UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K





x
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended November 30, 2010 ̈
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from _________ to ________





Commission File Number:  001-10221





MultiCell Technologies, Inc.


(Exact name of registrant as specified in its charter)





DELAWARE
52-1412493(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)





68 Cumberland Street, Suite 301,Woonsocket, RI 02895


(Address number of principal executive offices)  (Zip Code)





Registrant’s telephone number, including area code 401-762-0045





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





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ̈   No x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes  ̈   No x





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ̈    No  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer  ̈
Accelerated filer  ̈Non-accelerated filer  ̈
Smaller reporting company x





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





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 last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  As of May 31, 2010, the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the issuer was $3,432,995.





Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of February 22, 2011, the issuer had 605,968,799 shares of issued and outstanding common stock, par value $0.001.





DOCUMENTS INCORPORATED BY REFERENCE.  None.







MULTICELL TECHNOLOGIES, INC.





FORM 10-K





TABLE OF CONTENTS





PAGEPART IItem 1.
BUSINESS
4Item 1A.
RISK FACTORS
14Item 1B.
UNRESOLVED STAFF COMMENTS
26Item 2.
PROPERTIES
26Item 3.
LEGAL PROCEEDINGS
26Item 4.
(REMOVED AND RESERVED)
26PART IIItem 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
27Item 6.
SELECTED FINANCIAL DATA
27Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
27Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
33Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
33Item 9A.
CONTROLS AND PROCEDURES
33Item 9B.
OTHER INFORMATION
34PART IIIItem 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
35Item 11.
EXECUTIVE COMPENSATION
39Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
42Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
44Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
45PART IVItem 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
46SIGNATURES
46CONSOLIDATED FINANCIAL STATEMENTS
F1 – F23




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 therapeutic products, 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.





3


PART I





ITEM 1.  BUSINESS





About MultiCell Technologies, Inc.





MultiCell Technologies, Inc. was incorporated in Delaware on April 28, 1970 as Exten Ventures, Inc., and subsequently changed its name to Exten Industries, Inc. (“Exten”).  An agreement of merger between Exten and an entity then called MultiCell Associates, Inc. (“MTI”), was entered into on March 20, 2004 whereby MTI 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. (wholly owned), Xenogenics Corporation (“Xenogenics”) (95.3% owned, on an as-if-convertd basis), and MultiCell
Immunotherapeutics, Inc. (“MCTI”), of which MultiCell holds approximately 67% of the outstanding shares (on an as-if-converted basis).  As used herein, the “Company” refers to MultiCell, together with MCT Rhode Island Corp., Xenogenics, and MCTI.  Our principal offices are at 68 Cumberland Street, Suite 301, Woonsocket, RI 02895.  Our telephone number is (401) 762-0045.





MultiCell is a biopharmaceutical company developing novel therapeutics and discovery tools to address unmet medical needs for the treatment of neurological disorders, hepatic disease, cancer and interventional cardiology and peripheral vessel applications.





Our therapeutic development platform includes several patented techniques used to: (i) isolate, characterize and differentiate stem cells from human liver, or (ii) control the immune response at transcriptional and translational levels through dsRNA-sensing molecules such as Toll-like receptor (TLR), RIG-I-like receptor (RLR), and MDA-5 signaling, or (iii) generate specific and potent immunity against key tumor targets through a novel immunoglobulin platform technology, (iv) modulate the noradrenaline-adrenaline neurotransmitter pathway, and (v) the design of next-generation bioabsorbable stents, the Ideal BioStentTM, for interventional cardiology and peripheral vessel applications .





Our therapeutic development platform offers several key advantages, including selective modulation of noradrenergic neurons without influencing seratoninergic neurons to inhibit the reuptake of noradrenaline (norepinephrine) while promoting increased tyrosine hydroxylase activity for the treatment of primary multiple sclerosis-related fatigue (PMSF) affecting over 70% of all persons with multiple sclerosis (MS).





Unlike other immune modulating compounds, our use of novel synthetic dsRNAs is not species or sequence-specific yet enables selective control of critical immune signaling pathways, and therefore has the potential in a broader spectrum of therapeutic applications as a monotherapy or in combination with other therapies.





Coupling our synthetic double stranded RNA (dsRNA) platform technology with our therapeutic antibody technology maximizes the potential of disease-associated epitope peptides to create a novel class of more effective anticancer therapeutics.





The potential to isolate cancer stem cells from human liver in support of the development of novel therapeutics needed to effectively manage and treat patients with primary hepatocellular carcinoma.





Our portfolio of lead drug candidates is in various stages of discovery optimization, and preclinical and clinical development:





·
MCT-125, a Phase 2 therapeutic candidate for the treatment of PMSF which has demonstrated efficacy in a 138 patient Phase IIa clinical trial.





·
MCT-465, a preclinical synthetic dsRNA therapeutic candidate and potent immune enhancer for the treatment of solid tumor cancers such as those expressing TLR-3.





·
MCT-475, a discovery stage antibody therapeutic candidate used in combination with dsRNA for the treatment of solid tumor cancers.





·
MCT-485, a discovery stage dsRNA therapeutic candidate with tumor cytolytic properties for the treatment of certain cancers.





The Ideal BioStentTM is the only stent incorporating salicylate, the active component in aspirin, directly into the polymer chain. As the polymer degrades, salicylate is released directly into the vessel wall, thereby providing anti-inflammatory therapy aimed at reducing stenosis and promoting blood vessel healing.




4


The Ideal BioStentTM also incorporates Sirolimus (rapamycin) in addition to salicylate into the Ideal BioStentTM, providing anti-restenotic therapy similar to today’s commonly used drug-eluting metal stents. Xenogenics’ bioabsorbable stent technology allows for the ability to layer different combinations of polymers and drugs, enabling the optimization of the delivery of combination drug therapies to provide superior clinical results. The Ideal BioStentTM represents a significant advance over currently available stents, including:





·
The ability to promote positive vessel remodeling.





·
A significant reduction in late-stent thrombosis risk.





·
No metal artifact remaining in the patient’s body after vessel healing.





·
The reduced need for long-term and costly anti-platelet therapy.





In extensive animal testing and initial human use, the Ideal BioStentTM demonstrated equivalence in safety, short-term efficacy and structural integrity when compared with today’s leading bare metal stent (“BMS”) and drug-eluting metal stent (“DES”). Importantly, unlike other bioabsorbable stent technologies, the Ideal BioStentTM showed no stent recoil, either acute or at six month follow up, remaining well apposed to the vessel wall. Furthermore, the Ideal BioStentTM is designed to be fully absorbed at 12 months leaving no artifact behind, and allowing the vessel to heal and return to its natural state.





Our Therapeutic Programs





MultiCell is pursuing research and development targeting degenerative neurological diseases, including multiple sclerosis (MS) and cancer.





Until recently, the development of therapeutics that interacted with our immune system was focused on finding protective antigens and different ways to present them to the immune system.  The emphasis was on enhancing the human response – stimulating high antibody production.  With a greater understanding of the immune system, the emphasis has shifted to modulating the immune system by optimizing its response to infection and diseases such as cancer.





Today, we know that the immune system is composed of two synergistic elements:  the innate immune system and the adaptive immune system.  Stimulation of the innate immune system, our early warning system, plays a critical role in triggering the adaptive immune response – the ability to produce antibodies and to stimulate a cellular immune response.  A stronger, initial innate immune response aids in the generation of a more robust and longer-lasting adaptive immune response.





The innate immune system was once thought to be equivalent to the wall of a castle.  Historically, scientists thought the real action of immunity and the immune system occurred once the castle wall was breached and the troops inside, the T and B cells, began to produce antibodies and attack diseased cells.  The innate immune system, however, was found to be composed of a family of ten receptor molecules, the Toll-like Receptors (TLRs), which act as sentries to identify invaders and signal the alarm to mobilize the body’s array of immune defenses.  TLRs unleash both the innate and adaptive immune systems.





Our therapeutics business addresses significant unmet medical needs for the treatment of neurological disorders and cancer through modulation of the innate and adaptive immune response.  Our therapeutic development platform is designed to augment current therapeutic strategies via:





·
Modulation of the noradrenaline-adrenaline neurotransmitter pathway for the treatment of primary multiple sclerosis-related fatigue (PMSF) affecting over 70% of all persons with multiple sclerosis.





·
Triggering the adaptive immune response thru Toll-like Receptor 3 (TLR3) signaling of the innate immune system using double-stranded RNA (dsRNA) to treat cancer.





·
Enhancement of antigen presentation to the immune system by targeting antigen delivery for processing via the Fc receptor for the treatment of autoimmune disease and cancer.





·
In vivo generation and expansion of specific immune system cells targeted against an autoimmune response, or infectious agents, or tumors.





Our therapeutic development platform has several advantages:





·
Modulation of noradrenergic neurons without effecting seratoninergic neurons to inhibit the reuptake of noradrenaline (norepinephrine),


5




·
Our therapeutic antibody technology, Epitope-based T-cell Immunotherapy, can effectively deliver epitopes to the immune system, and can produce positive clinical outcomes in cases where tolerization is the targeted response,





·
Unlike DNA-based immunostimulatory CpG motifs or antisense and siRNA technologies, our use of dsRNA signaling thru TLR3 is not species or sequence-specific, and therefore has the potential to have application in a broader spectrum of therapeutic applications, and





·
Coupling TLR3 signaling with our therapeutic antibody technology allows for the delivery of disease-associated epitope peptides in concert with TLR3 signaling, creating more effective anticancer therapeutics.





Our portfolio of lead drug candidates is in various stages of preclinical and clinical development:





·
MCT-125, a Phase IIb therapeutic candidate for the treatment of PMSF with demonstrated efficacy in 138 patients,





·
MCT-465, a preclinical adjuvant therapeutic candidate for the treatment of TLR3+ cancers, and





·
MCT-475, a preclinical therapeutic candidate for the treatment of TLR3+ breast cancer.




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.





Approximately 350,000 individuals have been diagnosed with MS in the United States and more than one million persons worldwide are afflicted with MS.  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 December 2005, MultiCell exclusively licensed LAX-202 from Amarin Neuroscience Limited (“Amarin”) 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.





6


MCT-465 and MCT-475 for the treatment of cancer





Worldwide, breast cancer is the second most common type of cancer after lung cancer.  In 2005, breast cancer caused over 500,000 deaths worldwide, and the number of cases worldwide has significantly increased, partly due to modern lifestyles in the Western world.  North American women have the highest incidence of breast cancer in the world.  Among US women, breast cancer is the most common cancer and the second-most common cause of cancer death after lung cancer.  In 2007, breast cancer was expected to cause over 40,000 deaths in the U.S. which is about 7% of deaths related to cancer in general.





MCT-465 and MCT-475 are the first of a family of prospective cancer therapeutics based on the use of our patented ETI antibody therapeutics technology in concert with dsRNA TLR3 signaling technology.  MCT-465 can be used as an adjuvant therapy with standard chemotherapeutic agents, or with our MCT-475 antibody therapeutic for the treatment of breast cancer where TLR3 is over expressed in the breast cancer cells.  MCT-465 and MCT 475 are in early-stage preclinical development.


Stem Cells and Cancer





Tumor tissues are composed of a mixture of cells with some tumor cells exhibiting stem cell-like properties (“cancer stem cells”).  Cancer stem cells are thought to play a role in a tumor’s resistance to therapy.  While significant progress has been made in developing cancer therapies that result in cytoreduction and thus tumor regression, the control of cancer over a longer interval and especially of metastatic disease, remains a key goal.  Cancer stem cells are believed to be responsible for cancer relapse by being less sensitive to conventional therapies.  Cancer stem cells may offer a unique opportunity to identify and develop a new generation of more effective anticancer agents (both small molecule therapeutics and biotherapies).





MultiCell owns exclusive rights to two issued U.S. patents (6,872,389 and 6,129,911), one U.S. patent application (U.S. 2006/0019387A1), and several corresponding issued and pending foreign patents and patent applications related to the isolation and differentation of liver stem cells.  The role of liver stem cells in the carcinogenic process has recently led to a new hypothesis that hepatocellular carcinoma arises by maturation arrest of liver stem cells.





Primary liver cancer begins in the cells of the liver itself.  According to the National Cancer Institute (NCI), in 2008 there were approximately 21,400 new cases of primary liver cancer and intrahepatic bile duct cancer in the United States, and approximately 18,400 of those cases resulted in death.  Hepatocellular carcinoma, resulting from Hepatitis B and Hepatitis C infection, is the most common cancer in some parts of the world, with more than 1 million new cases diagnosed each year.  The NCI also reports that hepatocellular carcinoma is associated with cirrhosis of the liver in 50% to 80% of patients.





Primary liver cancer is rarely discovered early, and often does not respond to current treatment.  For example, Sorafenib (Nexavar®) was approved by the Food and Drug Administration in 2007 for use in advanced inoperable liver cancer.  Sorafenib is a targeted therapy designed to interfere with a tumor’s ability to generate new blood vessels.  However, Sorafenib has been shown to only slow liver cancer from progressing for a few months longer when compared to no treatment.





MultiCell recently entered into a cooperative research and development agreement with Maxim Biotech, Inc. which will initially focus on the development of a family of life science research reagent tool kits which can be used to isolate liver stem cells and liver cancer stem cells, and help to elucidate liver stem cell gene function and their encoded proteins.  MultiCell plans to further leverage this research effort involving liver cancer stem cells to identify therapeutic targets, and diagnostic and prognostic markers of liver cancer.  MultiCell will also seek to develop and patent therapeutic product opportunities specifically targeting the treatment of primary liver cancer and intrahepatic bile duct cancer.





Ideal BioStentTM




Purchase of IdealBioStentTM — Foreclosure Sale Agreement





On September 30, 2010, Xenogenics entered into a Foreclosure Sale Agreement (“Foreclosure Sale Agreement”) with Venture Lending & Leasing IV, Inc., Venture Lending & Leasing V, Inc. and Silicon Valley Bank (collectively, the “Sellers”).  Pursuant to the Foreclosure Sale Agreement, Xenogenics acquired all of the Sellers’ interests in certain bioabsorbable stent assets (known as “Ideal BioStentTM”) and related technologies.  In consideration for the purchased of the assets, Xenogenics made cash payments to the Sellers in the aggregate amount of $400,000, payable in three tranches as follows: (i) $135,000 was paid on October 12, 2010; (ii) $135,000 was paid on November 15, 2010; and (iii) $130,000 was paid on December 31, 2010.





7


Xenogenics is also required to make cash payments to the Sellers as follows based on the achievement of certain milestones:





·
$300,000 is payable upon the earlier to occur of (i) initiation of pivotal Generation 2 stent human clinical trials, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $3,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments), and (iii) a “change of control” of Xenogenics;





·
$1,000,000 is payable upon the earlier to occur of (i) regulatory approval by any regulatory authority in a European Union member country, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics; and





·
$3,000,000 is payable upon the earlier to occur of (i) regulatory approval by the U.S. Food and Drug Administration, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics.





In addition, as additional consideration under the Foreclosure Sale Agreement, Xenogenics issued to the Sellers warrants to purchase an aggregate of 490,000 shares of its common stock, exercisable at $0.038 per share of common stock.





Rutgers License Agreement





Effective September 30, 2010, Xenogenics entered into a license agreement (the “Rutgers License Agreement”) with Rutgers, The State University of New Jersey (“Rutgers”).





Pursuant to the Rutgers License Agreement, Rutgers granted Xenogenics a worldwide exclusive license to exploit and commercialize certain patents and other intellectual property rights, as further described in the Rutgers License Agreement, relating to bioabsorbable stents for interventional cardiology and peripheral vascular applications. In consideration for the license and other rights granted under the Rutgers License Agreement, Xenogenics paid Rutgers a license fee of $50,000. In addition, under the Rutgers License Agreement, Xenogenics is obligated to pay Rutgers a license maintenance fee of $25,000 on the third anniversary of the Rutgers License Agreement, and $50,000 on the fourth anniversary.  Additionally, Xenogenics agreed to pay Rutgers for unpaid costs of $136,000 incurred by Rutgers prior to the
effective date of the Rutgers License Agreement for preparing, filing, prosecuting, defending, and maintaining all United States patent applications and patents covered under the Rutgers License Agreement.





Xenogenics is also required to make cash payments to Rutgers as follows based on the achievement of certain milestones with respect to products to be commercialized using the Licensed IP:





·
$50,000 is payable upon initiation of first in-human clinical trials anywhere in the world;





·
$200,000 is payable upon initiation of pivotal human clinical trials anywhere in the world in connection with submitting an application for market approval to a regulatory authority;





·
$300,000 is payable upon submission of an application for market approval to a regulatory authority anywhere in the world.





Upon the sale of products commercialized using the licensed technology, Xenogenics is required to make royalty payments to Rutgers in an amount equal to three percent of the annual aggregate gross amounts charged for such products less deductions for expenses such as sales/use taxes, transportation charges and trade discounts. Beginning with the first year of sales of products commercialized with the licensed technology, Xenogenics will make certain minimum royalty payments to Rutgers, which payments will be applied against any royalty payments earned by Rutgers for the relevant calendar year. Further, 50% of the Rutgers milestone payments actually paid to Rutgers will be offset against any future royalty payments earned under the Rutgers License Agreement.





