UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-KSB





x
            Annual
      Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
      for the fiscal year ended November 30,
2008.





Commission
File Number:  001-10221





MultiCell
Technologies, Inc.


(Name of
small business issuer in its charter)





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





68
Cumberland Street, Suite 301


Woonsocket,
RI 02895


401-762-0045


(Address
and telephone number of principal executive offices)





Securities
registered under Section 12(b) of the Exchange Act:


None





Securities
registered pursuant to Section 12(g) of the Act:





Common Stock, $0.01 par value per
share





Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


Yes  x  No  ̈





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





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





State
issuer's revenues for its most recent fiscal year: $209,835.





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity as of a specified
date within the past 60 days (based upon shares held by non-affiliates and the
closing price of $0.0175 share for the common stock on the over-the counter
market as of March 9, 2009):  $2,201,131





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 140,429,181 shares of common stock as of
March 9, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE





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





MULTICELL
TECHNOLOGIES, INC.





FORM
10-KSB





INDEX





PAGEEXPLANATORY
      NOTE
                                        3PART IItem
      1.
                                        DESCRIPTION
      OF BUSINESS
                                        3Item
      2.
                                        DESCRIPTION
      OF PROPERTY
                                        23Item
      3.
                                        LEGAL
      PROCEEDINGS
                                        23Item
      4.
                                        SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                        24PART IIItem
      5.
                                        MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES
                                        25Item
      6.
                                        MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
                                        25Item
      7.
                                        FINANCIAL
      STATEMENTS
                                        33Item
      8.
                                        CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                        33Item
      8A(T).
                                        CONTROLS
      AND PROCEDURES
                                        33Item
      8B.
                                        OTHER
      INFORMATION
                                        34PART IIIItem
      9.
                                        DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
                                        35Item
      10.
                                        EXECUTIVE
      COMPENSATION
                                        39Item
      11.
                                        SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                        43Item
      12.
                                        CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                                        44Item
      13.
                                        EXHIBITS
                                        46Item
      14.
                                        PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                        46SIGNATURES
                                        47EXHIBIT
      INDEX
                                        48CONSOLIDATED
      FINANCIAL STATEMENTS
                                        F1
      – F24


2




EXPLANATORY
NOTE
 
 Pursuant
to Release No. 33-8878 (the “Release”) promulgated by the Securities and
Exchange Commission (the “Commission”) on December 19, 2007, entitled “Smaller
Reporting Company Regulatory Relief and Simplification,” Form 10-KSB was removed
effective March 15, 2009 (the “Removal Date”), one day prior to the actual date
Multicell Technologies, Inc. (the “Company”) filed this Annual Report on Form
10-KSB for the fiscal year ended November 30, 2008 (this “Report”) with the
Commission.  However pursuant to the Company’s filing of a
Notification of Late Filing on Form 12b-25 and the application of Rule 12b-25,
the Company is deemed to have filed this Report on the date it would be due in
the absence of the application of Rule 12b-25 (the “Original Filing
Date”).  Because the Original Filing Date is prior to the Removal
Date, Form 10-KSB is deemed not to have yet been removed as of the Report’s
actual filing date, and the Company therefore may properly file the Report on
Form 10-KSB.
 
 The
Company has discussed its reading of the interplay between the removal of Form
10-KSB as outlined in the Release and the application of Rule 12b-25 with the
Staff of the Commission (the “Staff”).  The Staff stated that the
Company’s reading of the interplay is correct and therefore a reporting company
may file a Form 10-KSB after the Removal Date pursuant to the proper application
of Rule 12b-25.  However, the Staff did not review whether the Company
timely filed the Form 12b-25 or this Report (nor whether the Company would
otherwise be permitted to file on Form 10-KSB in the absence of the removal of
Form 10-KSB).
 
 As of the
actual date of the filing of this Report, EDGAR does not accept filings on Form
10-KSB.  Therefore, in consultation with the Staff, the Company has
filed this Report using the Form 10-K filing code.





