug to
                the
                market;


·
            Acceptance
                of our drugs by physicians and other health care
                providers;


·
            The
                willingness of third party payors to provide reimbursement for the
                use of
                our drugs;


·
            Our
                ability to protect our intellectual property and avoid infringing
                the
                intellectual property of others;


·
            The
                quality and breadth of our
                technology;


·
            Our
                employees’ skills and our ability to recruit and retain skilled
                employees;


·
            Our
                cash flows under existing and potential future arrangements with
                licensees, partners and other parties;
                and


·
            The
                availability of substantial capital resources to fund development
                and
                commercialization activities.





15


Our
      competitors may develop drug candidates and market drugs that are less expensive
      and more effective than our future drugs or that may render our drugs obsolete.
      Our competitors may also commercialize competing drugs before we or our partners
      can launch any drugs developed from our drug candidates.





Other
      companies that are early-stage are currently developing alternative treatments
      and products that could compete with our drugs. These organizations also compete
      with us to attract qualified personnel and potential parties for acquisitions,
      joint ventures or other strategic alliances.




**Employees**





As
      of
      November 30, 2006 we had eight full-time employees and one part-time employee.




FACTORS
      THAT MAY AFFECT FUTURE PERFORMANCE




Risks
      Related To Our Business




**Our
      drug candidates and cellular systems technologies are in the early stages of
      clinical testing and we have a history of significant losses and may not achieve
      or sustain profitability** .





Our
      drug
      candidates are in the early stages of clinical testing and we must conduct
      significant additional clinical trials before we can seek the regulatory
      approvals necessary to begin commercial sales of our drugs. Similarly, some
      of
      our cellular systems technologies are in early stages of development and require
      further development before they may be commercially viable. We have incurred
      a
      substantial accumulated deficit since our inception in 1970. As of November
      30,
      2006, our accumulated deficit was $33,059,714. Our losses have primarily
      resulted from significant costs associated with the research and development
      relating to our cellular systems technologies and other operating costs. We
      expect to incur increasing losses for at least several years, as we continue
      our
      research activities and conduct development of, and seek regulatory approvals
      for, our drug candidates, and commercialize any approved drugs and as we
      continue to advance our cellular systems technologies business. If our drug
      candidates fail in clinical trials or do not gain regulatory approval, or if
      our
      drugs and cellular systems technologies do not achieve market acceptance, we
      will not achieve or maintain profitability. If we fail to become and remain
      profitable, or if we are unable to fund our continuing losses, you could lose
      all or part of your investment.





**Going
      Concern**





Our
      independent auditors have added explanatory paragraph to their audit opinion
      issued in connection with the financial statements for the year ended November
      30, 2006, relative to our ability to continue as a going concern. Our ability
      to
      obtain additional funding will determine our ability to continue as a going
      concern. Due to our financial condition at November 30, 2006, we do not believe
      that our existing funds and existing sources of funds (royalties and grant
      income) are sufficient to allow the Company to continue our operations without
      making adjustments to our current programs beyond March 31, 2007. Our financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





**Our
      new business strategy of focusing on our therapeutic programs and technologies
      makes evaluation of our business prospects difficult.**





Our
      new
      business strategy of focusing on therapeutic programs and technologies is
      unproven. Because of this recent strategic shift in focus, we cannot accurately
      predict our product development success. Moreover, we have limited experience
      developing therapeutics and we cannot be sure that any product that we develop
      will be commercially successful. As a result of these factors, it is difficult
      to predict and evaluate our future business prospects.





16


**We
      are subject to a variety of general business risks.** ****





We
      will
      be subject to the risks inherent in the ownership and  operation
      of a research and development biotechnology venture such as  regulatory
      setbacks and delays, fluctuations in expenses, competition from  other
      biotechnology ventures and pharmaceutical companies, the general  strength
      of regional and national economies, and governmental regulation. The Company’s
      products may fail to advance due to inadequate therapeutic  efficacy,
      adverse effects, inability to finance clinical trials or other  regulatory
      or commercial setbacks. Because certain costs of the Company  will
      not
      generally decrease with decreases in financing capital or revenues,  the
      cost
      of operating the Company may exceed the income there from. No  representation
      or warranty can be made that the Company will be profitable  or
      will
      be able to generate sufficient working capital.





**If
      we do not obtain adequate financing to fund our future research and development
      and operations, we may not be able to successfully implement our business plan.**





We
      have
      in the past increased, and plan to increase further, our operating expenses
      in
      order to fund higher levels of research and development, undertake and complete
      the regulatory approval process, and increase our administrative resources
      in
      anticipation of future growth. We plan to increase our administrative resources
      to support the hiring of additional employees that will enable us to expand
      our
      research and product development capacity. We intend to finance our operations
      with revenues from royalties generated from the licensing of our technology,
      by
      selling securities to investors, through new strategic alliances, and by
      continuing to use our common stock to pay for consulting and professional
      services.





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
      anticipate that our future cash requirements may be fulfilled by potential
      direct product sales, the sale of additional securities, debt financing and/or
      the sale or licensing of our technologies. We cannot guarantee, however, that
      enough future funds will be generated from operations or from the aforementioned
      or other potential sources. Although we raised gross proceeds of $1.6 million
      in
      July 2006 and $4 million in February 2005, in private placements, we do not
      have
      any binding commitment with regard to future financing. If adequate funds are
      not available or are not available on acceptable terms, we may be unable to
      pursue our therapeutic programs, fund expansion of our cellular technologies
      business, 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.




**We
      have never generated, and may never generate, revenues from commercial sales
      of
      our drug and/or therapeutic candidates and we may not have drugs and / or
      therapeutic products to market for at least several years, if ever.**





We
      currently have no drugs and/or therapeutic products for sale and we cannot
      guarantee that we will ever have marketable drugs and/or
      therapeutic products .
      We must
      demonstrate that our drug and/or
      therapeutic products  candidates
      satisfy rigorous standards of safety and efficacy to the Food and Drug
      Administration, or FDA, and other regulatory authorities in the United States
      and abroad. We and our partners will need to conduct significant additional
      research and preclinical and clinical testing before we or our partners can
      file
      applications with the FDA or other regulatory authorities for approval of our
      drug candidates and/or
      therapeutic products .
      In
      addition, to compete effectively, our drugs and/or therapeutic products must
      be
      easy to use, cost-effective and economical to manufacture on a commercial scale,
      compared to other therapies available for the treatment of the same conditions.
      We may not achieve any of these objectives. We cannot be certain that the
      clinical development of our drug candidates in preclinical testing or clinical
      development will be successful, that they will receive the regulatory approvals
      required to commercialize them, or that any of our other research programs
      will
      yield a drug candidate suitable for entry into clinical trials. We do not expect
      any of our drug and/or
      therapeutic products  candidates
      to be commercially available for several years, if at all. The development
      of
      one or more of these drug candidates may be discontinued at any stage of our
      clinical trials programs and we may not generate revenue from any of drug
      candidates.




17


**Clinical
      trials may fail to demonstrate the desired safety and efficacy of our drug
      and /
      or therapeutic candidates, which could prevent or significantly delay completion
      of clinical development and regulatory approval.**





Prior
      to
      receiving approval to commercialize any of our drug and / or therapeutic
      candidates, we must demonstrate with substantial evidence from well-controlled
      clinical trials, and to the satisfaction of the FDA and other regulatory
      authorities in the United States and abroad, that such drug candidate is both
      sufficiently safe and effective. Before we can commence clinical trials, we
      must
      demonstrate through preclinical studies satisfactory product chemistry,
      formulation, stability and toxicity levels in order to file an investigational
      new drug application, or IND, (or the foreign equivalent of an IND) to commence
      clinical trials. In clinical trials we will need to demonstrate efficacy for
      the
      treatment of specific indications and monitor safety throughout the clinical
      development process. Long-term safety and efficacy have not yet been
      demonstrated in clinical trials for any of our drug and / or therapeutic
      candidates, and satisfactory chemistry, formulation, stability and toxicity
      levels have not yet been demonstrated for our drug candidates or compounds
      that
      are currently the subject of preclinical studies. If our preclinical studies,
      clinical trials or future clinical trials are unsuccessful, our business and
      reputation will be harmed.





All
      of
      our drug and / or therapeutic candidates are prone to the risks of failure
      inherent in drug development. Preclinical studies may not yield results that
      would satisfactorily support the filing of an IND or comparable regulatory
      filing abroad with respect to our drug candidates, and, even if these
      applications would be or have been filed with respect to our drug and / or
      therapeutic candidates, the results of preclinical studies do not necessarily
      predict the results of clinical trials. Similarly, early-stage clinical trials
      do not predict the results of later-stage clinical trials, including the safety
      and efficacy profiles of any particular drug and / or therapeutic candidate.
      In
      addition, there can be no assurance that the design of our clinical trials
      is
      focused on appropriate disease types, patient populations, dosing regimens
      or
      other variables which will result in obtaining the desired efficacy data to
      support regulatory approval to commercialize the drug and / or therapeutic.
      Even
      if we believe the data collected from clinical trials of our drug and / or
      therapeutic candidates are promising, such data may not be sufficient to support
      approval by the FDA or any other United States or foreign regulatory authority.
      Preclinical and clinical data can be interpreted in different ways. Accordingly,
      FDA officials or officials from foreign regulatory authorities could interpret
      the data in different ways than we or our partners do, which could delay, limit
      or prevent regulatory approval.





Administering
      any of our drug candidates and / or therapeutic products, or potential drug
      candidates that are the subject of preclinical studies to animals may produce
      undesirable side effects, also known as adverse effects. Toxicities and adverse
      effects that we have observed in preclinical studies for some compounds in
      a
      particular research and development program may occur in preclinical studies
      or
      clinical trials of other compounds from the same program. Such toxicities or
      adverse effects could delay or prevent the filing of an IND or comparable
      regulatory filing abroad with respect to such drug candidates or potential
      drug
      candidates or cause us to cease clinical trials with respect to any drug
      candidate. In clinical trials, administering any of our drug candidates to
      humans may produce adverse effects. These adverse effects could interrupt,
      delay
      or halt clinical trials of our drug candidates and could result in the FDA
      or
      other regulatory authorities denying approval of our drug candidates for any
      or
      all targeted indications. The FDA, other regulatory authorities, our partners
      or
      we may suspend or terminate clinical trials at any time. Even if one or more
      of
      our drug candidates were approved for sale, the occurrence of even a limited
      number of toxicities or adverse effects when used in large populations may
      cause
      the FDA to impose restrictions on, or prevent, the further marketing of such
      drugs. Indications of potential adverse effects or toxicities which may occur
      in
      clinical trials and which we believe are not significant during the course
      of
      such trials may later turn out to actually constitute serious adverse effects
      or
      toxicities when a drug has been used in large populations or for extended
      periods of time. Any failure or significant delay in completing preclinical
      studies or clinical trials for our drug candidates, or in receiving and
      maintaining regulatory approval for the sale of any drugs resulting from our
      drug candidates, may severely harm our reputation and business.




18


**Clinical
      trials are expensive, time consuming and subject to delay** .





Clinical
      trials are very expensive and difficult to design and implement, in part because
      they are subject to rigorous requirements. The clinical trial process is also
      time consuming. According to industry sources, the entire drug development
      and
      testing process takes on average 12 to 15 years. According to industry studies,
      the fully capitalized resource cost of new drug development averages
      approximately $800 million; however, individual trials and individual drug
      candidates may incur a range of costs above or below this average. We estimate
      that clinical trials of our most advanced drug candidates will continue for
      several years, but may take significantly longer to complete. The commencement
      and completion of our clinical trials could be delayed or prevented by several
      factors, including, but not limited to:




·
            delays
                in obtaining regulatory approvals to commence a clinical trial;·
            delays
                in identifying and reaching agreement on acceptable terms with prospective
                clinical trial sites;·
            slower
                than expected rates of patient recruitment and enrollment, including
                as a
                result of the introduction of alternative therapies or drugs by others;·
            lack
                of effectiveness during clinical trials;·
            unforeseen
                safety issues;·
            adequate
                supply of clinical trial material;·
            uncertain
                dosing issues;·
            introduction
                of new therapies or changes in standards of practice or regulatory
                guidance that render our clinical trial endpoints or the targeting
                of our
                proposed indications obsolete;·
            inability
                to monitor patients adequately during or after treatment; and·
            inability
                or unwillingness of medical investigators to follow our clinical
                protocols.




We
      do not
      know whether planned clinical trials will begin on time, will need to be
      restructured or will be completed on schedule, if at all. Significant delays
      in
      clinical trials will impede our ability to commercialize our drug candidates
      and
      generate revenue and could significantly increase our development costs, any
      of
      which could significantly and negatively impact our results of operations and
      harm our business.




**If
      we fail to enter into and maintain successful strategic alliances for certain
      of
      our therapeutic products or drug candidates, we may have to reduce or delay
      our
      drug candidate development or increase our expenditures.**





Our
      strategy for developing, manufacturing and commercializing certain of our
      therapeutic products or drug candidates involves entering into and successfully
      maintaining strategic alliances with pharmaceutical companies or other industry
      participants to advance our programs and reduce our expenditures on each
      program. However, we may not be able to maintain our current strategic alliances
      or negotiate additional strategic alliances on acceptable terms, if at all.
      If
      we are not able to maintain our existing strategic alliances or establish and
      maintain additional strategic alliances, we may have to limit the size or scope
      of, or delay, one or more of our drug development programs or research programs
      or undertake and fund these programs ourselves or otherwise reevaluate or exit
      a
      particular business. To the extent that we are required to increase our
      expenditures to fund research and development programs or our therapeutic
      programs or cellular systems technologies on our own, we will need to obtain
      additional capital, which may not be available on acceptable terms, or at all.




19


**Our
      proprietary rights may not adequately protect our technologies and drug
      candidates.**





Our
      commercial success will depend in part on our obtaining and maintaining patent
      protection and trade secret protection of our technologies and drug candidates
      as well as successfully defending these patents against third-party challenges.
      We will only be able to protect our technologies and drug candidates from
      unauthorized use by third parties to the extent that valid and enforceable
      patents or trade secrets cover them. Furthermore, the degree of future
      protection of our proprietary rights is uncertain because legal means afford
      only limited protection and may not adequately protect our rights or permit
      us
      to gain or keep our competitive advantage.





The
      patent positions of life sciences companies can be highly uncertain and involve
      complex legal and factual questions for which important legal principles remain
      unresolved. No consistent policy regarding the breadth of claims allowed in
      such
      companies’ patents has emerged to date in the United States. The patent
      situation outside the United States is even more uncertain. Changes in either
      the patent laws or in interpretations of patent laws in the United States or
      other countries may diminish the value of our intellectual property.
      Accordingly, we cannot predict the breadth of claims that may be allowed or
      enforced in our patents or in third-party patents. For example:




·
            we
                or our licensors might not have been the first to make the inventions
                covered by each of our pending patent applications and issued patents;·
            we
                or our licensors might not have been the first to file patent applications
                for these inventions;·
            others
                may independently develop similar or alternative technologies or
                duplicate
                any of our technologies;·
            it
                is possible that none of our pending patent applications or the pending
                patent applications of our licensors will result in issued patents;·
            our
                issued patents and issued patents of our licensors may not provide
                a basis
                for commercially viable drugs, or may not provide us with any competitive
                advantages, or may be challenged and invalidated by third parties;
                and·
            we
                may not develop additional proprietary technologies or drug candidates
                that are patentable.




We
      also
      rely on trade secrets to protect our technology, especially where we believe
      patent protection is not appropriate or obtainable. However, trade secrets
      are
      difficult to protect. While we use reasonable efforts to protect our trade
      secrets, our or our strategic partners’ employees, consultants, contractors or
      scientific and other advisors may unintentionally or willfully disclose our
      information to competitors. If we were to enforce a claim that a third party
      had
      illegally obtained and was using our trade secrets, our enforcement efforts
      would be expensive and time consuming, and the outcome would be unpredictable.
      In addition, courts outside the United States are sometimes less willing to
      protect trade secrets. Moreover, if our competitors independently develop
      equivalent knowledge, methods and know-how, it will be more difficult for us
      to
      enforce our rights and our business could be harmed.





If
      we are
      not able to defend the patent or trade secret protection position of our
      technologies and drug candidates, then we will not be able to exclude
      competitors from developing or marketing competing drugs, and we may not
      generate enough revenue from product sales to justify the cost of development
      of
      our drugs and to achieve or maintain profitability.




**If
      we are sued for infringing intellectual property rights of third parties, such
      litigation will be costly and time consuming, and an unfavorable outcome would
      have a significant adverse effect on our business.**





Our
      ability to commercialize drugs depends on our ability to sell such drugs without
      infringing the patents or other proprietary rights of third parties. Numerous
      U.S. and foreign issued patents and pending patent applications, which are
      owned
      by third parties, exist in the areas that we are exploring. In addition, because
      patent applications can take several years to issue, there may be currently
      pending applications, unknown to us, which may later result in issued patents
      that our drug candidates may infringe. There could also be existing patents
      of
      which we are not aware that our drug candidates may inadvertently infringe.





20


Future
      products of ours may be impacted by patents of companies engaged in competitive
      programs with significantly greater resources. Further development of these
      products could be impacted by these patents and result in the expenditure of
      significant legal fees.





If
      a
      third party claims that our actions infringe on their patents or other
      proprietary rights, we could face a number of issues that could seriously harm
      our competitive position, including, but not limited to:




·
            infringement
                and other intellectual property claims that, with or without merit,
                can be
                costly and time consuming to litigate and can delay the regulatory
                approval process and divert management’s attention from our core business
                strategy;·
            substantial
                damages for past infringement which we may have to pay if a court
                determines that our drugs or technologies infringe upon a competitor’s
                patent or other proprietary rights;·
            A
                court prohibiting us from selling or licensing our drugs or technologies
                unless the holder licenses the patent or other proprietary rights
                to us,
                which it is not required to do; and·
            if
                a license is available from a holder, we may have to pay substantial
                royalties or grant cross licenses to our patents or other proprietary
                rights.




**We
      may become involved in disputes with our strategic partners over intellectual
      property ownership, and publications by our research collaborators and
      scientific advisors could impair our ability to obtain patent protection or
      protect our proprietary information, which, in either case, would have a
      significant impact on our business.**





Inventions
      discovered under our strategic alliance agreements become jointly owned by
      our
      strategic partners and us in some cases, and the exclusive property of one
      of us
      in other cases. Under some circumstances, it may be difficult to determine
      who
      owns a particular invention, or whether it is jointly owned, and disputes could
      arise regarding ownership of those inventions. These disputes could be costly
      and time consuming, and an unfavorable outcome would have a significant adverse
      effect on our business if we were not able to protect or license rights to
      these
      inventions. In addition, our research collaborators and scientific advisors
      have
      contractual rights to publish our data and other proprietary information,
      subject to our prior review. Publications by our research collaborators and
      scientific advisors containing such information, either with our permission
      or
      in contravention of the terms of their agreements with us, may impair our
      ability to obtain patent protection or protect our proprietary information,
      which could significantly harm our business.




**To
      the extent we elect to fund the development of a drug candidate or the
      commercialization of a drug at our expense, we will need substantial additional
      funding.**





The
      discovery, development and commercialization of drugs is costly. As a result,
      to
      the extent we elect to fund the development of a drug candidate or the
      commercialization of a drug at our expense, we will need to raise additional
      capital to:




·
            expand
                our research and development and technologies;·
            fund
                clinical trials and seek regulatory approvals;·
            build
                or access manufacturing and commercialization capabilities;·
            implement
                additional internal systems and infrastructure;·
            maintain,
                defend and expand the scope of our intellectual property; and·
            hire
                and support additional management and scientific personnel.




21





Our
      future funding requirements will depend on many factors, including, but not
      limited to:




·
            the
                rate of progress and cost of our clinical trials and other research
                and
                development activities;·
            the
                costs and timing of seeking and obtaining regulatory approvals;·
            the
                costs associated with establishing manufacturing and commercialization
                capabilities;·
            the
                costs of filing, prosecuting, defending and enforcing any patent
                claims
                and other intellectual property rights;·
            the
                costs of acquiring or investing in businesses, products and technologies;·
            the
                effect of competing technological and market developments; and·
            the
                payment and other terms and timing of any strategic alliance, licensing
                or
                other arrangements that we may establish.




Until
      we
      can generate a sufficient amount of product revenue to finance our cash
      requirements, which we may never do, we expect to finance future cash needs
      primarily through public or private equity offerings, debt financings and
      strategic alliances. We cannot be certain that additional funding will be
      available on acceptable terms, or at all. If we are not able to secure
      additional funding when needed, we may have to delay, reduce the scope of or
      eliminate one or more of our clinical trials or research and development
      programs or future commercialization initiatives.




**We
      have limited capacity to carry out our own clinical trials in connection with
      the development of our drug candidates and potential drug candidates, and to
      the
      extent we elect to develop a drug candidate without a strategic partner we
      will
      need to expand our development capacity, and we will require additional funding.**





The
      development of drug candidates is complicated, and requires resources and
      experience for which we currently have limited resources. To the extent we
      conduct clinical trials for a drug candidate without support from a strategic
      partner we will need to develop additional skills, technical expertise and
      resources necessary to carry out such development efforts on our own or through
      the use of other third parties, such as contract research organizations, or
      CROs.





If
      we
      utilize CROs, we will not have control over many aspects of their activities,
      and will not be able to fully control the amount or timing of resources that
      they devote to our programs. These third parties also may not assign as high
      a
      priority to our programs or pursue them as diligently as we would if we were
      undertaking such programs ourselves, and therefore may not complete their
      respective activities on schedule. CROs may also have relationships with our
      competitors and potential competitors, and may prioritize those relationships
      ahead of their relationships with us. Typically we would prefer to qualify
      more
      than one vendor for each function performed outside of our control, which could
      be time consuming and costly. The failure of CROs to carry out development
      efforts on our behalf according to our requirements and FDA or other regulatory
      agencies’ standards, or our failure to properly coordinate and manage such
      efforts, could increase the cost of our operations and delay or prevent the
      development, approval and commercialization of our drug candidates.





If
      we
      fail to develop additional skills, technical expertise and resources necessary
      to carry out the development of our drug candidates, or if we fail to
      effectively manage our CROs carrying out such development, the commercialization
      of our drug candidates will be delayed or prevented.




22


**We
      currently have no marketing or sales staff, and if we are unable to enter into
      or maintain strategic alliances with marketing partners or if we are unable
      to
      develop our own sales and marketing capabilities, we may not be successful
      in
      commercializing our potential drugs or therapeutic products.**





We
      currently have no internal sales, marketing or distribution capabilities. To
      commercialize our products or drugs that we determine not to market on our
      own,
      we will depend on strategic alliances with third parties, which have established
      distribution systems and direct sales forces. If we are unable to enter into
      such arrangements on acceptable terms, we may not be able to successfully
      commercialize such products or drugs. If we decide to commercialize products
      or
      drugs on our own, we will need to establish our own specialized sales force
      and
      marketing organization with technical expertise and with supporting distribution
      capabilities. Developing such an organization is expensive and time consuming
      and could delay a product launch. In addition, we may not be able to develop
      this capacity efficiently, or at all, which could make us unable to
      commercialize our products and drugs.