The term of the Rutgers License Agreement commences on the effective date of the agreement and terminates on the earlier of (i) the expiration of all valid patents granted with respect to the licensed technology (or products commercialized therefrom) in a country, and (ii) ten years from the date of first commercial sale in a country. However, if either party breaches the agreement, the non-breaching party may terminate the agreement upon written notice to the other party of such breach and the failure of the other party to cure the breach within 90 days of such notice. Xenogenics also has the right to terminate the agreement at anytime and for any reason upon 120 days’ advance written notice to Rutgers.





8


Series B Preferred Stock Agreement





On October 14, 2010, pursuant to a Series B Preferred Stock Purchase Agreement, Xenogenics agreed to sell to MultiCell shares of its newly created Series B Convertible Preferred Stock. The funds provided to Xenogenics under the agreement were used to pay Xenogenics’ obligations under the Foreclosure Sale Agreement and to settle an intercompany obligation of Xenogenics to MultiCell.  The purchase of the Series B Preferred Stock increased MultiCell’s interest in Xenogenics from 56.4% to 95.3% (on an as-if-converted basis).  The Series B Preferred Stock may, at the option of MultiCell, be converted at any time or from time to time into shares of Xenogenics’ Common Stock.





La Jolla Cove Investors (LJCI) agreed to increase the amount of its debenture that it converted and the number of warrants that it exercised during October through December of 2010 in order to assist MultiCell in funding its purchase of Series B Convertible Preferred Stock from Xenogenics.  As additional consideration to LJCI under this arrangement, Xenogenics issued LJCI warrants to purchase an aggregate of 490,000 shares of its common stock, exercisable at $0.038 per share of common stock.





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, Inc., 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 former 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):





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 #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.





9


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.





Xenogenic’s Ideal BioStentTM is covered by patents owned by Rutgers University and exclusively licensed to Xenogenics. The license between Xenogenics and Rutgers University includes exclusive license rights and option to 23 issued patents and 61 patent applications with claims encompassing the basic design and synthesis of certain bioabsorbable polymers and their use in combination with drugs in medical devices.




The patent estate acquired by Xenogenics as part of its acquisition of the Ideal BioStentTM includes one issued U.S. patent and 4 patent applications.  This patent estate covers the composition and synthesis of the Ideal BioStentTM proprietary bioabsorbable polymers, admixing of drugs and bioabsorbable polymers for therapeutic applications, and the use of these bioabsorbable polymers in stents and other medical devices.




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.





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.





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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.





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.





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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.





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.





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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 of 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;





•
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 years 2010 and 2009, our Company spent $369,304 and $195,990, respectively, on research and development.  Additionally, in the fiscal year ended November 30, 2010, we acquired the Ideal BioStentTM technologies, which has been charged to expense as in-process research and development costs totaling $554,179.  Research and development cost increases related to increases in legal fees for intellectual property counsel and license fees paid under the Rutgers license agreement.




Historically, our research and development has also been funded to some extent by the National Institute of Health (“NIH”) grants, Small Business Innovative Research (“SBIR”) grants, and other similar grants.





The Company received grant awards in 2010 under the U.S. government’s Qualifying Therapeutic Discovery Project (“QTDP”) program for three of its drug development programs:  MCT-125, MCT-465, and MCT-475.  The QTDP program was created by Congress as part of the Patient Protection and Affordable Care Act, and provides a tax credit or grant equal to 50% of qualified investment for years ending November 30, 2010 and 2011.  To be eligible, a therapeutic development project must:  (i) have the potential to develop new treatments that address unmet medical needs or chronic and acute diseases; (ii) reduce long-term health care costs; (iii) represent a significant advance in finding a cure for cancer; (iv) advance U.S. competitiveness in the fields of life,
biological, and medical sciences; or (v) create or sustain well-paying jobs, either directly or indirectly.  On October 29, 2010, the Company received notification from the Department of Treasury that it had been awarded a total cash grant of $733,437.  Of the total grant, $430,335 relates to qualifying expenses incurred during the year ended November 30, 2010 and the remainder of $303,102 will be received and recognized during the year ending November 30, 2011.





Competition





We compete in the segments of the pharmaceutical and biotechnology markets that are highly competitive.  We face significant competition from most pharmaceutical companies as 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;




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·
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.





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, 2010, we had two employees, both of whom are full-time employees.





ITEM 1A.  RISK FACTORS




Risks Related To Our Business




Our drug candidates, bioabsorbable stent assets 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 and our subsidiary’s bioabsorbable stent assets 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, 2010, our accumulated deficit was $39,197,686.  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, bioabsorbable stent assets 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.





We will need substantial additional capital to fund continued business operations and we cannot be sure that additional financing will be available.





Our independent auditors have added explanatory paragraph to their audit opinion issued in connection with the financial statements for the year ended November 30, 2010, relative to our ability to continue as a going concern.  Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Our ability to obtain additional funding will determine our ability to continue as a going concern.  Since March 2008, the Company has operated on working capital provided by La Jolla Cove Investors (“LJCI”). Under terms of the agreement, LJCI can convert a portion of the convertible debenture by simultaneously exercising a warrant at $1.09 per share. As of February 22, 2011 there are 7,198,129 shares remaining on the stock purchase
warrant and a balance of $71,981 remaining on the convertible debenture. Should LJCI continue to exercise all of its remaining warrants approximately $7.8 million of cash would be provided to the Company. The agreement limits LJCI’s investment to an aggregate ownership that does not exceed 9.9% of the outstanding shares of the Company. The Company expects that LJCI will continue to exercise the warrants and convert the debenture over the next year.





14


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





Our business strategy of focusing on therapeutic programs and technologies is unproven, and 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.





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.





Difficulties encountered during challenging and changing economic conditions could adversely affect our results of operations.





Our future business and operating results will depend to a significant extent on economic conditions in general.  World-wide efforts to cut capital spending, general economic uncertainty and a weakening global economy could have a material adverse effect on us a variety of ways, including a scarcity of financing needed to fund our current and planned operations, and the reluctance or inability of potential strategic partners to consummate strategic partnerships due to their own financial hardships.  If we are unable to effectively manage during the current challenging and changing economic conditions, our business, financial condition, and results of operations could be materially adversely affected.





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 the issuance of debt instruments, through 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 $1,047,850 and $1,510,240 during 2010 and 2009 from the exercise of stock warrants, 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 or therapeutic products approved by the Food and Drug Administration, or FDA, or similar regulatory authorities that are available for commercial sale anywhere in the world, and we cannot guarantee that we will ever have marketable drugs or therapeutic products available for sale anywhere in the world.  We must demonstrate that our drug or therapeutic product candidates satisfy rigorous standards of safety and efficacy to the 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 therapeutic
products.  In addition, to compete effectively, our drugs and 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 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.





15




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 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 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 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 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 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 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 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.




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;




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·
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.




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;




17




·
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.





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.




18




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.




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.





19





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.




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.





20


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;




·
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




21




·
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.




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.




22




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.





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.




23




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.





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:




·
results from, and any delays in, the clinical trials programs for our products and drug candidates;




24




·
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.





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.





25


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.





We have convertible securities outstanding that can be converted into more shares of common stock then we have currently authorized.





We have warrants to purchase common stock, stock options, convertible debentures and convertible preferred stock outstanding that if converted and/or exercised, according to their terms can result in the requirement that we issue more shares than we have currently authorized under our Certificate of Incorporation.  This could result in our default under such agreements and may force us to amend the Certificate of Incorporation to authorize more shares or seek other remedies.  While we intend to redeem and remove certain agreements in order to reduce the number of convertible securities outstanding, there is no guarantee that we will be successful.





ITEM 1B.  UNRESOLVED STAFF COMMENTS





Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.





ITEM 2.  PROPERTIES





On March 26, 2008, the Company negotiated a lease agreement at 68 Cumberland Street, Suite 301, Woonsocket RI  02895.  The lease was a one year lease commencing on May 1, 2008 through April 30, 2009.  The Company has renewed the lease for additional one-year terms through April 30, 2011.  The Company agreed to pay $900 per month. The Company expects to renew the lease when it expires on April 30, 2011.  The leased facilities are fully utilized and adequate for our current operations.





ITEM 3.  LEGAL PROCEEDINGS





None





Item 4. (REMOVED AND RESERVED)





26


PART II





ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Our common stock is traded on the OTC Bulletin Board under the symbol MCET.OB.  Our stock is considered a 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 are required to 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 closing prices of our common stock for the fiscal years ended November 30, 2010 and November 30, 2009 based on information provided by the OTC Bulletin Board.





Fiscal Year Ended November 30, 2010High


LowFirst quarter

$
.0151


$
.0110Second quarter

$
.0148


$
.0080Third quarter

$
.0097


$
.0043Fourth quarter

$
.0069


$
.0040





Fiscal Year Ended November 30, 2009High


LowFirst quarter

$
.0539


$
.0040Second quarter

$
.0175


$
.0090Third quarter

$
.0340


$
.0070Fourth quarter

$
.0270


$
.0130





No cash dividends have been paid on our common stock for the 2010 and 2009 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 shareholders of record of our Company's Common Stock on February 22, 2011 was approximately 524, not including any persons who hold their stock in “street name”.





We did not repurchase any of our shares during the fourth quarter of the fiscal year covered by this report.





ITEM 6.  SELECTED FINANCIAL DATA





Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.





ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The Management’s Discussion and Analysis for the years ended November 30, 2010 and 2009 is presented below.





Overview




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.  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 immune system modulation technologies to discover, develop and commercialize new therapeutics itself and with strategic partners.




27





On October 9, 2007, MultiCell executed an exclusive license and purchase agreement (the “Agreement”) with Corning Incorporated (“Corning”) of Corning, New York.  Under the terms of the Agreement, Corning has the right to develop, use, manufacture, and sell MultiCell’s Fa2N-4 cell lines and related cell culture media for use as a drug discovery assay tool, including biomarker identification for the development of drug development assay tools, and for the performance of absorption, distribution, metabolism, elimination and toxicity assays (ADME/Tox assays).  Corning paid MultiCell a non-refundable license fee, purchased certain inventory and equipment related to MultiCell’s Fa2N-4 cell line business, hired certain MultiCell scientific personnel, and paid for
access to MultiCell’s laboratories during the transfer of the Fa2N-4 cell lines to Corning.  MultiCell retained and continues to support all of its existing licensees, including Pfizer, Bristol-Myers Squibb, and Eisai.  MultiCell retained the right to use the Fa2N-4 cells for use in applications not related to drug discovery or ADME/Tox assays.   MultiCell also retained rights to use the Fa2N-4 cell lines and other cell lines to further develop its Sybiol® liver assist device, to produce therapeutic proteins using the Company’s BioFactoriesTM technology, to identify drug targets and for other applications related to the Company’s internal drug development programs.





Recent Events




As more fully discussed in PART I, Item 1, Business under the caption “Ideal BioStentTM”, on September 30, 2010, Xenogenics entered into a Foreclosure Sale Agreement and acquired all of the sellers’ interests in certain bioabsorbable stent assets, known as Ideal BioStentTM, and related technologies.  In consideration for the purchased of the assets, Xenogenics made cash payments to the sellers in the aggregate amount of $400,000 and issued warrants to purchase an aggregate of 490,000 shares of its common stock.  Xenogenics is also required to make cash payments to the Sellers as follows based on the achievement of certain milestones:




·
$300,000 is payable upon the earlier to occur of (i) initiation of pivotal Generation 2 stent human clinical trials, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $3,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments), and (iii) a “change of control” of Xenogenics;





·
$1,000,000 is payable upon the earlier to occur of (i) regulatory approval by any regulatory authority in a European Union member country, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics; and





·
$3,000,000 is payable upon the earlier to occur of (i) regulatory approval by the U.S. Food and Drug Administration, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics.





Effective September 30, 2010, Xenogenics also entered into a license agreement with Rutgers, The State University of New Jersey (“Rutgers”).  Pursuant to the license agreement, Rutgers granted Xenogenics a worldwide exclusive license to exploit and commercialize certain patents and other intellectual property rights relating to bioabsorbable stents for interventional cardiology and peripheral vascular applications. In consideration for the license and other rights granted under the license agreement, Xenogenics paid Rutgers a license fee of $50,000. In addition, Xenogenics is obligated to pay Rutgers a license maintenance fee of $25,000 on the third anniversary of the Rutgers License Agreement, and $50,000 on the fourth anniversary.  Additionally, Xenogenics agreed to pay Rutgers
for unpaid costs of $136,000 incurred by Rutgers prior to the effective date of the license agreement for preparing, filing, prosecuting, defending, and maintaining all United States patent applications and patents covered under the Rutgers License Agreement.  Xenogenics is also required to make cash payments to Rutgers as follows based on the achievement of certain milestones with respect to products to be commercialized using the Licensed IP:





·
$50,000 is payable upon initiation of first in-human clinical trials anywhere in the world;





·
$200,000 is payable upon initiation of pivotal human clinical trials anywhere in the world in connection with submitting an application for market approval to a regulatory authority;





·
$300,000 is payable upon submission of an application for market approval to a regulatory authority anywhere in the world.





Upon the sale of products commercialized using the licensed technology, Xenogenics is required to make royalty payments to Rutgers in an amount equal to three percent of the annual aggregate gross amounts charged for such products less deductions for expenses such as sales/use taxes, transportation charges and trade discounts. Beginning with the first year of sales of products commercialized with the licensed technology, Xenogenics will make certain minimum royalty payments to Rutgers, which payments will be applied against any royalty payments earned by Rutgers for the relevant calendar year. Further, 50% of the Rutgers milestone payments actually paid to Rutgers will be offset against any future royalty payments earned under the Rutgers License Agreement.




28





Plan of Operation





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, 2010 and 2009, research and development costs were $369,304 and $195,990, respectively.  Research and development costs include such costs as salaries, legal fees, employee benefits, compensation cost for options issued to the Scientific Advisory Board, supplies and license fees.  Additionally, in the fiscal year ended November 30, 2010, we acquired the Ideal BioStentTM technologies, which has been charged to expense as in-process research and development costs totaling $554,179.





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.





Acquired In-Process Research and Development –The Company recognizes as incurred the cost of directly acquiring assets to be used in the research and development process that have not yet received regulatory approval for marketing and for which no alternative future use has been identified.  Acquired in-process research and development costs are expensed as incurred.  Once the product has obtained regulatory approval, the Company will capitalize any milestone payments made and amortize them over the period benefitted.  Milestone payments made prior to regulatory approval of the product will generally be expensed when the event requiring payment of the milestones occurs.





Revenue Recognition – In the years covered by this report on Form 10-K, the Company's revenues have been generated primarily from license revenue under agreements with Corning, Pfizer, and Eisai.  Management believes such sources of revenue will be part of the Company's ongoing operations.  The Company recognizes revenue from licensing and 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.





Stock-Based Compensation –We account for stock based compensation in accordance with generally accepted accounting principles, which 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 over the period during which an employee is required to provide service in exchange for the award (the vesting period), net of estimated forfeitures.  The estimation of fair value of stock options requires management to make estimates for certain assumptions regarding risk-free interest rates, expected life of the options, expected volatility of the price of our common stock, and the expected dividend yield of our common stock.





Long-Lived Assets - Long-lived assets that do not have indefinite lives, such as property and equipment, license agreements, and patents 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.




29





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, 2010 compared to Year Ended November 30, 2009





Revenue.Total revenue for the year ended November 30, 2010 was $98,862, as compared to revenue of $174,240 for the same period in the prior fiscal year, a decrease of $75,378.  All of the revenue for the year ended November 30, 2010 and 2009 is from license revenue under agreements with Corning, Pfizer, and Eisai.  The decrease in revenue for the year ended November 30, 2010 compared to the prior year is due to the cancelation of the license agreement with Eisai as of March 31, 2010.





Operating Expenses.Total operating expenses for selling, general and administrative expenses and for research and development for the year ended November 30, 2010 were $1,314,762, compared to the total corresponding operating expenses for the year ended November 30, 2009 of $979,594, representing an increase of $335,168.  This increase was principally due to 1) an increase in legal, consulting, accounting, and other fees of $109,632, 2) an increase in stock-based compensation of $168,089, 3) the payment in the year ended November 30, 2010 of a license fee of $50,000 under a new agreement with Rutgers, the State University of New Jersey, and 4) an increase in the cost
of the annual shareholders meeting of $14,042.





Acquired in-process research and development expense.The costs related to the acquisition of the Ideal BioStentTM technology, including the purchase price of $400,000 payable to the sellers, the fair value of the warrants ($18,179) issued to the sellers, and the obligation to pay Rutgers $136,000 for patent related costs under the Rutgers License Agreement have been accounted for as in-process research and development costs and have been expensed immediately subsequent to the purchase because the technologies had no alternative future use.