FORWARD
LOOKING STATEMENTS




This
document contains forward-looking statements that are based upon current
expectations within the meaning of the Private Securities Reform Act of
1995.  It is our intent that such statements be protected by the safe
harbor created thereby.  Forward-looking statements involve risks and
uncertainties and our actual results and the timing of events may differ
significantly from the results discussed in the forward-looking
statements.  Examples of such forward-looking statements include, but
are not limited to, statements about or relating to: the initiation, progress,
timing, scope and anticipated date of completion of preclinical research,
clinical trials and development of our drug candidates and potential drug
candidates by ourselves or our partners, including the dates of initiation
and completion of patient enrollment, and numbers of patients enrolled and sites
utilized for clinical trials; the size or growth of expected markets for our
potential drugs; our plans or ability to commercialize drugs, with or without a
partner; market acceptance of our potential drugs; increasing losses, costs,
expenses and expenditures; hiring plans; the sufficiency of existing resources
to fund our operations; expansion of our research and development programs and
the scope and size of research and development efforts; potential competitors;
our estimates of future financial performance; our estimates regarding
anticipated operating losses, capital requirements and our needs for additional
financing; future payments under lease obligations and equipment financing
lines; expected future sources of revenue and capital; our plans to obtain
limited product liability insurance; protection of our intellectual property;
and increasing the number of our employees and recruiting additional key
personnel.




Such
forward-looking statements involve risks and uncertainties, including, but not
limited to, those risks and uncertainties relating to difficulties or delays in
development, testing, obtaining regulatory approval, and undertaking production
and marketing of our drug candidates; difficulties or delays in patient
enrollment for our clinical trials; unexpected adverse side effects or
inadequate therapeutic efficacy of our drug candidates that could slow or
prevent product approval (including the risk that current and past results of
clinical trials or preclinical studies are not indicative of future results of
clinical trials); activities and decisions of, and market conditions affecting
current and future strategic partners; pricing pressures; accurately forecasting
operating and clinical trial costs; uncertainties of litigation and other
business conditions; our ability to obtain additional financing if necessary;
changing standards of care and the introduction of products by competitors or
alternative therapies for the treatment of indications we target; the
uncertainty of protection for our intellectual property or trade secrets,
through patents or otherwise; and potential infringement of the intellectual
property rights or trade secrets of third parties.  In addition such
statements are subject to the risks and uncertainties discussed in the “Risk
Factors” section and elsewhere in this document.




PART
I





DESCRIPTION
OF BUSINESS





About MultiCell
Technologies, Inc.





MultiCell
Technologies, Inc. was incorporated in Delaware on April 28, 1970 as Exten
Ventures, Inc., 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”) (56.4% owned), 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.





Following
the formation of MultiCell Immunotherapeutics, Inc. during September 2005 and
the recent in-licensing of drug candidates, the Company has been 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 proprietary technologies to discover, develop and commercialize new
therapeutics itself and with strategic partners.


3




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 Fcg 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),


·
            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-175,
      a preclinical therapeutic candidate for the treatment of
      relapsing-remitting MS


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


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


4




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





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





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





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





In
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.





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





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





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


5





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.





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.


6





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





Government
Regulation





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





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





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





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





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





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





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





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





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





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





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





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





7


•
            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.





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.


8


•
            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.





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:


9





•
            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
year 2008, our Company spent $317,130 on research and development. Research and
development costs during fiscal year 2007 were $757,866. Cost reductions related
to research included lower salaries, lower consulting fees and other operating
expenses. Further, the decrease in selling, general and administrative
expenses was achieved by reducing administrative and marketing salaries and
expenses.




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.




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;


·
            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.


10





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, 2008, we had two employees, both of whom are full-time
employees.





FACTORS
THAT MAY AFFECT FUTURE PERFORMANCE




Risks
Related To Our Business




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




Our drug
candidates are in the early stages of clinical testing and we must conduct
significant additional clinical trials before we can seek the regulatory
approvals necessary to begin commercial sales of our drugs. Similarly, some of
our cellular systems technologies are in early stages of development and require
further development before they may be commercially viable. We have incurred a
substantial accumulated deficit since our inception in 1970. As of November 30,
2008, our accumulated deficit was $38,628,039. Our losses have primarily
resulted from significant costs associated with the research and development
relating to our cellular systems technologies and other operating costs. We
expect to incur increasing losses for at least several years, as we continue our
research activities and conduct development of, and seek regulatory approvals
for, our drug candidates, and commercialize any approved drugs and as we
continue to advance our cellular systems technologies business. If our drug
candidates fail in clinical trials or do not gain regulatory approval, or if our
drugs and cellular systems technologies do not achieve market acceptance, we
will not achieve or maintain profitability. If we fail to become and remain
profitable, or if we are unable to fund our continuing losses, you could lose
all or part of your investment.




Going
Concern





Our
independent auditors have added explanatory paragraph to their audit opinion
issued in connection with the financial statements for the year ended November
30, 2008, 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. During the past year 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 March 9, 2009
there are 9,683,500 shares remaining on the stock purchase warrant and a balance
of $96,835 remaining on the convertible debenture. Should LJCI continue to
exercise all of its remaining warrants approximately $10.6 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.