To
      the
      extent that we are not successful in commercializing any products or drugs
      ourselves or through a strategic alliance, our product revenues will suffer,
      we
      will incur significant additional losses and the price of our common stock
      will
      be negatively affected.




**We
      have no manufacturing capacity and depend on our partners or contract
      manufacturers to produce our products and clinical trial drug supplies for
      each
      of our drug candidates and potential drug candidates, and anticipate continued
      reliance on contract manufacturers for the development and commercialization
      of
      our potential products and drugs.**





We
      do not
      currently operate manufacturing facilities for clinical or commercial production
      of our drug candidates or potential drug candidates that are under development.
      We have no experience in drug formulation or manufacturing, and we lack the
      resources and the capabilities to manufacture any of our drug candidates on
      a
      clinical or commercial scale. We anticipate reliance on a limited number of
      contract manufacturers. Any performance failure on the part of our contract
      manufacturers could delay clinical development or regulatory approval of our
      drug candidates or commercialization of our drugs, producing additional losses
      and depriving us of potential product revenues.





Our
      products and drug candidates require precise, high quality manufacturing. Our
      failure or our contract manufacturer’s failure to achieve and maintain high
      manufacturing standards, including the incidence of manufacturing errors, could
      result in patient injury or death, product recalls or withdrawals, delays or
      failures in product testing or delivery, cost overruns or other problems that
      could seriously hurt our business. Contract manufacturers often encounter
      difficulties involving production yields, quality control and quality assurance,
      as well as shortages of qualified personnel. These manufacturers are subject
      to
      ongoing periodic unannounced inspection by the FDA, the U.S. Drug Enforcement
      Agency and other regulatory agencies to ensure strict compliance with current
      good manufacturing practices and other applicable government regulations and
      corresponding foreign standards; however, we do not have control over contract
      manufacturers’ compliance with these regulations and standards. If one of our
      contract manufacturers fails to maintain compliance, the production of our
      drug
      candidates could be interrupted, resulting in delays, additional costs and
      potentially lost revenues. Additionally, our contract manufacturer must pass
      a
      preapproval inspection before we can obtain marketing approval for any of our
      drug candidates in development.





If
      the
      FDA or other regulatory agencies approve any of our products or our drug
      candidates for commercial sale, we will need to manufacture them in larger
      quantities. Significant scale-up of manufacturing may require additional
      validation studies, which the FDA must review and approve. If we are unable
      to
      successfully increase the manufacturing capacity for a product or drug
      candidate, the regulatory approval or commercial launch of any related products
      or drugs may be delayed or there may be a shortage in supply. Even if any
      contract manufacturer makes improvements in the manufacturing process for our
      products and drug candidates, we may not own, or may have to share, the
      intellectual property rights to such improvements.




In
      addition, our contract manufacturers may not perform as agreed or may not remain
      in the contract manufacturing business for the time required to successfully
      produce, store and distribute our products and drug candidates. In the event
      of
      a natural disaster, business failure, strike or other difficulty, we may be
      unable to replace such contract manufacturer in a timely manner and the
      production of our products or drug candidates would be interrupted, resulting
      in
      delays and additional costs.





23


Switching
      manufacturers may be difficult because the number of potential manufacturers
      is
      limited and the FDA must approve any replacement manufacturer prior to
      manufacturing our products or drug candidates. Such approval would require
      new
      testing and compliance inspections. In addition, a new manufacturer would have
      to be educated in, or develop substantially equivalent processes for, production
      of our drug candidates after receipt of FDA approval. It may be difficult or
      impossible for us to find a replacement manufacturer on acceptable terms
      quickly, or at all.




**We
      expect to expand our development, clinical research and marketing capabilities,
      and as a result, we may encounter difficulties in managing our growth, which
      could disrupt our operations.**





We
      expect
      to have significant growth in expenditures, the number of our employees and
      the
      scope of our operations, in particular with respect to those drug candidates
      that we elect to develop or commercialize independently or together with a
      partner. To manage our anticipated future growth, we must continue to implement
      and improve our managerial, operational and financial systems, expand our
      facilities and continue to recruit and train additional qualified personnel.
      Due
      to our limited resources, we may not be able to effectively manage the expansion
      of our operations or recruit and train additional qualified personnel. The
      physical expansion of our operations may lead to significant costs and may
      divert our management and business development resources. Any inability to
      manage growth could delay the execution of our business plans or disrupt our
      operations.




**The
      failure to attract and retain skilled personnel could impair our drug
      development and commercialization efforts.**





Our
      performance is substantially dependent on the performance of our senior
      management and key scientific and technical personnel. The employment of these
      individuals and our other personnel is terminable at will with short or no
      notice. The loss of the services of any member of our senior management,
      scientific or technical staff may significantly delay or prevent the achievement
      of drug development and other business objectives by diverting management’s
      attention to transition matters and identification of suitable replacements,
      and
      could have a material adverse effect on our business, operating results and
      financial condition. We also rely on consultants and advisors to assist us
      in
      formulating our research and development strategy. All of our consultants and
      advisors are either self-employed or employed by other organizations, and they
      may have conflicts of interest or other commitments, such as consulting or
      advisory contracts with other organizations, that may affect their ability
      to
      contribute to us. In addition, we believe that we will need to recruit
      additional executive management and scientific and technical personnel. There
      is
      currently intense competition for skilled executives and employees with relevant
      scientific and technical expertise, and this competition is likely to continue.
      Our inability to attract and retain sufficient scientific, technical and
      managerial personnel could limit or delay our product development efforts,
      which
      would adversely affect the development of our products and drug candidates
      and
      commercialization of our products and potential drugs and growth of our
      business.




**Risks
      Related to Our Industry**




**Our
      competitors may develop products and drugs that are less expensive, safer,
      or
      more effective, which may diminish or eliminate the commercial success of any
      drugs that we may commercialize.**





We
      compete with companies that are also developing alternative products and drug
      candidates. Our competitors may:




·
            develop
                products and drug candidates and market products and drugs that are
                less
                expensive or more effective than our future drugs;




24




·
            commercialize
                competing products and drugs before we or our partners can launch
                any
                products and drugs developed from our drug candidates;·
            obtain
                proprietary rights that could prevent us from commercializing our
                products;·
            initiate
                or withstand substantial price competition more successfully than
                we can;·
            have
                greater success in recruiting skilled scientific workers from the
                limited
                pool of available talent;·
            more
                effectively negotiate third-party licenses and strategic alliances;·
            take
                advantage of acquisition or other opportunities more readily than
                we can;·
            develop
                products and drug candidates and market products and drugs that increase
                the levels of safety or efficacy or alter other product and drug
                candidate
                profile aspects that our products and drug candidates need to show
                in
                order to obtain regulatory approval; and·
            introduce
                technologies or market products and drugs that render the market
                opportunity for our potential products and drugs obsolete.




We
      will
      compete for market share against large pharmaceutical and biotechnology
      companies and smaller companies that are collaborating with larger
      pharmaceutical companies, new companies, academic institutions, government
      agencies and other public and private research organizations. Many of these
      competitors, either alone or together with their partners, may develop new
      products and drug candidates that will compete with ours, as these competitors
      may, and in certain cases do, operate larger research and development programs
      or have substantially greater financial resources than we do. Our competitors
      may also have significantly greater experience in:





·
            developing
                products and drug candidates;·
            undertaking
                preclinical testing and clinical trials;·
            building
                relationships with key customers and opinion-leading physicians;·
            obtaining
                and maintaining FDA and other regulatory approvals;·
            formulating
                and manufacturing; and·
            launching,
                marketing and selling products and drugs.





If
      our
      competitors market products and drugs that are less expensive, safer or more
      efficacious than our potential products and drugs, or that reach the market
      sooner than our potential products and drugs, we may not achieve commercial
      success. In addition, the life sciences industry is characterized by rapid
      technological change. Because our research approach integrates many
      technologies, it may be difficult for us to stay abreast of the rapid changes
      in
      each technology. If we fail to stay at the forefront of technological change
      we
      may be unable to compete effectively. Our competitors may render our
      technologies obsolete by advances in existing technological approaches or the
      development of new or different approaches, potentially eliminating the
      advantages in our drug discovery process that we believe we derive from our
      research approach and proprietary technologies.




25


**The
      regulatory approval process is expensive, time consuming and uncertain and
      may
      prevent us from obtaining approvals for the commercialization of some or all
      of
      our products and drug candidates.**





The
      research, testing, manufacturing, selling and marketing of drug candidates
      are
      subject to extensive regulation by the FDA and other regulatory authorities
      in
      the United States and other countries, which regulations differ from country
      to
      country. We may not market our potential drugs in the United States until we
      receive approval of an NDA from the FDA. Obtaining an NDA can be a lengthy,
      expensive and uncertain process. In addition, failure to comply with the FDA
      and
      other applicable foreign and United States regulatory requirements may subject
      us to administrative or judicially imposed sanctions. These include warning
      letters, civil and criminal penalties, injunctions, product seizure or
      detention, product recalls, total or partial suspension of production, and
      refusal to approve pending NDAs, or supplements to approved NDAs.





Regulatory
      approval of an NDA or NDA supplement is never guaranteed, and the approval
      process typically takes several years and is extremely expensive. The FDA also
      has substantial discretion in the drug approval process. Despite the time and
      expense exerted, failure can occur at any stage, and we could encounter problems
      that cause us to abandon clinical trials or to repeat or perform additional
      preclinical testing and clinical trials. The number and focus of preclinical
      studies and clinical trials that will be required for FDA approval varies
      depending on the drug candidate, the disease or condition that the drug
      candidate is designed to address, and the regulations applicable to any
      particular drug candidate. The FDA can delay, limit or deny approval of a drug
      candidate for many reasons, including:





·
            A
                drug candidate may not be safe or effective;·
            FDA
                officials may not find the data from preclinical testing and clinical
                trials sufficient;·
            the
                FDA might not approve our or our contract manufacturer’s processes or
                facilities; or·
            the
                FDA may change its approval policies or adopt new regulations.




The
      use
      of immortalized hepatocytes for drug discovery purposes does not require FDA
      approval.




The
      Sybiol® synthetic bio-liver device will be classified as a "biologic" regulated
      under the Public Health Service Act and the Food, Drug and Cosmetic Act. The
      use
      of human immortalized liver cells for this application will also be regulated
      by
      the FDA. We have not yet begun the regulatory approval process for our Sybiol®
biosynthetic liver device with the FDA. We may, when adequate funding and
      resources are available, begin the approval process. If we are able to validate
      the device design, then we currently plan to find a partner to take the project
      forward. Before human studies may begin, the cells provided for the system
      will
      be subjected to the same scrutiny as the Sybiol device. We will need to
      demonstrate sufficient process controls to meet strict standards for a complex
      medical system. This means the cell production facility will need to meet the
      same Good Manufacturing Practice ("GMP") standards as those pertaining to a
      pharmaceutical company.




**If
      we receive regulatory approval, we will also be subject to ongoing FDA
      obligations and continued regulatory review, such as continued safety reporting
      requirements, and we may also be subject to additional FDA post-marketing
      obligations, all of which may result in significant expense and limit our
      ability to commercialize our potential drugs.**





Any
      regulatory approvals that we or our partners receive for our drug candidates
      may
      also be subject to limitations on the indicated uses for which the drug may
      be
      marketed or contain requirements for potentially costly post-marketing follow-up
      studies. In addition, if the FDA approves any of our drug candidates, the
      labeling, packaging, adverse event reporting, storage, advertising, promotion
      and record-keeping for the drug will be subject to extensive regulatory
      requirements. The subsequent discovery of previously unknown problems with
      the
      drug, including adverse events of unanticipated severity or frequency, may
      result in restrictions on the marketing of the drug, and could include
      withdrawal of the drug from the market.





26


The
      FDA’s
      policies may change and additional government regulations may be enacted that
      could prevent or delay regulatory approval of our drug candidates. We cannot
      predict the likelihood, nature or extent of adverse government regulation that
      may arise from future legislation or administrative action, either in the United
      States or abroad. If we are not able to maintain regulatory compliance, we
      might
      not be permitted to market our drugs and our business could suffer.




**If
      physicians and patients do not accept our drugs, we may be unable to generate
      significant revenue, if any.**





Even
      if
      our drug candidates obtain regulatory approval, resulting drugs, if any, may
      not
      gain market acceptance among physicians, healthcare payors, patients and the
      medical community. Even if the clinical safety and efficacy of drugs developed
      from our drug candidates are established for purposes of approval, physicians
      may elect not to recommend these drugs for a variety of reasons including,
      but
      not limited to:




·
            timing
                of market introduction of competitive drugs;·
            clinical
                safety and efficacy of alternative drugs or treatments;·
            cost-effectiveness;·
            availability
                of reimbursement from health maintenance organizations and other
                third-party payors;·
            convenience
                and ease of administration;·
            prevalence
                and severity of adverse side effects;·
            other
                potential disadvantages relative to alternative treatment methods;
                and·
            insufficient
                marketing and distribution support.




If
      our
      drugs fail to achieve market acceptance, we may not be able to generate
      significant revenue and our business would suffer.




**The
      coverage and reimbursement status of newly approved drugs is uncertain and
      failure to obtain adequate coverage and reimbursement could limit our ability
      to
      market any drugs we may develop and decrease our ability to generate revenue.**





There
      is
      significant uncertainty related to the coverage and reimbursement of newly
      approved drugs. The commercial success of our potential drugs in both domestic
      and international markets is substantially dependent on whether third-party
      coverage and reimbursement is available for the ordering of our potential drugs
      by the medical profession for use by their patients. Medicare, Medicaid, health
      maintenance organizations and other third-party payors are increasingly
      attempting to contain healthcare costs by limiting both coverage and the level
      of reimbursement of new drugs, and, as a result, they may not cover or provide
      adequate payment for our potential drugs. They may not view our potential drugs
      as cost-effective and reimbursement may not be available to consumers or may
      not
      be sufficient to allow our potential drugs to be marketed on a competitive
      basis. Likewise, legislative or regulatory efforts to control or reduce
      healthcare costs or reform government healthcare programs could result in lower
      prices or rejection of coverage for our potential drugs. Changes in coverage
      and
      reimbursement policies or healthcare cost containment initiatives that limit
      or
      restrict reimbursement for our drugs may cause our revenue to decline.




**We
      may be subject to costly product liability claims and may not be able to obtain
      adequate insurance.**





If
      we
      conduct clinical trials in humans, we face the risk that the use of our drug
      candidates will result in adverse effects. We cannot predict the possible harms
      or side effects that may result from our clinical trials. We may not have
      sufficient resources to pay for any liabilities resulting from a claim excluded
      from, or beyond the limit of, our insurance coverage.





27


In
      addition, once we have commercially launched drugs based on our drug candidates,
      we will face exposure to product liability claims. This risk exists even with
      respect to those drugs that are approved for commercial sale by the FDA and
      manufactured in facilities licensed and regulated by the FDA. We intend to
      secure limited product liability insurance coverage, but may not be able to
      obtain such insurance on acceptable terms with adequate coverage, or at
      reasonable costs. There is also a risk that third parties that we have agreed
      to
      indemnify could incur liability. Even if we were ultimately successful in
      product liability litigation, the litigation would consume substantial amounts
      of our financial and managerial resources and may create adverse publicity,
      all
      of which would impair our ability to generate sales of the affected product
      as
      well as our other potential drugs. Moreover, product recalls may be issued
      at
      our discretion or at the direction of the FDA, other governmental agencies
      or
      other companies having regulatory control for drug sales. If product recalls
      occur, such recalls are generally expensive and often have an adverse effect
      on
      the image of the drugs being recalled as well as the reputation of the drug’s
      developer or manufacturer.




**We
      may be subject to damages resulting from claims that our employees or we have
      wrongfully used or disclosed alleged trade secrets of their former employers.**





Many
      of
      our employees were previously employed at universities or other biotechnology
      or
      pharmaceutical companies, including our competitors or potential competitors.
      Although no such claims against us are currently pending, we may be subject
      to
      claims that these employees or we have inadvertently or otherwise used or
      disclosed trade secrets or other proprietary information of their former
      employers. Litigation may be necessary to defend against these claims. If we
      fail in defending such claims, in addition to paying monetary damages, we may
      lose valuable intellectual property rights or personnel. A loss of key research
      personnel or their work product could hamper or prevent our ability to
      commercialize certain potential drugs, which could severely harm our business.
      Even if we are successful in defending against these claims, litigation could
      result in substantial costs and be a distraction to management.




**We
      use hazardous chemicals and radioactive and biological materials in our
      business. Any claims relating to improper handling, storage or disposal of
      these
      materials could be time consuming and costly.**





Our
      research and development processes involve the controlled use of hazardous
      materials, including chemicals and radioactive and biological materials. Our
      operations produce hazardous waste products. We cannot eliminate the risk of
      accidental contamination or discharge and any resultant injury from those
      materials. Federal, state and local laws and regulations govern the use,
      manufacture, storage, handling and disposal of hazardous materials. We may
      be
      sued for any injury or contamination that results from our use or the use by
      third parties of these materials. Compliance with environmental laws and
      regulations is expensive, and current or future environmental regulations may
      impair our research, development and production efforts.





In
      addition, our partners may use hazardous materials in connection with our
      strategic alliances. To our knowledge, their work is performed in accordance
      with applicable biosafety regulations. In the event of a lawsuit or
      investigation, however, we could be held responsible for any injury caused
      to
      persons or property by exposure to, or release of, these hazardous materials
      used by these parties. Further, we may be required to indemnify our partners
      against all damages and other liabilities arising out of our development
      activities or drugs produced in connection with these strategic alliances.





**Risks
      Related To Our Common Stock**




**We
      expect that our stock price will fluctuate significantly, and you may not be
      able to resell your shares at or above your investment price.**





The
      market price of our common stock, as well as the market prices of securities
      of
      companies in the life sciences and biotechnology sectors generally, have been
      highly volatile and are likely to continue to be highly volatile. While the
      reasons for the volatility of the market price of our common stock and its
      trading volume are sometimes unknown, in general the market price of our common
      stock may be significantly impacted by many factors, including, but not limited
      to:




28




·
            results
                from, and any delays in, the clinical trials programs for our products
                and
                drug candidates;·
            delays
                in or discontinuation of the development of any of our products and
                drug
                candidates;·
            failure
                or delays in entering additional drug candidates into clinical trials;·
            failure
                or discontinuation of any of our research programs;·
            delays
                or other developments in establishing new strategic alliances;·
            announcements
                concerning our existing or future strategic alliances;·
            issuance
                of new or changed securities analysts’ reports or recommendations;·
            market
                conditions in the pharmaceutical and biotechnology sectors;·
            actual
                or anticipated fluctuations in our quarterly financial and operating
                results;·
            the
                exercise of outstanding options and warrants, the conversion of
                outstanding convertible preferred stock and debt and the issuance
                of
                additional options, warrants, preferred stock and convertible
                debt;·
            developments
                or disputes concerning our intellectual property or other proprietary
                rights;·
            introduction
                of technological innovations or new commercial products by us or
                our
                competitors;·
            Issues
                in manufacturing our drug candidates or drugs;·
            market
                acceptance of our products and drugs;·
            third-party
                healthcare reimbursement policies;·
            FDA
                or other United States or foreign regulatory actions affecting us
                or our
                industry;·
            litigation
                or public concern about the safety of our products, drug candidates
                or
                drugs;·
            additions
                or departures of key personnel; and·
            volatility
                in the stock prices of other companies in our industry.




These
      and
      other external factors may cause the market price and demand for our common
      stock to fluctuate substantially, which may limit or prevent investors from
      readily selling their shares of common stock and may otherwise negatively affect
      the liquidity of our common stock. In addition, when the market price of a
      stock
      has been volatile, holders of that stock have instituted securities class action
      litigation against the company that issued the stock. If any of our stockholders
      brought a lawsuit against us, we could incur substantial costs defending the
      lawsuit. Such a lawsuit could also divert the time and attention of our
      management.





29


**Our
      common stock is subject to penny stock regulation, which may affect its
      liquidity** .





Our
      common stock is subject to regulations of the Securities and Exchange Commission
      (the "Commission") relating to the market for penny stocks. Penny stock, as
      defined by the Penny Stock Reform Act, is any equity security not traded on
      a
      national securities exchange or quoted on the NASDAQ National Market or SmallCap
      Market that has a market price of less than $5.00 per share. The penny stock
      regulations generally require that a disclosure schedule explaining the penny
      stock market and the risks associated therewith be delivered to purchasers
      of
      penny stocks and impose various sales practice requirements on broker-dealers
      who sell penny stocks to persons other than established customers and accredited
      investors. The broker-dealer must make a suitability determination for each
      purchaser and receive the purchaser's written agreement prior to the sale.
      In
      addition, the broker-dealer must make certain mandated disclosures, including
      the actual sale or purchase price and actual bid offer quotations, as well
      as
      the compensation to be received by the broker-dealer and certain associated
      persons. The regulations applicable to penny stocks may severely affect the
      market liquidity for our common stock and could limit your ability to sell
      your
      securities in the secondary market.





**It
      is anticipated that dividends will not be paid in the foreseeable
      future.**





The
      Company does not intend to pay dividends on its common stock in the  foreseeable
      future. There can be no assurance that the operation of the  Company
      will result in sufficient revenues to enable the Company to operate  at
      profitable levels or to generate positive cash flows. Further,
      dividend  policy
      is
      subject to the discretion of the Company's Board of Directors and  will
      depend on, among other things, the Company's earnings, financial  condition,
      capital requirements and other factors.





**Our
      common stock is thinly traded and there may not be an active, liquid trading
      market for our common stock.**





There
      is
      no guarantee that an active trading market for our common stock will be
      maintained on the OTCBB or that the volume of trading will be sufficient to
      allow for timely trades. Investors may not be able to sell their shares quickly
      or at the latest market price if trading in our stock is not active or if
      trading volume is limited. In addition, if trading volume in our common stock
      is
      limited, trades of relatively small numbers of shares may have a
      disproportionate effect on the market price of our common stock.





**Item
      2. DESCRIPTION OF PROPERTY**





On
      April
      6, 2005, the Company entered into a three-year sublease agreement for new
      research and administrative facilities. Remaining basic rental commitments
      under
      the sublease agreement as of November 30, 2006 total $143,479 payable as
      follows; $103,778 and $39,701 in the years ending November 30, 2007 and November
      30, 2008, respectively. The sublease agreement also provides for an optional
      three-year renewal period. As a result of the relocation of operations during
      the year ended November 30, 2005, the Company recognized a loss associated
      with
      the abandonment of leasehold improvements of $14,286.