Other income/(expense).Other income (expense) amounted to net income of $485,434 for the year ended November 30, 2010 as compared to net expense of $29,143 for the year ended November 30, 2009.  Other income (expense) for the year ended November 30, 2010 primarily consists of interest expense of 1) proceeds from a grant awarded under the U.S. governments’ Qualifying Therapeutic Discovery Project (QTDP) program in the amount of $430,335, 2) interest expense of $42,641, and 3) a gain from the change in fair value of derivative liability of $97,554.  Other income (expense) for the year ended November 30, 2009 was primarily composed of interest expense of $29,370.





The QTDP program was created by Congress as part of the Patient Protection and Affordable Care Act, and provides a tax credit or grant equal to eligible costs and expenses for years ending November 30, 2010 and 2011.  To be eligible, a therapeutic development project must:  (i) have the potential to develop new treatments that address unmet medical needs or chronic and acute diseases; (ii) reduce long-term health care costs; (iii) represent a significant advance in finding a cure for cancer; (iv) advance U.S. competitiveness in the fields of life, biological, and medical sciences; or (v) create or sustain well-paying jobs, either directly or indirectly.  The Company received a total grant of $733,437, of which $430,335 pertained to the year ended November 30, 2010 and $303,102
pertains to the year ending November 30, 2011.





Interest expense includes interest on the 4.75% debentures, including amortization of discount, plus interest on notes payable to related parties.





The change in fair value of derivative liability is the result of our adoption on December 1, 2009 of new accounting guidance related to the embedded conversion feature in the Series B convertible preferred stock.  The valuation of the derivative liability is dependent upon a number of factors beyond our control.  As such, the amount of other income or expense that we report related to the change in the fair value of the derivative liability is somewhat unpredictable, but may be significant, and will continue to be reported until the holders of the Series B convertible preferred stock have converted their shares into shares of our common stock.





Net Loss. Net loss for the year ended November 30, 2010 was $1,289,272, as compared to a net loss of $843,872 for the year ended November 30, 2009, representing an increase in the net loss of $445,400 (53%).  The primary reasons for the increase in net loss are the 1) recognition of the acquired in-process research and development expense, 2) the decrease in operating revenues, 3) the increase in operating expenses, and 4) recognition of grant revenue, all as described above.





30


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 years ended November 30, 2010 and 2009, the Company accrued preferred dividends in the amount of $131,529 and $148,391, respectively.





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, 2010 and November 30, 2009:





November 30, 2010


November 30, 2009Cash and cash equivalents

$
634,377


$
396,554Current assets

$
674,283


$
402,996Current liabilities


(1,964,169
)


(1,426,348
)Working capital deficiency

$
(1,289,886
)

$
(1,023,352
)





The Company will have to raise additional capital in order to initiate Phase IIb clinical trials for MCT-125, the Company’s therapeutic product for the treatment of fatigue in multiple sclerosis patients.  Management is evaluating several sources of financing for its clinical trial program.  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.





Commencing in about March 2008, the Company has operated on working capital provided by LJCI in connection with its exercise of warrants issued to it by the Company (which LJCI must exercise whenever it wants to convert amounts owning under the convertible debenture it holds), all as discussed in more detail below.  The warrants are exercisable at $1.09 per share.  As of February 22, 2011 there were 7,198,129 shares remaining on the stock purchase warrant.  Should LJCI continue to exercise all of its remaining warrants approximately $7.8 million of cash would be provided to the Company.  However, the Debenture Purchase Agreement limits LJCI’s stock ownership in the Company to 9.99% of the outstanding shares of the Company.  The Company expects that LJCI will
continue to exercise the warrants and convert the debenture over the next year, but cannot assure that LJCI will do so. We are investigating the possible sale or license of certain assets that we did not already license to Corning in October 2007.  We are presently pursuing discussions with companies operating in the stem cell research market and the general life science research market.





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 was declared effective by the SEC, the Company paid 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 is the
dividend rate greater than 12% per annum.  Subsequent to November 30, 2010, the Company received an opinion of outside counsel providing for the removal of the restrictive legend on the Series B preferred stock, which in turn terminates the requirement to accrue the related dividends.  During the fiscal year ended November 30, 2007, the Company paid $73,800 and redeemed 738 shares of the Series B preferred stock. During the fiscal year ended November 30, 2010, 4,923 shares of the Series B preferred stock were converted into 7,991,883 shares of common stock.  In the event the Company did not pay the Series B preferred dividends when due, the conversion price of the Series B preferred shares was reduced to 85% of the otherwise applicable conversion price.




31





The Series B preferred stock was formerly redeemable under certain circumstances, but those redemption provisions expired on July 14, 2008, two years after the closing date of the placement of the Series B Shares.





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.





We entered into a Securities Purchase Agreement with LJCI on February 28, 2007 (the “Securities Purchase Agreement”) pursuant to which we agreed to sell convertible debentures in the principal amount of $100,000 and maturing on February 28, 2012 (the “Debentures”).  In addition, we issued to LJCI a warrant to purchase up to 10 million shares of our common stock (the “LJCI Warrant”) at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007.





The Debentures are convertible at the option of LJCI at any time up to maturity at a conversion price equal to the lesser of the fixed conversion price of $1.00, or 80% of the average of the lowest three daily volume weighted average trading prices per share of our common stock during the twenty trading days immediately preceding the conversion date.  The Debentures accrue interest at 4.75% per year payable in cash or our common stock.  Through November 30, 2010, interest is being paid in cash on a monthly basis.  If paid in stock, the stock will be valued at the rate equal to the conversion price of the Debentures in effect at the time of payment.





For the Debentures, upon receipt of a conversion notice from the holder, the Company may elect to immediately redeem that portion of the Debentures that the holder elected to convert in such conversion notice, plus accrued and unpaid interest.  After February 28, 2008, the Company, at its sole discretion, shall have the right, without limitation or penalty, to redeem the outstanding principal amount of the Debentures not yet converted by holder into Common Stock, plus accrued and unpaid interest thereon.





Cash provided by (used in) operating, investing and financing activities for the years ended November 30, 2010 and November 30, 2009 is as follows:


November 30, 2010


November 30, 2009Operating activities

$
(747,877
)

$
(1,112,064
)Investing activities

$
(270,000
)


17,356Financing activities


1,255,700



1,485,240Net increase in cash and cash equivalents

$
237,823


$
390,532





Operating Activities





For the year ended November 30, 2010, the most significant differences between our net loss and net cash used in operating activities are due to a net non-cash charges to operations of $691,736 principally consisting of acquired in-process research and development expense and stock-based compensation, less changes in non-cash working capital totaling $150,341.  For the year ended November 30, 2009, the most significant differences between our net loss and our net cash used in operating activities are due to changes in working capital, which included a decrease in accounts payable and accrued liabilities of $285,704.





Investing Activities





Net cash used in investing activities in 2009 was related to payments for in-process research and development.  Net cash provided by investing activities in 2009 was related to the collections of principal on a note receivable.





Financing Activities





During the year ended November 30, 2010, principal cash flows from financing activities related to LJCI converting $9,613 of the 4.75% Debentures into common stock and exercising warrants to purchase 961,330 shares of common stock at a price of $1.09 per share, resulting in total proceeds of $1,047,850.  Additionally, LJCI advanced $237,850 towards the future exercise of warrants.  During the year ended November 30, 2010, we also used $30,000 to repay the remaining amounts owed on notes payable to related parties. During the year ended November 30, 2009, LJCI converted $13,855 of the 4.75% Debentures into common stock and exercised warrants to purchase 1,385,541 shares of common stock at a price of
$1.09 per share, resulting in total proceeds of $1,510,240.  Additionally, we repaid short-term notes payable to two related parties in the amount of $25,000.




32




Through November 30, 2010, a significant portion of our financing has been provided through private placements of preferred and common stock, the exercise of stock options and warrants and issuance of convertible debentures.  We have in the past increased, and if funding permits plan to increase further, our operating expenses in order to fund higher levels of product development, undertake and complete the regulatory approval process, and increase our administrative resources in anticipation of future growth.  In addition, acquisitions such as MCTI increase operating expenses and therefore negatively impact, in the short term, the liquidity position of the Company.





Commencing in March 2008, the Company has operated on working capital provided by LJCI. Under terms of the agreement LJCI can convert a portion of the convertible debenture by simultaneously exercising a warrant at $1.09 per share. As of February 22, 2011, there are 7,198,129 shares remaining on the stock purchase warrant and a balance of $71,981 remaining on the convertible debenture. Should LJCI continue to exercise all of its remaining warrants approximately $7.8 million of cash would be provided to the Company. The agreement limits LJCI’s investment to an aggregate ownership that does not exceed 9.99% of the outstanding shares of the Company. The Company expects that LJCI will continue to exercise the warrants and convert the debenture over the next year. 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.





ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The full text of the Company's audited consolidated financial statements for the fiscal years ended November 30, 2010 and 2009 begins on page F-1 of this Annual Report.





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None





ITEM 9A.  CONTROLS AND PROCEDURES





DISCLOSURE CONTROLS AND PROCEDURES





We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act 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 our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.





Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2010 and concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal controls constituted material weaknesses as discussed below. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, nor does management believe that it had any effect on the accuracy of the Company’s financial statements for the current reporting period.





33


MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was 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 inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





Our management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As of November 30, 2009 and
2010, the following material weaknesses existed:





1.
Entity-Level Controls: We did not maintain effective entity-level controls as defined by the framework issued by COSO. Specifically, we did not effectively segregate certain accounting duties due to the small size of our accounting staff, and maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting.




2.
Information Technology: We did not maintain effective controls over the segregation of duties and access to financial reporting systems. Specifically, key financial reporting systems were not appropriately configured to ensure that certain transactions were properly processed with segregated duties among personnel and to ensure that unauthorized individuals did not have access to add or change key financial data.





Due to this material weakness, management has concluded that our internal control over financial reporting was not effective as of November 30, 2009 and 2010.





In order to mitigate these material weaknesses to the fullest extent possible, all financial reports are reviewed by the Chief Financial Officer, who has limited system access.  In addition, regular meetings are held with the Board of Directors and the Audit Committee.  If at any time we determine a new control can be implemented to mitigate these risks at a reasonable cost, it is implemented as soon as possible.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.





This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.





CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING





There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2010 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.




Item 9B. OTHER INFORMATION





None.





34


PART III





ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE




The Directors and Executive Officers of the Company





Our executive officers, key employees and directors are listed in the below table. There are no family relationships among any of our executive officers, key employees and directors.


Name

Age

Position

Director since the below date (1)W. Gerald Newmin

73

Chairman, Acting Chief Executive Officer, Chief Financial Officer, Secretary and Director

December 1, 1995(2)Stephen Chang

55

Director

June 16, 2004Edward Sigmond

52

Director

May 17, 2000Thomas A. Page

77

Director

September 11, 2003Anthony E. Altig

55

Director

September 15, 2005





(1)
Each director serves until the next annual meeting of stockholders.


(2)
Elected as Acting Chief Executive Officer on December 21, 2007.





W. Gerald “Jerry” Newminjoined the Company as a director in June 1995.  He currently serves as the Chairman, Chief Executive Officer, President, Chief Financial Officer and Secretary.  Mr. Newmin served as Chief Executive Officer of the Company from June 1995 to May 2006, and was appointed to serve again as Chief Executive Officer on December 21, 2007.  Mr. Newmin is Chairman, Chief Executive Officer, Secretary and a director of Xenogenics, a partially-owned subsidiary, Chairman, Chief Executive Officer, Secretary and director of MCT Rhode Island Corp, a wholly-owned subsidiary of the Company and Chief Executive Officer, Secretary and a director of MCTI, a
partially-owned subsidiary of the Company. He has managed NYSE and American Stock Exchange Fortune 500 companies. He has been President of HealthAmerica Corporation, then the nation’s largest publicly held HMO management company. He was Chief Executive Officer and President of The International Silver Company, a diversified multi-national manufacturing company that he restructured. He was Chief Operating Officer of numerous Whittaker Corporation operating units, including Production Steel Company, Whittaker Textiles, Bertram Yacht, Trojan Yacht, Columbia Yacht, Narmco Materials and Anson Automotive. He was instrumental in Whittaker’s entry into the US and international health care markets. He was Western Regional Vice President of American Medicorp, Inc, where he managed 23 acute care hospitals in the Western United States. He retired as Chairman and Chief Executive Officer of SYS Technologies, Inc., a high-growth defense technology company in
2003.  Mr. Newmin has a Bachelor’s degree in Accounting from Michigan State University.





Stephen Chang, Ph.D.has served as a director of the Company since June 2004, became President of the Company in February 2005, and became Chief Executive Officer in May 2006.  Dr. Chang resigned as Chief Executive Officer and President on December 21, 2007.  On December 21, 2007, Dr. Chang also resigned as President and CEO of MultiCell Immunotherapeutics, Inc., a subsidiary of the Company.  In 2008, Dr. Chang became Chief Scientific Officer and Founder of Stemgent, Inc.  In 2010, Dr. Chang joined the New York Stem Cell Foundation as its Vice-President of Research and Development.  Dr. Chang is also President of CURES, a coalition of patient advocates, biotechnology companies, pharmaceutical companies and venture capitalists
dedicated to ensuring the safety, research and development of innovative life saving medications. Dr. Chang was chief science officer and vice president of Canji Inc./Schering Plough Research Institute in San Diego from 1998 to 2004.  Dr. Chang earned his doctoral degree in Biological Chemistry, Molecular Biology and Biochemistry from the University of California, Irvine.  Prior to that he received a bachelor of science in Zoology, Microbiology, and Cell and Molecular Biology from the University of Michigan and a USPHS Postdoctoral Fellowship at the Baylor College of Medicine.





Edward Sigmondhas served as a director of the Company since May 2000.  He founded The Great American Food Chain, a public restaurant holding company with the mission to incubate and develop successful restaurant concepts, where he currently serves as CEO and Chairman of the Board.  Mr. Sigmond is a partner in Sigmond and Johnson, Inc., a Dallas-based investment banking firm specializing in working with public micro cap companies through the early stages of development.  Mr. Sigmond owns Kestrel Holdings, Inc., a real estate and equity investment company focusing on the restaurant and bar market in the Dallas area. He is a member of the Board of Directors of Na Zdravi Ventures, a.s., a Hooters of American franchisee for the
Czech Republic and Slovak Republic.  He is also an owner and the managing partner of The Elbow Room, a popular Dallas restaurant and bar founded in 1998.  Mr. Sigmond has held other executive sales, marketing and operations management positions over his 25 years of working experience. These include founder and president of American Machine and Bearing, and Specialty Food Products. He was Assistant to the President of Alpha Aviation and VP/Regional Manager of Geodata Corporation.  Mr. Sigmond is a citizen of the United States of America.





35





Thomas A. Pagehas served as a director of the Company since September 2003.  Mr. Page is Director Emeritus and former Chairman of the Board and CEO of Enova Corporation and San Diego Gas and Electric Company (now part of Sempra Energy).  Prior to the formation of Sempra Energy Corporation as a holding company in 1996, at various times Mr. Page was SDG&E’s chairman, president and CEO and  held one or more of these positions until his retirement in 1998.  Mr. Page joined SDG&E in 1978 as executive vice president and COO.  In 1981, he was elected president and CEO and added the chairmanship in 1983.  Mr. Page has been active in numerous industrial, community and governmental associations
and has funded medical research.  He is a director of the Coronado First Bank and is an advisory director of Sorrento Ventures.  Mr. Page earned a Bachelor of Science degree in civil engineering, a masters degree in industrial administration and was awarded an honorary doctorate in management, all from Purdue University.  He has been licensed as an engineer and as a certified public accountant.





Anthony E. Altighas served as a director of the Company since September 2005. Mr. Altig serves as the Chair of the Audit Committee of the Company.  Since 2008, Mr. Altig has been the Chief Financial Officer of Biotix Holdings a manufacturer of laboratory and clinical disposable products.  From 2004 to 2007 Mr. Altig was the Chief Financial Officer of Diversa Corporation (now Verenium Corporation) a leader in providing proprietary genomic technologies for the rapid discovery and optimization of novel protein based products.  From 2002 through 2004 Mr. Altig served as the Chief Financial Officer of Maxim Pharmaceuticals, a public biopharmaceutical company.  Prior to joining Maxim, Mr. Altig served as the Chief Financial
Officer of NBC Internet, Inc., a leading internet portal company, which was acquired by General Electric.  Mr. Altig’s additional experience includes his role as the Chief Accounting Officer at USWeb Corporation, as well as his experience serving biotechnology and other technology companies during his tenure at both PricewaterhouseCoopers and KPMG.  Mr. Altig also serves on the Boards of Directors of Optimer Pharmaceuticals and Tearlab Corporation.  Mr. Altig is a certified public accountant and is a graduate of the University of Hawaii.





CORPORATE GOVERNANCE





General





We believe that good corporate governance is important to ensure that the Company is managed for the long-term benefit of our stockholders. This section describes key corporate governance practices that we have adopted.





Board of Directors Meetings and Attendance





The Board of Directors has responsibility for establishing broad corporate policies and reviewing our overall performance rather than day-to-day operations. The primary responsibility of our Board of Directors is to oversee the management of our company and, in doing so, serve the best interests of the company and our stockholders. The Board of Directors selects, evaluates and provides for the succession of executive officers and, subject to stockholder election, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. Our Board of Directors also participates in decisions that have a potential major economic impact on our company. Management keeps the directors informed of company activity through regular
communication, including written reports and presentations at Board of Directors and committee meetings.