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.


11





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 $144,925 during
2008 and $300,000 in February 2007, in private placements, we do not have any
binding commitment with regard to future financing. If adequate funds are not
available or are not available on acceptable terms, we may be unable to pursue
our therapeutic programs, fund expansion of our cellular technologies business,
develop new or enhance existing products and services or respond to competitive
pressures, any of which could have a material adverse effect on our business,
results of operations and financial condition.




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




We
currently have no drugs 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.




12




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;
  ·
              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;




13


·
              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;


·
              it
      is possible that none of our pending patent applications or the pending
      patent applications of our licensors will result in issued
      patents;
  14


·
              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.




15




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.


16


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




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




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.


17





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.




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;




18




·
              more
      effectively negotiate third-party licenses and strategic
      alliances;


·
              take
      advantage of acquisition or other opportunities more readily than we
      can;


·
              develop
      products and drug candidates and market products and drugs that increase
      the levels of safety or efficacy or alter other product and drug candidate
      profile aspects that our products and drug candidates need to show in
      order to obtain regulatory approval; and


·
            introduce
      technologies or market products and drugs that render the market
      opportunity for our potential products and drugs
  obsolete.




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




·
              developing
      products and drug candidates;


·
              undertaking
      preclinical testing and clinical trials;


·
              building
      relationships with key customers and opinion-leading
      physicians;


·
              obtaining
      and maintaining FDA and other regulatory approvals;


·
              formulating
      and manufacturing; and


·
            launching,
      marketing and selling products and
drugs.




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




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:


19




·
            a
      drug candidate may not be safe or
effective;




·
            FDA
      officials may not find the data from preclinical testing and clinical
      trials sufficient;




·
            the
      FDA might not approve our or our contract manufacturer’s processes or
      facilities; or




·
            the
      FDA may change its approval policies or adopt new
    regulations.




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




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




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




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




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
  20


·
            insufficient
      marketing and distribution support.




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




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




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




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




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




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.





21




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;




·
            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.


22


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.





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
2. DESCRIPTION OF PROPERTY





On March
26, 2008, the Company negotiated a lease agreement at 68 Cumberland Street,
Suite 301, Woonsocket RI  02895.  The lease is a one year lease
commencing on May 1, 2008 through April 30, 2009.  The Company agreed to
pay $900 per month. The Company expects to renew the lease when it expires on
April 30, 2009.





Item
3. LEGAL PROCEEDINGS





On May
14, 2008, one of our stockholders, George Colin, filed a lawsuit against the
Company and W. Gerald Newmin in the Superior Court of California – City of
Orange, alleging causes of action for breach of written contract and intentional
misrepresentation. The plaintiff seeks general damages to be determined at
trial, special and consequential damages according to proof, fees and costs,
plus interest. The Company and Mr. Newmin believe this claim is without merit
and both parties intend to vigorously defend the action.


23





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





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.




24




PART
II





Item
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS
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, 2008 and November 30, 2007 based on information
provided by the OTC Bulletin Board.




Fiscal
Year Ended November 30, 2008





High
                  
                  
                  LowFirst
      quarter
                  
                  $
                  .050
                  
                  
                  $
                  .025Second
      quarter
                  
                  $
                  .027
                  
                  
                  $
                  .006Third
      quarter
                  
                  $
                  .011
                  
                  
                  $
                  .004Fourth
      quarter
                  
                  $
                  .020
                  
                  
                  $
                  .002





Fiscal
Year Ended November 30, 2007


High
                    
                    
                    LowFirst
      quarter
                    
                    $
                    .270
                    
                    
                    $
                    .190Second
      quarter
                    
                    $
                    .210
                    
                    
                    $
                    .070Third
      quarter
                    
                    $
                    .090
                    
                    
                    $
                    .040Fourth
      quarter
                    
                    $
                    .130
                    
                    
                    $
                    .033





No cash
dividends have been paid on our common stock for the 2008 and 2007 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 March 5, 2009 was approximately 1,039.




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





Item
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





The
Management’s Discussion and Analysis for the years ended November 30, 2008 and
2007 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.


25


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.





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




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,
2008 and 2007, research and development costs were $317,130 and $757,866,
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.




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.