On
      September 1, 2006, the Company entered into a one-year sublease agreement to
      lease a San Diego, California research facility. Remaining basic rental
      commitments under the sublease agreement as of November 30, 2006 total $42,164
      payable as follows: $42,164 in the year ending November 30, 2007.





**Item
      3. LEGAL PROCEEDINGS**





None.





**Item
      4.** **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





30


**PART
      II**





**Item
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





Our
      common stock is traded on the OTC Bulletin Board under the symbol MCET.OB.
      Our
      stock is considered penny stock and is, therefore, subject to the Securities
      Enforcement Remedies and Penny Stock Reform Act of 1990. Penny stock is defined
      as any equity security not traded on a national stock exchange or quoted on
      NASDAQ and that has a market price of less than $5.00 per share. Additional
      disclosure is required in connection with any trades involving a stock defined
      as a penny stock (subject to certain exceptions); including the delivery, prior
      to any such transaction, of a disclosure schedule explaining the penny stock
      market and the associated risks. Broker-dealers who recommend such low-priced
      securities to persons other than established customers and accredited investors
      satisfy special sales practice requirements, including a requirement that they
      make an individualized written suitability determination for the purchase and
      receive the purchaser's written consent prior to the transaction.





The
      table
      below gives the range of high and low bid prices of our common stock for the
      fiscal years ended November 30, 2006 and November 30, 2005 based on information
      provided by the OTC Bulletin Board. Such over-the-counter market quotations
      reflect inter-dealer prices, without mark-up, mark-down or commissions and
      may
      not necessarily represent actual transactions or a liquid trading market.








**Fiscal
                Year Ended November 30, 2006**High
            
            LowFirst
                quarter
            
            $
            .75
            
            $
            .47Second
                quarter
            
            $
            .60
            
            $
            .34Third
                quarter
            
            $
            .44
            
            $
            .32Fourth
                quarter
            
            $
            .46
            
            $
            .24








**Fiscal
                Year Ended November 30, 2005**High
            
            LowFirst
                quarter
            
            $
            2.35
            
            $
            .75Second
                quarter
            
            $
            1.55
            
            $
            .80Third
                quarter
            
            $
            1.35
            
            $
            .90Fourth
                quarter
            
            $
            1.00
            
            $
            .50





No
      cash
      dividends have been paid on our common stock for the 2006 and 2005 fiscal years
      and no change of this policy is under consideration by the Board of Directors.





The
      payment of cash dividends in the future will be determined by the Board of
      Directors in light of conditions then existing, including our Company's
      earnings, financial requirements, and opportunities for reinvesting earnings,
      business conditions, and other factors. There are otherwise no restrictions
      on
      the payment of dividends. The number of registered shareholders of record of
      our
      Company's Common Stock on February 28, 2007 was approximately 1,053.





31


The
      following table summarizes the securities authorized for issuance under equity
      compensation plans as of November 30, 2006:





**Plan
                Category**
            
            **Number
                of Securities to be Issued Upon Exercise of Outstanding Options,
                Warrants
                and Rights**
            
            **Weighted
                Average Exercise Price of Outstanding Options, Warrants and
                Rights**
            
            **Number
                of Securities Remaining Available for Future Issuance Under Equity
                Compensation Plans**Equity
                compensation plans approved by shareholders
            
            
            2,982,000
            
            $
            1.14
            
            
            4,900,600Equity
                compensation plans not approved by shareholdersWarrants
                issued
            
            
            23,160,545
            
            $
            0.5826,142,545
            
            $
            0.64





The
      shares of common stock may be issued pursuant to stock awards may include an
      annual increase to be added of the first day of each Company fiscal year,
      beginning in 2005 and ending in (and including) 2013, equal to the lesser of
      the
      following amounts: (a) 15% of the Company’s outstanding shares of common stock
      on the day preceding the first day of such fiscal year; (b) 5,000,000 shares
      of
      common stock; or (c) an amount determined by the Board.




**Item
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS**





The
      Management’s Discussion and Analysis for the years ended November 30, 2006 and
      2005 presented below.




**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 701 George Washington Highway, Lincoln,
      RI 02865. Our telephone number is (401) 333-0610.




Following
      the formation of MCTI during September 2005 and the recent in-licensing of
      drug
      candidates, the Company is pursuing research and development of therapeutics
      in
      addition to continuing to advance its cellular systems business. Historically,
      the Company has specialized in developing primary liver cell immortalization
      technologies to produce cell-based assay systems for use in drug discovery.
      The
      Company seeks to become an integrated biopharmaceutical company that will use
      its proprietary cell-based systems and immune system modulation technologies
      to
      discover, develop and commercialize new therapeutics itself and with strategic
      partners.




32


In
      August
      2003, MultiCell signed an exclusive sales, manufacturing and distribution
      agreement for the use of two of its cell lines by XenoTech, an unrelated party.
      The agreement, which is for a term of seven years, required XenoTech to make
      an
      initial non-refundable payment of $800,000 to MultiCell in August 2003. This
      payment represented consideration for and a guarantee of Nosan’s (XenoTech’s
      distributor) right of first negotiation for distribution rights for the Asia
      Pacific Rim, should MultiCell successfully complete the development of its
      cell
      lines for the production of proteins, other cellular constituents and or
      drug-like molecules. Additional consideration under the August 2003 agreement
      included a $700,000 royalty prepayment. This prepayment was an advance against
      the minimum royalty payment of $800,000 for the first royalty period, which
      was
      16 months, culminating on November 30, 2004. The subsequent 5 royalty periods
      will be 12 months and the last royalty period will be 8 months. XenoTech must
      bear all the costs for its manufacturing and sales activities and make specified
      minimum periodic royalty payments that total $18 million over the 7 year term
      of
      the agreement to maintain distribution exclusivity. The agreement requires
      XenoTech to make royalty payments to MultiCell of 17.5% of net sales for the
      direct sale of its cells and 34% of net sales derived from any sublicense
      agreement. ** Prior
      to
      December 1, 2004, the Company had recognized revenues under the XenoTech
      agreement based on the minimum royalty amount for each period because it had
      received a prepayment of a substantial portion of the amount due. XenoTech
      was
      required to pay a $2.1 million minimum royalty amount for the current fiscal
      year as a condition of its exclusivity. Since collection of the contractual
      amount was no longer reasonably assured and, in accordance with SEC Staff
      Accounting Bulletin Topic 13, commencing December 1, 2004, the Company began
      recognizing revenues under the XenoTech agreement based on the agreement’s
      royalty percentage applied to XenoTech’s actual sales for the period instead of
      the minimum royalty amount. On February 1, 2006, the Company terminated the
      agreement with XenoTech due to the failure of XenoTech, with due notice, to
      cure
      various breaches within the time allotted by the agreement, including the
      payment of minimum royalties to maintain exclusivity. As a result of this
      termination and the Company’s recognition of the initial non-refundable payment
      of $800,000 over the 7-year term of the agreement, the Company recognized income
      for the remaining amount of deferred income of $533,334 in the current fiscal
      year.




We
      have
      operated and will continue to operate by minimizing 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 kept low.
      Additionally, a number of 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.




We
      intend
      to add scientific and support personnel gradually. 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. Of course
      as
      revenues increase, administrative personnel will be necessary to meet the added
      workload. Other expenses, such as sales and customer service, will increase
      commensurate with increased revenues. The Company’s current research and
      development efforts focus on development of future products and redesign of
      existing products. Due to the ongoing nature of this research, we are unable
      to
      ascertain with certainty the total estimated completion dates and 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 the Company’s market position. Company
      sponsored research and development costs related to future products and redesign
      of present products are expensed as incurred. For the years ended November
      30,
      2006 and 2005, research and development costs were $2,252,250 and $947,764,
      respectively. Research and development costs include such costs as salaries,
      employee benefits, and compensation cost for options issued to the Scientific
      Advisory Board, supplies and license fees.




**The
      Application of Critical Accounting Policies**




Use
      of
      Estimates - The preparation of financial statements in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. Actual results could differ
      from those estimates.




Research
      and Development - Company sponsored research and development costs related
      to
      future products and redesign of present products are expensed as incurred.
      Such
      costs are offset partly by proceeds from research grants.




33


License
      Agreements - Costs incurred to obtain license agreements for which income can
      be
      projected are capitalized. The Company amortizes these costs on a straight-line
      basis over the term of the respective license agreement Amortization totaled
      $17,652 and $132,432 for each of the years ended November 30, 2006 and 2005.
      License agreements for which no income can be projected are expensed in the
      year
      incurred.




Revenue
      Recognition - The Company’s revenues have been generated primarily from
      contractual research activities and royalties on the license for the sale of
      cells through its sale and distribution agreement with XenoTech, LLC
      (“XenoTech”). Management believes such sources of revenue will be part of the
      Company’s ongoing operations. The Company applies the guidance provided by SEC
      Staff Accounting Bulletin Topic 13, “Revenue Recognition” (“Topic 13”). Under
      the provisions of Topic 13, the Company recognizes revenue from commercial
      and
      government research agreements as services are performed, provided a contractual
      arrangement exists, the contract price is fixed or determinable and the
      collection of the contractual amounts is reasonably assured. In situations
      where
      the Company receives payment in advance of the performance of services, such
      amounts are deferred and recognized as revenue as the related services are
      performed. Deferred revenues associated with services expected to be performed
      within the 12 - month period subsequent to the balance sheet date are classified
      as a current liability. Deferred revenues associated with services expected
      to
      be performed at a later date are classified as non-current liabilities.




Prior
      to
      December 1, 2004, the Company had recognized revenues under the XenoTech
      agreement based on the minimum royalty amount for each period because it had
      received a prepayment of a substantial portion of the amount due. XenoTech
      was
      required to pay a $2.1 million minimum royalty amount for the current fiscal
      year as a condition of its exclusivity. Since collection of the contractual
      amount was no longer reasonably assured and, in accordance with SEC Staff
      Accounting Bulletin Topic 13, commencing December 1, 2004, the Company began
      recognizing revenues under the XenoTech agreement based on the agreement’s
      royalty percentage applied to XenoTech’s actual sales for the period instead of
      the minimum royalty amount. On February 1, 2006, the Company terminated the
      agreement with XenoTech due to the failure of XenoTech, with due notice, to
      cure
      various breaches within the time allotted by the agreement, including the
      payment of minimum royalties to maintain exclusivity. As a result of the
      termination the Company recognized the remaining deferred income of $533,334
      in
      the current fiscal year as stated earlier.




Stock-Based
      Compensation - In December 2004, the Financial Accounting Standards Board
      (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No.123
      (revised 2004), “Share-Based Payment” (“SFAS 123R”), which revises SFAS No. 123
“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes
      Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
      to Employees,” (“APB 25”), which provided for the use of the intrinsic value
      method of accounting for employee stock options. SFAS 123R requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the financial statements based on their fair values
      beginning with the first quarter of the first annual reporting period that
      begins after December 15, 2005. Under SFAS 123R, the use of the intrinsic value
      method and the pro forma disclosures previously permitted under SFAS 123 are
      no
      longer an alternative to financial statement recognition.




The
      Company has adopted the provisions of SFAS 123R effective December 1, 2005
      and
      has selected the Black-Scholes method of valuation for share-based compensation.
      The Company has adopted the modified prospective transition method which does
      not require restatement of prior periods. Instead, it requires that compensation
      cost be recorded as earned for all unvested stock options outstanding at the
      beginning of the first quarter of adoption of SFAS 123R. The charge is being
      recognized in research and development and selling, general and administrative
      expenses over the remaining service period after the adoption date based upon
      the original estimate of fair value of the options as of the grant
      date




Long-Lived
      Assets - Long-lived assets that do not have indefinite lives, such as property
      and equipment and license agreements, are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. Impairment losses are recognized when events or changes
      in circumstances indicate that the undiscounted cash flows estimated to be
      generated by such assets are less than their carrying value and, accordingly,
      all or a portion of such carrying value may not be recoverable. Impairment
      losses for assets to be held and used are then measured based on the excess,
      if
      any, of the carrying amounts of the assets over their fair values. Long-lived
      assets to be disposed of in a manner that meets certain criteria are stated
      at
      the lower of their carrying amounts or fair values less costs to sell and are
      no
      longer depreciated.




34


**RECENT
      ACCOUNTING PRONOUNCEMENTS**




In
      December 2006, the Financial Accounting Standards Board ("FASB") issued a FASB
      Staff Position ("FSP") Emerging Issues Task Force ("EITF") Issue No. 00-19-2
      "Accounting for Registration Payment Arrangements" ("FSP 00-19-2") which
      addresses an issuer's accounting for registration payment arrangements. FSP
      00-19-2 specifies that the contingent obligation to make future payments or
      otherwise transfer consideration under a registration payment arrangement,
      whether issued as a separate agreement or included as a provision of a financial
      instrument or other agreement, should be separately recognized and measured
      in
      accordance with FASB Statement No. 5 "Accounting for Contingencies". The
      guidance in FSP 00-19-2 amends FASB Statement No. 133, "Accounting for
      Derivative Instruments and Hedging Activities", and No. 150, "Accounting for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity", and FASB Interpretation No. 45, 'Guarantor's Accounting and Disclosure
      Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
      of
      Others" to include scope exceptions for registration payment arrangements.
      FSP
      00-19-2 is effective immediately for registration payment arrangements and
      the
      financial instruments subject to those arrangements that are entered into or
      modified subsequent to the issuance of FSP 00-19-2. For registration payments
      arrangements and financial instruments subject to those arrangements that were
      entered into prior to the issuance of FSP 00-19-2, this is effective for
      financial statements issued for fiscal years beginning after December 15, 2006,
      and interim periods within those fiscal years. We have analyzed the provisions
      of FSP 00-19-2 and determined that it will not have a material effect on our
      financial statements.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      ("SFAS") No. 157, "Fair Value Measurements". SFAS No. 157 defines fair value,
      establishes a framework for measuring fair value in accordance with generally
      accepted accounting principles and expands disclosures about fair value
      measurements. The provisions of SFAS No. 157 are effective for fiscal years
      beginning after November 15, 2007. We are currently evaluating the impact,
      if
      any, of the provisions of SFAS No. 157




In
      September 2006, the Securities and Exchange Commission ("SEC") issued Staff
      Accounting Bulletin ("SAB") No. 108. SAB No. 108 provides interpretive guidance
      on how the effects of the carryover or reversal of prior year misstatements
      should be considered in quantifying a potential current year misstatement.
      Prior
      to SAB No. 108, companies might evaluate the materiality of financial statement
      misstatements using either the income statement or balance sheet approach,
      with
      the income statement approach focusing on new misstatements added in the current
      year, and the balance sheet approach focusing on the cumulative amount of
      misstatement present in a company's balance sheet. Misstatements that would
      be
      material under one approach could be viewed as immaterial under another
      approach, and not corrected. SAB No. 108 now requires that companies view
      financial statement misstatements as material if they are material according
      to
      either the income statement or balance sheet approach. We have analyzed SAB
      No.
      108 and determined that it will have no impact on our reported results of
      operations, cash flows or financial condition.




In
      July
      2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for
      Uncertainty in Income Taxes." FIN 48 provides detailed guidance for the
      financial statement recognition, measurement and disclosure of uncertain tax
      positions recognized in an enterprise's financial statements in accordance
      with
      FASB Statement No. 109, "Accounting for Income Taxes." Tax positions must meet
      a
      more-likely-than-not recognition threshold at the effective date to be
      recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will
      be
      effective for fiscal years beginning after December 15, 2006 and the provisions
      of FIN 48 will be applied to all tax positions upon initial adoption of the
      Interpretation. The cumulative effect of applying the provisions of this
      Interpretation will be reported as an adjustment to the opening balance of
      retained earnings for that fiscal year. The adoption of FIN 48 is not expected
      to have a material impact on our financial statements.




35


**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.




Year
      Ended November 30, 2006 compared to Year Ended November 30, 2005




*Revenue.* Total
      revenue for the year ended November 30, 2006 was $679,881, as compared to
      revenue of $209,156 for the prior fiscal year, an increase of $470,725. In
      the
      current year, as a result of the termination of the Company’s agreement with
      XenoTech, the Company recognized income for the remaining amount of deferred
      income associated with the XenoTech agreement which amounted to $533,334. In
      the
      prior year, the Company recognized deferred income under the XenoTech agreement
      of $114,286. Additionally, the Company recognized royalty income of $47,318
      related to sales of its cell lines by XenoTech as compared to $86,485 in the
      prior year. Additionally, as a result of the termination of the Company’s
      agreement with XenoTech, the Company took over a sub-license that XenoTech
      had
      with Bristol Myers Squibb. During the current year, the Company received an
      annual license fee of $55,000 that was initially recorded to deferred income
      with $31,041 recognized as income in the current year.




*Operating
      Expenses.* Total
      operating expenses for the year ended November 30, 2006 were $6,709,260,
      representing an increase of $474,534, as compared to the prior fiscal year.
      This
      increase results from the Company increasing research and development expenses
      by $1,304,486 due to the formation of MCTI in September 2005, the recent
      in-licensing of drug candidates, and the recognition of the total cost of the
      Amarin license agreement in the amount of $700,000. Selling, general and
      administrative expenses increased by $616,789 (17.7%). This is primarily due
      to
      increases in stock based compensation for services (non cash expenses) in the
      current year. The write down of the license agreement due to impairment was
      $232,348 for the current year representing a decrease of $1,393,727 as compared
      to the prior fiscal year.




*Other
      income (expense)* .
      Losses
      on the sale of marketable securities for the year ended November 30, 2006 were
      $24,712. There were no losses on the sale of marketable securities in the prior
      fiscal year as the Company had no sales of marketable securities in the prior
      year. The Company recognized a $136,554 gain on the sale of undeveloped land
      near the Grand Canyon in the prior year in addition to a loss of $14,286 on
      the
      abandonment of leasehold improvements, also in the prior year. There were no
      comparable items in the current fiscal year. Interest expense decreased $20,633
      in the current year as a result of a reduction in the Company’s outstanding debt
      through payments and conversions of convertible notes and accrued interest
      into
      the Company’s common stock. Interest and dividend income for the year ended
      November 30, 2006 was $24,351 as compared to $98,010 in the previous year.
      This
      decrease is attributable to the Company having less available funds to invest
      in
      marketable securities in the current year. Also in the year ended November
      30,
      2006, the Company had a $473,510 increase in the minority interest in net loss
      of subsidiary due to an acquisition in September 2005.




*Net
      Loss.* Net loss
      for the year ended November 30, 2006 was $5,418,252, as compared to a net loss
      of $5,682,947 for the same period in the prior fiscal year, representing a
      decrease in the net loss of $264,695 (4.7%). The primary reason for this reduced
      loss in the current year is due to the Company recognizing in income for the
      remaining amount of deferred income associated with the XenoTech agreement
      in
      the first quarter which amounted to $533,334 and the reduction in the write
      down
      of the license agreement due to impairment in value as explained above.




*Non-cash
      deemed dividend related to beneficial conversion feature of Series B preferred
      stock.* In
      connection with the issuance of the Series B preferred stock and warrants,
      the
      Company recorded $1,700,000 related to the beneficial conversion feature on
      the
      Series B preferred stock and fair value of the warrants as a deemed dividend.
      This deemed dividend increased the carrying value of the preferred stock. A
      beneficial conversion feature is present because the effective conversion price
      of the Series B preferred stock was less than the fair value of the common
      stock
      on the date of issuance. The beneficial conversion feature on the issuance
      of
      the Series B preferred stock was calculated as $1,244,076. However, because
      the
      combined value of the beneficial conversion feature plus the value of the
      warrants issued to the Series B preferred holders as calculated using the
      Black-Scholes pricing model exceeded the carrying value of the net proceeds
      received in the private placement, the deemed dividend recorded was limited
      to
      $1,700,000. The deemed dividend increased the loss applicable to common
      stockholders in the calculation of basic loss per common share.




36


*Preferred
      stock dividends.* In
      connection with the issuance of the Series B preferred stock and warrants,
      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 (A) $100 per share by the higher of the Wall Street Journal Prime
      Rate plus one percent (1%), or nine percent (9%). In no event will the dividend
      rate be greater than 12% per annum. The dividend shall 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 (1st) day of such
      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 eighty-five percent (85%) of the otherwise applicable conversion price.
      For
      the year ended November 30, 2006, the Company paid and/or accrued preferred
      dividends in the amount of $60,053.




**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 November 30, 2006 and November 30, 2005:




**November
                30, 2006**
            
            **November
                30, 2005**Cash
                and cash equivalents
            
            $
            77,611
            
            $
            1,515,475Marketable
                securities
            
            
            0
            
            
            1,138,201Total
                cash and cash equivalents and marketable securities
            
            $
            77,611
            
            $
            2,653,676Current
                assets
            
            $
            138,037
            
            $
            2,806,708Current
                liabilities
            
            
            1,163,480
            
            
            1,144,009Working
                capital (deficiency)
            
            $
            (1,025,443
            )
            $
            1,662,699




Due
      to
      our financial condition at November 30, 2006, we do not believe that our
      existing funds and existing sources of funds (royalties and grant income) are
      sufficient to allow the Company to continue our operations without making
      adjustments to our current programs beyond March 31, 2007. Additionally, with
      our strategic shift in focus to therapeutic programs and technologies, we expect
      our future cash requirements to increase significantly as we advance our
      therapeutic programs into clinical trials. Until we are successful in raising
      additional funds, we may have to prioritize our therapeutic programs and delays
      may be necessary in some of our development programs.




On
      May 3,
      2006, MultiCell entered into a common stock purchase agreement with Fusion
      Capital, which was amended and restated on October 5, 2006. Under the agreement,
      Fusion Capital is 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 has authorized 8,000,000 shares of its common stock
      for
      sale to Fusion Capital under the agreement. The number of shares ultimately
      offered for sale by Fusion Capital is dependent upon the number of shares
      purchased by Fusion Capital under the agreement. The Company does not have
      the
      right to commence any sales of its shares to Fusion Capital until the SEC has
      declared effective the registration statement. After the SEC has declared
      effective such registration statement, generally the Company has the right
      but
      not the obligation from time to time to sell its shares to Fusion Capital in
      amounts between $50,000 and $1 million depending on certain conditions.
      MultiCell has the right to control the timing and amount of any sales of its
      shares to Fusion Capital. The purchase price of the shares will be determined
      based upon the market price of the Company’s shares without any fixed discount.
      Fusion Capital shall not have the right nor the obligation to purchase any
      shares of MultiCell’s common stock on any business day that the price of its
      common stock is below $0.20. The agreement may be terminated by MultiCell at
      any
      time at the Company’s discretion without any cost to the Company. Through
      February 28, 2007 Fusion had purchased shares from the Company for $750,000
      and
      there were 4,998,990 shares available under the agreement .