We have no formal policy regarding director attendance at the annual meeting of stockholders. The Board of Directors held six meetings in 2010, five of which were telephonic. All five board members were present, either by person or on the telephone in the case of the telephonic meetings, at all six meetings except for Mr. Page who missed one meeting.





Board Committees





Our Board of Directors has established an Audit Committee and a Nominating, Corporate Governance and Compensation Committee. The members of each committee are appointed by our Board of Directors, upon recommendation of the Nominating Committee, and serve one-year terms. Each of these committees operates under a charter that has been approved by the Board of Directors. The charter for each committee is available on our website. The Audit Committee met four times during 2010. The Nominating, Corporate Governance and Compensation Committee met one time during 2010.




36





Audit Committee





Audit Committee of the Board of Directors oversees the Company’s corporate accounting and financial reporting process.  For this purpose, the Audit Committee performs several functions.  The Audit Committee evaluates the performance of and assesses the qualifications of the independent registered public accounting firm; determines and approves the engagement of the independent registered public accounting firm; determines whether to retain or terminate the existing independent registered public accounting firm or to appoint and engage new independent registered public accounting firm; reviews and approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent
registered public accounting firm on the Company’s audit engagement team as required by law; confers with management and the independent registered public accounting firm regarding the effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviews the financial statements to be included in the Company’s Annual Report on Form 10-K; and discusses with management and the independent registered public accounting firm the results of the annual audit and the results of the Company’s quarterly financial statements.  Three directors comprise the Audit Committee: Anthony Altig (Chairman), Edward Sigmond and Thomas Page.




The Board of Directors annually reviews the NASDAQ listing standards definition of independence for Audit Committee members and has determined that all members of the Company’s Audit Committee are independent (as independence is currently defined in Rule 10A-3 of the Exchange Act of 1934).The Board of Directors has determined that Anthony Altig and Thomas Page each qualify as “audit committee financial experts”, as defined in applicable SEC rules.  The Board made a qualitative assessment of Anthony Altig’s and Thomas Page’s level of knowledge and experience based on a number of factors, including their formal education and experience as financial experts and their prior experience as certified public
accountants.  The Audit Committee met four times during the fiscal year ended November 30, 2010.





Nominating, Corporate Governance and Compensation Committee





The Nominating, Corporate Governance and Compensation Committee provides assistance to the corporate directors in fulfilling their responsibility to the shareholders, potential shareholders, and investment community to ensure that the company's officers, key executives, and board members are compensated in accordance with the company's total compensation objectives and executive compensation policy. The committee advises, recommends, and approves compensation policies, strategies, and pay levels necessary to support organizational objectives. The committee maintains free and open means of communication between the board of directors and the chief executive officer of the corporation.





The Nominating, Corporate Governance and Compensation Committee responsibilities include:





·
Assisting the organization in defining an executive total compensation policy that (1) supports the organization's overall business strategy and objectives, (2) attracts and retains key executives, (3) links total compensation with business objectives and organizational performance in good and bad times, and (4) provides competitive total compensation opportunities at a reasonable cost while enhancing shareholder value creation.





·
Acts on behalf of the board of directors in setting executive compensation policy, administering compensation plans approved by the board of directors and shareholders, and making decisions or developing recommendations for the board of directors with respect to the compensation of key company executives.





·
Reviews and recommends to the full board of directors for approval the annual base salary levels, annual incentive opportunity levels, long-term incentive opportunity levels, executive prerequisites, employment agreements (if and when appropriate), change in control provisions/agreements (if and when appropriate), benefits, and supplemental benefits of the chief executive officer.





·
Evaluates annually chief executive officer and other key executives' compensation levels and payouts against (1) pre-established performance goals and objectives, and (2) an appropriate peer group.





·
Keeps abreast of current developments in executive compensation outside the company.





·
Meets regularly and/or as needed to consider the nomination and screening of board member candidates, evaluate the performance of the board and its members, as well as termination of membership of board members in accordance with corporate policy, conflicts of interest, for cause or other appropriate reasons.





·
Submits the minutes of all meetings of the Committee to, or discuss the matters discussed at each committee meeting with, the board of directors.




37





·
Administers the stock incentive plans.





The members of the Nominating, Corporate Governance and Committee are Edward Sigmond, Chairman, Anthony Altig and Thomas Page. The Committee met once during the fiscal year ended November 30, 2010.





Director Candidates





The process followed by the Nominating, Corporate Governance and Compensation Committee to identify and evaluate director candidates includes requests to board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating, Corporate Governance and Compensation Committee and the Board.





In considering whether to recommend any particular candidate for inclusion in the Board's slate of recommended director nominees, the Nominating Committee applies certain criteria, including:





·
The candidate's honesty, integrity and commitment to high ethical standards,





·
Demonstrated financial and business expertise and experience,





·
Understanding of our company, its business and its industry,





·
Actual or potential conflicts of interest, and





·
The ability to act in the interests of all stockholders.




The Nominating, Corporate Governance and Compensation Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a significant breadth of experience, knowledge and abilities that will allow our Board to fulfill its responsibilities.





The Nominating, Corporate Governance and Compensation Committee will consider director candidates recommended by stockholders or groups of stockholders who have owned more than 5% of our common stock for at least a year as of the date the recommendation is made. Stockholders may recommend individuals to the Nominating, Corporate Governance and Compensation Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to the Nominating, Corporate Governance and Compensation Committee, c/o Corporate
Secretary, MultiCell Technology, Inc., 86 Cumberland Street, Suite301, Woonsocket, Rhode Island 02895. Assuming that appropriate biographical and background material have been provided on a timely basis, the Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.





Communicating with the Directors





The Board will give appropriate attention to written communications that are submitted by stockholders, and will respond if and as appropriate. The chair of the Audit Committee is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the other directors as he considers appropriate.





Communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the chair of the Audit Committee considers to be important for the directors to know. In general, communications relating to corporate governance and corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which we tend to receive repetitive or duplicative communications.





Stockholders who wish to send communications on any topic to the Board should address such communications to the Board of Directors, c/o Corporate Secretary, MultiCell Technologies, Inc., 68 Cumberland Street, Suite 301, Woonsocket, RI 02895. You should indicate on your correspondence that you are a MultiCell Technologies, Inc. stockholder.





Anyone may express concerns regarding questionable accounting or auditing matters or complaints regarding accounting, internal accounting controls or auditing matters to the Audit Committee by calling (401) 762-0045. Messages to the Audit Committee will be received by the chair of the Audit Committee and our Corporate Secretary. You may report your concern anonymously or confidentially.




38





Section 16(a) Beneficial Ownership Reporting Compliance





The Company does not have a class of equity securities registered pursuant to Section 12 of the Exchange Act, is not a closed-end investment company registered under the Investment Company Act of 1940, and is not a holding company registered pursuant to the Public Utility Holding Company Act of 1935.  Accordingly, its directors, officers and beneficial owners are not subject to Section 16 of the Exchange Act with respect to the Company.





Code of Ethics





We have adopted a code of business conduct and ethics that applies to our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) as well as our employees. A copy of our code of business conduct and ethics is available on our website at www.multicelltech.comunder "Investor Relations—Leadership & Governance." We intend to post on our website all disclosures that are required by applicable law, the rules of the Securities and Exchange Commission or OTCBB listing standards concerning any amendment to, or waiver from, our code of business conduct and ethics.





ITEM 11. EXECUTIVE COMPENSATION





COMPENSATION DISCUSSION AND ANALYSIS





Overview of Executive Compensation Objectives and Philosophy





Our executive compensation plan’s objectives are to attract and retain highly competent executives and to compensate them based upon a pay-for-performance philosophy.  With the intent to increase short-term and long-term stockholder value, we have designed our executive compensation plan to reward:




·
Individual performance as measured against personal goals and objectives that contain quantitative components wherever possible; such personal goals depend on the position occupied by our executive officers and can include achieving technological advances, broadening of our products and services offerings, or building a strong team; and




·
Demonstration of leadership, team building skills and high ethical standards.  We design our overall compensation to align the long-term interests of our executives with those of our stockholders.  Our compensation plan is designed to encourage success of our executives as a team, rather than only as individual contributors, by attaining overall corporate success.





Elements of Executive Compensation





Executive compensation consists of the following elements:




·
Base salary; and




·
Long-Term Incentives.




Base Salary.  The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account his or her scope of responsibilities, qualifications, experience, prior salary and competitive salary information within our industry.  Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of her or his sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on the company’s business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for
advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace. Generally, we believe that executive base salaries should be targeted near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable companies.




Long-Term Incentive Program.  Our long-term incentives consist of stock option awards.  The objective of these awards is to align the longer-term interests of our stockholders and our executive officers and to complement incentives tied to annual performance.  We have historically elected to use stock options as our primary long-term equity incentive vehicle.  We have not adopted stock ownership guidelines.




39




Why We Chose to Pay Each of the Executive Compensation Elements and How We Determine the Amount of Each Element




Base Salary.  Base salary is paid to attract and retain our executives and to provide them with a level of predictable base compensation.  Because base salary, in the first instance, is set at the time the executive is hired, it is largely market-driven and influenced by the type of position occupied, the level of responsibility, experience and training of each executive, and the base salary at his or her prior employment.  Annual adjustments to base salary, if any, are influenced by the individual’s achievement of individual goals and the company’s achievement of its financial goals.




The base salary we paid to our executive in 2010 and 2009 is reflected in the summary compensation table below.




Long-Term Incentives. We grant stock options to our executives and directors as part of our executive compensation package program to directly link their interests to those of our stockholders, since stock options will only produce value to executives if the price of our stock appreciates.  We believe that our compensation program must include long-term incentives such as stock options if we wish to hire and retain high-level executive talent.  We also believe that stock options help to provide a balance to the overall executive compensation program as base salary and bonus awards focus only on short-term compensation.  In addition, the
vesting period of stock options encourages executive retention and the preservation of shareholder value.  We base the number of stock options granted on the type and responsibility level of the executive’s position, the executive’s performance in the prior year and the executive’s potential for continued sustained contributions to our long-term success and the long-term interests of our stockholders.  The number of stock options is also dependent on the number of options available in the option pool and the number of options already granted and vested to each individual executive.




The Level of Salary and Bonus in Proportion to Total Compensation




Because of the congruence of interests by our executives and our stockholders in sustained, long-term growth of the value of our stock, we seek to keep cash compensation in line with market conditions and, if justified by the Company’s financial performance, place emphasis on the use of options as a means of obtaining significantly better than average compensation.




Summary Compensation Table




Name and Principal Position(1)

Year

Salary

($)


Stock

Awards

($)


Option

Awards

($)


All Other

Compensation

($)


Total

($)W. Gerald Newmin, (2)

2010

$
180,000


$
2,875
(3)

$
7,500
(4)

$
2,250
(5)

$
192,625Chairman of the Board, Chief Executive

2009

$
180,000


$
0


$
11,000
(6)

$
2,250
(7)

$
193,250Officer, President, Chief FinancialOfficer, Treasurer, Secretary and Director





(1) During fiscal years ended November 30 2010 and 2009, the listed person was the only Principal Executive Officer of the Company and the only person that earned more than $100,000 during either of such fiscal years.





(2) Appointed as President and Chief Executive Officer on December 21, 2007.





(3) In March 2010, Mr. Newmin was awarded 250,000 shares of common stock valued at $2,875, or $0.0115 per share, the closing price of our common stock on the date of the award.





(4) In June 2010, Mr. Newmin was granted an option to acquire 1,000,000 shares of common stock at an exercise price of $0.008 per share.  The option vests quarterly over one year and expires five years after the grant date.  The weighted average assumptions used in determining the fair value of the option under the Black-Scholes model for expected volatility, dividends, expected term, and risk-free interest rate were 165%; 0%; 5 years; and 1.83%; respectively.





(5) This amount represents fees earned in consideration for attending meetings of our Board of Directors during fiscal year 2010.  Mr. Newmin earned $1,000 for each meeting of the Board of Directors attended in person and $250 for each meeting attended by teleconference during fiscal year 2010.  The Company’s policy for director fees earned in fiscal year 2010 is to pay such fees in cash.





(6) In June 2009, Mr. Newmin was granted an option to acquire 1,000,000 shares of common stock at an exercise price of $0.011 per share.  The option vests quarterly over one year and expires five years after the grant date.  The weighted average assumptions used in determining the fair value of the option under the Black-Scholes model for expected volatility, dividends, expected term, and risk-free interest rate were 157%; 0%; 5 years; and 2.58%; respectively.




40




(7) This amount represents fees earned in consideration for attending meetings of our Board of Directors during fiscal year 2009.  Mr. Newmin earned $1,000 for each meeting of the Board of Directors attended in person and $250 for each meeting attended by teleconference during fiscal year 2009.  The Company’s policy for director fees earned in fiscal year 2009 is to pay one half of such fees in cash and the other half of such fees in capital stock of the Company.  During the year ended November 30, 2009, the Company issued 59,211 shares of common stock in payment of $1,125 of director fees and the remaining $1,125 was paid in cash.





Contracts, Termination of Employment and Change-in-Control Arrangements





Employment Agreement with W. Gerald Newmin.  Mr. Newmin does not have a written employment agreement with the Company. Mr. Newmin’s base salary is $15,000 per month.





OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END





The following table shows for the fiscal year ended November 30, 2010, certain information regarding options granted to, exercised by, and held at year-end by, the Named Executive Officers:





Option Awards

Stock AwardsName

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable


Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable


Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options (#)


Option

Exercise

Price ($)

Option

Expiration

Date

Number

of Shares

or Units

of Stock

That

Have Not

Vested (#)


Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested ($)


Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other

Rights That

Have Not

Vested (#)


Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights That

Have Not

Vested ($)W. Gerald Newmin


250,000



750,000



0


$
0.008

6/28/15


0



0



0



0W. Gerald Newmin


1,000,000



0



0


$
0.011

6/25/14


0



0



0



0W. Gerald Newmin


333,553



0



0


$
0.019

9/23/14


0



0



0



0





NON-EMPLOYEE DIRECTOR COMPENSATION





The following table details the total compensation of our non-employee directors for the year ended November 30, 2010.




Name

Fees Earned or

Paid in Cash ($)


Stock Awards ($)


Option Awards

($) (1)


Total ($)Anthony F. Altig

$
3,750


$
0


$
7,500


$
11,250Stephen Chang

$
2,250


$
0


$
7,500


$
9,750Thomas A.  Page

$
2,500


$
0


$
7,500


$
10,000Edward Sigmond

$
3,750


$
0


$
7,500


$
11,250




(1)  In June 2010, each director was granted an option to acquire 1,000,000 shares of common stock at an exercise price of $0.008 per share.  The option vests quarterly over one year and expires five years after the grant date.  The weighted average assumptions used in determining the fair value of the option under the Black-Scholes model for expected volatility, dividends, expected term, and risk-free interest rate were 165%; 0%; 5 years; and 1.83%; respectively.





41


Director Compensation Arrangements





Each director of the Company earns fees of $1,000 for each board meeting attended and $250 for each teleconference of the board.  The Chairman of the Audit Committee and the Chairman of the Nominating, Corporate Governance and Compensation Committee earn $500 for each Committee meeting, whether attended in person or by teleconference.  Each member of the Nominating, Corporate Governance and Compensation Committee and each member of the Audit Committee earns $250 per Committee meeting, whether attended in person or by teleconference.  The members of the Board of Directors are also eligible for reimbursement for their expenses incurred in attending Board meetings in accordance with Company policy.




Each director of the Company was also granted an option on June 28, 2010 to purchase 1,000,000 shares of the Company’s common stock.  The options have an exercise price of $0.008, vest quarterly over one year from the grant date, and expire five years after the grant date.  The options granted are pursuant to our 2004 Equity Incentive Plan.  None of the options granted are incentive stock options, as defined in the Internal Revenue Code.





ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





Beneficial Ownership of Directors, Officers and 5% Stockholders





The following table sets forth, as of February 22, 2011, certain information as to shares of our common stock owned by (i) each person known to beneficially own more than 5% of our outstanding common stock or preferred stock, (ii) each of our directors, and executive officers named in our summary compensation table, and (iii) all of our executive officers and directors as a group.  Unless otherwise indicated, the address of each named beneficial owner is the same as that of our principal executive offices located at 86 Cumberland Street, Suite 301, Woonsocket, Rhode Island, 02895.





Name and Address of Beneficial Owner (1)

Number of

Shares of

Common Stock

Beneficially

Owned (2)


Percent of

Common Stock

Beneficially

Owned


Number of

Shares of

Preferred Stock

Beneficially

Owned


Percent of

Preferred Stock

Beneficially

OwnedMonarch Pointe Fund, Ltd. (3)


26,541,621



4.20
%


13,625



79.80
%La Jolla Cove Investors, Inc. (4)


67,255,064



9.99
%


–



–W. Gerald Newmin (5)


9,350,911



1.53
%


–



–Thomas A. Page (6)


4,468,410



*



–



–Stephen Chang, Ph.D. (7)


3,358,812



*



–



–Edward Sigmond (8)


3,780,446



*



–



–Anthony Altig (9)


5,130,139



*



–



–All executive officers and directors as a group (five persons)


26,088,718



4.21
%


–



–





*
Represents less than 1% of the issued and outstanding shares of the applicable class of equity securities of the Company as of February 22, 2011.