26


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




Revenue
Recognition – In the years covered by this report on Form 10-KSB, the Company's
revenues have been generated primarily from license revenue under agreements
with Corning, Pfizer, and Eisai, as well as the sale of cells or royalties on
the license for the sale of cells through its sale and distribution agreement
with XenoTech, LLC. 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 under Statement of
Financial Accounting Standards 123R (SFAS 123R), 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.




Recent
Accounting Pronouncements




In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.
157, Fair Value Measurements(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement was originally
effective for financial statements issued for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FASB Staff Position (FSP
FIN) No. 157-2 which extended the effective date for certain nonfinancial assets
and nonfinancial liabilities to fiscal years beginning after November 15, 2008.
We adopted the effective portions of SFAS 157 effective December 1, 2007, which
did not have a significant impact on our consolidated financial statements. We
are currently evaluating the impact of the remaining portions of SFAS 157 on our
financial statements and anticipate that the adoption of those portions of the
statement will not have a significant impact on the reporting of our financial
position and results of operations.





In March
2007, the FASB issued FASB Staff Position EITF 07-03, Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities (FSP 07-03). FSP 07-03 addresses whether nonrefundable advance
payments for goods or services that will be used or rendered for research and
development activities should be expensed when the advance payment is made or
when the research and development activity has been performed. FSP 07-03 will be
effective for fiscal years beginning after December 15, 2007, and interim
periods within those fiscal years. We currently believe that the adoption of FSP
07-03 will have no material impact on our financial position or results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)), which replaces SFAS 141, Business Combinations. SFAS
141(R) retains the underlying concepts of SFAS 141 in that all business
combinations are still required to be accounted for at fair value under the
acquisition method of accounting, but SFAS 141(R) changed the method of applying
the acquisition method in a number of significant aspects. Acquisition costs
will generally be expensed as incurred; noncontrolling interests will be valued
at fair value at the acquisition date; in-process research and development will
be recorded at fair value as an indefinite-lived intangible asset at the
acquisition date; restructuring costs associated with a business combination
will generally be expensed subsequent to the acquisition date; and changes in
deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense. SFAS 141(R) is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax contingencies. SFAS
141(R) amends SFAS 109 such that adjustments made to valuation allowances on
deferred taxes and acquired tax contingencies associated with acquisitions that
closed prior to the effective date of SFAS 141(R) would also apply the
provisions of SFAS 141(R). Early adoption is not permitted. We are currently
evaluating the effects, if any, that SFAS 141(R) may have on our financial
statements. We do not expect that it will have any immediate effect on our
financial statements, however, the revised standard will govern the accounting
for any future business combinations that we may enter into.





27





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51(SFAS
160). This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008, with earlier
adoption prohibited. This statement requires the recognition of a
non-controlling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The amount of net
income attributable to the non-controlling interest will be included in
consolidated net income on the face of the income statement. It also amends
certain of ARB No. 51’s consolidation procedures for consistency with the
requirements of SFAS 141(R).This statement also includes expanded disclosure requirements regarding
the interests of the parent and its non-controlling interest. We are currently
evaluating this new statement and anticipate that the statement will not have a
significant impact on the reporting of our results of operations.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement
No. 133, (SFAS No. 161), which requires companies to provide
additional disclosures about its objectives and strategies for using derivative
instruments, how the derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and related interpretations, and how
the derivative instruments and related hedged items affect our financial
statements. SFAS No. 161 also requires companies to disclose information
about credit risk-related contingent features in their hedged positions. SFAS
No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. We do not currently believe adoption will have a
material impact on our financial position or operating results.





In May
2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles.  SFAS No. 162 identifies the sources of
accounting principles and provides entities with a framework for selecting the
principles used in preparation of financial statements that are presented in
conformity with GAAP.  The current GAAP hierarchy has been criticized
because it is directed to the auditor rather than the entity, it is complex, and
it ranks FASB Statements of Financial Accounting Concepts, which are subject to
the same level of due process as FASB Statements of Financial Accounting
Standards, below industry practices that are widely recognized as generally
accepted but that are not subject to due process.  The Board believes
the GAAP hierarchy should be directed to entities because it is the entity (not
its auditors) that is responsible for selecting accounting principles for
financial statements that are presented in conformity with GAAP.  The
adoption of FASB 162 is not expected to have a material impact on our financial
statements.