37


If
      the
      holders of our Series B redeemable convertible preferred stock do not elect
      to
      require the Company use 25% of the gross proceeds received by the Company to
      repurchase and redeem their Series B shares or Series B shares converted into
      common stock, we anticipate using the proceeds from this financing for general
      corporate purposes, including the advancement of MCT-125 in a pivotal Phase
      IIb/III clinical trial for the treatment of fatigue in Multiple Sclerosis.




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 retained 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. For the year ended November 30, 2006,
      the
      dividend amounted to $60,053.




If
      the
      Company draws any proceeds from the Company’s equity line credit facility with
      Fusion Capital, the purchasers may require the Company to use 25% of the gross
      proceeds received by the Company under such equity line to repurchase and redeem
      purchaser’s Series B shares or Series B preferred shares converted into Common
      Stock, as determined in the discretion of such purchaser. Series B shares so
      redeemed shall be redeemed at $100 per share, plus accrued and unpaid dividends
      thereon, and shares of common stock so redeemed shall be redeemed at a price
      per
      share equal to the value weighted average closing price of the Company’s common
      stock over the immediately preceding five trading days, plus accrued and unpaid
      dividends thereon.




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.




38


In
      addition, the purchasers also received warrants to acquire up to 10,500,000
      shares of the Company’s common stock. The terms associated with the warrants are
      described in Note 10 to the consolidated financial statements. 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 stock holders 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.




Cash
      provided by (used in) operating, investing and financing activities for the
      year
      ended November 30, 2006 and 2005 is as follows:




**November
                30, 2006**
            
            **November
                30, 2005**Operating
                activities
            
            $
            (4,430,461
            )
            $
            (2,954,600
            )Investing
                activities
            
            
            1,091,940
            
            
            (862,450
            )Financing
                activities
            
            
            1,900,657
            
            
            4,020,646Net
                increase (decrease) in cash and cash equivalents
            
            $
            (1,437,864
            )
            $
            203,596




*Operating
      Activities*




The
      most
      significant difference between our net loss and our cash used in operating
      activities is due to non-cash charges included in our net loss for service
      and
      compensation which were paid through the issuance of common stock, options
      and
      warrants. These totaled $1,082,123 in 2006 and $1,191,672 in 2005. During the
      year ended November 30, 2006, another significant difference between our net
      loss for the year and our cash used in operations was due to the inclusion
      in
      income of a non-cash item related to the remaining amount of deferred income
      associated with the XenoTech agreement which amounted to $533,334 of cash that
      had been received prior to December 1, 2004. Other non-cash charges included
      in
      our net loss include an allowance for bad debts recorded in 2006 ($47,519),
      depreciation and amortization ($127,316 in 2006 and $180,330 in 2005) and
      non-cash charges related to minority interest in loss of subsidiary ($616,407
      in
      2006 and $142,897 in 2005). Changes in operating assets and liabilities
      decreased the cash used in operations in 2006 $587,752 and increased the cash
      used in operations in 2005 $11,962. On June 28, 2006, the Company entered into
      a
      letter agreement with Amarin amending the timing of the second license payment
      to be made to Amarin as outlined in the original License Agreement. In that
      letter agreement, the parties agreed to extend the deadline for the Company
      to
      make its second licensing payment which was to be made in May 2006. Under the
      terms of the agreement, the original second payment due to Amarin will be split
      into three payments. The first payment of $100,000 was due and paid 10 days
      after the closing of a financing for the Company (closed on July 14, 2006),
      the
      second payment was due within 30 days of the Company’s registration statement
      for an equity line being declared effective by the SEC and the final $300,000
      was due December 15, 2006.




39




*Investing
      Activities*




Net
      cash
      provided by investing activities in 2006 related to the sale of marketable
      securities to fund the operations of the Company which amounted to $1,113,188.
      In the prior year, we purchased marketable securities amounting to $1,503,025.




*Financing
      Activities*




Net
      cash
      provided by financing activities for the year ended November 30, 2006 related
      primarily to a $1,700,000 private placement completed in July 2006 resulting
      in
      net proceeds of $1,660,000, in exchange for the issuance of 17,000 shares of
      Series B preferred stock and 10,500,000 warrants. Additionally, the Company
      paid
      $35,000 to investment bankers during the year ended November 30, 2006 for due
      diligence and legal fees associated with potential financings for the Company.
      Net cash provided by financing activities in the year ended November 30, 2005
      related primarily to a $4,000,000 private placement completed in February 2005
      resulting in net proceeds of $3,441,721, in exchange for the issuance of
      5,333,333 shares of common stock and related warrants. This transaction
      substantially improved the Company’s liquidity position at that time. The
      Company additionally received $578,925 in the prior year due to the exercise
      of
      stock options and warrants outstanding at that time.




Through
      November 30, 2006, a significant portion of our financing has been provided
      through private placements of preferred and common stock and the exercise of
      stock options and warrants. 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.




**Research
      Agreements**




In
      July
      2003, MultiCell Technologies was awarded a Phase I Small Business Innovation
      Research (“SBIR”) grant from the National Institutes of Health to study the
      production of therapeutic plasma proteins by immortalized, non-tumorigenic
      human
      hepatocytes. The aim of the SBIR award was to compare the function of
      MultiCell’s hepatocyte-derived products to recombinant and plasma-derived
      therapeutic plasma proteins. The grant was for $139,314 and was completed in
      December 2004. During the fiscal year ended November 30, 2005, the Company
      received $36,256 under the grant and has accounted for this as an offset to
      research and development expenses. On August 30, 2005, notification was received
      that a new Small Business Innovation Research award in the amount of $137,724
      had been granted to the Company to create proprietary BioFactoriesTM that express
      a serine protease inhibitor recently implicated as a novel treatment for sepsis.
      The Company received $45,113 in fiscal year 2005 and $92,611 in fiscal year
      2006
      under this grant and has accounted for this as an offset to research and
      development expenses for the year.




On
      June
      22, 2006, The National Institutes of Health awarded a grant in the amount of
      $210,000 to treat Type 1 Diabetes. During the year ended November 30, 2006,
      the
      Company received $74,699 under this grant and has accounted for this as an
      offset to research and development expenses for the year.





**Item
      7** **.
      FINANCIAL STATEMENTS**





The
      full
      text of the Company's audited consolidated financial statements for the fiscal
      years ended November 30, 2006 and 2005 begins on page F-1 of this Annual Report.





40


**Item
      8.** **CHANGES
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND****FINANCIAL DISCLOSURE**





None.





**Item
      8A. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures*




We
      maintain disclosure controls and procedures that are designed to ensure that
      the
      information required to be disclosed in the reports we file or submit under
      the
      Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
      and reported within the time periods specified in the SEC’s rules and forms, and
      that such information is accumulated and communicated to our management,
      including the Chief Executive Officer and the Chief Financial Officer
      (“Certifying Officers”), to allow timely decisions regarding required financial
      disclosures.




As
      described in note 18 to our Consolidated Financial Statements, management
      identified errors in connection with the Company's accounting for certain
      license payments during the fiscal year ended November 30, 2006. The errors
      in
      recording these costs resulted in the restatement of the Company’s financial
      statements for each of the quarters ended August 31, 2006.




The
      Company’s Certifying Officers had previously concluded that our disclosure
      controls and procedures, as defined in Exchange Act Rule 13a-15(e), were
      effective as of November 30, 2005. However, in connection with the restatement
      of our financial statements, as described above, we performed an evaluation,
      under the supervision of the Certifying Officers, of the effectiveness of the
      design and operation of our disclosure controls and procedures as defined in
      Exchange Act Rule 13a-15(e). Based upon such evaluation, our Certifying Officers
      concluded that our disclosure controls and procedures were not effective as
      of
      February 28, 2006, May 31, 2006, August 31, 2006 and November 30, 2006 because
      of the material weakness in our internal control over financial reporting
      described below. Notwithstanding the existence of this material weakness, our
      management, including our Certifying Officers, believes that the consolidated
      financial statements included in this report fairly present in all material
      respects our financial condition, results of operations and cash flows for
      the
      periods presented.




*Material
      Weakness in Internal Control Over Financial Reporting*




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Exchange Act Rule 13a-15(f).
      Our
      internal control over financial reporting is a process designed to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles. Because of its inherent limitations,
      internal control over financial reporting may not prevent or detect
      misstatements.




A
      material weakness is a control deficiency, or combination of control
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. As of the annual reporting period ended November 30,
      2006 ***,*** the
      Company did not maintain effective controls over Company's accounting for
      certain license payments. Specifically, the payments made by the Company under
      a
      license were treated as a deferred charge to be amortized over an 18-year life
      on the Company’s financial statements. Under accounting rules, license payments
      cannot be deferred unless those amounts are recoverable without any further
      development. Because the product candidate the company licensed pursuant to
      the
      licensing agreement requires further development before they will generate
      any
      revenue, the license payments should have been expensed on the Company’s
      financial statements at the time the payments were made. This control deficiency
      resulted in the restatement of the Company’s previously issued interim financial
      statements for the first three quarters of fiscal 2006. Accordingly, management
      has determined that this control deficiency constitutes a material
      weakness.





41


During
      the review of our Form 10-KSB our independent registered public accounting
      firm
      noted several deficiencies related to the presentation of the basic financial
      statements and the accompanying notes to the financial statements. As a result
      of these deficiencies, the financial statements and the notes thereto did not
      meet the requirements of generally accepted accounting principles in the United
      States of America. These deficiencies could impact the timeliness and accuracy
      of financial reporting. These deficiencies were corrected by management prior
      to
      the issuance of the Form 10-KSB. Our disclosure control over financial reporting
      did not detect these matters and therefore was not effective at detecting these
      disclosure deficiencies in the financial statements.





Our
      financial statement closing process did not identify all the journal entries
      that needed to be recorded as part of the closing process for certain complex
      and non-routine transactions. As part of the audit, our independent registered
      public accounting firm proposed certain entries that should have been recorded
      as part of the normal closing process. Our internal control over financial
      reporting did not detect such matters and, therefore, was not effective in
      detecting misstatements in the financial statements.





*Changes
      in Internal Control Over Financial Reporting*




The
      Audit
      Committee of our Board of Directors conducted an investigation of the accounting
      errors. As a result of this investigation, under the direction of our Audit
      Committee, management developed and implemented additional measures designed
      to
      ensure that information required to be disclosed in our periodic reports is
      recorded, processed, summarized and reported accurately. These measures include:
      consolidation of all record keeping and accounting in the Rhode Island offices
      and improved oversight by the Chief Executive Officer and President and the
      Chief Financial Officer.




We
      believe that, with the additional measures adopted by the Company since January
      2007, our system of internal controls and our disclosure controls and procedures
      will be adequate to provide reasonable assurance that the information required
      to be disclosed in our Exchange Act reports is recorded, processed, summarized
      and accurately reported within the time periods specified in the SEC’s rules and
      forms, and that such information is accumulated and communicated to our
      management, including our Certifying Officers, as appropriate, to allow for
      timely decisions regarding required disclosure based closely on the definition
      of “disclosure controls and procedures” in Rule 13a-15(e). We cannot be certain
      that our remediation efforts will sufficiently cure our identified material
      weakness. Furthermore, we have not tested the operating effectiveness of the
      re-mediated controls. However, because of the inherent limitations in all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues, if any, within the Company have been detected. These
      inherent limitations include the realities that judgments in decision-making
      can
      be faulty, and that breakdowns can occur because of simple errors or mistakes.




On
      September 8, 2006, MultiCell Technologies, Inc. (the “Company”) entered into a
      separation agreement and release with Gerard A. Wills, the Company’s Chief
      Financial Officer. The Company is using an outside firm to complete the closing
      and filings.





Other
      than as noted above, there have been no changes in our internal control over
      financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
      and
      15d-15(f), that occurred during the quarter ended November 30, 2006 that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





**Item
      8B OTHER INFORMATION.**





None.




**PART
      III**





**Item
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
      PERSONS**





The
      information regarding our directors and executive officers is incorporated
      by
      reference to “Directors and Officers” in our Proxy Statement for our 2006 Annual
      Meeting of Shareholders.





42


**Item
      10. EXECUTIVE COMPENSATION**





The
      information required by this Item is incorporated by reference to our definitive
      Proxy Statement referred to in Item 9 above under the heading “Executive
      Compensation and Other Matters.”





**Item
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**





The
      information required by this Item regarding security ownership of certain
      beneficial owners and management is incorporated by reference to our definitive
      Proxy Statement referred to in Item 9 above under the heading “Security
      Ownership of Certain Beneficial Owners and Management.”





**Item
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





The
      information required by this Item is incorporated by reference to our definitive
      Proxy Statement referred to in Item 9 above under the heading “Certain
      Relationships and Related Transactions.”





**Item
      13. EXHIBITS AND REPORTS ON FORM 8-K**


(a)
            Exhibits





**Exhibit
                No.**
            
            **Description
                of Exhibit**4.1(1)
            
            Form
                of Warrant to Purchase Common Stock dated February 1, 2006 issued
                by the
                Company to Trilogy Capital Partners, Inc.4.2(2)
            
            Warrants
                for the purchase of 1,572,327 Shares of Common Stock of the Registrant
                dated May 3, 2006.4.3(3)
            
            Form
                of Warrant to Purchase Common Stock (Cashless Exercise) dated July
                14,
                2006 issued by the Registrant to certain investors.4.4(3)
            
            Form
                of Warrant to Purchase Common Stock (Cash Exercise), dated July 14,
                2006,
                issued by the Registrant to certain investors.4.5(3)
            
            Certificate
                of Designation of Series B Convertible Preferred Stock, as filed
                on July
                14, 2006.4.6(3)
            
            Form
                of Registration Rights Agreement dated July 14, 2006 by and between
                the
                Registrant and certain investors.4.7(4)
            
            Amended
                and Restated Warrant to Purchase Common Stock issued to Anthony Cataldo
                dated July 25, 2006.4.8(5)
            
            Amended
                and Restated Registration Rights Agreement, dated as of October 5,
                2006,
                by and between the Registrant and Fusion Capital Fund II,
                LLC.10.1(6)
            
            Letter
                Agreement between Amarin and the Company dated October 26,
                200610.2(3)
            
            Form
                of Shares of Series B Convertible Preferred Stock and Common Stock
                Warrants Subscription Agreement dated July 14, 2006 by and between
                the
                Registrant and certain investors.10.3(4)
            
            Separation
                Agreement and Release by and between the Company and Anthony Cataldo
                dated
                July 25, 2006.10.4(7)
            
            Separation
                Agreement and Release by and between the Company and Gerard A. Wills
                dated
                September 28, 2006.10.5(7)
            
            Consulting
                Agreement by and between the Company and Gerard A. Wills, dated September
                28, 2006.10.6(5)
            
            Amended
                and Restated Common Stock Purchase Agreement, dated as of October
                5, 2006,
                by and between the Registrant and Fusion Capital Fund II,
                LLC.10.7(2)
            
            Common
                Stock Purchase Agreement, dated as of May 3, 2006, by and between
                the
                Registrant and Fusion Capital Fund II, LLC.10.8(8)
            
            Letter
                Agreement between Amarin and the Company dated June 28,
                200610.9*
            
            Worldwide
                Exclusive License Agreement dated as of December 31, 2005 between
                the
                Registrant and Amarin Neuroscience Limited.10.10(10)
            
            Employment
                Offer Letter, dated December 23, 2005, between the Registrant and
                Gerard
                A. Wills.23.1*
            
            Consent
                of Independent Registered Public Accounting Firm31.1*
            
            Certification
                of Chief Executive Officer Pursuant to Section 30231.2*
            
            Certification
                of Chief Financial Officer Pursuant to Section 30232.1*
            
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section
                1350.32.2*
            
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section
                1350.*
                Filed herewith.





43


(1)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed
                on
                February 6, 2006.


(2)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed on
                May 4, 2006.


(3)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed on
                July 19, 2006.


(4)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed
                on July
                28, 2006.


(5)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed
                on
                October 5, 2006.


(6)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed
                on
                November 1, 2006.


(7)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed
                on
                September 29, 2006.


(8)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed on
                July 5, 2006.


(9)
            Incorporated
                by reference from exhibits to our Current Report on Form 8-K filed on
                January 6, 2006.







**Item
      14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES**




The
      information required by this Item is incorporated by reference to our definitive
      Proxy Statement referred to in Item 9 above under the heading “Principal
      Accountant Fees and Services.”




44




**SIGNATURES**


Pursuant
      to the requirements of Section 13 or 15D of the Securities Exchange Act of
      1934,
      the registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized,




MULTICELL TECHNOLOGIES, INC.(Registrant)By:
            /s/
              Stephen ChangStephen
              ChangCEO,
              President, DirectorDated
                March   , 2007




MULTICELL TECHNOLOGIES, INC.(Registrant)By:
              /s/
                W.
                Gerald NewminW.
                Gerald NewminChairman,
                Chief Financial Officer, Treasurer and SecretaryDated
                    March 15, 2007




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





**Signature**
            **Title**
            **Date**/s/W.
                Gerald Newmin
              
              W.
                Gerald Newmin
            Chairman
                ,Chief Financial Officer,
              Treasurer
                and Secretary
            March
                15, 2007/s/Stephen
                Chang
              
              Stephen
                Chang
            CEO,
                President, Director
            March
                15, 2007/s/Edward
                Sigmond
              
              Edward
                Sigmond
            Director
            March
                15, 2007/s/Thomas
                A. Page
              
              Thomas
                A. Page
            Director
            March
                15, 2007/s/Anthony
                Altig
              
              Anthony
                Altig
            Director
            March
                15, 2007




45


**INDEX
      TO FINANCIAL STATEMENTS**


Report
                of Independent Registered Public Accounting Firm
            F2Consolidated
                Balance Sheets
            F3Consolidated
                Statements of Operations
            F5Consolidated
                Statements of Stockholders’ Equity (Deficiency)
            F6Consolidated
                Statement of Cash Flows
            F8Notes
                to Consolidated Financial Statements
            F10







F-1




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board
      of
      Directors and Stockholders


MultiCell
      Technologies, Inc. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of MultiCell Technologies
      Inc. and Subsidiaries as of November 30, 2006 and 2005, and the related
      consolidated statements of operations, stockholders’ equity (deficiency) and
      cash flows for the years then ended. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of MultiCell Technologies,
      Inc.
      and Subsidiaries as of November 30, 2006 and 2005, and their results of
      operations and cash flows for the years then ended, in conformity with
      accounting principles generally accepted in the United States of
      America.





As
      discussed in Note 1 to the consolidated financial statements, the Company
      changed its method of accounting for stock-based compensation upon adoption
      of
      Statements of Financial Accounting Standards No. 123R, “Share-Based Payment”.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has sustained substantial losses
      and it has an accumulated deficit at November 30, 2006. These conditions raise
      substantial doubt about the Company’s ability to continue as a going concern.
      Management’s plans in regard to these matters are also described in Note 2. The
      consolidated financial statements do not include any adjustments relating to
      the
      recoverability and classification of reported asset amounts or the amounts
      and
      classification of liabilities that might result from the outcome of this
      uncertainty.







/s/
      J. H.
      Cohn LLP




Roseland,
      NJ


March
      2,
      2007




F-2




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Consolidated
      Balance Sheets**


**November
      30, 2006 and 2005**





ASSETS2006
            
            2005Current
                assets:Cash
                and cash equivalents
            
            $
            77,611
            
            $
            1,515,475Marketable
                securities
            
            
            
            
            
            1,138,201Interest
                and dividends receivable
            
            
            
            
            
            18,235Accounts
                and royalties receivable
            
            
            17,620
            
            
            71,764Other
                current assets
            
            
            42,806
            
            
            63,033Total
                current assets
            
            
            138,037
            
            
            2,806,708Equipment
                and improvements, net
            
            
            132,140
            
            
            151,524License
                agreement, net of accumulated amortization 2006, $2,433,393; 2005,
                $2,183,393
            
            
            
            
            
            250,000Intangible
                assets, net of accumulated amortization 2006, $86,290; 2005,
                $17,258
            
            
            1,199,429
            
            
            1,268,461Other
                assets
            
            
            35,891
            
            
            30,952Total
                Assets
            
            $
            1,505,497
            
            $
            4,507,645






See
      accompanying notes to consolidated financial statements.




F-3


**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Consolidated
      Balance Sheets**


**November
      30, 2006 and 2005**





LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIENCY)2006
            
            2005Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            1,134,321
            
            $
            605,476Current
                portion of deferred income
            
            
            29,159
            
            
            538,533Total
                current liabilities
            
            
            1,163,480
            
            
            1,144,009Non-current
                liabilities:Deferred
                income, net of current portion
            
            
            52,000
            
            
            57,200Total
                non-current liabilities
            
            
            52,000
            
            
            57,200Total
                liabilities
            
            
            1,215,480
            
            
            1,201,209Minority
                interest
            
            
            14,248
            
            
            630,655Commitments
                and contingenciesSeries
                B Redeemable Convertible Preferred, 17,000 designated as series B,
                16,877
                shares issued and outstanding, liquidation value of
                $1,700,709
            
            
            1,660,709Stockholders'
                equity (deficiency):Preferred
                stock, $.01 par value: 2,000,000 shares authorized, 12,200 and 15,000
                shares designated as Series I convertible preferred issued and
                outstanding, liquidation value of $1,220,000 and
                $1,500,000
            
            
            121
            
            
            150Common
                stock, $.01 par value: 200,000,000 shares authorized, 2006: 38,479,499
                shares issued and outstanding, 2005: 33,046,811 shares issued and
                outstanding
            
            
            384,795
            
            
            330,468Additional
                paid-in capital
            
            
            31,289,858
            
            
            28,227,833Accumulated
                deficit
            
            
            (33,059,714
            )
            
            (25,881,409
            )Accumulated
                other comprehensive loss
            
            
            
            
            
            (1,261
            )Total
                stockholders' equity (deficiency)
            
            
            (1,384,940
            )
            
            2,675,781Total
                Liabilities and Stockholders' Equity (deficiency)
            
            $
            1,505,497
            
            $
            4,507,645





See
      accompanying notes to consolidated financial statements.