(1)
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Pursuant to the rules of the Commission, shares of common stock that each named person and group has the right to acquire within 60 days pursuant to options, warrants, or other rights, are deemed outstanding for purposes of computing shares beneficially owned by the percentage ownership of each such person and group.  Applicable percentages are based on 605,968,799 shares of common stock and 17,073 shares of preferred stock outstanding on February 22, 2011 (of which 11,339 are shares of our Series B preferred stock and 5,734 are shares of our Series I preferred stock), and are calculated as required by rules promulgated by the SEC.





(2)
Unless otherwise noted, all shares listed are owned of record and the record owner has sole voting and investment power, subject to community property laws where applicable.





(3)
Includes (i) 496,972 shares of common stock held by Monarch Pointe Fund, Ltd. (“MPF”), (ii) 5,096,203 shares of common stock issuable to MPF upon the exercise of warrants within 60 days of February 22, 2011, (iii) 2,293,600 shares of common stock issuable to MPF upon conversion of 5,734 shares of Series I Preferred Stock and (iv) 18,654,846 shares of common stock issuable to MPF upon conversion of 7,891 shares of Series B Preferred Stock. According to a Schedule 13G/A filed with the SEC by MPF on January 14, 2009, MPF is in liquidation, William Tacon serves as the liquidator of MPF and, as such, now has control over the securities owned by MPF.




42


(4)
Represents the maximum possible amount of shares of our commons stock (i) held by LJCI, (ii) issuable to LJCI upon the exercise of a common stock warrant it holds, and (iii) issuable to LJCI upon the conversion of a 4.75% convertible debenture its holds, all as of February 22, 2011.  Pursuant to the terms of the warrant and convertible debenture, LJCI may not acquire shares of our commons stock to the extent such acquisition would cause LJCI to own more than 9.99% of our outstanding common stock immediately after such acquisition.  Provided the aforementioned 9.99% cap is complied with, LJCI may in the future exercise or convert into, as applicable, a significant amount of additional shares of our common stock (e.g. as of February 22, 2011, there are a total of 7,198,129 shares remaining on the stock purchase
warrant and a balance of $71,981 remaining on the convertible debenture, which is convertible pursuant to the formula set forth in the debentures listed in the Exhibits section of this report).




(5)
Includes (i) 5,562,997 shares of common stock, (ii) 1,287,065 shares of common stock issuable to Mr. Newmin upon the exercise of warrants within 60 days of February 22, 2011, (iii)  2,083,553 shares of common stock issuable to Mr. Newmin under options exercisable within 60 days of February 22, 2011, (iv) 197,296 shares of common stock owned by Mr. Newmin’s spouse, and (v) warrants to purchase 220,000 shares of common stock issuable upon exercise of warrants owned by Mr. Newmin’s spouse.  Mr. Newmin disclaims beneficial ownership of the aforementioned stock beneficially owned by Mr. Newmin’s spouse, except to the extent of his pecuniary interest therein.





(6)
Includes (i) 1,636,586 shares of common stock, (ii) 525,903 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 22, 2011, and (iii) 2,305,921 shares of common stock issuable under options exercisable within 60 days of February 22, 2011.





(7)
Includes (i) 988,163 shares of common stock, (ii) 364,071 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 22, 2011 and (iii) 2,006,578 shares of common stock issuable under options exercisable within 60 days of February 22, 2011.





(8)
Includes (i) 1,560,974 shares of common stock, (ii) 161,577 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 22, 2011 and (iii) 2,057,895 shares of common stock issuable under options exercisable within 60 days of February 22, 2011.





(9)
Includes (i) 2,232,209 shares of common stock, (ii) 172,930 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 22, 2011 and (iii) 2,725,000 shares of common stock issuable under options exercisable within 60 days of February 22, 2011.





EQUITY COMPENSATION PLAN INFORMATION





The following table summarizes the securities authorized for issuance under equity compensation plans as of November 30, 2010.





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

PlansEquity compensation plans approved by shareholders (1)


13,148,947


$
0.02



32,825,266Equity compensation plans not approved by shareholders (2)


850,000


$
0.3613,998,947


$
0.04





(1) Pursuant to the 2004 Plan, from 2005 through the Company’s fiscal year end 2013, the number of shares of common stock authorized for issuance under the Plan is automatically increased on the first day of each year by the lesser of the following amounts: (a) 2.0% of the Company’s outstanding shares of common stock on the day preceding the first day of such fiscal year or (b) 1,500,000 shares of common stock.Additionally, on June 25, 2009 and on August 26, 2010, at special meetings of stockholders, the stockholders approved amendments to the Plan to increase the number of shares of common stock authorized under the Plan.  At each meeting, the number of authorized
shares was increased by 25,000,000 shares.  The numbers of shares set forth in this row include all of such previous increases.





(2) Represents warrants issued to service providers in compensation for services provided.




43


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





Except as described below, none of the following parties has, in the fiscal year ending November 30, 2010, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, other than as noted in this section:





·
Any of our directors or officers,





·
Any person proposed as a nominee for election as a director,





·
Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock,





·
Any of our promoters, and





·
Any relative or spouse of any of the foregoing persons who has the same house as such person.





CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Since December 1, 2009, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeds the lesser of (1) $120,000 and (2) one percent of the average of our total assets at year end for the last three completed fiscal years, in which any director, executive officer or beneficial holder of more than 5% of any class of our voting securities or members of such person’s immediate family had or will have a direct or indirect material interest, other than the transactions described below.  All future transactions between us and any of our directors, executive officers or related parties will be subject to the review and approval of our Audit Committee.





La Jolla Cove Investors, Inc.





The Company entered into a Securities Purchase Agreement with LJCI on February 28, 2007 pursuant to which the Company agreed to sell a convertible debenture in the principal amount of $100,000 and maturing on February 28, 2012 (the “Debenture”).  The Debenture accrues interest at 4.75% per year, payable at each conversion date, in cash or common stock at the option of LJCI.  The proceeds from the Debenture were deposited on March 5, 2007. In connection with the Debenture, the Company issued LJCI a warrant to purchase up to 10 million shares of our common stock (the “LJCI Warrant”) at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007.  Pursuant to the terms
of the LJCI Warrant, upon the conversion of any portion of the principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the warrant shares equal to the percentage of the dollar amount of the Debenture being converted.  Therefore, for each $1,000 of the principal converted, LJCI would be required to simultaneously purchase 100,000 shares under the LJCI Warrant at $1.09 per share.





The Debenture is convertible at the option of LJCI at any time up to maturity into the number of shares determined by the dollar amount of the Debenture being converted multiplied by 110, minus the product of the Conversion Price multiplied by 100 times the dollar amount of the Debenture being converted, with the entire result divided by the Conversion Price.  The Conversion Price is equal to the lesser of $1.00 or 80% of the average of the three lowest volume-weighted average prices during the twenty trading days prior to the election to convert.  During the year ended November 30, 2010, LJCI converted $9,613 of the Debenture into 167,550,540 shares of common stock.  Simultaneously with these conversions, LJCI exercised warrants to purchase 961,330 shares of the Company’s
common stock.  Proceeds from the exercise of the warrants were $1,047,850.  As of November 30, 2010, the balance of the Debenture was $75,706 and there were remaining warrants to purchase 7,570,629 shares of common stock at $1.09 per share.  During the period from December 1, 2010 through February 22, 2011, LJCI has converted an additional $3,725 of the Debenture into 128,850,042 shares of common stock.  Simultaneously with these additional conversions, LJCI exercised additional warrants to purchase 372,500 shares of the Company’s common stock.  Proceeds from the additional exercise of warrants were $406,025.  As of February 22, 2011, the balance of the Debenture is $71,981 and there are remaining warrants to purchase 7,198,129 shares of common stock at $1.09 per share.





Notes Payable to Members of the Board of Directors





During the fiscal year ended November 30, 2008, we borrowed $55,000 from two members of our board of directors to meet working capital needs.  The notes accrued interest at 8.5% per year and are unsecured.  The original notes in the amount of $50,000 and related accrued interest were due in December 2008, but were extended initially to June 2009 and then extended a second time to December 2009.  The note in the amount of $5,000 was due in May 2009.  During the year ended November 30, 2009, we repaid $25,000 of the notes to related parties and during the year ended November 30, 2010, we repaid the balance of $30,000.




44





Board Determination of Independence





The Company complies with the standards of "independence" prescribed by rules set forth by the National Association of Securities Dealers ("NASD"). Accordingly, a director will only qualify as an "independent director" if, in the opinion of our Board of Directors, that person does not have a material relationship with our company which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. A director who is, or at any time during the past three years, was employed by the Company or by any parent or subsidiary of the Company, shall not be considered independent. Accordingly, Anthony Altig, Thomas Page and Edward Sigmond meet the definition of "independent director" under Rule 4200(A)(15) of the NASD Manual; Dr. Chang and Mr. Newmin do not.





ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES





The following table summarizes the fees of  Hansen, Barnett and Maxwell, our independent auditor, billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two years for other services:





Fee Category

2010


2009Audit Fees(1)

$
41,444


$
35,050Audit-Related Fees(2)

$
0


$
6,135Tax Fees(3)

$
7,025


$
8,071All Other Fees(4)

$
0


$
0







(1)           Audit fees consist of aggregate fees billed for professional services rendered for the audit of the Company's annual financial statements and review of the interim financial statements included in quarterly reports or services that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements for the fiscal years ended November 30, 2010 and 2009.





(2)           Audit related fees consist of aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fees." These fees include review of registration statements and participation at meetings of the audit committee.





(3)           Tax fees consist of aggregate fees billed for professional services for tax compliance, tax advice and tax planning.





(4)           All other fees consist of aggregate fees billed for products and services provided by the independent auditor, other than those disclosed above. These fees include services related to certain accounting research and assistance with a regulatory matter.




The Company's policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the audit committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. To the extent that additional services are necessary beyond those specifically budgeted for, the audit committee and management pre-approve such services on a
case-by-case basis. All services provided by the independent auditors were approved by the Audit Committee.





45


PART IV





ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES





Please see the Exhibit Index which follows the signature page to this annual report on Form 10-K and which is incorporated by reference herein.





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
W. Gerald NewminW. Gerald NewminChairman, CEO,
CFO, President, Treasurer and SecretaryDated March 2, 2011





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

Chairman ,CEO, CFO, President,

March 2, 2011W. Gerald Newmin

Treasurer and Secretary/s/ Stephen Chang

Director

March 2, 2011Stephen Chang/s/ Edward Sigmond

Director

March 2, 2011Edward Sigmond/s/ Thomas A. Page

Director

March 2, 2011Thomas  A. Page/s/ Anthony Altig

Director

March 2, 2011Anthony Altig




46





EXHIBIT INDEX





Exhibit

No.

Description of Exhibit2.1 (1)

Asset Contribution Agreement dated September 7, 2005 by and among Multicell Technologies, Inc., Astral Therapeutics, Inc., Alliance Pharmaceutical Corp., and Astral, Inc.3.1 (2)

Certificate of Incorporation, as filed on April 28, 1970.3.2 (2)

Certificate of Amendment, as filed on October 27, 1986.3.3 (2)

Certificate of Amendment, as filed on August 24, 1989.3.4 (2)

Certificate of Amendment, as filed on July 31, 1991.3.5 (2)

Certificate of Amendment, as filed on August 14, 1991.3.6 (2)

Certificate of Amendment, as filed on June 13, 2000.3.7 (2)

Certificate of Amendment, as filed May 18, 2005.3.8 (2)

Certificate of Correction, as filed June 2, 2005.3.9 (17)

Certificate of Amendment, as filed September 1, 2010.3.10 (2)

Bylaws, as amended May 18, 2005.3.11 (2)

Specimen Stock Certificate.4.1 (3)

Certificate of Designations of Preferences and Rights of Series I Convertible Preferred Stock, as filed on July 13, 2004.4.2 (4)

Certificate of Designation of Series B Convertible Preferred Stock, as filed on July 14, 2006.4.3 (5)

Debenture Purchase Agreement between Multicell Technologies, Inc. and La Jolla Cove Investors, Inc. dated February 28, 2007.4.4 (5)

Registration Rights Agreement between Multicell Technologies, Inc. and La Jolla Cove Investors, Inc. dated February 28, 2007.4.5 (5)

Stock Pledge Agreement dated February 28, 2007.4.6 (5)

7 3⁄4 % Convertible Debenture for $1,000,000 issued by Multicell Technologies, Inc. to La Jolla Cove Investors, Inc.4.7 (5)

Escrow Letter dated February 28, 2007 from La Jolla Cove Investors, Inc.4.8 (5)

Letter dated February 28, 2007 from La Jolla Cove Investors, Inc.4.9 (5)

Securities Purchase Agreement between Multicell Technologies, Inc. and La Jolla Cove Investors, Inc. dated February 28, 2007.4.10 (5)

4 3⁄4 % Convertible Debenture for $100,000 issued by Multicell Technologies, Inc. to La Jolla Cove Investors, Inc.4.11 (5)

Warrant to Purchase Common Stock dated February 28, 2007.4.12 (5)

Letter dated February 28, 2007 to Multicell Technologies, Inc. from La Jolla Cove Investors, Inc.4.13 (6)

Warrant for the purchase of 1,572,327 Shares of Common Stock of Multicell Technologies, Inc. issued to and Fusion Capital Fund II, LLC dated May 3, 2006.4.14 (7)

Amended and Restated Registration Rights Agreement, dated as of October 5, 2006, by and between Multicell Technologies, Inc. and Fusion Capital Fund II, LLC.4.15 (8)

Form of Warrant to Purchase Common Stock (Cashless Exercise) dated July 14, 2006 issued by Multicell Technologies, Inc. to Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.4.16 (8)

Form of Warrant to Purchase Common Stock (Cash Exercise), dated July 14, 2006, issued by Multicell Technologies, Inc. to Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.4.17 (8)

Form of Registration Rights Agreement dated July 14, 2006 by and between Multicell Technologies, Inc. and Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.4.18 (8)

Form of Shares of Series B Convertible Preferred Stock and Common Stock Warrants Subscription Agreement dated July 14, 2006 by and between Multicell Technologies, Inc. and Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.4.19 (9)

Amended and Restated Warrant to Purchase Common Stock issued to Anthony Cataldo dated July 25, 2006.4.20 (10)

Form of Warrant to Purchase Common Stock dated February 1, 2006 issued by the Company to Trilogy Capital Partners, Inc.4.21 (11)

Mutual Termination Agreement between Multicell Technologies, Inc. and Fusion Capital Fund II, LLC, dated as of July 18, 2007.  47
  10.1 (12)

Letter Agreement between Amarin Neuroscience Limited and the Company dated October 26, 2006.10.2 (13)

Letter Agreement between Amarin Neuroscience Limited and the Company dated June 28, 2006.10.3 (14)

Worldwide Exclusive License Agreement dated as of December 31, 2005 between Multicell Technologies, Inc. and Amarin Neuroscience Limited dated December 31, 2005.10.4 (15)

License Agreement between Eisai Co., Ltd. and the Company dated April 20, 2007.10.5 (16)

License Agreement between Corning Incorporated and the Company dated October 9, 2007.10.6 (17)

Amended and Restated 2004 Equity Incentive Plan10.7 (18)

Exclusive License Agreement, dated September 30, 2010, between Xenogenics Corporation and Rutgers, The State University of New Jersey10.8 (18)

Foreclosure Sale Agreement, dated as of September 30, 2010, among Xenogenics Corporation, Venture Lending & Leasing IV, Inc., Venture Lending & Leasing V, Inc. and Silicon Valley Bank10.9 (18)

Series B Preferred Stock Purchase Agreement, dated October 14, 2010, between Xenogenics Corporation and Multicell Technologies, Inc.21.1*

List of Subsidiaries23.1*

Consent of Hansen, Barnett & Maxwell, P.C.31.1*

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.32.1*

Certification of Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





*
Filed herewith.


(1) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on September 8, 2005.


(2) Incorporated by reference from an exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form SB-2 filed on May 6, 2005.


(3) Incorporated by reference from an exhibit to our Form SB-2 Registration Statement filed on August 12, 2004.


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


(5) Incorporated by reference from an exhibit to our Current Report on Form 8-K/A filed on March 7, 2007.


(6)  Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on May 3, 2006.


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


(8) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 20, 2006.


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


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


(11)  Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 19, 2007.


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


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


(14) Incorporated by reference from an exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form SB-2 filed on January 12, 2006.


(15) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on April 26, 2007.


(16) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on October 10, 2007.


(17) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on August 26, 2010.


(18) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on September 30, 2010.