In May
2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement(FSP APB 14-1) that changes the method of accounting for
convertible debt securities that require or permit settlement in cash either in
whole or in part upon conversion. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Under FSP APB 14-1, the debt and
equity components of convertible debt securities that may be settled in cash
upon conversion will be bifurcated and accounted for separately in a manner that
will result in recognizing interest expense on these securities at rates
reflective of the entity’s borrowing rates for what the entity would have
incurred had it issued nonconvertible debt with otherwise similar terms. The
equity component of such convertible debt securities will be included in the
paid-in-capital section of stockholders’ equity on the consolidated balance
sheet and, accordingly, the initial carrying values of these debt securities
will be reduced. Net loss for financial reporting purposes will be increased by
recognizing the accretion of the reduced carrying value of the convertible debt
securities to their face amounts as additional non-cash interest expense.
Management is currently evaluating the impact of FSP APB 14-1 on our financial
statements, but has not yet determined the effect on the reporting of our
consolidated financial position and results of operations.





In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock (EITF 07-5).
EITF 07-5 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 on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. Management is currently evaluating the impact of EITF
07-5 on our financial statements, if any, that will occur upon the adoption of
EITF 07-5.


28




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, 2008 compared to Year Ended November 30, 2007




Revenue.Total revenue for
the year ended November 30, 2008 was $209,835, as compared to revenue of
$251,797 for the same period in the prior fiscal year, a decrease of
$41,962. For the year ended November 30, 2008, revenue consisted of license
revenue totaling $190,521 under agreements with Corning, Pfizer, Eisai, and
Xenotech, plus revenue of $19,314 from sales of cells and related media. For the
year ended November 30, 2007, revenue consisted of license revenue totaling
$131,664 under agreements with Pfizer, Eisai, Xenotech, and BMS, plus revenue of
$120,133 from sales of cells and related media.




Operating Expenses.Total
operating expenses for the year ended November 30, 2008 were $2,300,818, as
compared to operating expenses of $3,389,894 for the year ended November 30,
2007, representing a decrease of $1,089,076 as compared to the prior fiscal
year. This decrease principally represents the net effect of the following
changes between 2008 and 2007: 1) the reduction in 2008 of the costs for
consulting fees, legal fees, accounting and auditing fees, and other
professional fees by approximately $1,150,000; 2) the reduction in 2008 of
salaries and wages, including related benefits and payroll taxes, by
approximately $480,000; 3) the reduction in 2008 of the costs of occupancy in
the approximate amount of $190,000; 4) the write-off in 2007 of certain license
fees in the amount of $300,000 that had been capitalized in 2006 (none in 2008);
and 5) the write-down of intangible assets due to impairment in value in 2008 in
the approximate amount of $1,060,000. The Company has reviewed its patent
portfolio strategy related to its Toll-like receptor 3 (TLR3) technology
acquired in September 2005 when MultiCell acquired the assets of Astral, Inc.
This intellectual property is the subject of three patent applications, and is
related to the Company's lead drug candidate MCT-465. The Company may decide to
cease further prosecution of the subject patent applications and terminate its
development work related to MCT-465. Accordingly, the Company has written down
the value of the patent applications directly related to MCT-465 presently
carried on its balance sheet at November 30, 2008.




Other income/(expense).The
total of other expense, net of other income, decreased from $34,541 for the year
ended November 30, 2007 to $3,953 for the year ended November 30, 2008,
representing a decrease of $30,588. The principal cause of the decrease is the
reduction of interest expense and related amortization of discount for the 7.75%
convertible debentures, which were issued early in 2007, then paid off or
converted into common stock by February 2008.





Net Loss. Net loss for the
year ended November 30, 2008 was $2,094,936, as compared to a net loss of
$3,172,638 for the year ended November 30, 2007, representing a decrease in the
net loss of $1,077,702 (34%). The primary reasons for the decrease are the
reductions in operating expenses as described above, net of the effects of the
write-down of intangible assets due to impairment in value.





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, 2008 and 2007, the Company paid and/or accrued
preferred dividends in the amount of $149,203 and $151,548,
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, 2008 and November 30, 2007:


29





November
      30, 2008
                              
                              
                              November
      30, 2007Cash
      and cash equivalents
                              
                              $
                              6,022
                              
                              
                              $
                              411,691Current
      assets
                              
                              $
                              38,876
                              
                              
                              $
                              502,704Current
      liabilities
                              
                              
                              (1,768,689
                              )
                              
                              
                              (1,724,869
                              )Working
      capital deficiency
                              
                              $
                              (1,729,813
                              )
                              
                              $
                              (1,222,165
                              )


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.