F-4




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Consolidated
      Statements of Operations**


**For
      The Years ended November 30, 2006 and 2005**








2006
            
            2005Revenue
            
            $
            679,881
            
            $
            209,156Operating
                expenses:Selling,
                general and administrative
            
            
            4,097,346
            
            
            3,480,557Research
                and development
            
            
            2,252,250
            
            
            947,764Depreciation
                and amortization
            
            
            127,316
            
            
            180,330Write-down
                of license agreement due to impairment in value
            
            
            232,348
            
            
            1,626,075Total
                operating expenses
            
            
            6,709,260
            
            
            6,234,726Operating
                loss
            
            
            (6,029,379
            )
            
            (6,025,570
            )Other
                income (expense):Gain
                on sale of property
            
            
            
            
            
            136,554Loss
                on abandonment of leasehold improvements
            
            
            
            
            
            (14,286
            )Loss
                on sale of marketable securities
            
            
            (24,712
            )Interest
                expense
            
            
            (4,919
            )
            
            (25,552
            )Interest
                and dividend income
            
            
            24,351
            
            
            98,010Amortization
                of discount on note receivable
            
            
            
            
            
            5,000Minority
                interest in net loss of subsidiary
            
            
            616,407
            
            
            142,897Total
                other income (expense)
            
            
            611,127
            
            
            342,623Net
                loss
            
            
            (5,418,252
            )
            
            (5,682,947
            )Preferred
                stock dividends
            
            
            (60,053
            )Non-cash
                deemed dividend related to beneficial conversion feature of Series
                B
                Preferred stock
            
            
            (1,700,000
            )Net
                loss applicable to common stockholders
            
            $
            (7,178,305
            )
            
            ($5,682,947
            )Net
                loss per share applicable to common stockholders - basic and
                diluted
            
            $
            (0.20
            )
            $
            (0.18
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            35,312,804
            
            
            30,851,817





See
      accompanying notes to consolidated financial statements.





F-5





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Consolidated
      Statements of Stockholders' Equity (Deficiency)**


**For
      The Years ended November 30, 2006 and 2005**




**Series
                I Preferred****Stock**
            
            **Common
                Stock**
            
            **Additional
                Paid-**
              **in
                Capital**
            
            **Accumulated**
              **Deficit**
            
            
            **Accumulated
                other comprehensive Income (Loss****)**
            
            **Total
                stockholders**
              **Equity
                (Deficiency)****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**Balance,
                November 30, 2004
            
            
            18,000
            
            $
            180
            
            
            25,096,688
            
            $
            250,966
            
            $
            22,299,574
            
            $
            (20,198,462
            )
            
            
            
            
            $
            2,352,258Proceeds
                from issuance of common stock
            
            
            
            
            
            
            
            
            5,333,333
            
            
            53,333
            
            
            3,388,388
            
            
            
            
            
            
            
            
            
            3,441,721Conversion
                of preferred stock
            
            
            (3,000
            )
            
            (30
            )
            
            300,000
            
            
            3,000
            
            
            (2,970
            )Issuance
                of common stock for services
            
            
            
            
            
            
            
            
            616,636
            
            
            6,167
            
            
            521,866
            
            
            
            
            
            
            
            
            
            528,033Options
                issued for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            89,394
            
            
            
            
            
            
            
            
            
            89,394Warrants
                issued for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            574,245
            
            
            
            
            
            
            
            
            
            574,245Conversion
                of convertible notes and interest payable
            
            
            
            
            
            
            
            
            529,272
            
            
            5,293
            
            
            513,979
            
            
            
            
            
            
            
            
            
            519,272Options
                and warrants exercised
            
            
            
            
            
            
            
            
            1,170,882
            
            
            11,709
            
            
            567,216
            
            
            
            
            
            
            
            
            
            578,925Warrants
                issued in connection with astral purchase
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            276,141
            
            
            
            
            
            
            
            
            
            276,141Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,682,947
            )
            (A)
            
            
            
            
            (5,682,947
            )Unrealized
                loss on marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,261
            )
            
            (1,261
            )Balance
                November 30, 2005
            
            
            15,000
            
            $
            150
            
            
            33,046,811
            
            $
            330,468
            
            $
            28,227,833
            
            $
            (25,881,409
            )
            
            $
            (1,261
            )
            $
            2,675,781




(A)
      Comprehensive net loss (net loss plus unrealized loss on marketable equity
      securities) for the years ended November 30, 2006 and 2005 was $(5,418,252)
      and
      $(5,684,208), respectively.





See
      accompanying notes to consolidated financial statements.




F-6




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Consolidated
      Statements of Stockholders' Equity (Unaudited)
      (Deficiency)**





**Series
                I Preferred stock**
            
            **Common
                Stock**
            
            **Additional
                Paid-in**
              **Capital**
            
            **Accumulated**
              **Deficit**
            
            **Accumulated
                other comprehensive**
              **Income
                (Loss)**
            
            **Total
                stockholders**
              **Equity
                Deficiency****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**Balance,
                November 30, 2005
            
            
            15,000
            
            $
            150
            
            
            33,046,811
            
            $
            330,468
            
            $
            28,227,833
            
            $
            (25,881,409
            )
            $
            (1,261
            )
            $
            2,675,781Stock-based
                compensation for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            456,292
            
            
            
            
            
            
            
            
            456,292Common
                stock issued for services and settlement of accrued expenses
            
            
            
            
            
            
            
            
            1,791,425
            
            
            17,915
            
            
            607,916
            
            
            
            
            
            
            
            
            625,831Common
                stock issued in conjunction with equity line
            
            
            
            
            
            
            
            
            1,572,327
            
            
            15,723
            
            
            (15,723
            )Conversion
                of preferred stock into common
            
            
            (2,800
            )
            
            (29
            )
            
            1,000,000
            
            
            10,000
            
            
            (9,971
            )Common
                Stock issued in settlement of lawsuit
            
            
            
            
            
            
            
            
            90,000
            
            
            900
            
            
            33,300
            
            
            
            
            
            
            
            
            34,200Proceeds
                from issuance of common stock to Fusion Capital as a put under the
                company’s equity line of credit
            
            
            
            
            
            
            
            
            978,936
            
            
            9,789
            
            
            290,211
            
            
            
            
            
            
            
            
            300,000Non-cash
                deemed dividend related to beneficial conversion feature of series
                B
                preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,700,000
            
            
            (1,700,000
            )Dividends
                on preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (60,053
            )
            
            
            
            
            (60,053
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,418,252)
                (A
            )
            
            
            
            
            (5,418,252
            )Unrealized
                gain on marketable securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,261
            
            
            1,261Balance,
                November 30, 2006
            
            
            12,200
            
            $
            121
            
            
            38,479,499
            
            $
            384,795
            
            $
            31,289,858
            
            $
            (33,059,714
            )
            $
            0
            
            $
            (1,384,940
            )







(A)
            Comprehensive
                net loss (net loss plus unrealized loss on marketable equity securities)
                for the years ended November 30, 2006 and 2005 was $(5,418,252) and
                $(5,684,208), respectively.





See
      accompanying notes to consolidated financial statements.





F-7




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**For
      The Years ended November 30, 2006 and 2005**





2006
            
            2005Cash
                flows from operating activities:Net
                loss
            
            $
            (5,418,252
            )
            $
            (5,682,947
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Write-down
                of license agreement
            
            
            232,348
            
            
            1,626,075Depreciation
                and amortization
            
            
            127,316
            
            
            180,330Amortization
                of bond discount (premium)
            
            
            2,823
            
            
            12,397Amortization
                of discount on note receivable
            
            
            
            
            
            (5,000
            )Loss
                on sale of marketable securities
            
            
            23,451Common
                stock issued for services
            
            
            625,831
            
            
            528,033Common
                stock issued for legal settlements
            
            
            34,200Stock-based
                compensation for services
            
            
            456,292
            
            
            663,639Minority
                interest in loss of subsidiary
            
            
            (616,407
            )
            
            (142,897
            )XenoTech
                deferred income recognized
            
            
            (533,334
            )Bad
                debts
            
            
            47,519Loss
                on abandonment of leasehold improvements
            
            
            
            
            
            14,286Gain
                on sale of property
            
            
            
            
            
            (136,554
            )Changes
                in operating assets and liabilities:Accounts,
                royalties and interest and dividends receivable
            
            
            72,379
            
            
            4,519Other
                current assets
            
            
            20,227
            
            
            (27,890
            )Other
                assets
            
            
            (4,939
            )
            
            (21,750
            )Accounts
                payable and accrued expenses
            
            
            528,845
            
            
            194,065Other
                current liabilities
            
            
            
            
            
            (41,688
            )Deferred
                income
            
            
            (28,760
            )
            
            (119,486
            )Other
                liabilities
            
            
            
            
            
            268Net
                cash used in operating activities
            
            
            (4,430,461
            )
            
            (2,954,600
            )





See
      accompanying notes to consolidated financial statements.




F-8





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Consolidated
      Statements of Cash Flows**


**For
      The Years ended November 30, 2006 and 2005 (Continued)**




2006
            
            2005Cash
                flows from investing activities:Purchase
                of equipment
            
            
            (21,248
            )
            
            (45,672
            )Proceeds
                from sale of assets
            
            
            
            
            
            2,620Principal
                payments on notes receivable
            
            
            
            
            
            600,000Proceeds
                from sale of marketable securities
            
            
            1,113,188
            
            
            351,166Business
                acquisition
            
            
            
            
            
            (267,539
            )Purchases
                of marketable securities
            
            
            
            
            
            (1,503,025
            )Net
                cash provided by (used in) investing activities:
            
            
            1,091,940
            
            
            (862,450
            )Cash
                flows from financing activities:Proceeds
                from issuance of common stock, net
            
            
            300,000
            
            
            3,441,721Proceeds
                from issuance of preferred stock, net
            
            
            1,660,000Proceeds
                from notes payablePayments
                of notes payableProceeds
                from exercised options and warrants
            
            
            
            
            
            578,925Preferred
                stock dividends
            
            
            (47,043
            )Redemption
                of preferred stock
            
            
            (12,300
            )Net
                cash provided by financing activities
            
            
            1,900,657
            
            
            4,020,646Net
                increase (decrease) in cash and cash equivalents
            
            
            (1,437,864
            )
            
            203,596Cash
                and cash equivalents, beginning of year
            
            
            1,515,475
            
            
            1,311,879Cash
                and cash equivalents, end of year
            
            $
            77,611
            
            $
            1,515,475Supplemental
                disclosures:Interest
                paid
            
            $
            4,919Non-cash
                transactions:Conversion
                of convertible notes payable and accrued interest into common
                stock
            
            
            
            
            $
            519,272Deferred
                compensation arising from issuance of warrants to
                consultants
            
            
            
            
            $
            1,476,376Other
                current assets arising from issuance of warrants to
                consultants
            
            
            
            
            $
            157,393Accrued
                real estate taxes assumed by buyer in sale of real estate
            
            
            
            
            $
            179,728Accrued
                expenses settled by issuance of common stock
            
            $
            45,000





See
      accompanying notes to consolidated financial statements.




F-9





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      1 - Organization and Summary of Significant Accounting
      Policies**





Organization *-* MultiCell
      Technologies, Inc. (“MultiCell”), which was named Exten Industries, Inc. until
      April 1, 2004, 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”). MCT Rhode
      Island Corp. (“MCT”), is a 100%-owned subsidiary formed on June 24, 2004 and has
      been inactive since its formation. Xenogenics Corporation (“Xenogenics”), which
      is a 56.4%-owned subsidiary formed on June 24, 2004, was incorporated in
      February 1997 to focus on the research and development of Sybiol technology.
      Xenogenics has not generated any revenues as of November 30, 2006. As used
      herein, the “Company” refers to MultiCell, together with MCT Rhode Island Corp.,
      Xenogenics, and MCTI.





Historically,
      the Company has specialized in developing primary liver cell immortalization
      technologies to produce cell-based assay systems for use in drug discovery.
      The
      Company seeks to become an integrated biopharmaceutical company that will use
      its proprietary cell-based systems and immune system modulation technologies
      to
      discover, develop and commercialize new therapeutics itself and with strategic
      partners. Following the formation of MultiCell Immunotherapeutics, Inc. during
      September 2005, the Company is pursuing research and development of therapeutics
      in addition to continuing to advance its cellular systems business.





*Basis
      of Consolidation* - The
      consolidated financial statements include the accounts of MultiCell Technologies
      Inc. and its subsidiaries. All significant intercompany balances and
      transactions have been eliminated in consolidation.





*Cash
      and Cash Equivalents* - The
      Company considers all unrestricted highly liquid investments purchased with
      a
      maturity of three months or less to be cash equivalents.





*Fair
      Value of Financial Instruments* - The
      carrying amounts of cash and cash equivalents, accounts receivable, accounts
      payable, and accrued expenses approximate fair market value because of the
      short
      maturity of those instruments.





*Credit
      Risk* - It is
      the Company’s practice to place its cash equivalents in high quality money
      market securities with one major banking institution. Periodically, the Company
      maintains cash balances at this institution (at November 30, 2006, approximately
      $0) that exceeds the Federal Deposit Insurance Corporation insurance limit
      of
      $100,000 per bank. The Company considers its credit risk associated with cash
      and cash equivalents to be minimal. The Company does not require collateral
      from
      its customers. The Company closely monitors the extension of credit to its
      customers while maintaining an allowance for potential credit losses. On a
      periodic basis, management evaluates its accounts receivable and, if warranted,
      adjusts its allowance for doubtful accounts based on historical experience
      and
      current credit considerations. However, accounts receivable at November 30,
      2006
      consist primarily of amounts due under contractual agreements. In the opinion
      of
      management, all accounts receivable at November 30, 2006 and 2005, related
      to
      contractual agreements are collectible; accordingly, the Company recorded no
      allowance for doubtful accounts.





*Reverse
      Stock Split* - On May
      18, 2005, the Company's stockholders approved a one-for-five reverse stock
      split
      for its common stock. As a result, stockholders of record at the close of
      business on May 18, 2005 received one share of common stock for every five
      shares held. Pursuant to the foregoing reverse stock split, $1,263,721 was
      transferred from the Company's common stock account and such amount was credited
      to the Company's additional




F-10





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      1 - Organization and Summary of Significant Accounting Policies
      (Continued)**





paid-in
      capital account. Common stock, additional paid-in capital and share and per
      share data for prior periods have been restated to reflect the reverse stock
      split as if it had occurred at the beginning of the earliest period
      presented.





*Revenue
      Recognition* - The
      Company's revenues have been generated primarily from contractual research
      activities and royalties on the license for the sale of cells through its sale
      and distribution agreement with XenoTech, LLC ("XenoTech"). Management believes
      such sources of revenue will be part of the Company's ongoing operations. The
      Company applies the guidance provided by SEC Staff Accounting Bulletin. Topic
      13, "Revenue Recognition" ("Topic 13"). Under the provisions of Topic 13, the
      Company recognizes revenue from commercial and government research agreements
      as
      services are performed, provided a contractual arrangement exists, the contract
      price is fixed or determinable and the collection of the contractual amounts
      is
      reasonably assured. In situations where the Company receives payment in advance
      of the performance of services, such amounts are deferred and recognized as
      revenue as the related services are performed. Deferred revenues associated
      with
      services expected to be performed within the 12 - month period subsequent to
      the
      balance sheet date are classified as a current liability. Deferred revenues
      associated with services expected to be performed at a later date are classified
      as non-current liabilities.





Prior
      to
      December 1, 2004, the Company had recognized revenues under the XenoTech
      agreement based on the minimum royalty amount for each period because it had
      received a prepayment of a substantial portion of the amount due. XenoTech
      was
      required to pay a $2.1 million minimum royalty amount for the current fiscal
      year as a condition of its exclusivity. Since collection of the contractual
      amount was no longer reasonably assured and, in accordance with SEC Staff
      Accounting Bulletin Topic 13, commencing December 1, 2004, the Company began
      recognizing revenues under the XenoTech agreement based on the agreement’s
      royalty percentage applied to XenoTech’s actual sales for the period instead of
      the minimum royalty amount. Such
      revenues amounted to $55,382 and $86,485 for the years ended November 30, 2006
      and 2005, respectively .
      On
      February 1, 2006, the Company terminated the agreement with XenoTech due to
      the
      failure of XenoTech, with due notice, to cure various breaches within the time
      allotted by the agreement, including the payment of minimum royalties to
      maintain exclusivity. As a result of this termination and the Company’s
      recognition of the initial non-refundable payment of $800,000, over the 7-year
      term of the agreement, the Company recognized income for the remaining amount
      of
      deferred income of $533,334 in the current fiscal year.





*Equipment
      and Improvements* -
      Equipment and improvements are valued at cost. Improvements to leased properties
      are amortized using the straight-line method over their estimated useful lives
      or the remaining lease period, whichever is shorter. Depreciation for equipment
      and furniture is provided using the straight-line method over the estimated
      useful lives of the assets, generally three to five years.





*License
      Agreements -* Costs
      incurred to obtain license agreements for which income can be projected are
      capitalized. The Company amortizes these costs on a straight-line basis over
      the
      term of the respective license agreement. Amortization totaled $17,652 and
      $132,432 for each of the years ended November 30, 2006 and 2005. License
      agreements for which no income can be projected are expensed in the year
      incurred.




F-11




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      1 - Organization and Summary of Significant Accounting Policies
      (Continued)**





*Intangible
      Assets.* In
      accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the
      Company does not amortize intangible assets with indefinite useful lives. The
      Company amortizes identifiable intangible assets over the estimated useful
      lives
      of the assets. The Company performs its annual intangible asset impairment
      tests
      during the fourth quarter of its fiscal year and more frequently if an event
      or
      circumstance indicates that impairment has occurred. If the assets were
      considered to be impaired, the impairment charge would be the amount by which
      the carrying value of the assets exceeds the fair value of the
      assets.





*Impairment
      of long-lived assets -* The
      impairment of long-lived assets that do not have indefinite lives, such as
      equipment, patents, and license agreements, is recognized when events or changes
      in circumstances indicate that the undiscounted cash flows estimated to be
      generated by such assets are less than their carrying value and, accordingly,
      all or a portion of such carrying value may not be recoverable. Impairment
      losses are then measured by comparing the fair value of assets to their carrying
      amounts. As of November 30, 2006 and 2005, management tested the carrying value
      of its license agreement with Rhode Island Hospital for impairment and concluded
      that it had been impaired. Therefore, the Company has recognized a charge of
      $232,348 and $1,626,075 to write down the estimated value of the license
      agreement in the years ended November 30, 2006 and 2005 respectively. (See
      Note
      5).





*Share
      Based Compensation* The
      Company has stockholder approved stock incentive plans for employees, directors,
      officers and consultants. Prior to December 1, 2005, the Company accounted
      for
      the employee, director and officer plans using the intrinsic value method under
      the recognition and measurement provisions of Accounting Principles Board
      ("APB") No.25, "Accounting for Stock Issued to Employees" and related
      interpretations, as permitted by Statement of Financial Accounting Standards
      ("
      SFAS" or "Statement") No. 123, "Accounting for Stock-Based
      Compensation".





Effective
      December 1, 2005, the company adopted SFAS No. 123 R, "Share-based Payment,
      "(Statement 123 R") for employee options using the modified prospective
      transition method. Statement 123 R revised Statement 123 to eliminate the option
      to use the intrinsic value method and required the Company to expense the fair
      value of all employee options over the vesting period. Under the modified
      prospective transition method, the Company recognized compensation cost for
      the
      year ending November 30, 2006 which includes a) period compensation cost related
      to share-based payments granted prior to, but not yet vested, as of December
      1,
      2005, based on the grant date fair value estimated in accordance with the
      original provisions of Statement 123; and b) period compensation cost related
      to
      share-based payments granted on or after December 1, 2005 based on the grant
      date fair value estimated in accordance with Statement 123 R. In accordance
      with
      the modified prospective method, the Company has not restated prior period
      results.





Beginning
      December 1, 2005, the Company is recognizing compensation expense for stock
      option awards to employees based on their grant-date fair value. We utilize
      the
      Black-Scholes model to measure the value of an employee option. Our estimates
      of
      employee stock option values rely on estimates of factors we input into the
      Black-Scholes model. The key factors involve an estimate of future uncertain
      events. We determine expected volatility based on historical activity. We
      believe that these market-based inputs provide a better estimate of our future
      stock price movements. We also use historical exercise patterns as our best
      estimate of future exercise




F-12





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      1 - Organization and Summary of Significant Accounting Policies
      (Continued**





patterns.
      We utilize historical turnover rates in estimating expected forfeitures. We
      have
      incorporated the following assumptions into the Black-Scholes.




2006
            2005Risk-free
                interest rate
            4.42-5.07%
            2.56-4.05%Expected
                weighted average term (in years)
            3.54-5.0
            5.0Expected
                weighted average volatility
            68%
                -94%
            64%-84%Expected
                dividend yield
            0%
            0%





The
      weighted average fair value per share for stock options granted to employees
      during years ended November 30, 2006, and 2005 was $0.41 and $1.33,
      respectively.





The
      Company recognized compensation expense related to stock option grants on a
      straight-line basis over the vesting period. For the year ended November 30,
      2006, the Company recognized share-based employee compensation cost of $419,404
      in accordance with Statement 123 R of which $295,528 of this expense resulted
      from the grants of stock options to employees and directors of the Company
      on or
      prior to November 30, 2005. The balance of $123,876 relates to the granting
      of
      stock options to employees and officers on or after December 1, 2005. The
      Company did not capitalize any share-based compensation cost. Options granted
      to
      consultants and other non-employees are accounted for in accordance with EITF
      No. 96-18 "Accounting for Equity Instruments That Are Issued to Other than
      Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
      Accordingly, such options are recorded at fair value at the date of grant and
      subsequently adjusted to fair value at the end of each reporting period until
      such options vest, and the fair value of the options, as adjusted, is amortized
      to consulting expense over the related vesting period. As a result of adjusting
      consultant and other non-employee options to fair value as of November 2006,
      the
      Company recognized an increase to general and administrative and research and
      development expenses of $36,888 for the year ended November 30,
      2006.





As
      result
      of adopting Statement 123R, net loss for the year ended November 30, 2006 was
      greater than if the Company had continued to account for share-based
      compensation under APB 25 by $419,404. The effect of adopting Statement 123R
      on
      basic and diluted loss per share for the year ended November 30, 2006 was
      $0.01.





The
      total
      compensation related to nonvested awards not yet recognized was $323,108. The
      Company is expected to recognize these awards in the next two
      years.





The
      Company's historical net loss and basic net loss per share, and pro forma net
      loss and basic net loss per share, for the year ended November 30, 2005
      assuming  compensation cost had been determined based on fair value of all options at
      the
      respective dates of grant using a pricing model consistent with the provisions
      of SFAS 123 is set forth below:





Net
                loss applicable to common stockholders as reported
            
            $
            (5,682,947
            )Share-based
                employee compensation expense assuming a fair value based method
                has been
                used for all awards
            
            
            271,182Net
                loss - pro forma
            
            $
            (5,954,129
            )Basic
                loss per share as reported
            
            $
            (0.18
            )Basic
                loss per share - pro forma under SFAS 123
            
            $
            (0.19
            )




F-13





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      1 - Organization and Summary of Significant Accounting Policies
      (Continued)**





123
      R
      requires that the Company elect an approved method to calculate the historical
      pool of windfall tax benefits upon the adoption of SFAS 123R within one year
      of
      its adoption. As of November 30, 2006, the Company has not made that
      election.





*Research
      and Development Costs -* Research
      and development costs are expensed as incurred. Amounts received for research
      through grants are accounted for as an offset to research and development
      expenses for the year.