48





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport of Independent Registered Public Accounting Firm

F-2Consolidated Balance Sheets – November 30, 2010 and 2009

F-3Consolidated Statements of Operations for the Years Ended November 30, 2010 and 2009

F-4Consolidated Statements of Equity (Deficiency) for the Years Ended November 30,2009 and 2010

F-5Consolidated Statements of Cash Flows for the Years Ended November 30, 2010 and 2009

F-6Notes to Consolidated Financial Statements

F-7




F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To the Board of Directors and the Stockholders


MultiCell Technologies, Inc.


Woonsocket, Rhode Island





We have audited the accompanying consolidated balance sheets of MultiCell Technologies, Inc. and subsidiaries (the Company) as of November 30, 2010 and 2009, and the related consolidated statements of operations, equity (deficiency), and cash flows for the years then ended. These consolidated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.





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 suffered losses from operations and had negative cash flows from operating activities during the years ended November 30, 2010 and 2009 and as of November 30, 2010, the Company had a working capital deficit and a stockholders’ deficiency. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





HANSEN, BARNETT & MAXWELL, P.C.




Salt Lake City, Utah


March 2, 2011









F-2




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS





November 30,


November 30,2010


2009ASSETSCurrent assetsCash and cash equivalents

$
634,377


$
396,554Grant receivable


30,975



-Other current assets


8,931



6,442Total current assets


674,283



402,996Property and equipment, net of accumulated depreciation of $65,380 and $60,753 at November 30, 2010 and 2009, respectively


1,087



5,714Other assets


1,685



1,685Total assets

$
677,055


$
410,395LIABILITIES AND EQUITY (DEFICIENCY)Current liabilitiesNotes payable - related parties

$
-


$
30,000Accounts payable and accrued expenses


1,677,001



1,297,486Advance from debenture holder


237,850



-Current portion of deferred revenue


49,318



98,862Total current liabilities


1,964,169



1,426,348Non-current liabilitiesConvertible debentures, net of discount


50,706



40,320Deferred income, net of current portion


597,376



646,694Derivative liability related to Series B convertible preferred stock


79,913



-Total non-current liabilities


727,995



687,014Total liabilities


2,692,164



2,113,362Commitments and contingencies


-



-Equity (Deficiency)MultiCell Technologies, Inc. equity (deficiency)Undesignated preferred stock, $0.01 par value; 963,000 shares authorized


-



-Series B convertible preferred stock, 17,000 shares designated; 11,339 and 16,262 shares issued and outstanding at November 30, 2010 and 2009, respectively; liquidation value of $1,377,735 and $1,870,035 at November 30, 2010 and 2009, respectively


1,349,844



1,830,035Series I convertible preferred stock, 20,000 shares designated; 5,734 shares issued and outstanding; liquidation value of $573,400


573,400



573,400Common stock, $0.01 par value; 775,000,000 shares authorized; 476,746,257 and 299,892,504 shares issued and outstanding at November 30, 2010 and 2009, respectively


4,767,463



2,998,925Additional paid-in capital


31,317,428



32,514,975Accumulated deficit


(39,197,686
)


(38,917,068
)Total MultiCell Technologies, Inc. stockholders' equity (deficiency)


(1,189,551
)


(999,733
)Noncontrolling interests


(825,558
)


(703,234
)Total equity (deficiency)


(2,015,109
)


(1,702,967
)Total liabilities and equity (deficiency)

$
677,055


$
410,395




See accompanying notes to consolidated financial statements.




F-3




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS





For the Years EndedNovember 30,2010


2009Revenue

$
98,862


$
174,240Operating expensesSelling, general and administrative


945,458



783,604Research and development


369,304



195,990Acquired in-process research and development


554,179



-Depreciation and amortization


4,627



9,375Total operating expenses


1,873,568



988,969Loss from operations


(1,774,706
)


(814,729
)Other income (expense)Grant revenue


430,335



-Interest expense


(42,641
)


(29,370
)Change in fair value of derivative liability


97,554



-Interest income


186



639Loss on disposition of equipment


-



(412
)Total other income (expense)


485,434



(29,143
)Net loss


(1,289,272
)


(843,872
)Less net loss attributable to the noncontrolling interests


(122,324
)


(87,697
)Net loss attributable to MultiCell Technologies, Inc.


(1,166,948
)


(756,175
)Preferred stock dividends


(131,529
)


(148,391
)Net loss attributable to common stockholders

$
(1,298,477
)

$
(904,566
)Basic and Diluted Loss Per Common Share Attributable to Common Stockholders

$
(0.003
)

$
(0.005
)Basic and Diluted Weighted-Average Common Shares Outstanding


379,787,857



186,830,320




See accompanying notes to consolidated financial statements.




F-4




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY)


For the Years Ended November 30, 2009 and 2010





Additional








TotalPreferred Stock - Series B


Preferred Stock - Series I


Common stock


Paid in


Accumulated


Noncontrolling


EquityShares


Amount


Shares


Amount


Shares


Par Value


Capital


Deficit


Interests


(Deficiency)Balance at November 30, 2008


16,262


$
1,830,035



5,734


$
573,400



83,146,214


$
831,462


$
32,894,705


$
(38,012,502
)

$
(615,537
)

$
(2,498,437
)Issuance of common stock for conversion of 4.75% debentures


-



-



-



-



210,075,223



2,100,752



(2,086,897
)


-



-



13,855Issuance of common stock for exercise of warrants


-



-



-



-



1,385,541



13,856



1,496,384



-



-



1,510,240Issuance of common stock and options in settlement of director fees


-



-



-



-



5,285,526



52,855



186,567



-



-



239,422Stock-based compensation


-



-



-



-



-



-



24,216



-



-



24,216Dividends on Series B preferred stock


-



-



-



-



-



-



-



(148,391
)


-



(148,391
)Net loss


-



-



-



-



-



-



-



(756,175
)


(87,697
)


(843,872
)Balance at November 30, 2009, prior to change in accounting principle


16,262



1,830,035



5,734



573,400



299,892,504



2,998,925



32,514,975



(38,917,068
)


(703,234
)


(1,702,967
)Cumulative effect of a change in accounting principle for  beneficial conversion feature of Series B preferred stock


-



-



-



-



-



-



(1,244,076
)


1,017,859



-



(226,217
)Balance at December 1, 2009, as restated


16,262



1,830,035



5,734



573,400



299,892,504



2,998,925



31,270,899



(37,899,209
)


(703,234
)


(1,929,184
)Issuance of common stock for conversion of 4.75% debentures


-



-



-



-



167,550,540



1,675,506



(1,665,893
)


-



-



9,613Issuance of common stock for exercise of warrants


-



-



-



-



961,330



9,613



1,038,237



-



-



1,047,850Conversion of Series B preferred stock into common stock


(4,923
)


(480,191
)


-



-



7,991,883



79,919



449,022



-



-



48,750Issuance of common stock for compensation to employees


-



-



-



-



350,000



3,500



490



-



-



3,990Issuance of Xenogenics warrants for acquired in-process research and development and as an incentive to accelerate conversion of debentures


-



-



-



-



-



-



36,358



-



-



36,358Stock-based compensation


-



-



-



-



-



-



188,315



-



-



188,315Dividends on Series B preferred  stock


-



-



-



-



-



-



-



(131,529
)


-



(131,529
)Net loss


-



-



-



-



-



-



-



(1,166,948
)


(122,324
)


(1,289,272
)Balance at November 30, 2010


11,339


$
1,349,844



5,734


$
573,400



476,746,257


$
4,767,463


$
31,317,428


$
(39,197,686
)

$
(825,558
)

$
(2,015,109
)




See accompanying notes to consolidated financial statements.




F-5




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS




For the Years EndedNovember 30,2010


2009Cash flows from operating activitiesNet loss

$
(1,289,272
)

$
(843,872
)Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization


4,627



9,375Stock-based compensation for services


192,305



24,216Loss on disposition of equipment


-



412Interest expense from amortization of discount on convertible debentures


38,179



20,000Change in fair value of derivative liability


(97,554
)


-Acquired in-process research and development


554,179



-Changes in assets and liabilitiesGrant receivable


(30,975
)


-Other current assets


(2,489
)


10,350Accounts payable and accrued liabilities


(18,015
)


(285,704
)Deferred income


(98,862
)


(46,841
)Net cash used in operating activities


(747,877
)


(1,112,064
)Cash flows from investing activitiesPayments for in-process research and development


(270,000
)


-Collection of principal on note receivable


-



17,356Net cash provided by (used in) investing activities


(270,000
)


17,356Cash flows from financing activitiesProceeds from the exercise of stock warrants


1,047,850



1,510,240Advance from debenture holder


237,850



-Payment of principal on notes payable - related parties


(30,000
)


(25,000
)Net cash provided by financing activities


1,255,700



1,485,240Net increase in cash and cash equivalents


237,823



390,532Cash  and cash equivalents at beginning of year


396,554



6,022Cash and cash equivalents at end of year

$
634,377


$
396,554Supplemental Disclosures of Cash Flow Information:Cash paid for interest

$
9,717


$
5,104Noncash Investing and Financing Activities:Issuance of common stock and options in settlement of director fees


-



239,422Issuance of common stock for conversion of 4.75% debentures


9,613



13,855In-process research and development financed with accounts payable


266,000



-Issuance of warrants for acquisition of in-process research and development


18,179



-Conversion of Series B preferred stock into common stock and elimination of related derivative liability


480,191



-Accrual of dividends on Series B preferred stock


131,529



148,391




See accompanying notes to consolidated financial statements.




F-6





MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





Note 1 - Organization and Summary of Significant Accounting Policies





Organization – MultiCell Technologies, Inc. (“MultiCell”), operates three subsidiaries, MCT Rhode Island Corp., Xenogenics Corporation (“Xenogenics”), and MultiCell Immunotherapeutics, Inc. (“MCTI”).  MCT Rhode Island Corp. (“MCT”), is a 100%-owned subsidiary that has been inactive since its formation in 2004.  Prior to October 14, 2010, MultiCell owned 56.4% of Xenogenics.  Commencing October 14, 2010, MultiCell has increased its ownership of Xenogenics to 95.3% (on an as-if-converted basis).  MultiCell holds approximately 67% of the outstanding shares (on an as-if-converted basis) of MCTI.  As used herein, the “Company”
refers to MultiCell, together with MCT, Xenogenics, and MCTI.





The Company is a biopharmaceutical company developing novel therapeutics and discovery tools to address unmet medical needs for the treatment of neurological disorders, hepatic disease, cancer and interventional cardiology and peripheral vessel applications.





Principles of Consolidation and Basis of Presentation – The accompanying consolidated financial statements of MultiCell Technologies Inc. and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which MultiCell exercises control.  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 payable, accrued expenses, advance from debenture holder, and notes payable to related parties approximate fair value because of the short maturity of those instruments.  The fair value of convertible debentures was approximately $75,706 and $85,320 at November 30, 2010 and 2009, respectively.





Credit Risk – It is the Company’s practice to place its cash equivalents in high quality money market securities with major banking institutions.  Periodically, the Company maintains cash balances at this institution that exceeds the Federal Deposit Insurance Corporation insurance limit of $250,000 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.  Typically, accounts receivable consist primarily of amounts due under contractual agreements.





Revenue Recognition – In the years covered by these financial statements, the Company's operating revenues have been generated primarily from license revenue under agreements with Corning, Pfizer, and Eisai.  Management believes such sources of revenue will be part of the Company's ongoing operations.  When applicable, the Company recognizes revenue from licensing and 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.





Grant revenue received or receivable under the Qualifying Therapeutic Discovery Project for the year ended November 30, 2010 was recognized during the fourth quarter of that year, when notification of the grant was received.  For the year ending November 30, 2011, the grant revenue will be recognized as other income during the period in which the corresponding expenses are incurred.




F-7





MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





Property and Equipment – Property and equipment are recorded at cost.  Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets, generally three to ten years.





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.





Stock Based Compensation–The Company has stockholder-approved stock incentive plans for employees, directors, officers and consultants.  The Company recognizes compensation expense for stock-based awards to employees expected to vest on a straight-line basis over the requisite service period of the award, based on their grant-date fair value.  The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock, and expected dividend yield of stock.





Research and Development Costs–Research and development costs are expensed as incurred.





Acquired In-Process Research and Development–The Company recognizes as incurred the cost of directly acquiring assets to be used in the research and development process that have not yet received regulatory approval for marketing and for which no alternative future use has been identified.  Acquired in-process research and development costs are expensed as incurred.  Once the product has obtained regulatory approval, the Company will capitalize any milestone payments made and amortize them over the period benefitted.  Milestone payments made prior to regulatory approval of the product will generally be expensed when the event requiring payment
of the milestones occurs.





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.  Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of selling, general and administrative expense.





Loss Per Common 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 November 30, 2010 and 2009, the assumed effects of the exercise of outstanding stock options and warrants, and the conversion of convertible preferred stock and convertible debentures 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, 2010 and 2009 was 2,418,129,567 and 962,679,580, respectively.




F-8




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





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.





Accounting For Warrants Issued With Convertible Debentures–The Company accounts for the value of warrants and the intrinsic value of beneficial conversion rights arising from the issuance of convertible debentures with non-detachable conversion rights that are in-the-money at the commitment date by allocating an appropriate portion of the proceeds received from the debt instruments to the warrants or any other detachable instruments included in the exchange.  The proceeds allocated to the warrants or any other detachable instruments are recorded as a discount to the debt.  The intrinsic
value of the beneficial conversion rights at the commitment date is recorded as additional paid-in capital and as additional discount to the debt as of that date.  The discount is amortized and charged to interest expense over the term of the debt instrument.





Recently Enacted Accounting Standards– In December 2007, the Financial Accounting Standards Board (FASB) issued new accounting guidance on noncontrolling interests in consolidated financial statements.  This guidance was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This guidance requires the recognition of a noncontrolling interest as equity or deficit in the consolidated financial statements and separate from the parent’s equity or deficit. The amount of net income or loss attributable to the noncontrolling interest is included in consolidated
net income or loss on the face of the statement of operations. The standard also amends certain consolidation procedures for consistency with the requirements of the new accounting guidance on business combinations.This guidance also includes expanded disclosure requirements regarding the interests of the parent and of its noncontrolling interest.  The Company adopted the new accounting guidance on noncontrolling interests effective December 1, 2009, at which date the Company’s consolidated financial statements were retroactively restated to reflect the new presentation for noncontrolling interests in the Company’s consolidated financial statements.





In June 2008, the FASB ratified accounting guidance for determining whether an instrument, or an embedded feature, is indexed to an entity's own stock.  The guidance provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation.  The guidance was effective for fiscal years beginning after December 15, 2008. The Company adopted this new accounting guidance effective December 1, 2009.  As more fully discussed in Note 8 to these consolidated financial
statements, the Company determined that the fair value of the beneficial conversion feature related to the Series B convertible preferred stock is required to be accounted for as an embedded derivative as of December 1, 2009 under this new accounting guidance.  The accounting implications of this determination is that the fair value of the derivative, calculated to be $226,217 as of December 1, 2009, was recorded as a noncurrent liability with a corresponding adjustment to equity on that date.  The Company is also required to record the change in the fair value of the derivative liability at each subsequent balance sheet date, with a corresponding adjustment to other income or expense.  The change in the fair value of the derivative was a decrease of $97,554 for the year ended November 30, 2010.




F-9




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





In January 2010, the FASB issued new accounting guidance related to improving disclosures about fair value measurements, to add additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, and the activity in fair value measurements using significant unobservable inputs (Level 3 inputs).  The new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to activity of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The Company adopted the initial disclosures requirements in the second quarter of fiscal 2010.  Other
than requiring additional disclosures, adoption of this guidance did not have and is not expected to have a material impact on the Company’s condensed consolidated financial statements.





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, 2010, the Company has operating and liquidity concerns and, as a result of recurring losses, has incurred an accumulated deficit of $39,197,686.  The Company will have to raise additional capital in order to initiate Phase IIb/III clinical trials for MCT-125, the Company’s therapeutic for the treatment of fatigue in multiple sclerosis patients. Management is evaluating several sources of financing for its clinical trial program.  Additionally, with its strategic shift in focus to therapeutic programs and technologies, management expects the Company’s future cash requirements to increase significantly as it advances the Company’s
therapeutic programs into clinical trials.  Until the Company is successful in raising additional funds, it may have to prioritize its therapeutic programs and delays may be necessary in some of the Company’s development programs.





Since March 2008, the Company has operated on working capital provided by La Jolla Cove Investors (LJCI). As further described in Note 7 to these consolidated financial statements, under terms of the agreement, LJCI can convert a portion of the convertible debenture by simultaneously exercising a warrant at $1.09 per share. As of November 30, 2010, there are 7,570,629 shares remaining on the stock purchase warrant and a balance of $75,706 remaining on the convertible debenture. Should LJCI continue to exercise all of its remaining warrants, approximately $8.25 million of cash would be provided to the Company. The agreement limits LJCI’s investment to an aggregate ownership that does not exceed 9.9% of the outstanding shares of the Company. The Company expects that LJCI will continue to exercise the warrants
and convert the debenture over the next year.