During
the past fiscal year (and into the current fiscal year), 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 March 9, 2009 there were 9,683,500 shares remaining
on the stock purchase warrant.  Should LJCI continue to exercise all
of its remaining warrants approximately $10.6 million of cash would be provided
to the Company.  However, the Debenture Purchase Agreement (discussed
below) limits LJCI’s stock ownership in the Company to 9.99% of the outstanding
shares of the Company and therefore, based on the number of shares outstanding
as of March 9, 2009.  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 May 3,
2006, MultiCell entered into a common stock purchase agreement with Fusion
Capital, which was amended and restated on October 5, 2006, and ultimately
terminated on July 18, 2007.  Under the agreement, Fusion Capital was
obligated, under certain conditions, to purchase shares from the Company up to
an aggregate amount of $8 million from time to time over a 25-month
period.  MultiCell authorized 8,000,000 shares of its common stock for
sale to Fusion Capital under the agreement. For the year ended November 30, 2007
the Company received $450,000 from Fusion Capital of which 25% of the gross
proceeds were payable to Series B preferred shareholders.  During the
year ended November 30, 2007, the Company redeemed 615 shares of Series B
preferred stock by paying $61,500.





As
consideration for entering into the original transaction on May 3, 2006,
MultiCell issued to Fusion Capital 1,572,327 shares of its common stock and
warrants to purchase an additional 1,572,327 shares of its common stock at a
price of $0.01 per share. Upon execution of the amended and restated purchase
agreement on October 5, 2006, Fusion Capital retained the original 1,572,327
shares of common stock and returned the warrant to the Company.





On July
14, 2006, the Company completed a private placement of Series B convertible
preferred stock.  A total of 17,000 Series B shares were sold to
accredited investors at a price of $100 per share.  The Series B
shares are convertible at any time into common stock at a conversion price
determined by dividing the purchase price per share of $100 by $0.32 per share
(the “Conversion Price”).  The Conversion Price is subject to
equitable adjustment in the event of any stock splits, stock dividends,
recapitalizations and the like.  In addition, the Conversion Price is
subject to weighted average anti-dilution adjustments in the event the Company
sells common stock or other securities convertible into or exercisable for
common stock at a per share price, exercise price or conversion price lower than
the Conversion Price then in effect in any transaction (other than in connection
with an acquisition of the securities, assets or business of another company,
joint venture and employee stock options).  The conversion of the
Series B preferred stock is limited for each investor to 9.99% of the Company’s
common stock outstanding on the date of conversion.  The Series B
preferred stock does not have voting rights.  Commencing on the date
of issuance of the Series B preferred stock until the date a registration
statement registering the common shares underlying the preferred stock and
warrants issued 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 will the dividend rate be greater than 12% per
annum.  During the fiscal year ended November 30, 2007 the Company
paid $73,800 and redeemed 738 shares of the Series B preferred stock. The
dividend will be payable monthly in arrears in cash on the last day of each
month based on the number of shares of Series B Preferred Stock outstanding as
of the first day of that month.  In the event the Company does not pay
the Series B preferred dividends when due, the conversion price of the Series B
preferred shares will be reduced to 85% of the otherwise applicable conversion
price.


30




Until the
earlier of (a) two years after the closing date or (b) the date upon which all
of the Series B Shares have been converted into common stock, the purchasers had
a right of first refusal on any financing in which the Company is the issuer of
debt or equity securities.  If (a) the Company raised debt or equity
financing during the right of first refusal period, (b) the Company’s common
stock is trading below the conversion price of the Series B Shares at the time
of such financing, and (c) the purchasers did not exercise their right of first
refusal, then the Company, at the option of any purchaser, could use 25% of the
net proceeds from such financing to redeem such purchasers’ shares of Series B
preferred stock or common stock, as determined by such purchaser.  The
redemption price would be determined in the same manner as any redemption set
forth in the preceding paragraph.  In addition, if an event of default
(as defined in the agreement) occurs, the conversion price of the Series B
Shares (as set forth below) shall be reduced to 85% of the then applicable
conversion price of such shares.





In
addition, the purchasers also received warrants to acquire up to 10,500,000
shares of the Company’s common stock.  In the event of any dissolution
or winding up of the Company, whether voluntary or involuntary, holders of each
outstanding share of Series B preferred stock shall be entitled to be paid
second in priority to the Series I preferred stockholders out of the assets of
the Company available for distribution to stockholders, an amount equal to $100
per share of Series B preferred stock held plus any declared but unpaid
dividends.  After such payment has been made in full, such holders of
Series B preferred stock shall be entitled to no further participation in the
distribution of the assets of the Company.