*Income
      Taxes* -
      Deferred income taxes are provided for the estimated tax effects of temporary
      differences between income for tax and financial reporting purposes. A valuation
      allowance is provided against deferred tax assets, where realization is
      uncertain. The income tax provision is the tax payable for the period plus
      or
      minus the change during the period in deferred tax assets and liabilities





*Comprehensive
      Loss -* Comprehensive
      loss, which is reported on the accompanying consolidated statement of
      stockholders' equity as a component of accumulated other comprehensive loss,
      consists of net loss and other gains and losses affecting stockholders' equity
      that, under accounting principles generally accepted in the United States of
      America, are excluded from net loss. For the Company, comprehensive loss
      consisted of the net loss adjusted for the unrealized holding gains and losses
      on the Company's available-for-sale marketable securities at November 30,
      2005.





*Loss
      Per Common Share* - The
      Company computes basic and diluted loss per common share amounts for 2006 and
      2005 pursuant to Statement of Financial Accounting Standards No. 128, “Earnings
      Per Share”. Basic loss per common share is computed by dividing the net loss
      applicable to common stockholders by the weighted average common shares
      outstanding during each period. Since the Company incurred losses during the
      years ended 2006 and 2005, the assumed effects of the exercise of outstanding
      stock options and warrants, and the conversion of convertible preferred stock
      were anti-dilutive and, accordingly, diluted per common share amounts equal
      basic loss per share amounts and have not been separately presented in the
      accompanying consolidated statements
      of operations .
      The
      total number of common shares potentially issuable upon exercise or conversion
      excluded from the calculation of diluted loss per common share for the years
      ended November 30, 2006 and 2005 was 36,840,063 and 18,055,146,
      respectively.





*Use
      of Estimates* - The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, and disclosure of contingent assets and liabilities,
      at
      the dates of these financial statements, and the reported amounts of revenues
      and expenses during the reporting periods. Actual results could differ from
      those estimates.





*Risks
      and Uncertainties* - The
      Company is dependent on continued financing from investors and obtaining new
      research grants to sustain the development and other activities necessary to
      commercialize new products. Management is seeking additional financing in order
      to fund its future activities. There is no assurance, however, that such
      financing will be available, if and when needed, or if available, that such
      financing will be completed on commercially favorable terms, or that such
      development and other activities in connection with its planned products will
      be
      successful.




F-14





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      1 - Organization and Summary of Significant Accounting Policies
      (Continued)**





*Environmental
      Remediation* -
      Environmental expenditures that relate to current operations are expensed or
      capitalized as appropriate. Expenditures that relate to an existing condition
      caused by past operations, and do not contribute to current or future revenue
      generation, are expensed. Liabilities are recorded when environmental
      assessments and/or remedial efforts are probable, and the costs can be
      reasonably estimated. Generally, the timing of these accruals coincides with
      the
      Company’s commitment to a formal plan of action. As of November 30, 2006 and
      2005, no amounts have been accrued for environmental liabilities.




**Note
      2 - Going Concern**




These
      consolidated financial statements have been prepared assuming that the Company
      will continue as a going concern. As of November 30, 2006, the Company has
      operating and liquidity concerns and, as a result of recurring losses has
      incurred an accumulated deficit of $33,059,714. These factors, among others,
      create an uncertainty about the Company’s ability to continue as a going
      concern. There can be no assurance 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 our common and/or preferred stock,
      the sale of warrants, and sales of its 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 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 its operations as a going concern.




On
      May 3,
      2006, MultiCell entered into a common stock purchase agreement with Fusion
      Capital Fund II, LLC (“Fusion Capital”), an Illinois limited liability company,
      which was amended and restated on October 5, 2006. Under the agreement, Fusion
      Capital is 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 has authorized 8,000,000 shares of its
      common  stock
      for
      sale to Fusion Capital under the agreement. The number of shares ultimately
      offered for sale by Fusion Capital is dependent upon the number of shares
      purchased by Fusion Capital under the agreement. The Company does not have
      the
      right to commence any sales of its shares to Fusion Capital until the SEC has
      declared effective the registration statement. After the SEC has declared
      effective such registration statement, generally the Company has the right
      but
      not the obligation from time to time to sell its shares to Fusion Capital in
      amounts between $50,000 and $1 million depending on certain conditions.
      MultiCell has the right to control the timing and amount of any sales of its
      shares to Fusion Capital. The purchase price of the shares will be determined
      based upon the market price of the Company’s shares without any fixed discount.
      Fusion Capital shall not have the right nor the obligation to purchase any
      shares of MultiCell’s common stock on any business day that the price of its
      common stock is below $0.20. The agreement may be terminated by MultiCell at
      any
      time at the Company’s discretion without any cost to the Company. If the holders
      of our Series B redeemable convertible preferred stock do not elect to require
      the Company use 25% of the gross proceeds received by the Company to repurchase
      and redeem their Series B shares or Series B shares converted into common stock,
      we anticipate using the proceeds from this financing for general corporate
      purposes, including the advancement of MCT-125 in a pivotal Phase IIb/III
      clinical trial for the treatment of fatigue in Multiple Sclerosis.




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




F-15




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**




**Note
      2 - Going Concern (Continued)**




at
      a
      price of $0.01 per share. Upon execution of the amended and restated purchase
      agreement on October 5, 2006, Fusion Capital retained the original 1,572,327
      shares of common stock and returned the warrant to the Company. As of February
      28, 2007 the Company has received $750,000 from this transaction for 3,001,010
      shares of common stock.




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.




If
      the
      Company draws any proceeds from the Company’s equity line credit facility with
      Fusion Capital, the purchasers may require the Company to use 25% of the gross
      proceeds received by the Company under such equity line to repurchase and redeem
      purchaser’s Series B preferred shares or Series B preferred shares converted
      into common stock, as determined in the discretion of such purchaser. Series
      B
      shares so redeemed shall be redeemed at $100 per share, plus accrued and unpaid
      dividends thereon, and shares of common stock so redeemed shall be redeemed
      at a
      price per share equal to the value weighted average closing price of the
      Company’s common stock over the immediately preceding five trading days, plus
      accrued and unpaid dividends thereon.




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.




F-16


**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**




**Note
      2 - Going Concern (Continued)**




In
      addition, the purchasers also received warrants to acquire up to 10,500,000
      shares of the Company’s common stock. The terms associated with the warrants are
      described in Note 10. 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.





**Note
      3- Equipment and Improvements**





Equipment
      and improvements are valued at cost, less accumulated depreciation and
      amortization and is comprised of the following:




2006
            
            2005Lab
                equipment
            
            $
            282,708
            
            $
            270,680Furniture
                and fixtures
            
            
            84,051
            
            
            74,831366,759
            
            
            345,511Less:
                Accumulated depreciation and amortization
            
            
            234,619
            
            
            193,987Property
                and equipment, net
            
            $
            132,140
            
            $
            151,524




The
      Company recorded depreciation expense of $40,632 and $30,640 in the years ended
      November 30, 2006 and 2005 respectively.





**Note
      4 - Real Estate Held for Sale**





The
      Company purchased a parcel of undeveloped land near the Grand Canyon in February
      1992 and during the year ended November 30, 1995; the Company tested the land
      for impairment and expensed all but the remaining fair market value of $47,200.
      During the year ended November 30, 2005, the Company sold lots with a carrying
      value of $45,794 for $2,620 in cash and the buyer’s assumption of the applicable
      unpaid property taxes in the amount of $179,728. As a result of the transaction,
      the Company recorded a gain on sale of property of $136,554.





**Note
      5 - License Agreement**





In
      September 2001, MultiCell completed the purchase of its cell line business
      and,
      as a result, it acquired an exclusive license agreement with Rhode Island
      Hospital for the use of four patents owned by the hospital related to liver
      cell
      lines and liver assist devices. The primary patent acquired and being utilized
      is for immortalized hepatocytes (see Note 7). As of November 30, 2006 and 2005,
      management tested the carrying value of the license agreement for impairment
      and
      concluded that it had been impaired. Therefore, the Company recognized a charge
      of $232,348 and $1,626,075 to write down the estimated value of the license
      agreement in the year ended November 30, 2006 and 2005. The license agreement
      had a net carrying value of $0 and $250,000 as of November 30, 2006 and 2005,
      respectively, which represented the original cost of $2,433,393 allocated in
      connection with the acquisition, net of accumulated amortization of $2,433,393
      and $2,183,939 at November 30, 2006 and 2005, respectively. Amortization expense
      totaled $17,652 and $132,432 for the years ended November 30, 2006 and 2005,
      respectively (in addition to the charge to write down the estimated value of
      the
      license agreement of $232,348 and  $1,620,075
      in the years ended November 30, 2006 and 2005, respectively). The Company will
      pay the hospital a 5% royalty on net sales derived from licenses based upon
      the
      patented technology, until it has paid a total of $550,000. As of




F-17





**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      5 - License Agreement**  **(Continued)**





November
      30, 2006, no significant payments had been made under this license agreement.
      After royalties totaling $550,000 have been paid, the Company pays a 2% royalty
      instead of a 5% royalty for the life of the patent.




On
      December 1, 2005, the Company entered into a Research Agreement (the
“Agreement”) with the Trustees of Columbia University (“Columbia”). Among other
      things, the Agreement provides for the investigation of a novel anti-apoptosis
      compound. The research project is designed to determine whether the compound
      can
      protect against Retinal Ganglion Cell (RGC) death in acute and chronic in vivo
      models of optic neuropathy. The research will be conducted in a Columbia
      laboratory under the direction of Dr. James Tsai, Associate Professor of
      Ophthalmology. The Company will provide financial support for the research
      during the two year term of the Agreement in an aggregate amount of at least
      approximately $310,000, subject to certain adjustments. The Company will also
      pay Columbia an additional $50,000 in consideration of Columbia’s grant to the
      Company of an option to enter into an exclusive worldwide license for any
      invention resulting from the research, subject to certain conditions. Subject
      to
      the Company’s option, Columbia will own any invention or research information
      that results from the research.




On
      December 31, 2005, the Company entered into a worldwide Exclusive License
      Agreement (the “License Agreement”) with Amarin Neuroscience Limited (“Amarin”).
      Among other things, the License Agreement provides that Amarin shall grant
      to
      the Company and its affiliates an exclusive worldwide license with respect
      to
      therapeutic or commercial uses of certain technology of Amarin, including
      LAX-202 (to be renamed MCT-125), and the Company shall develop and seek to
      commercialize products based on such technology. The initial technology to
      be
      developed is Amarin’s LAX-202, which is a potential treatment for fatigue in
      patients diagnosed with multiple sclerosis.




The
      agreement, which is for a term equal to the life of the patents licensed,
      required MultiCell to make an initial non-refundable payment of $500,000 to
      Amarin in January 2006 in addition to a second non-refundable payment of
      $500,000 in May 2006. In addition, the parties shall have a four-year mutual
      option to exclusively negotiate with the other with respect to entering into
      a
      commercial agreement with respect to certain additional patents owned by Amarin
      related to the technology licensed to the Company. MultiCell will pay to Amarin
      (a) a one-time license fee, (b) milestone payments based on time, approval
      by
      the Food and Drug Administration of any products developed under the License
      Agreement, and sales by MultiCell of such products, and (c) royalty payments
      based on sales by MultiCell of any such products.




Amarin
      shall retain ownership of all licensed patent rights under the License
      Agreement. The License Agreement further includes customary provisions related
      to, among other things, indemnification, insurance, maintenance of patent
      rights, confidentiality, and arbitration.




On
      June
      28, 2006, the Company entered into a letter agreement with Amarin amending
      the
      timing of the second license payment to be made to Amarin as outlined in the
      original License Agreement. In that letter agreement, the parties agreed to
      extend the deadline for the Company to make its second licensing payment which
      was to be made in May 2006. Under the terms of the agreement, the original
      second payment due to Amarin will be split into three payments. The first
      payment of $100,000 was made on July 17, 2006, the second payment was made
      on
      November 2, 2006, and the final payment for 2006 was made on December 13, 2006.
      Since no income can be projected from this license, the Company has recorded
      as
      a charge to research and development $700,000 in the current fiscal year.




F-18


**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      6- Intangible Assets**




Intangible
      assets consist of patents and patent rights obtained under licensing agreements
      and are amortized on a straight-line basis over the estimated useful life which
      is 18 years. The Company estimates amortization expenses related to intangible
      assets owned as of November 30, 2006 to be approximately $69,032 per year for
      the next five years.





**Note
      7- XenoTech Agreement**





In
      August, 2003, MultiCell signed an exclusive sales, manufacture and distribution
      agreement for the use of its cell lines by XenoTech, an unrelated party. The
      agreement, which is for a term of seven years, required XenoTech to make an
      initial non refundable payment of $800,000 to MultiCell in August 2003. This
      payment represented consideration for and a guarantee of Nosan, XenoTech’s
      distributor’s, the right of first negotiation for distribution rights for the
      Asia Pacific Rim, should MultiCell successfully complete the development of
      its
      cell lines for the production of proteins, other cellular constituents and
      or
      drug like molecules. This $800,000 payment was being recognized by the Company
      as revenue over the 7 year term of the agreement and was reflected as deferred
      revenue in the accompanying consolidated balance sheet at November 30,
      2005.





On
      February 1, 2006, the Company terminated the agreement with XenoTech due to
      the
      failure of XenoTech, with due notice, to cure various breaches within the time
      allotted by the agreement, including the payment of minimum royalties to
      maintain exclusivity. The Company
      recognized as income during the first quarter of 2006 the remaining deferred
      income balance $533,334 arising from the nonrefundable prepayment of $800,000
      described above due to the termination of the original license agreement.





**Note
      8 - Income Taxes**





The
      Company provides for income taxes using an asset and liability based approach.
      Deferred income tax assets and liabilities are recorded to reflect the tax
      consequences of temporary differences between the financial statement and tax
      bases of assets and liabilities that will result in taxable or deductible
      amounts in the future based on enacted tax laws and rates applicable to the
      periods in which the differences are expected to affect taxable income.
      Valuation allowances are established when necessary to reduce deferred tax
      assets to the amount expected to be realized. The Company had net deferred
      tax
      assets of approximately $8,256,000 and $6,169,000 at November 30, 2006 and
      2005
      relating primarily to the net operating loss carry-forwards generated by its
      operations. For financial statement purposes, the deferred tax assets have
      been
      fully offset by valuation allowances due to the uncertainties related to the
      extent and timing of the Company’s future taxable income.





A
      reconciliation of the expected income tax benefit at the U.S. Federal income
      tax
      rate to the income tax benefit actually recognized for the years ended November
      30, 2006 and 2005 is set forth below:








2006
            
            2005Expected
                income tax benefit
            
            $
            (1,842,206
            )
            $
            (1,932,202
            )Tax
                effect of nondeductible permanent differences
            
            
            237,019
            
            
            783,116State
                income benefit, net of federal tax
            
            
            (280,400
            )
            
            (242,500
            )Net
                increase in valuation allowance
            
            
            1,885,587
            
            
            1,391,586Income
                tax benefit
            
            $
            0
            
            $
            0






F-19




**MULTICELL
      TECHNOLOGIES, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      8 - Income Taxes (Continued)**





The
      Company’s net operating loss carry-forwards expire as follows:





Year
                Loss Generated
            
            Balance
                of Loss
              Carry-forwards
            
            Year
                of ExpirationNovember
                30, 1999 and prior
            
            $
            5,264,158
            
            
            2008
                through 2019November
                30, 2000
            
            
            1,025,963
            
            
            2020November
                30, 2001
            
            
            1,604,660
            
            
            2021November
                30, 2002
            
            
            1,516,313
            
            
            2022November
                30, 2003
            
            
            369,377
            
            
            2023November
                30, 2004
            
            
            1,561,148
            
            
            2024November
                30, 2005
            
            
            4,082,489
            
            
            2025November
                30, 2006
            
            
            5,218,031
            
            
            2026Total
            
            $
            20,642,139





**Note
      9 - Lease Commitments**





On
      April
      6, 2005, the Company entered into a three-year sublease agreement to lease
      a
      Lincoln, Rhode Island facility that houses activities related to administration,
      research and development. Remaining basic rental commitment under the sublease
      agreement as of November 30, 2006 total $143,479 payable as follows: $103,778
      and $39,701 in years ending November 30, 2007 and November 30, 2008,
      respectively. The sublease agreement also provides for an optional three-year
      renewal period.





On
      September 1, 2006, the Company entered into a one-year sublease agreement to
      lease a San Diego, California research facility. The remaining basic rental
      commitments under the sublease agreement as of November 30, 2006 totals $42,164
      payable as follows: $42,164 in the year ending November 30, 2007.





As
      a
      result of the relocation of operations during the year ended November 30, 2005,
      the Company recognized a loss associated with the abandonment of leasehold
      improvements of $14,286.





Rent
      expense under the Company’s operating leases was $188,612 and $102,973 for the
      fiscal years ended November 30, 2006 and 2005, respectively.





**Note
      10 - Warrants**





On
      December 7, 2004, The Board of Directors voted to approve the issuance of
      110,000 three year warrants at $.05 per share to an investor relations firm
      for
      consulting services to be rendered over a twelve month period commencing
      December 1, 2004. The fair value of the warrants determined using the
      Black-Scholes option pricing model was $82,961.





In
      addition, in February 2005, as consideration for consulting services over the
      three-year contract period, the Company issued to its non-executive Co-Chairman
      of the Board a five-year warrant to purchase 2,000,000 shares of the Company's
      common stock at $1.40 per share. One half the warrants become exercisable in
      equal monthly installments over a three-year vesting period. The second half
      of
      the warrants become exercisable and the first half




F-20




**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      10 - Warrants (Continued)**





will
      be
      accelerated within 30 days of the Company closing an additional equity financing
      arranged by the non- executive Co- Chairman of the Board of at least
      $10,000,000. The Company recognized expense on this warrant using variable
      accounting treatment determined using the Black-Scholes option pricing
      model.





On
      June
      23, 2005, the Board of Directors voted to approve the issuance of 100,000
      five-year warrants at $1.27 per share to an investor relations firm as a
      nonrefundable deposit for consulting services. The fair value of the warrants
      determined using the Black-Scholes option pricing model was $74,432 and is
      included in selling, general and administrative expenses.





In
      conjunction with the February 2005 private offering a total of 5,200,000
      warrants were issued to investors at prices ranging from $1.00 to $1.50 per
      share, a total of 2,000,000 warrants were issued to a consultant and member
      of
      the Board of Directors at an exercise price of $1.40 per share and 110,000
      warrants were issued to a consultant at a price of $.05 per share.





During
      the year ended November 30, 2005, 948,000 warrants were exercised at prices
      ranging from $.50 to $1.00 per share for total proceeds of $499,000. Also during
      the year, 160,000 warrants with an aggregate exercise price of $160,000 were
      exchanged in a cashless transaction for 84,882 shares.





In
      connection with the purchase of MCTI in September 2005, the Company issued
      400,000 warrants to Mixture Sciences, Inc. (“Mixture”). The first 200,000 shares
      underlying the warrant may be exercised by Mixture commencing six months
      following the issue date of the warrant at an exercise price per share of $1.20.
      The second 200,000 shares underlying the warrant may be exercised by Mixture
      (a)
      commencing on the one-year anniversary of the issue date of the Warrant at
      an
      exercise price per share equal to 120% of the average price per share for the
      30-day period prior to such one-year anniversary, or (b) in the event of a
      change of control of the Company prior to such one-year anniversary, commencing
      on the date of the public announcement of such change of control at an exercise
      price per share equal to 120% of the average price per share for the 30-day
      period prior to such change of control. The warrant shall terminate upon the
      earlier of (a) the seventh anniversary of the issue date of the Warrant and
      (b)
      a change of control of the Company.




On
      January 24, 2006, the Company issued a warrant to purchase common stock (the
      “Warrant”) to Trilogy Capital Partners, Inc. (the “Holder”). Pursuant to the
      Warrant, the Holder is entitled to purchase from the Company up to 1,000,000
      shares of the Company’s common stock, at an exercise price per share of $0.59.
      The warrants are fully vested and immediately exercisable. The Warrant shall
      expire and shall no longer be exercisable on the earlier of February 1, 2009
      or
      any change of control of the Company. The Company granted piggyback registration
      rights to the Holder with respect to the Warrant and the shares exercisable
      thereunder. The Company recorded charges associated with the warrant of $335,281
      to selling, general and administrative expenses during the fiscal year ended
      November 30, 2006.




On
      May 3,
      2006, as consideration for entering into a Common Stock Purchase Agreement
      (see
      Note 13), the Company issued to Fusion Capital a warrant to purchase 1,572,327
      shares of its common stock. Upon execution of an amended purchase agreement
      on
      October 5, 2006, this warrant issued to Fusion Capital was cancelled and
      returned to the Company.




F-21





**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      10 - Warrants (Continued)**




On
      July
      14, 2006, in connection with the private placement of the Series B convertible
      preferred stock the Company issued warrants to acquire up to 10,500,000 shares
      of the Company’s common stock at an exercise price of $0.35 per share. The
      warrants have a term of five years and expire on July 14, 2011.




On
      August
      16, 2006, as consideration for a research report written about the Company,
      the
      Company issued to Crystal Research a warrant to purchase 200,000 shares of
      its
      common stock that vested immediately at an exercise price of $0.60 per share.
      The warrant has a term of four years the Company recorded a charge of $21,236
      to
      selling, general and administrative expense during the three months ended August
      31, 2006, based on the fair value of this warrant issued as determined by the
      Black-Scholes option pricing model.




During
      March, 2006 the Company entered into a placement agency agreement with Bristol
      Investment Group, Inc. As part of this agreement, the Company agreed to issue
      350,000 warrants. The warrants were priced at $.56 per share vested immediately
      and will expire in five years. On October 4, 2006, the Board of Directors
      authorized the grant. The Company recorded a charge of $75,616 to selling,
      general and administrative expense.




Changes
      during the fiscal year ended November 30, 2006 in warrants outstanding for
      the
      Company were as follows:




Warrants
                outstanding at November 30, 2005
            
            12,110,546Granted
            
            13,622,326Forfeited
            
            (2,572,327
            )Warrants
                outstanding at November 30, 2006
            
            23,160,545





**Note
      11 - Series I Convertible Preferred Stock**




The
      Company’s Board of Directors has the authority, without further action by the
      stockholders, to issue up to 2,000,000 shares of Series I convertible 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 has
      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. A total of 20,000 shares were sold to accredited investors
      at a
      price of $100 per share. The Series I shares are convertible at any time into
      common stock at 80% of the average trading price of the lowest three inter-day
      trading prices of the common stock for the ten days preceding the conversion
      date, but at an exercise price of no more than $1.00 per share and no less
      than
      $.25 per share. The conversion of the Series I preferred stock is limited to
      9.99% of the Company’s common stock outstanding on the date of conversion. The
      Series I preferred stock does not have voting rights. The purchasers also
      received warrants to acquire up to 1,000,000 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 I
      convertible preferred stock shall be entitled to be paid first out of the assets
      of the Company available for




F-22





**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**




**Note
      11 - Series I Convertible Preferred Stock (Continued)**




distribution
      to stockholders, an amount equal to $100 per share of Series I preferred stock
      held. After such payment has been made in full, such holders of Series I
      convertible preferred stock shall be entitled to no further participation in
      the
      distribution of the assets of the Company.