These factors, among others, create an uncertainty about the Company’s ability to continue as a going concern.  There can be no assurance that LJCI will continue to exercise its warrant to purchase the Company’s common stock, or that the Company will be able to successfully acquire the necessary capital to continue its on-going research efforts and bring its products to the commercial market.  Management’s plans to acquire future funding include the potential sale of common and/or preferred stock, the sale of warrants, and continued sales of our 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 as a going concern.




F-10




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





Note 3– Ideal BioStentTM




Purchase of IdealBioStentTM — Foreclosure Sale Agreement





On September 30, 2010, Xenogenics entered into a Foreclosure Sale Agreement (“Foreclosure Sale Agreement”) with Venture Lending & Leasing IV, Inc., Venture Lending & Leasing V, Inc. and Silicon Valley Bank (collectively, the “Sellers”).  Pursuant to the Foreclosure Sale Agreement, Xenogenics acquired all of the Sellers’ interests in certain bioabsorbable stent assets (known as “Ideal BioStentTM”) and related technologies.  In consideration for the purchased of the assets, Xenogenics made cash payments to the Sellers in the aggregate amount of $400,000, payable in three tranches as follows: (i) $135,000 was paid on October 12, 2010; (ii) $135,000 was paid on November 15, 2010; and (iii) $130,000 was paid on December 31, 2010.





Xenogenics is also required to make cash payments to the Sellers as follows based on the achievement of certain milestones:





·
$300,000 is payable upon the earlier to occur of (i) initiation of pivotal Generation 2 stent human clinical trials, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $3,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments), and (iii) a “change of control” of Xenogenics;





·
$1,000,000 is payable upon the earlier to occur of (i) regulatory approval by any regulatory authority in a European Union member country, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics; and





·
$3,000,000 is payable upon the earlier to occur of (i) regulatory approval by the U.S. Food and Drug Administration, (ii) execution of an agreement in which Xenogenics grants a third party rights to develop or exploit the purchased assets, valued at no less than $5,000,000 (including all up-front payments and the net present value of any future royalty/milestone payments); and (iii) a “change of control” of Xenogenics.





In addition, as additional consideration under the Foreclosure Sale Agreement, Xenogenics issued to the Sellers warrants to purchase an aggregate of 490,000 shares of its common stock, exercisable at $0.038 per share of common stock.  The fair value of these warrants was estimated to be $18,179 as estimated using the Black-Scholes option-pricing model, using a risk-free interest rate of 2.53%, volatility of 140%, expected life of 10 years, and dividend yield of zero.





The costs related to the acquisition of this technology, including the purchase price of $400,000 payable to the Sellers, the fair value of the warrants ($18,179) issued to the Sellers, and the obligation to pay Rutgers $136,000 for patent related costs under the Rutgers License Agreement, as discussed below, have been accounted for as in-process research and development costs and have been expensed immediately subsequent to the purchase because the technologies had no alternative future use.





Rutgers License Agreement





Effective September 30, 2010, Xenogenics entered into a license agreement (the “Rutgers License Agreement”) with Rutgers, The State University of New Jersey (“Rutgers”).




F-11




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





Pursuant to the Rutgers License Agreement, Rutgers granted Xenogenics a worldwide exclusive license to exploit and commercialize certain patents and other intellectual property rights, as further described in the Rutgers License Agreement, relating to bioabsorbable stents for interventional cardiology and peripheral vascular applications. In consideration for the license and other rights granted under the Rutgers License Agreement, Xenogenics paid Rutgers a license fee of $50,000. In addition, under the Rutgers License Agreement, Xenogenics is obligated to pay Rutgers a license maintenance fee of $25,000 on the third anniversary of the Rutgers License Agreement, and $50,000 on the fourth anniversary.  Additionally, Xenogenics agreed to pay Rutgers for unpaid costs of $136,000 incurred by Rutgers prior
to the effective date of the Rutgers License Agreement for preparing, filing, prosecuting, defending, and maintaining all United States patent applications and patents covered under the Rutgers License Agreement.





Xenogenics is also required to make cash payments to Rutgers as follows based on the achievement of certain milestones with respect to products to be commercialized using the Licensed IP:





·
$50,000 is payable upon initiation of first in-human clinical trials anywhere in the world;





·
$200,000 is payable upon initiation of pivotal human clinical trials anywhere in the world in connection with submitting an application for market approval to a regulatory authority;





·
$300,000 is payable upon submission of an application for market approval to a regulatory authority anywhere in the world.





Upon the sale of products commercialized using the licensed technology, Xenogenics is required to make royalty payments to Rutgers in an amount equal to three percent of the annual aggregate gross amounts charged for such products less deductions for expenses such as sales/use taxes, transportation charges and trade discounts. Beginning with the first year of sales of products commercialized with the licensed technology, Xenogenics will make certain minimum royalty payments to Rutgers, which payments will be applied against any royalty payments earned by Rutgers for the relevant calendar year. Further, 50% of the Rutgers milestone payments actually paid to Rutgers will be offset against any future royalty payments earned under the Rutgers License Agreement.





The term of the Rutgers License Agreement commences on the effective date of the agreement and terminates on the earlier of (i) the expiration of all valid patents granted with respect to the licensed technology (or products commercialized therefrom) in a country, and (ii) ten years from the date of first commercial sale in a country. However, if either party breaches the agreement, the non-breaching party may terminate the agreement upon written notice to the other party of such breach and the failure of the other party to cure the breach within 90 days of such notice. Xenogenics also has the right to terminate the agreement at anytime and for any reason upon 120 days’ advance written notice to Rutgers.





Series B Preferred Stock Agreement





On October 14, 2010, pursuant to a Series B Preferred Stock Purchase Agreement, Xenogenics agreed to sell to MultiCell shares of its newly created Series B Convertible Preferred Stock. The funds provided to Xenogenics under the agreement were used to pay Xenogenics’ obligations under the Foreclosure Sale Agreement and to settle an intercompany obligation of Xenogenics to MultiCell.  The purchase of the Series B Preferred Stock increased MultiCell’s interest in Xenogenics from 56.4% to 95.3% (on an as-if-converted basis).  The Series B Preferred Stock may, at the option of MultiCell, be converted at any time or from time to time into shares of Xenogenics’ Common Stock.  This intercompany transaction has been eliminated in consolidation.





La Jolla Cove Investors (LJCI) agreed to increase the amount of its debenture that it converted and the number of warrants that it exercised during October through December of 2010 in order to assist MultiCell in funding its purchase of Series B Convertible Preferred Stock from Xenogenics.  As additional consideration to LJCI under this arrangement, Xenogenics issued LJCI warrants to purchase an aggregate of 490,000 shares of its common stock, exercisable at $0.038 per share of common stock.  The fair value of these warrants was estimated to be $18,179 as estimated using the Black-Scholes option-pricing model, using a risk-free interest rate of 2.53%, volatility of 140%, expected life of 10 years, and dividend yield of zero.  The fair value of the warrants was recorded as additional
interest expense under the debentures.




F-12




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





Note 4– Property and Equipment





Property and equipment are recorded at cost, less accumulated depreciation, and is comprised of the following at November 30, 2010 and 2009:





2010


2009Lab Equipment

$
25,893


$
25,893Furniture and Office Equipment


40,574



40,57466,467



66,467Less: Accumulated depreciation


(65,380
)


(60,753
)Property and Equipment, Net

$
1,087


$
5,714





The Company recorded depreciation expense of $4,627 and $9,375 for the years ended November 30, 2010 and 2009, respectively.





Note 5 – Notes Payable – Related Parties





The Company issued notes payable totaling $50,000 to two related parties during August 2008 and an additional $5,000 in November 2008.  The notes accrued interest at 8.5% per year and were secured by all of the Company’s assets, including its intellectual property.  Prior to November 30, 2009, the Company had repaid all except for $30,000 of the outstanding principal on the original notes.  The remaining balance, plus related accrued interest, was repaid in full in December 2009.





Note 6 – License Agreements





In September 2001, the Company 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.  As of November 30, 2006, management tested the carrying value of the license agreement for impairment and concluded that it had been impaired and reduced the carrying value to zero.  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 November 30, 2010, 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 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 has a term equal to the life of the patents licensed.  The License
Agreement provides that the Company will pay future royalty milestone payments in accordance with the following:




F-13




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





(a)
$500,000 upon first filing of a new drug application with Food and Drug Administration (FDA) or a reasonably similar filing with any regulatory authority for Active Agent Product,





(b)
$1,000,000 upon first FDA approval for sale in the USA for Active Agent Product,





(c)
$1,500,000 within twelve calendar months after the first sale in the USA for Active Agent Product, and





(d)
$1,000,000 within twelve calendar months after the first sale in the European Economic Area for Active Agent Product.





If any milestone payment is not paid when due, and if no payment is received from the Company within thirty days after the date of receipt of a written notice of such nonpayment, Amarin shall have the option to either (i) terminate this agreement or (ii) convert the license under this agreement to a worldwide non-exclusive license with the right to sublicense, which non-exclusive license shall be subject to all of the terms and obligations of the agreement.  The Company shall also pay Amarin without set-off or counterclaim a royalty of nine percent on net sales of Active Agent Product sold by the Company, its affiliates, or sublicensees and their affiliates.  On November 5, 2008 the License Agreement was amended whereby Amarin granted exclusive worldwide rights to the Company related to the
treatment of all chronic fatique and pain in addition to the treatment of fatigue in multiple sclerosis patients.





On April 20, 2007, the Company entered into a license agreement with Eisai Co., Ltd (“Eisai”).  According to the agreement, the Company granted Eisai a nonexclusive license, which permited the use by Eisai of samples and culture media for the use of this patent and license.  Eisai agreed to pay the Company 65 million yen (approximately US $545,000 based on exchange rates in effect at the time of the agreement) over a five-year period.  The first payment of 13 million yen was due upon the signing of the agreement with subsequent four installments on the anniversary dates of the agreement.  The Company received the first three annual installments of 13 million yen ($109,070, $121,030, and $127,400 based on exchange rates in effect at the time of payment, during
the years ended November 30, 2007, 2008, and 2009, respectively).  On May 1, 2009, Eisai notified the Company of its plan to terminate the license agreement effective March 31, 2010.  The Company recognized the income ratably over each year of the agreement.  The Company recognized income of $49,544 and $124,922 for the years ended November 30, 2010 and 2009, respectively.  The balance of deferred revenue from this license is zero and $49,544 at November 30, 2010 and 2009, respectively.  No further revenue will be recognized from this agreement.





On October 9, 2007, the Company executed an exclusive license and purchase agreement (the “Agreement”) with Corning Incorporated (“Corning”) of Corning, New York.  Under the terms of the Agreement, Corning has the right to develop, use, manufacture, and sell the Company’s Fa2N-4 cell lines and related cell culture media for use as a drug discovery assay tool, including biomarker identification for the development of drug development assay tools, and for the performance of absorption, distribution, metabolism, elimination and toxicity assays (“ADME/Tox assays”).  The Company retained and will continue to support all of its existing licensees, including Pfizer, Bristol-Myers Squibb, and Eisai.  The Company retains the right to use the Fa2N-4
cells for use in applications not related to drug discovery or ADME/Tox assays.  The Company also retains rights to use the Fa2N-4 cell lines and other cell lines to further develop its Sybiol® liver assist device, to produce therapeutic proteins using the Company’s BioFactoriesTM technology, to identify drug targets and for other applications related to the Company’s internal drug development programs.  In consideration for the license granted, Corning paid the Company $375,000 upon execution of the Agreement, and an additional $375,000 upon the completion of a transition period.  In addition, Corning purchased inventory and equipment from the Company and reimbursed the Company for laboratory costs and other expenses during a transition period.  The Company is recognizing the income ratably over a 17 year period.  The Company recognized $44,118 in income for each of the years ended November 30, 2010 and
2009.  The balance of deferred revenue from this license is $610,294 and $654,412 at November 30, 2010 and 2009, respectively, and will be amortized into revenue through October 2024.




F-14




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





The Company has another license agreement with Pfizer, for which revenue is being deferred.  During the years ended November 30, 2010 and 2009, the Company recognized $5,200 in each year and the balance of the deferred revenue from this license is $36,400 and $41,600 at November 30, 2010 and 2009, respectively, and will be amortized into revenue through January 2018.





On March 17, 2009, the Company entered into a cooperative research and development agreement with Maxim Biotech, Inc. (“Maxim”) to develop products for the study of liver stem cells and liver cancer.  The cooperative research and development agreement with Maxim will initially focus on the development of a family of life science research reagent tool kits which can be used to isolate liver stem cells, and help to elucidate liver stem cell gene function and their encoded proteins.  During the term of the agreement, the Company will establish with Maxim annual research budgets to fund specific research projects related to liver stem cell biology.  Maxim has also granted the Company an option to obtain an exclusive license to any invention resulting from the subject research
program.  The terms and conditions of said exclusive license will be negotiated between the parties at the time the invention is conceived or is reduced to practice.





Note 7- Convertible Debentures





The Company entered into a Securities Purchase Agreement with La Jolla Cove Investors, Inc. (“LJCI”) on February 28, 2007 pursuant to which the Company agreed to sell a convertible debenture in the principal amount of $100,000 and maturing on February 28, 2012 (the “Debenture”).  The Debenture accrues interest at 4.75% per year, payable at each conversion date, in cash or common stock at the option of LJCI.  In connection with the Debenture, the Company issued LJCI a warrant to purchase up to 10 million shares of our common stock (the “LJCI Warrant”) at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007.  Pursuant to the terms of the LJCI
Warrant, upon the conversion of any portion of the principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the warrant shares equal to the percentage of the dollar amount of the Debenture being converted.  Therefore, for each $1,000 of the principal converted, LJCI would be required to simultaneously purchase 100,000 shares under the LJCI Warrant at $1.09 per share.  The agreement limits LJCI’s investment to an aggregate common stock ownership that does not exceed 9.99% of the outstanding common shares of the Company.





The Debenture is convertible at the option of LJCI at any time up to maturity into the number of shares determined by the dollar amount of the Debenture being converted multiplied by 110, minus the product of the Conversion Price multiplied by 100 times the dollar amount of the Debenture being converted, with the entire result divided by the Conversion Price.  The Conversion Price is equal to the lesser of $1.00 or 80% of the average of the three lowest volume-weighted average prices during the twenty trading days prior to the election to convert.  During the year ended November 30, 2009, LJCI converted $13,855 of the Debenture into 210,075,223 shares of common stock.  Simultaneously with these conversions, LJCI exercised warrants to purchase 1,385,541 shares of the Company’s
common stock.  Proceeds from the exercise of the warrants were $1,510,240.  During the year ended November 30, 2010, LJCI converted $9,613 of the Debenture into 167,550,540 shares of common stock.  Simultaneously with these conversions, LJCI exercised warrants to purchase 961,330 shares of the Company’s common stock.  Proceeds from the exercise of the warrants were $1,047,850.  As of November 30, 2010, the remainder of the Debenture in the amount of $75,706 could have been converted by LJCI into approximately 2.4 billion shares of common stock, which would require LJCI to simultaneously exercise and purchase all of the remaining 7,570,629 shares of common stock under the LJCI Warrant at $1.09 per share.  For the Debenture, upon receipt of a conversion notice from the holder, the Company may elect to immediately redeem that portion of the debenture that the holder elected to convert in such conversion notice, plus accrued
and unpaid interest. After February 28, 2008, the Company, at its sole discretion, has the right, without limitation or penalty, to redeem the outstanding principal amount of the Debenture not yet converted by the holder into common stock, plus accrued and unpaid interest thereon.




F-15




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





A discount representing the value of 10 million warrants issued in the amount of $73,727 was recorded as a reduction to the note. The discount was calculated based on the relative fair values of the convertible debenture and the warrants. The fair value of the warrants used in the above calculation was determined under the Black-Scholes option-pricing model.  Additionally, based on the excess of the aggregate fair value of the common shares that would have been issued if the Debenture had been converted immediately over the proceeds allocated to the convertible debenture, the investors received a beneficial conversion feature for which the Company recorded an increase in additional paid-in-capital of $26,273 and a corresponding discount to the Debenture.  These discounts, in the aggregate
amount of $100,000, are being amortized over the 60-month term of the Debenture as a charge to interest expense.  The balance of the unamortized discount was $25,000 and $45,000 at November 30, 2010 and 2009, respectively.





Note 8 – 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 originally designated 17,000 shares as Series B convertible preferred stock.  The Series B preferred stock does not have voting rights.





In July 2010, the Company received notice from one of the preferred shareholders that it was converting 4,923 shares of Series B preferred stock.  The carrying value of the converted Series B preferred stock was $480,191, consisting of the original proceeds from the issuance of the preferred stock of $492,300 ($100 per share) less allocated issuance costs of $12,109.  On the date that the notice was received, the conversion price of the Series B preferred stock was $0.0616.  Accordingly, the conversion resulted in the issuance of 7,991,883 shares of common stock.  On the date that the notice was received, the fair value of the derivative liability (as discussed below) associated with the conversion feature of the converted Series B preferred stock was $48,750.  On
the date of conversion, the fair value of the derivative liability related to the converted Series B preferred stock has been reclassified from non-current liabilities and included in the additional paid in capital for the newly-issued common stock.