On
February 28, 2007, we entered into a Debenture Purchase Agreement with La Jolla
Capital Investors (the “Debenture Purchase Agreement”) pursuant to which we sold
a convertible debenture to LJCI in a principal amount of $1,000,000 (receivable
in four payments) with an annual interest rate of 7.75% and maturing on February
28, 2008 (the “Initial Debenture”).  The first payment of $250,000 was
received by us on March 7, 2007.  We also entered into a Securities
Purchase Agreement with LJCI on February 28, 2007 (the “Securities Purchase
Agreement”) pursuant to which we agreed to sell a convertible debenture in a
principal amount of $100,000 with an annual interest rate of 4.75% and expiring
on February 28, 2012 (the “Second Debenture”, and together with the Initial
Debenture, the “Debentures”).  In addition, we issued to LJCI a
warrant to purchase up to 10 million shares of our common stock (the “LJCI
Warrant”) at an exercise price of $1.09 per share, exercisable over the next
five years according to a schedule described in a letter agreement dated
February 28, 2007.





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 Initial Debenture
accrued interest at 7.75% per year prior to being settled in full, as discussed
below.  The Second Debenture accrues interest at 4.75% per year
payable in cash or our common stock.  Through November 30, 2008,
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 Initial
Debenture, if the holder elects to convert a portion of the debentures and, on
the day that the election is made the volume weighted average price is below
$0.16, the Company shall have the right to repay that portion of the debenture
that holder elected to convert, plus any accrued and unpaid interest, at 150% of
each amount.  In the event that the Company elects to repay that
portion of the debenture, holder shall have the right to withdraw its conversion
notice.





For the
Second Debenture, upon receipt of a conversion notice from the holder, the
Company may elect to immediately redeem that portion of the debenture that
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 this debenture not yet converted by holder into
Common Stock, plus accrued and unpaid interest thereon.





The
Debentures required the Company to register the shares of common stock into
which the Debentures could be converted by the holder with the
SEC.  The Company was unable to obtain SEC approval to register the
subject shares, and consequently, the Company and LJCI agreed to terminate the
Debenture Purchase Agreement and to allow LJCI to sell the common shares pledged
as collateral under the Debenture Purchase Agreement.  As of November
30, 2007, LJCI had sold all of the common shares pledged as collateral and
received $202,081 in gross proceeds.  Consequently, a balance of
$47,919 remained outstanding and owed to LJCI as a result of the Company’s
initial draw-down of $250,000 under the terms of the Debenture Purchase
Agreement.  During the year ended November 30, 2008, LJCI converted
the remaining $47,919 balance into 4,710,250 shares of the Company’s common
stock subject to the terms set forth in the Debenture Purchase
Agreement.


31




Cash
provided by (used in) operating, investing and financing activities for the
years ended November 30, 2008 and November 30, 2007 is as follows:




November 30, 2008
                      
                      
                      November
      30, 2007Operating
      activities
                      
                      $
                      (570,607
                      )
                      
                      $
                      (420,896
                      )Investing
      activities
                      
                      
                      20,013
                      
                      
                      
                      29,485Financing
      activities
                      
                      
                      144,925
                      
                      
                      
                      725,491Net
      increase (decrease) in cash and cash equivalents
                      
                      $
                      (405,669
                      )
                      
                      $
                      334,080




Operating
Activities





For the
year ended November 30, 2008, the most significant differences between our net
loss and our net cash used in operating activities are due to non-cash charges
included in our net loss for the write-down of intangible assets due to
impairment in value in the amount of $1,061,365, services that are paid through
the issuance of common stock or stock options in the amount of $106,198, and for
depreciation and amortization in the aggregate amount of $80,255, plus changes
in working capital, which included an increase in accounts payable and accrued
liabilities of $233,881.  For the year ended November 30, 2007, the
most significant differences between our net loss and our net cash used in
operating activities are due to non-cash charges included in our net loss for
services that are paid through the issuance of common stock and stock options in
the amount of $1,386,845 and for depreciation and amortization in the aggregate
amount of $113,815, plus changes in working capital, which included an increase
in accounts payable and accrued liabilities of $452,175 and an increase in
deferred income of $758,610.





Investing
Activities





Net cash
provided by investing activities in 2008 was related to the sale of property and
equipment for cash and collections of principal on a note
receivable.  Net cash provided by investing activities in 2007 was
related to the sale of property and equipment for cash.