Proceeds
      to the Company were $1,714,149, net of $285,851 of issuance costs, of which
      $902,388 was assigned to the 5,000,000 warrants, utilizing the Black-Scholes
      option pricing model. In connection with the issuance of the Series I
      convertible preferred stock and warrants, the Company recorded $1,721,144
      related to the beneficial conversion feature on the Series I preferred stock
      as
      a deemed dividend, which increased additional paid-in capital. The preferred
      stock issued included a beneficial conversion feature because the effective
      conversion price of the Series I preferred stock was less than the fair value
      of
      the common stock on the date of issuance.




During
      the current fiscal year, 2,800 shares of preferred stock were converted into
      1,000,000 shares of common stock. During the prior fiscal year 3,000 shares
      of
      preferred stock were converted into 300,000 shared of common stock




**Note
      12 - Series B Redeemable Convertible 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 has designated 17,000 shares
      as Series B convertible preferred stock. 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 the Wall Street Journal Prime Rate
      plus 1%, or 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.




If
      the
      Company draws any proceeds from the Company’s equity line of credit facility
      with Fusion Capital, the purchasers may require the Company to use 25% of the
      gross proceeds received by the Company under such equity




F-23




**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**




**Note
      12 - Series B Redeemable Convertible Stock (Continued)**




line
      to
      repurchase and redeem purchaser’s Series B shares or Series B preferred shares
      converted into common stock, as determined in the discretion of such purchaser.
      Series B Shares so redeemed shall be redeemed at $100 per share, plus accrued
      and unpaid dividends thereon, and shares of common stock so redeemed shall
      be
      redeemed at a price per share equal to the value weighted average closing price
      of the Company’s Common Stock over the immediately preceding five trading days,
      plus accrued and unpaid dividends thereon.




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. The terms associated with the warrants are
      described in Note 10. 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 stock holders 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.




Proceeds
      to the Company were $1,660,000 net of $40,000 of issuance costs, of which
      $925,326 was assigned to the 10,500,000 warrants, issued utilizing the
      Black-Scholes option pricing model. The terms associated with the warrants
      are
      described in Note 10.




In
      connection with the issuance of the Series B preferred stock and warrants,
      the
      Company recorded $1,700,000 related to the beneficial conversion feature on
      the
      Series B preferred stock and fair value of the warrants as a deemed dividend.
      This deemed dividend increased the carrying value of the preferred stock. A
      beneficial conversion feature is present because the effective conversion price
      of the Series B preferred stock was less than the fair value of the common
      stock
      on the date of issuance. The beneficial conversion feature on the issuance
      of
      the Series B preferred stock was calculated as $1,244,076. However, because
      the
      combined value of the beneficial conversion feature plus the value of the
      warrants issued to the Series B preferred holders as calculated using the
      Black-Scholes pricing model exceeded the carrying value of the net proceeds
      received in the private placement, the deemed dividend recorded was limited
      to
      $1,700,000. The deemed dividend increased the loss applicable to common
      stockholders in the calculation of basic loss per common share.





**Note
      13 - Common Stock**





On
      February 10, 2005, the Company completed a private placement offering pursuant
      to Regulation D of the Securities Act of 1933, as amended. Pursuant to
      subscription agreements, originally signed on January 29, 2005




F-24





**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      13 - Common Stock (Continued)**





and
      subsequently amended on February 10, 2005, with 11 accredited investors, the
      Company received an aggregate of $4,000,000 and issued an aggregate of 5,333,333
      shares of common stock; three-year warrants to purchase an aggregate of
      3,600,000 shares of common stock at $1.00 per share and three-year warrants
      to
      purchase an aggregate of 1,600,000 shares of common stock at $1.50 per share.
      After deducting issuance costs of $558,279, the Company received net proceeds
      of
      $3,441,721. In connection with the offering, the Company entered into a
      registration rights agreement with the investors and filed a registration
      statement on May 12, 2005 for the resale of the common stock and the shares
      issuable upon exercise of the warrant.




On
      May 3,
      2006, MultiCell entered into a common stock purchase agreement with Fusion
      Capital, which was amended and restated on October 5, 2006. Under the agreement,
      Fusion Capital is 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 has authorized 8,000,000 shares of its common stock
      for
      sale to Fusion Capital under the agreement. The number of shares ultimately
      offered for sale by Fusion Capital is dependent upon the number of shares
      purchased by Fusion Capital under the agreement. The Company does not have
      the
      right to commence any sales of its shares to Fusion Capital until the SEC has
      declared effective the registration statement. After the SEC has declared
      effective such registration statement, generally the Company has the right
      but
      not the obligation from time to time to sell its shares to Fusion Capital in
      amounts between $50,000 and $1 million depending on certain conditions.
      MultiCell has the right to control the timing and amount of any sales of its
      shares to Fusion Capital. The purchase price of the shares will be determined
      based upon the market price of the Company’s shares without any fixed discount.
      Fusion Capital shall not have the right nor the obligation to purchase any
      shares of MultiCell’s common stock on any business day that the price of its
      common stock is below $0.20. The agreement may be terminated by MultiCell at
      any
      time at the Company’s discretion without any cost to the Company.




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 retained the original 1,572,327
      shares of common stock and returned the warrant to the Company.




On
      March
      10, 2006, the Board of Directors voted to approve the issuance of 350,918 shares
      of common stock at $0.41 per share (the closing price on that date) to members
      of the Company’s Board of Directors and to three consultants for services
      performed during the three months ended February 28, 2006. The total value
      of
      these shares was $143,876 and the related expense is included in selling,
      general and administrative expenses.




On
      May
      23, 2006, the Board of Directors voted to approve the issuance of 387,481 shares
      of common stock at $0.36 per share (the closing price on that date) to members
      of the Company’s Board of Directors and to four consultants for services
      performed during the three months ended August 31, 2006 the total value of
      these
      shares was $139,493 and the related expense is included in selling, general
      and
      administrative expenses.




On
      March
      29, 2006, the Company’s Series I preferred stockholders converted 1,250
      preferred shares into 446,429 shares of common stock at a conversion price
      of
      $0.28 per share. On May 3, 2006, the Company’s preferred stockholders converted
      1,550 preferred shares into 553,571 shares of common stock at a conversion
      price
      of $0.28 per share. As of August 31, 2006, the Company had reserved 4,880,000
      shares of common stock for issuance upon conversion of the remaining 12,200
      outstanding shares of preferred stock.




F-25


**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005 (Continued)**





**Note
      13 - Common Stock (Continued)**




On
      July
      17, 2006, the Board of Directors voted to approve the issuance of 90,000 shares
      of common stock at $0.38 per share (the closing price on that date) to an
      ex-employee in settlement of a dispute. The total value of the shares was
      $34,200 and the related expense is included in selling, general and
      administrative expenses.




On
      July
      25, 2006, the Company entered into a Separation Agreement and Release with
      Anthony Cataldo, a member of the Company’s Board of Directors and a consultant
      to the Company. In connection with the execution of the agreement, on August
      1,
      2006, the Company issued 158,333 shares of common stock at $0.36 per share
      (the
      closing price on that date) to Mr. Cataldo. The total value of these shares
      was
      $57,000 and it was for the July 1, 2006 payment of $45,000 plus payment of
      $12,000 of director’s fees not previously paid. The related expense related to
      the issuance of these shares is included in selling, general and administrative
      expenses.




On
      August
      16, 2006, the Board of Directors voted to approve the issuance of 486,649 shares
      of common stock at $0.34 per share (the closing price on that date) to members
      of the Company’s Board of Directors and to three consultants for services
      performed during the three months ended August 31, 2006. The total value of
      these shares was $165,461 and the related expense is included in selling,
      general and administrative expenses.




On
      October 27, 2006, the Company issued 140,186 shares of common stock at $0.32
      per
      share (the closing price on that date) to Anthony Cataldo as partial payment
      of
      the Separation Agreement.




On  November
      17, 2006, the Board of Directors voted to approve the issuance of 267,858 shares
      of common stock at $0.28 per share (the closing price on that date) to Emmes
      Group, Inc. for consulting services performed. The total value of these shares
      was $75,000 and the related expense is included in selling, general and
      administrative expenses.





At
      November 30, 2006 and 2005, the Company had reserved 36,840,063 and 18,055,146
      shares of common stock, respectively, for potential future issuances upon
      exercise of outstanding warrants and options, and conversion of convertible
      preferred stock as follows:





November
                30, 2006
            November
                30, 2005Warrants
                (Note 10)
            23,160,545
            12,110,546Stock
                options (Note 14)
            2,860,000
            2,944,600Series
                B Redeemable Convertible Stock (Note 12)
            5,274,063
            3,000,000Preferred
                stock (Note 12)
            5,545,455
            0Totals
            36,840,063
            18,055,146




All
      warrants are exercisable in whole or in part, at any time and from time to
      time
      on or before the expiration date. These warrants are or will be exercisable
      at
      $.01 to $1.50 per share and expire at various dates from July 2007 through
      2014.





**Note
      14 - Stock Compensation Plans**





2000
      Stock Incentive Plan: Effective February 15, 2000, the Company adopted a 2000
      Stock Incentive Plan and a 2000 Employee Benefit Plan which authorizes the
      granting of shares and options to employees, outside directors,




F-26





**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**




**Note
      14 - Stock Compensation Plans (Continued)**





consultants,
      and vendors. The 2000 Stock Incentive Plan and 2000 Employee Benefit Plan were
      approved by shareholders at the May 2000 annual meeting. Under the Plans, awards
      are made in the form of restricted shares or options, which may constitute
      incentive stock options (“ISO”) or nonstatutory stock options (“NSO”). Only
      employees of the Company are eligible for the grant of incentive stock options.
      The total number of options and restricted shares that could have been awarded
      under the 2000 Stock Incentive Plan initially was 1,000,000. As of the first
      day
      of each calendar year commencing January 1, 2001, this total will automatically
      increase by 2% of the total number of common shares then outstanding or 100,000
      shares, whichever is less. The option price, number of shares, grant date,
      and
      vesting period are determined at the discretion of the Company’s Board of
      Directors. The exercise price of each ISO granted under the plan must equal
      100%
      of the market price of the Company’s stock on the date of grant. The exercise
      price of each NSO grant under the plan cannot be less than 85% of the market
      price of the Company’s stock on the date of grant. An option’s maximum term is
      10 years. As of November 30, 2004, the total number of options that were
      authorized for issuance under the 2000 Stock Incentive Plan had increased from
      1,000,000 shares to 1,400,000. However, the Company has issued more options
      than
      were authorized under the 2000 Stock Incentive Plan. This was necessary to
      provide an incentive to key employees to stay with the Company or one of its
      subsidiaries. The Company obtained stockholders’ approval for an increase in the
      number of options authorized for issuance at its stockholders’
meeting.





2000
      Employee Benefit Plan: On July 3, 2000, the Company filed with the Securities
      and Exchange Commission an S-8 registration statement (the “Registration
      Statement”) in respect of its 2000 Employee Benefit Plan to register 7,000,000
      shares of the Company’s common stock issuable under the plan. One or more
      Performance Awards may be granted under the plan to any eligible person
      providing services to or for the Company. The value of such awards may be linked
      to the market value, book value or other measure of the value of the common
      stock or other specific performance criteria determined appropriate by the
      Board
      of Directors or the Compensation Committee (the “Committee”). The Board or the
      Committee may approve stock payments to eligible persons who elect to receive
      such payments in the manner determined by the Board or the Committee. The total
      number of shares that can be awarded under the 2000 Employee Benefit Plan is
      7,000,000.





Prior
      to
      2000, the Company had issued options with terms of up to 10 years and exercise
      prices of $.50 to $2.50 per share (the fair market value at the respective
      dates
      of grant) to various employees, officers and directors of the Company in return
      for various services rendered to the Company. None of these options remained
      outstanding at November 30, 2006 and 2005. Changes during the years ended
      November 30, 2006 and 2005 in stock options outstanding with respect to the
      2000
      plans for the Company were as follows:





2006
            
            2005Shares
            
            Weighted
                Average
              Exercise
                Price
            
            Shares
            
            Weighted
                Average
              Exercise
                PriceOptions
                outstanding at beginning of year
            
            
            882,600
            
            $
            .71
            
            
            1,020,600
            
            $
            0.71GrantedForfeited
            
            
            (402,600
            )
            $
            .39Exercised
            
            
            
            
            
            
            
            
            (138,000
            )
            $
            .58Options
                outstanding at end of year
            
            
            480,000
            
            $
            1.02
            
            
            882,600
            
            $
            0.71Options
                exercisable at end of year
            
            
            474,444
            
            
            
            
            
            668,878




F-27





**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      14 - Stock Compensation Plans (Continued)**





The
      following table summarizes information about stock options outstanding for
      the
      2000 plans at November 30, 2006, all of which are at fixed prices:





Range
                of Exercise Prices
            
            Number
                Outstanding
              At
                11/30/06
            
            Weighted
                Average
              Remaining
              Contractual
                Life
            
            Weighted
                Average
              Exercise
                Price
            
            Number
                Exercisable At 11/30/2006$.30
                - $.40
            
            
            280,000
            
            
            1.12
                yrs
            
            $
            0.39
            
            
            280,000$.57
                - $1.00
            
            
            100,000
            
            
            1.78
                yrs
            
            
            0.74
            
            
            100,000$2.55
                - $3.50
            
            
            100,000
            
            
            1.16
                yrs
            
            
            3.05
            
            
            94,444480,000
            
            
            
            
            $
            1.02





The
      weighted average remaining contractual life and exercise price for options
      exercisable at November 30, 2006, are 1.28 years and $1.03, respectively.





2004
      Equity Incentive Plan: Effective June 16, 2004, the Company adopted an equity
      incentive plan, which authorizes the granting of stock awards to employees,
      directors, and consultants. The purpose of the 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 common stock through granting of
      incentive stock options, non-statutory stock options, stock purchase awards,
      stock bonus awards, stock appreciation rights, stock unit awards and other
      stock
      awards. The shares of common stock may be issued pursuant to stock awards shall
      not exceed in the aggregate 5,000,000 shares of common stock plus an annual
      increase to be added of the first day of each Company fiscal year, beginning
      in
      2005 and ending in (and including) 2013, equal to the lesser of the following
      amounts: (a) 15% of the Company’s outstanding shares of common stock on the day
      preceding the first day of such fiscal year; (b) 5,000,000 shares of common
      stock; or (c) an amount determined by the Board. Incentive stock options may
      be
      granted only to employees. The exercise price of each ISO granted under the
      plan
      must equal 100% of the market price of the Company’s stock on the date of the
      grant. A 10% stockholder shall not be granted an incentive stock option unless
      the exercise price of such option is at least 110% of the fair market value
      of
      the 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, in
      its
      discretion, shall determine the exercise price of each nonstatutory stock
      option. An option’s maximum term is 10 years.





Changes
      during the years ended November 30, 2006 and 2005 in stock options outstanding
      with respect to the 2004 plan for the Company were as follows:




2006
            
            2005Shares
            
            Weighted
                Average
              Exercise
                Price
            
            Shares
            
            Weighted
                Average
              Exercise
                PriceOptions
                outstanding at beginning of year
            
            
            2,062,000
            
            
            1.32
            
            
            480,000
            
            $
            1.28Granted
            
            
            430,000
            
            
            .53
            
            
            1,582,000
            
            $
            1.33Forfeited
            
            
            (112,000
            )
            
            1.10ExercisedOptions
                outstanding at end of year
            
            
            2,380,000
            
            
            1.19
            
            
            2,062,000
            
            $
            1.32Options
                exercisable at end of year
            
            
            1,509,444
            
            
            
            
            
            560,333






F-28


**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      14 - Stock Compensation Plans (Continued)**





The
      following table summarizes information about stock options outstanding for
      the
      2004 plan at November 30, 2006, all of which are at fixed prices:


Range
                Of ExercisePrices
            
            Number
              Outstanding
                At
              11/30/2006
            
            Weighted
                Average
              Remaining
              Contractual
                Life
            
            Weighted
                Average
              Exercise
                Price
            
            Number
              Exercisable
                At
              11/30/2006$068
                - $1.10
            
            
            640,000
            
            
            4.31
            
            $
            .76
            
            
            435,833$1.25-
                $2.00
            
            
            1,740,000
            
            
            2.98
            
            $
            1.35
            
            
            1,073,6112,380,000
            
            
            
            
            
            
            
            
            1,509,444





The
      weighted average remaining contractual life and exercise price for options
      exercisable at November 30, 2006, are 3.3 years and $1.18, respectively. At
      November 30, 2006 the Company’s stock price was less than the exercise price of
      all the outstanding options, and accordingly there is no intrinsic value with
      the respect to options outstanding as of November 30, 2006.




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), which revises SFAS No. 123 “Accounting for
      Stock-Based Compensation,” (“SFAS 123”) and supersedes Accounting Principles
      Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB
      25”), which provided for the use of the intrinsic value method of accounting for
      employee stock options. SFAS 123R requires all share-based payments to
      employees, including grants of employee stock options, to be recognized in
      the
      financial statements based on their fair values beginning with the first quarter
      of the first annual reporting period that begins after December 15, 2005. Under
      SFAS 123R, the use of the intrinsic value method and the pro forma disclosures
      previously permitted under SFAS 123 are no longer an alternative to financial
      statement recognition.




The
      Company has adopted the provisions of SFAS 123R effective December 1, 2005
      and
      has selected the Black-Scholes method of valuation for share-based compensation.
      The Company has adopted the modified prospective transition method which does
      not require restatement of prior periods. Instead, it requires that compensation
      cost be recorded as earned for all unvested stock options outstanding at the
      beginning of the first quarter of adoption of SFAS 123R. The charge is being
      recognized in research and development and selling, general and administrative
      expenses over the remaining service period after the adoption date based upon
      the original estimate of fair value of the options as of the grant date. 123R
      requires that we elect an approved method to calculate the historical pool
      of
      windfall tax benefits upon adoption of SFAS 123R within one year of its
      adoption. As of November 30, 2006, we have not made that election.





On
      January 18, 2006, Gerard A. Wills was granted an option to purchase 300,000
      shares of the Company's common stock at an exercise price per share of $0.56,
      the fair market value at the date of the grant, under the Company's 2004 Equity
      Incentive Plan (The "Plan"). Upon the separation from the Company, the options
      became fully vested.




F-29




**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      14 - Stock Compensation Plans (Continued)**





The
      Company recorded a charge of $123,876 to selling, general and administrative
      expense determined using the Black-Scholes option pricing model.





On
      January 18, 2006, The Company granted to a consultant an option to purchase
      40,000 shares of the Company's common stock at an exercise price of $0.56,
      the
      fair market value at the date of the grant under the Company's 2004 Equity
      Incentive Plan (The "Plan"). Subject to the terms of the plan (The "Plan"),
      the
      options will be exercisable for a period of five years and vest monthly over
      the
      three-year term of the agreement in equal increments of 1/36th. The Company
      recorded a charge of $ 3,688 to selling, general and administrative expense
      determined using the Black-Scholes option pricing model.





On
      May
      26, 2005, the Company executed a new employment agreement with Ronald Faris,
      Ph.D., continuing his employment as Senior Vice President and Chief Science
      Officer. The agreement is for a term of three years and may be cancelled by
      Dr.
      Faris or by the Company at any time. The agreement provides for a base salary
      of
      $175,000 per year plus participation in the Company's bonus and compensation
      programs for executive management, if and when established. In addition Dr.
      Faris received a stock option (the "Option") to purchase 200,000 shares of
      the
      Company's common stock, at an exercise price of $1.40 per share, (the fair
      market value at the date of the grant) under the Company's 2004 Equity Incentive
      Plan (the "Plan"). Subject to the terms of the Plan, the Option will be
      exercisable for a period of five years and vest monthly over the three-year
      term
      of the agreement in equal increments of 1/36 th .
      The
      Board also agreed to grant Dr. Faris a one year, fully vested grant for 50,000
      shares to replace an expiring option.





On
      October 4, 2006, The Board of Directors voted to approve stock options to
      purchase 90,000 shares of The Company’s common stock to three consultants, at an
      exercise price of $.42 per share, the fair market value at the date of the
      grant) under the Company’s 2004 Equity Incentive Plan (The “Plan”). Subject to
      the terms of the plan, the options will be exercisable for a period of five
      years and vest monthly over the three-year term of the agreement in equal
      increments of 1/36 th .
      The
      Company recorded a charge of $5,688 to selling, general and administrative
      expense determined using the Black-Scholes option pricing model.





**Note
      15 - Grant Income**




In
      July
      2003, the Company was awarded a grant by the National Institutes of Health
      to
      improve the function of the Company's cell line. The Company began the project
      in July 2004. The total federal award amounted to $139,314.




The
      project period expired on December 31, 2004. During the year ended November
      30,
      2005, the Company received $36,256 under the grant and has accounted for this
      as
      an offset to research and development expenses for the year. On August 30,
      2005,
      notification was received that a new Small Business Innovation Research award
      in
      the amount of $137,724 had been granted to the Company to create proprietary
      BioFactoriesTM that express a serine protease inhibitor recently implicated as a
      novel treatment for sepsis. The Company received $45,113 in fiscal year 2005
      and
      $92,611 in fiscal year 2006 under this grant and has accounted for this as
      an
      offset to research and development expenses for the year.




On
      June
      22, 2006, The National Institutes of Health awarded a grant in the amount of
      $210,000 to treat Type 1




F-30





**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      15 - Grant Income (Continued)**





Diabetes.
      During the year ended November 30, 2006, the Company received $74,699 under
      this
      grant and has accounted for this as an offset to research and development
      expenses for the year.





**Note
      16 - Xenogenics Subsidiary and Minority Interest**





As
      of
      November 30, 2006 and 2005, the Company owned 56.4% of the 2,659,004 outstanding
      common shares of Xenogenics, one of its subsidiaries.





**Note
      17 - Acquisition**





On
      September 7, 2005, MCTI entered into an Asset Contribution Agreement with the
      Company, Alliance Pharmaceutical Corp. ("Alliance"), and Astral, Inc. ("Astral,"
      and together with Alliance, "Transferors") (the “Agreement”). Pursuant to the
      Agreement **,** MCTI
      issued 490,000 shares of common stock to Alliance in consideration for the
      acquisition of certain assets (including intellectual property, laboratory
      equipment and furniture) and the assumption of certain liabilities relating
      to
      Transferors' business. The intellectual property acquired by MCTI includes
      ten
      United States and twenty foreign issued and pending patents and patent
      applications related to chimeric antibody technology, treatment of Type 1
      diabetes, T-cell tolerance, toll-like receptor technology, dendritic cells,
      dsRNA technology and immunosuppression. The 490,000 shares of MCTI’s common
      stock represent 49% of the outstanding shares of MCTI, as of the closing of
      the
      transaction. As part of the acquisition, the Company has guaranteed the
      obligations of MCTI related to the assumption of certain liabilities relating
      to
      Transferors' business.