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 is reduced to 85% of the otherwise applicable conversion price.  The Company has not paid the required monthly Series B preferred dividends since November 30, 2006, which, in part, has caused the conversion price to be reduced. During the years ended November 30, 2010 and 2009, the Company accrued preferred dividends in the amounts of $131,529 and $148,391, respectively, on the Series B preferred stock.  Total accrued but unpaid preferred dividends recorded in the accompanying consolidated balance sheet as of November 30, 2010 are $580,672, of which $243,835 are recorded in permanent equity with the Series B preferred stock and $336,837 are recorded as a current liability with accounts payable and accrued expenses.  Subsequent to November 30, 2010, the Company has received an opinion of outside counsel providing for the removal of the restrictive legend on the Series B preferred
stock, which in turn terminates the requirement to accrue the related dividends.




F-16




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





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 the conversion price.  The conversion price was originally $0.32 per share.  Upon the occurrence of an event of default (as defined in the agreement), the conversion price of the Series B shares shall be reduced to 85% of the then applicable conversion price of such shares. The conversion price is subject to equitable adjustment in the event of any stock splits, stock dividends, recapitalizations and the like.  In addition, the conversion price is subject to weighted average anti-dilution adjustments in the event the Company sells common stock or other securities convertible into or exercisable for common stock at a per share price,
exercise price or conversion price lower than the conversion price then in effect in any transaction (other than in connection with an acquisition of the securities, assets or business of another company, joint venture and employee stock options).  As a result of the Company issuing common stock upon conversion of convertible debentures and upon the exercise of warrants both at prices lower than the conversion price, and due to the Company not paying Series B dividends on a monthly basis, the conversion price of the Series B preferred stock has been reduced to $0.0525 per share as of November 30, 2010.  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.





Effective December 1, 2009, the Company adopted new accounting provisions for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.  These provisions apply to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by standards for accounting for derivative instruments and hedging activities, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.  As of December 1, 2009 and November 30, 2010, there are 16,262 and 11,339 shares of Series B preferred stock that were convertible into 21,341,207 and 21,598,095 shares of common stock, respectively.  The Company determined that the conversion feature to allow the holders
of the Series B convertible preferred stock to acquire common shares is an embedded derivative that no longer qualifies as equity under the new accounting guidance.  As a result of adopting these standards, the Company has evaluated the conversion feature as though it was accounted for as a derivative liability since the issuance of the Series B convertible preferred stock in July 2006 and has recorded, as a cumulative effect adjustment on December 1, 2009, a noncurrent derivative liability of $226,217 with a corresponding reduction in other components of equity on that date.  The fair value of the conversion feature decreased by $97,554 during the year ended November 30, 2010, respectively, which has been recorded as a gain from the change in the fair value of the derivative liability.





The fair value of the embedded conversion feature was estimated to be $0.0037 and $0.0106 per share of common stock as of November 30, 2010 and December 1, 2009, respectively, and has been estimated using the Black-Scholes option-pricing model using the following assumptions:




November 30, 2010


December 1, 2009Risk free interest rate


2.81
%


3.28
%Expected life

10 Years


10 YearsDividend yield


-



-Volatility


140
%


150
%





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.





Note 9 – Series I Convertible Preferred Stock





The Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of these shares of preferred stock.  The Board of Directors originally designated 20,000 shares as Series I convertible preferred stock.  On July 13, 2004, the Company completed a private placement of Series I convertible preferred stock.  A total of 20,000 shares were originally sold to accredited investors at a price of $100 per share.




F-17




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





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.  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 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.





Note 10 – Common Stock




On June 25, 2009, the Company held a special meeting of stockholders.  At that meeting, the stockholders voted to approve an amendment to the Company’s articles of incorporation to increase the number of authorized shares of the Company’s common stock from 200 million to 475 million shares.  On August 26, 2010, the shareholders of the Company approved an amendment of the Company’s articles of incorporation to further increase the Company’s authorized common stock from 475 million to 775 million shares of common stock.





In September 2009, the Board of Directors approved the settlement of accrued compensation in the amount of $281,000 payable to the Company’s directors for services rendered prior to the current fiscal year.  The amount due to the directors was settled by 1) the issuance of 4,857,895 shares of the Company’s common stock, valued at $92,300 ($0.019 per share); 2) the payment of $49,703; and 3) the grant of options to purchase 2,428,947 shares of the Company’s common stock at $0.019 per share, which options vested immediately and have a term of five years.  The settlement was recorded at the amount of the liability settled, and accordingly, no gain or loss was recognized on the transaction.  Additionally, in September 2009, the Board of Directors approved the issuance
of 427,631 shares of the Company’s common stock, valued at $8,125 ($0.019 per share), as partial settlement of director fees earned during the current fiscal year.





In March 2010, the Company issued a total of 350,000 shares of common stock to its two employees.  On the date that issuance was authorized, the closing price of the common stock was $0.0115, representing compensation of $3,990.





The potential issuable common shares as of November 30, 2010 and 2009 are as follows:





2010


2009Warrants


22,837,991



24,099,321Stock options


13,148,947



9,338,947Series B Convertible Preferred Stock


21,598,095



21,341,207Series I Convertible Preferred Stock


2,293,600



2,293,600LJCI Debenture


2,358,250,934



905,606,5052,418,129,567



962,679,580




F-18




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





The Company does not currently have sufficient authorized shares of common stock to meet the commitments entered into under the Debenture and the related LJCI Warrants.  As further discussed in Note 7, upon the conversion of any portion of the remaining $75,706 principal amount of the Debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the remaining 7,570,629 warrant shares equal to the percentage of the dollar amount of the Debenture being converted.  The agreement limits LJCI’s investment to an aggregate common stock ownership that does not exceed 9.99% of the outstanding common shares of the Company. Furthermore, the Company has the right to redeem that portion of the Debenture that the holder may elect to convert and also has the right to
redeem the outstanding principal amount of the debenture not yet converted by the holder into common stock, plus accrued and unpaid interest thereon.





Note 11 – Stock Compensation Plans





Effective June 16, 2004, the Company adopted the 2004 Equity Incentive Plan (the 2004 Plan) which authorized the granting of stock awards to employees, directors, and consultants.  The purpose of the 2004 Plan is to provide a means by which eligible recipients of stock awards may be given the opportunity to benefit from increases in the value of the common stock through granting of incentive stock options (ISO), non-statutory stock options, stock purchase awards, stock bonus awards, stock appreciation rights, stock unit awards and other stock awards.  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.





As originally adopted in 2004, the 2004 Plan provided that the number of shares of common stock that could be issued pursuant to stock awards could not exceed, in the aggregate, 5,000,000 shares of common stock plus an annual increase to be added on 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) 2% of the Company’s outstanding shares of common stock on the day preceding the first day of such fiscal year; (b) 1,500,000 shares of common stock; or (c) an amount determined by the Board.  On June 25, 2009, at a special meeting of stockholders, the stockholders voted to approve an amendment to the 2004 Plan to effect an increase in the aggregate number of shares of common stock authorized for issuance
under the plan by 25 million shares.  On August 26, 2010, at a special meeting of stockholders, the stockholders voted to increase the aggregate number of shares of common stock authorized for issuance under the plan by an additional 25 million shares.  There are 32,825,266 shares of common stock available for future awards under the 2004 Plan at November 30, 2010.





Generally accepted accounting principles for stock options requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements, is measured based on the grant date fair value of the award, and requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period), net of estimated forfeitures.  The estimation of forfeitures requires significant judgment, and to the extent actual results or updated estimates differ from the current estimates, such resulting adjustment will be recorded in the period estimates are revised.  No income tax benefit has been recognized for stock-based compensation arrangements and no
compensation cost has been capitalized in the balance sheet.




F-19





MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





A summary of the status of stock options at November 30, 2010 and 2009, and changes during the years then ended is presented in the following table:





WeightedWeighted

AverageShares


Average

Remaining

AggregateUnder


Exercise

Contractual

IntrinsicOption


Price

Life

ValueOutstanding at November 30, 2008


2,000,000


$
1.16

1.4 years

$
-Granted


7,818,947



0.01Exercised


-



-Expired


(480,000
)


1.28Outstanding at November 30, 2009


9,338,947


$
0.19

4.0 years

$
10,060Granted


5,000,000



0.01Exercised


-



-Expired


(1,190,000
)


1.37Outstanding at November 30, 2010


13,148,947


$
0.02

3.9 years

$
-Exercisable at November 30, 2010


9,163,947


$
0.02

3.7 years

$
-





For grants during the year ended November 30, 2010, the Company’s weighted average assumptions used in determining fair value under the Black-Scholes model for expected volatility, dividends, expected term, and risk-free interest rate were 165%; 0%; 5 years; and 1.83%; respectively.  For grants during the year ended November 30, 2009, the Company’s weighted average assumptions used in determining fair value under the Black-Scholes model for expected volatility, dividends, expected term, and risk-free interest rate were 161%; 0%; 5 years; and 2.51%; respectively.  Expected volatility is based on the historical volatility of the Company’s common stock.  The expected term of options is estimated based on historical exercise patterns.  The risk-free rate is
based on U.S.Treasury yields for securities in effect at the time of grant with terms approximating the expected term until exercise of the option.  The weighted average grant date fair values of options granted during the years ended November 30, 2010 and 2009 were $0.0075 and $0.0135, respectively.





For the years ended November 30, 2010 and 2009, the Company reported stock-based compensation expense for services related to stock options of $49,385 and $24,216, respectively.  As of November 30, 2010, there is approximately $26,000 of unrecognized compensation cost related to stock-based payments that will be recognized over a weighted average period of approximately 0.8 years.  The intrinsic values at November 30, 2010 are based on a closing price of $0.0040.





In October 2010, Xenogenics adopted the 2010 Stock Incentive Plan (the 2010 Plan) which authorized the granting of stock awards to employees, directors, and consultants.  As originally adopted, the 2010 Plan provided that the number of shares of common stock that could be issued pursuant to stock awards could not exceed 5,000,000 shares of common stock.  On February 3, 2011, the 2010 Plan was amended such that the number of shares of common stock that could be issued pursuant to stock awards could not exceed 8,000,000 shares of common stock.  The purpose of the 2010 Plan is to provide a means by which eligible recipients of stock awards may be given the opportunity to benefit from increases in the value of the common stock through granting of incentive stock options (ISO),
non-statutory stock options, stock bonus awards, stock appreciation rights, and rights to acquire restricted stock.  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.




F-20





MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





In November 2010, Xenogenics granted an option to a prospective executive officer to purchase an aggregate of 2,500,000 shares of its common stock, exercisable at $0.246 per share of common stock and having an expiration date in November 2015.  The option to acquire 500,000 of the shares vested on the grant date and the remaining 2,000,000 shares vest in the future upon the achievement of specified milestones.  The fair value of these warrants was estimated to be $576,250, or $0.2305 per share, as estimated using the Black-Scholes option-pricing model, using a risk-free interest rate of 1.23%, volatility of 165%, expected life of five years, and dividend yield of zero.  For the year ended November 30, 2010, Xenogenics reported stock-based compensation expense for this option of
$138,930.  As of November 30, 2010, there is approximately $437,000 of unrecognized compensation cost related to stock-based payments that will be recognized over a weighted average period of approximately 1.7 years.





Note 12 – Warrants





Since the Company’s inception, it has financed its operations primarily through the issuance of debt or equity instruments, which have often included the issuance of warrants to purchase the Company’s common stock.





As further described in Note 7 to these consolidated financial statements, the Company also entered into a Securities Purchase Agreement with La Jolla Cove Investors (LJCI) on February 28, 2007 pursuant to which the Company agreed to sell a convertible debenture in the principal amount of $100,000. In connection with this debenture, the Company issued LJCI a warrant to purchase up to 10 million shares of our common stock at an exercise price of $1.09 per share, exercisable over the next five years according to a schedule described in a letter agreement dated February 28, 2007.  Pursuant to the terms of this warrant, upon the conversion of any portion of the principal amount of the related debenture, LJCI is required to simultaneously exercise and purchase that same percentage of the warrant shares equal
to the percentage of the dollar amount of the debenture being converted.  Therefore, for each $1,000 of the principal converted, LJCI would be required to simultaneously purchase 100,000 shares under the warrant at $1.09 per share.  During the year ended November 30, 2009, LJCI exercised warrants to purchase 1,385,541 shares of the Company’s common stock, resulting in proceeds to the Company of $1,510,240.  During the year ended November 30, 2010, LJCI exercised warrants to purchase 961,330 shares of the Company’s common stock, resulting in proceeds to the Company of $1,047,850.





A summary of the status of warrants at November 30, 2010 and 2009, and changes during the years then ended is presented in the following table:





WeightedWeighted

AverageShares


Average

Remaining

AggregateUnder


Exercise

Contractual

IntrinsicWarrants


Price

Life

ValueOutstanding at November 30, 2008


27,052,862


$
0.64

3.4 years

$
-Issued


-



-Exercised


(1,385,541
)


1.09Expired


(1,568,000
)


0.58Outstanding at November 30, 2009


24,099,321


$
0.61

2.6 years

$
-Issued


-



-Exercised


(961,330
)


1.09Expired


(300,000
)


0.82Outstanding at November 30, 2010


22,837,991


$
0.59

1.7 years

$
-





Note 13 – Leasing Arrangements





During the years ended November 30, 2010 and 2009, the Company has leased facilities in Rhode Island that have housed activities related to administration, research and development.  The Company currently leases space in Rhode Island under a one-year lease that expires in April 2011.  Current rent is $900 per month.  Rent expense under the Company’s operating leases was $10,800 for each of the years ended November 30, 2010 and 2009, respectively.




F-21




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





Note 14 – Qualifying Therapeutic Discovery Project Grant





On October 29, 2010, the Company received notification from the Department of Treasury that it had been awarded a total cash grant of $733,437 under the Qualifying Therapeutic Discovery Project (“QTDP”) program.  The QTDP program was created by Congress as part of the Patient Protection and Affordable Care Act, and provides a grant or tax credit equal to 50% of qualified investment for the Company’s fiscal years ending November 30, 2010 and 2011.  Of the total grant, $430,335 relates to qualifying expenses incurred during the year ended November 30, 2010 and the remainder of $303,102 will be received and recognized during the year ending November 30, 2011.  For the year ended November 30, 2010, the Company recognized $430,335 as grant revenue under “other
income” in the accompanying consolidated statement of operations.  Of the amount that was recognized in the year ended November 30, 2010, $399,360 was received in cash during that fiscal year and the balance of $30,975 has been collected subsequent to November 30, 2010.  The funds were granted in connection with the Company’s projects MCT-465 and MCT-475 drug development programs for the treatment of cancer and MCT-125 drug development for the treatment of fatigue in multiple sclerosis patients.





Note 15 – 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.





As of November 30, 2010, the Company has U.S. Federal operating loss carryforwards of approximately $25.4 million.  The operating losses expire, if not used, from 2011 through 2031.  The Company had net deferred tax assets of approximately $11.1 million and $10.4 million at November 30, 2010 and 2009 relating primarily to the net operating loss carryforwards 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.





The Company and its subsidiaries file tax returns in the U.S. Federal jurisdiction and, in the states of California and Rhode Island.  The Company is no longer subject to U.S. federal tax examinations for tax years before and including November 30, 2007.  The Company’s subsidiaries are no longer subject to examination by State tax authorities for tax years before and including November 30, 2005.  During the years ended November 30, 2010 and 2009, the Company did not recognize interest and penalties.




F-22




MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES


Notes to Consolidated Financial Statements


For the Years Ended November 30, 2010 and 2009





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, 2010 and 2009 is set forth below:




2010


2009Benefit at federal statutory rate (34%)

$
(438,352
)

$
(286,916
)State income tax benefit, net of federal tax


(95,616
)


(48,680
)QDTP grant


(146,314
)


-Stock-based compensation


64,027



8,233Change in fair value of derivative liability


(33,168
)


-Other differences


5,543



(449
)Change in valuation allowance


643,880



327,812Benefit from Income Taxes

$
-


$
-





Note 16– Fair Value Measurements





For assets and liabilities measured at fair value, the Company uses the following hierarchy of inputs:





•
Level one — Quoted market prices in active markets for identical assets or liabilities;





•
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and





•
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the Company and reflect those assumptions that a market participant would use.





Liabilities measured at fair value on a recurring basis at November 30, 2010 are summarized as follows:





Level 1


Level 2


Level 3


TotalDerivative liability

$
-


$
79,913


$
-


$
79,913





There were no liabilities measured at fair value at November 30, 2009.  As further described in Note 8, the fair value of the derivative liability is determined using the Black-Scholes pricing model.





Note 17– Subsequent Events





Conversion of Debentures and Exercise of Stock Warrants





During the period subsequent to November 30, 2010 through February 22, 2011, LJCI converted $3,725 of the debenture with La Jolla Cove Investors (see Note 7) into 128,850,042 shares of common stock.  Simultaneously with these conversions, La Jolla Cove Investors exercised warrants to purchase 372,500 shares of the Company’s common stock.  Proceeds from the exercise of the warrants were $406,025.




F-23