Prior
      to
      the closing of the Acquisition, Stephen Chang, a director and the President
      of
      the Company, served as the President and Chief Executive Officer of Astral
      on a
      one-day per week basis. As part of MCTI’s assumption of certain liabilities of
      Transferors, MCTI assumed liabilities owed by Astral to Dr. Chang in the amount
      of $200,000. The $200,000 assumed by MCTI will be paid to Dr. Chang over time
      as
      determined by the board of directors of MultiCell, with Dr. Chang abstaining
      from voting thereon. In addition, MCTI hired two scientists of Astral as part
      of
      the Acquisition.





Immediately
      following the closing of the Acquisition, MCTI sold and issued 500,000 shares
      of
      MCTI’s Series A Preferred Stock to the Company pursuant to a Series A Preferred
      Stock Purchase Agreement (the "Series A Financing"). In consideration for MCTI’s
      issuance of shares of Series A Preferred Stock, the Company paid to MCTI cash
      in
      the amount of $1,000,000, and issued a secured promissory note to MCTI in the
      amount of $1,000,000 (the "Note"). The Note bears interest at an annual rate
      of
      5% and may be prepaid without penalty by the Company at any time. The Note
      is
      secured by 250,000 shares of Series A Preferred Stock held by the Company and
      is
      payable in the amount of $250,000 plus interest at the end of each three-month
      period following the issuance of such Note. Following the Series A Financing,
      the Company holds approximately 67% of the outstanding shares (on an
      as-converted basis) of MCTI, and Alliance holds the remainder of approximately
      33%.





The
      board
      of directors of MCTI consists of three members as follows: (a) W. Gerald Newmin,
      the Company’s Chief Executive Officer, (b) Stephen Chang, the Company’s
      President, and (c) Duane Roth, Alliance's Chief Executive Officer.




F-31




**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      17 - Acquisition (Continued)**





Simultaneously
      with the execution of the Agreement, the Company entered into an IP Agreement
      and Release (the "IP Agreement") with Mixture and Astral. Pursuant to the IP
      Agreement, Mixture assigned to MCTI certain intellectual property related to
      the
      Astral business previously assigned by Astral to Mixture. In consideration,
      the
      Company (a) paid $100,000 to Mixture, and (b) issued to Mixture a Warrant to
      purchase up to 400,000 shares of the Company’s Common Stock. The first 200,000
      shares underlying the Warrant may be exercised by Mixture commencing six months
      following the issue date of the Warrant at an exercise price per share of $1.20.
      The second 200,000 shares underlying the Warrant may be exercised by Mixture
      (a)
      commencing on the one-year anniversary of the issue date of the Warrant at
      an
      exercise price per share equal to 120% of the average price per share for the
      30-day period prior to such one-year anniversary, or (b) in the event of a
      change of control of the Company prior to such one-year anniversary, commencing
      on the date of the public announcement of such change of control at an exercise
      price per share equal to 120% of the average price per share for the 30-day
      period prior to such change of control. The Warrant shall terminate upon the
      earlier of (a) the seventh anniversary of the issue date of the Warrant and
      (b)
      a change of control of the Company. The Company has granted customary
      "piggy-back" registration rights with respect to the shares issuable pursuant
      to
      the exercise of the Warrant.





**Note
      18 - Restatement of Financial Statements**





In
      connection with the annual year end audit for the year ended November 30, 2006,
      the Company's independent registered public accounting firm, brought to the
      attention of the Company that certain of the license payments made during the
      year was not accounted for properly. Accordingly, certain previously deferred
      license payments need to be expensed in the financial statements previously
      issued by the Company. Under accounting rules, license payments cannot be
      deferred unless those amounts are recoverable without any further development.
      Because this product candidate the company licenses from Amarin pursuant to
      the
      licensing agreement requires further development before they will generate
      any
      revenue, the license payments should have been expensed on the Company's
      financial statements at the time the payments were made.




The
      following tables show the effects of the restatement on the Company's quarterly
      results of operations for the three months ended February 28, 2006,the six
      months ended May 31, 2006 and the three and nine months ended August 31, 2006.
      The column labeled "Restatement Adjustment" represents the adjustment for
      license payments expensed in the appropriate quarter.




F-32


Restated
      Consolidated Balance Sheet


February
      28, 2006


(Unaudited)





**As
                Previously Reported**
              **February
                28, 2006**
            
            **Restatement
                Adjustment**
              **February
                28, 2006**
            
            **As
                Restated**
              **February
                28, 2006**Current
                Assets:Cash
                and cash equivalents
            
            $
            715,798
            
            
            
            
            $
            715,798Marketable
                securities
            
            
            390,469
            
            
            
            
            
            390,469Interest
                and dividends receivable
            
            
            1,988
            
            
            
            
            
            1,988Accounts,
                royalties and grant receivable
            
            
            52,766
            
            
            
            
            
            52,766Other
                current assets
            
            
            77,097
            
            
            
            
            
            77,097Total
                current assets
            
            
            1,238,118
            
            
            -
            
            
            1,238,118Equipment
                and improvements, net
            
            
            147,617
            
            
            
            
            
            147,617License
                agreements, net of accumulated amortization of $2,183,640
            
            
            741,421
            
            
            (495,834
            )
            
            245,587Intangible
                assets, net of accumulated amortization of $34,486
            
            
            1,251,203
            
            
            
            
            
            1,251,203Other
                assets
            
            
            35,891
            
            
            
            
            
            35,891Total
                assets
            
            $
            3,414,250
            
            
            (495,834
            )
            $
            2,918,416Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            714,780
            
            
            
            
            $
            714,780Current
                portion of deferred income
            
            
            5,200
            
            
            
            
            
            5,200Total
                current liabilities
            
            
            719,980
            
            
            -
            
            
            719,980Deferred
                income, net of current portion
            
            
            55,900
            
            
            
            
            
            55,900Total
                liabilities
            
            
            775,880
            
            
            -
            
            
            775,880Minority
                interest
            
            
            492,719
            
            
            
            
            
            492,719Stockholders'
                equity:Preferred
                stock, $.01 par value: 2,000,000 shares authorized 15,000 designated
                as
                Series I convertible preferred issued and outstanding, liquidation
                value
                of $1,500,000
            
            
            150
            
            
            
            
            
            150Common
                stock, $.01 par value: 200,000,000 shares authorized,33,046,811 shares
                issued and outstanding
            
            
            330,468
            
            
            
            
            
            330,468Additional
                paid-in capital
            
            
            28,330,995
            
            
            
            
            
            28,330,995Accumulated
                deficit
            
            
            (26,518,105
            )
            
            (495,834
            )
            
            (27,013,939
            )Accumulated
                other comprehensive income (loss)
            
            
            2,143
            
            
            
            
            
            2,143Total
                stockholders' equity
            
            
            2,145,651
            
            
            (495,834
            )
            
            1,649,817Total
                liabilities and stockholders' equity
            
            $
            3,414,250
            
            
            (495,834
            )
            $
            2,918,416




F-33


Restated
      Consolidated Statement of Operations


For
      the
      Three Months Ended February 28, 2006


(Unaudited)





**As
                Previously Reported**
              **February
                28, 2006**
            
            **Restatement
                Adjustment**
              **February
                28, 2006**
            
            **As
                Restated**
              **February
                28, 2006**Revenues
            
            $
            546,231
            
            
            
            
            $
            546,231Operating
                expenses:Selling,
                general and administrative expenses
            
            
            801,593
            
            
            
            
            
            801,593Research
                and development
            
            
            482,745
            
            $
            495,834
            
            
            978,579Depreciation
                and amortization
            
            
            35,544
            
            
            
            
            
            35,544Total
                Operating expenses
            
            
            1,319,882
            
            
            495,834
            
            
            1,815,716Operating
                loss
            
            
            (773,651
            )
            
            (495,834
            )
            
            (1,269,485
            )Other
                income (loss)
            
            
            136,955
            
            
            
            
            
            136,955Net
                loss attributable to common stockholders
            
            $
            (636,696
            )
            $
            (495,834
            )
            $
            (1,132,530
            )Net
                loss per share applicable to common stockholders- basic and
                diluted
            
            $
            (0.02
            )
            $
            (0.02
            )
            $
            (0.03
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            33,046,811
            
            
            33,046,811
            
            
            33,046,811





F-34


Restated
      Consolidated Balance Sheet


May
      31,
      2006


(Unaudited)





**As
                Previously Reported**
              **May
                31, 2006**
            
            **Restatement
                Adjustment**
              **May
                31, 2006**
            
            **As
                Restated**
              **May
                31, 2006**Current
                Assets:Cash
                and cash equivalents
            
            $
            26,380
            
            
            
            
            $
            26,380Accounts,
                royalties and grant receivable
            
            
            36,023
            
            
            
            
            
            36,023Other
                current assets
            
            
            101,194
            
            
            
            
            
            101,194Total
                current assets
            
            
            163,597
            
            
            -
            
            
            163,597Equipment
                and improvements, net
            
            
            152,717
            
            
            
            
            
            152,717License
                agreements, net of accumulated amortization of $2,119,219
            
            
            732,842
            
            
            (491,668
            )
            
            241,174Intangible
                assets, net of accumulated amortization of $34,486
            
            
            1,233,945
            
            
            
            
            
            1,233,945Other
                assets
            
            
            81,391
            
            
            
            
            
            81,391Total
                assets
            
            $
            2,364,492
            
            
            (491,668
            )
            $
            1,872,824Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            754,850
            
            
            
            
            $
            754,850Current
                portion of deferred income
            
            
            5,200
            
            
            
            
            
            5,200Total
                current liabilities
            
            
            760,050
            
            
            
            
            
            760,050Deferred
                income, net of current portion
            
            
            54,600
            
            
            
            
            
            54,600Total
                liabilities
            
            
            814,650
            
            
            
            
            
            814,650Minority
                interest
            
            
            324,671
            
            
            
            
            
            324,671Stockholders'
                equity:Preferred
                stock, $.01 par value: 2,000,000 shares authorized 15,000 designated
                as
                Series I convertible preferred issued and outstanding, liquidation
                value
                of $1,500,000
            
            
            121
            
            
            
            
            
            121Common
                stock, $.01 par value: 200,000,000 shares authorized,33,046,811 shares
                issued and outstanding
            
            
            363,575
            
            
            
            
            
            363,575Additional
                paid-in capital
            
            
            28,579,784
            
            
            
            
            
            28,579,784Accumulated
                deficit
            
            
            (27,718,309
            )
            
            (491,668
            )
            
            (28,209,977
            )Accumulated
                other comprehensive income (loss)
            
            
            -
            
            
            
            
            
            -Total
                stockholders' equity
            
            
            1,225,171
            
            
            (491,668
            )
            
            733,503Total
                liabilities and stockholders' equity
            
            $
            2,364,492
            
            
            (491,668
            )
            $
            1,872,824




F-35


Restated
      Consolidated Statement of Operations


For
      the
      Three Months Ended May 31, 2006


(Unaudited)





**As
                Previously Reported**
              **May
                31, 2006**
            
            **Restatement
                Adjustment**
              **May
                31, 2006**
            
            **As
                Restated**
              **May
                31, 2006**Revenues
            
            $
            26,775
            
            
            
            
            $
            26,775Operating
                expenses:Selling,
                general and administrative expenses
            
            
            1,054,899
            
            
            
            
            
            1,054,899Research
                and development
            
            
            303,479
            
            $
            (4,166
            )
            
            299,313Depreciation
                and amortization
            
            
            36,185
            
            
            
            
            
            36,185Total
                Operating expenses
            
            
            1,394,563
            
            
            (4,166
            )
            
            1,390,397Operating
                loss
            
            
            (1,367,788
            )
            
            4,166
            
            
            (1,363,622
            )Other
                income (loss)
            
            
            167,584
            
            
            
            
            
            167,584Net
                loss attributable to common stockholders
            
            $
            (1,200,204
            )
            $
            4,166
            
            $
            (1,196,038
            )Net
                loss per share applicable to common stockholders- basic and
                diluted
            
            $
            (0.03
            )
            $
            0.00
            
            $
            (0.03
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            34,345,999
            
            
            34,345,999
            
            
            34,345,999








F-36


Restated
      Consolidated Statement of Operations


For
      the
      Six Months Ended May 31, 2006


(Unaudited)





**As
                Previously Reported**
              **May
                31, 2006**
            
            **Restatement
                Adjustment**
              **May
                31, 2006**
            
            **As
                Restated**
              **May
                31, 2006**Revenues
            
            $
            573,006
            
            
            
            
            $
            573,006Operating
                expenses:Selling,
                general and administrative expenses
            
            
            1,856,492
            
            
            
            
            
            1,856,492Research
                and development
            
            
            786,224
            
            $
            491,668
            
            
            1,277,892Depreciation
                and amortization
            
            
            71,729
            
            
            
            
            
            71,729Total
                Operating expenses
            
            
            2,714,445
            
            
            491,668
            
            
            3,206,113Operating
                loss
            
            
            (2,141,439
            )
            
            (491,668
            )
            
            (2,633,107
            )Other
                income (loss)
            
            
            304,539
            
            
            
            
            
            304,539Net
                loss attributable to common stockholders
            
            $
            (1,836,900
            )
            $
            (491,668
            )
            $
            (2,328,568
            )Net
                loss per share applicable to common stockholders- basic and
                diluted
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            (0.07
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            33,703,543
            
            
            33,703,543
            
            
            33,703,543




F-37


Restated
      Consolidated Balance Sheet


August
      31, 2006


(Unaudited





**As
                Previously Reported**
              **February
                28, 2006**
            
            **Restatement
                Adjustment**
              **February
                28, 2006**
            
            **As
                Restated**
              **February
                28, 2006**Current
                Assets:Cash
                and cash equivalents
            
            $
            568,964
            
            
            
            
            $
            568,964Accounts,
                royalties and grant receivable
            
            
            90,081
            
            
            
            
            
            90,081Other
                current assets
            
            
            70,540
            
            
            
            
            
            70,540Total
                current assets
            
            
            729,585
            
            
            -
            
            
            729,585Equipment
                and improvements, net
            
            
            142,186
            
            
            
            
            
            142,186License
                agreements, net of accumulated amortization of $2,196,632
            
            
            819,678
            
            
            (582,917
            )
            
            236,761Intangible
                assets, net of accumulated amortization of $34,486
            
            
            1,216,687
            
            
            
            
            
            1,216,687Other
                assets
            
            
            70,891
            
            
            
            
            
            70,891Total
                assets
            
            $
            2,979,027
            
            
            (582,917
            )
            $
            2,396,110Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            816,632
            
            
            
            
            $
            816,632Current
                portion of deferred income
            
            
            42,871
            
            
            
            
            
            42,871Total
                current liabilities
            
            
            859,503
            
            
            -
            
            
            859,503Deferred
                income, net of current portion
            
            
            53,300
            
            
            
            
            
            53,300Total
                liabilities
            
            
            912,803
            
            
            -
            
            
            912,803Minority
                interest
            
            
            200,287
            
            
            
            
            
            200,287Stockholders'
                equity:Series
                B Redeemable Convertible Preferred, 17,000 designated as Series B,
                17,000
                shares issued and outstanding, liquidation value of
                $1,713,104
            
            
            1,713,104
            
            
            
            
            
            1,713,104Preferred
                stock, $.01 par value: 2,000,000 shares authorized 15,000 designated
                as
                Series I convertible preferred issued and outstanding, liquidation
                value
                of $1,500,000
            
            
            121
            
            
            
            
            
            121Common
                stock, $.01 par value: 200,000,000 shares authorized,33,046,811 shares
                issued and outstanding
            
            
            370,925
            
            
            
            
            
            370,925Additional
                paid-in capital
            
            
            30,356,910
            
            
            
            
            
            30,356,910Accumulated
                deficit
            
            
            (30,575,123
            )
            
            (582,917
            )
            
            (31,158,040
            )Accumulated
                other comprehensive income (loss)
            
            
            -
            
            
            
            
            
            -Total
                stockholders' equity
            
            
            152,833
            
            
            (582,917
            )
            
            (430,084
            )Total
                liabilities and stockholders' equity
            
            $
            2,979,027
            
            
            (582,917
            )
            $
            2,396,110








F-38


Restated
      Consolidated Statement of Operations


For
      the
      Three Months Ended August 31, 2006


(Unaudited)





**As
                Previously Reported**
              **August
                31, 2006**
            
            **Restatement
                Adjustment**
              **August
                31, 2006**
            
            **As
                Restated**
              **August
                31, 2006**Revenues
            
            $
            28,874
            
            
            
            
            $
            28,874Operating
                expenses:Selling,
                general and administrative expenses
            
            
            653,729
            
            
            
            
            
            653,729Research
                and development
            
            
            592,380
            
            $
            91,249
            
            
            683,629Depreciation
                and amortization
            
            
            40,953
            
            
            
            
            
            40,953Total
                Operating expenses
            
            
            1,287,062
            
            
            91,249
            
            
            1,378,311Operating
                loss
            
            
            (1,258,188
            )
            
            (91,249
            )
            
            (1,349,437
            )Other
                income (loss)
            
            
            122,208
            
            
            
            
            
            122,208Net
                loss
            
            
            (1,135,980
            )
            
            (91,249
            )
            
            (1,227,229
            )Non-cash
                deemed dividend related to series B preferred stock
            
            
            (1,700,000
            )
            
            
            
            
            (1,700,000
            )Preferred
                stock dividends
            
            
            (20,834
            )
            
            
            
            
            (20,834
            )Net
                loss attributable to common stockholders
            
            $
            (2,856,814
            )
            $
            (91,249
            )
            $
            (2,948,063
            )Net
                loss per share applicable to common stockholders- basic and
                diluted
            
            $
            (0.08
            )
            $
            (0.00
            )
            $
            (0.08
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            36,503,186
            
            
            36,503,186
            
            
            36,503,186








F-39


Restated
      Consolidated Statement of Operations


For
      the
      Nine Months Ended August 31, 2006


(Unaudited)





**As
                Previously Reported**
              **August
                31, 2006**
            
            **Restatement
                Adjustment**
              **August
                31, 2006**
            
            **As
                Restated**
              **August
                31, 2006**Revenues
            
            $
            601,880
            
            
            
            
            $
            601,880Operating
                expenses:Selling,
                general and administrative expenses
            
            
            2,510,221
            
            
            
            
            
            2,510,221Research
                and development
            
            
            1,378,604
            
            
            582,917
            
            
            1,961,521Depreciation
                and amortization
            
            
            112,682
            
            
            
            
            
            112,682Total
                Operating expenses
            
            
            4,001,507
            
            
            582,917
            
            
            4,584,424Operating
                loss
            
            
            (3,399,627
            )
            
            (582,917
            )
            
            (3,982,544
            )Other
                income (loss)
            
            
            426,747
            
            
            
            
            
            426,747Net
                loss
            
            
            (2,972,880
            )
            
            (582,917
            )
            
            (3,555,797
            )Non-cash
                deemed dividend related to series B preferred stock
            
            
            (1,700,000
            )
            
            
            
            
            (1,700,000
            )Preferred
                stock dividends
            
            
            (20,834
            )
            
            
            
            
            (20,834
            )Net
                loss attributable to common stockholders
            
            $
            (4,693,714
            )
            $
            (582,917
            )
            $
            (5,276,631
            )Net
                loss per share applicable to common stockholders- basic and
                diluted
            
            $
            (0.14
            )
            $
            (0.02
            )
            $
            (0.15
            )Weighted
                average number of common shares outstanding - basic and
                diluted
            
            
            34,643,569
            
            
            34,643,569
            
            
            34,643,569




**Note
      19- Related Party Transaction**





Our Chairman
      and Chief Financial Officers wife ,
      Barbara
      Corbett, provides investor relations consulting services to the Company. Ms.
      Corbett is compensated on an hourly basis and is paid in common stock of the
      Company. These charges amounted
      to $7,571 and $21,038 for the years ended November 30, 2006 and 2005,
      respectively.




F-40




**MULTICELL
      TECHNOLOGIES, INC. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


**For
      the Years Ended November 30, 2006 and 2005**





**Note
      20- Subsequent Events**





On
      February 28, 2007 the Company completed a financing agreement with La Jolla
      Cove
      Investors (“LJCI”). Pursuant to a Debenture Purchase Agreement between the
      Company and LJCI (the “Debenture Purchase Agreement”), the Company sold a
      convertible debenture to LJCI with a principal amount of $1,000,000, carries
      an
      annual interest rate of 7.75%, expires twelve months after issuance and is
      convertible into shares of the Company’s common stock (the “Initial Note”). In
      addition, pursuant to a Registration Rights Agreement dated February 28, 2007
      between the Company and LJCI (the “Rights Agreement”), the Company agreed to
      register with the U.S. Securities and Exchange Commission (the “SEC”) up to 12
      million shares of the Company’s common stock underlying the Initial Note for
      re-sale by LJCI. $250,000 of the purchase price of the Initial Note was funded
      upon





closing
      of the financing with the balance of the purchase price to be payable in
      installments. The $250,000 funded upon closing is secured by pledges of Company
      common stock held by certain insiders of the Company pursuant to a Stock Pledge
      Agreement dated February 28, 2007 (the “Pledge Agreement”). Pursuant to a letter
      dated February 28, 2007 (the “Note Letter”) from LJCI to and acknowledged by the
      Company, the Company agreed to sell to LJCI an additional $1,000,000 with the
      same terms as the Initial Note no later than thirty days after the principal
      amount outstanding under the Initial Note is less than $250,000.





In
      addition, pursuant to a Securities Purchase Agreement dated February 28, 2007
      between the Company and LJCI (the “Securities Purchase Agreement”), the Company
      agreed to sell to LJCI a convertible debenture with a principal amount of
      $100,000, an annual interest rate of 4.75%, expiration date of February 28,
      2012
      and convertible into shares of the Company’s common stock (the “Second Note”).
      The shares underlying the Second Note are not required by LJCI to be registered
      with the SEC. All $100,000 principal amount of the Second Note was funded to
      the
      Company upon closing.





In
      addition, the Company issued LJCI a warrant (the “Warrant”) to purchase up to 10
      million shares of the Company’s common stock at a strike price of $1.09 per
      share, exercisable over the next 5 years pursuant to a schedule outlined in
      a
      letter dated February 28, 2007 from LJCI to and acknowledged by the Company
      (the
“Warrant Letter”).





Subsequent
      to November 30, 2006, the Company raised $400,000 under Fusion Capital equity
      line of credit by issuing 2,022,074 common shares. In addition, the Company
      also
      issued 342,323 common shares to consultants for various services
      rendered.





F-41