Financing
Activities





During
the year ended November 30, 2008, LJCI converted $825 of the 4.75% Convertible
Debenture into common stock and exercised warrants to purchase 82,500 shares of
common stock at a price of $1.09 per share. Additionally, we issued short-term
notes payable to two related parties in exchange for $55,000.  In
addition, the remaining balance of $47,919 of the 7.75% Convertible Debenture
was converted into common stock during the year ended November 30,
2008.  For the year ended November 30, 2007, cash provided by
financing activities primarily related to the issuance of common stock to Fusion
Capital for $450,000 and issuance of debentures to LJCI for $350,000, less
$61,500 paid to redeem Series B preferred stock.





Through
November 30, 2008, a significant portion of our financing has been provided
through private placements of preferred and common stock, the exercise of stock
options and warrants and issuance of convertible debentures.  We have
in the past increased, and if funding permits plan to increase further, our
operating expenses in order to fund higher levels of product development,
undertake and complete the regulatory approval process, and increase our
administrative resources in anticipation of future growth.  In
addition, acquisitions such as MCTI increase operating expenses and therefore
negatively impact, in the short term, the liquidity position of the
Company.





During
the past year 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 March
9, 2009 there are 9,683,500 shares remaining on the stock purchase warrant and a
balance of $96,835 remaining on the convertible debenture. Should LJCI continue
to exercise all of its remaining warrants approximately $10.6 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.


32





Item
7.  FINANCIAL STATEMENTS





The full
text of the Company's audited consolidated financial statements for the fiscal
years ended November 30, 2008 and 2007 begins on page F-1 of this Annual
Report.





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





On
January 15, 2008, MultiCell dismissed J.H. Cohn LLP ("Cohn") as MultiCell's
independent registered public accounting firm. The decision to dismiss Cohn was
approved by the Audit Committee of the Board of Directors of
MultiCell.  The  reports of Cohn on the financial statements
of MultiCell for the years ended  November 30, 2006 and 2005 contained
no adverse opinion or disclaimer of opinion  and were not qualified or
modified as to uncertainty, audit scope or accounting  principle, but
did include explanatory paragraphs for the effects of a  restatement
of the financial statements for the year ended November
30,  2004,  the adoption of Statement of Financial
Accounting Standards No. 123(R),  "Share-Based Payment" in 2006, and
the Company's ability to continue as a going  concern.





During
the years ended November 30, 2006 and 2005 and through January 15, 2008, there
have been no disagreements with Cohn on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Cohn, would have caused
Cohn to make reference thereto in its reports on the financial statements of
MultiCell for such years.  As previously reported in MultiCell's
Annual Report on Form 10-KSB filed on March 3, 2006, MultiCell and Cohn
identified errors in connection with the Company’s accounting for stock options
and warrants issued to consultants and scientific advisory board members during
fiscal years 2004 and 2005, which led to the conclusion that MultiCell did not
maintain effective internal controls over accounting for stock options and
warrants as of November 30, 2005. As reported in MultiCell's Annual Report on
Form 10-KSB filed on March 15, 2007, Cohn noted several deficiencies related to
the presentation of the basic financial statements and the accompanying notes to
the financial statements and proposed certain entries that should have been
recorded as part of the normal closing process. MultiCell's internal control
over financial reporting did not detect such matters and, therefore, was
determined to be not effective in detecting misstatements and disclosure
deficiencies as of November 30, 2006.





MultiCell
furnished a copy of the above disclosures to Cohn and requested that Cohn
furnish MultiCell with a letter addressed to the Securities and Exchange
Commission stating whether or not it agreed with the above disclosures. A copy
of Cohn’s letter was attached as Exhibit 16.1 to the report on Form
8-K.  On January 15, 2008, MultiCell engaged Hansen, Barnett and
Maxwell, P.C. ("Hansen") as its new independent registered public accounting
firm to audit MultiCell’s financial statements for the year ending November 30,
2007 and to review the financial statements to be included in MultiCell's
quarterly report on Form 10-QSB for the quarters ending February 29, 2008, May
31, 2008 and August 31, 2008.  Prior to the engagement of Hansen,
neither MultiCell nor anyone on behalf of MultiCell consulted with Hansen during
MultiCell's two most recent fiscal years and  through January 15, 2008
in any manner regarding either: (A) the application of  accounting
principles to a specified transaction, either completed or
proposed,  or the type of audit opinion that might be rendered on
MultiCell's financial  statements; or (B) any matter that was the
subject of either a disagreement or a  reportable event (as defined in
Item 304(a)(1)(iv) of Regulation S-B).





Item
8A(T).  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, 2008 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, 2008, 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.




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, 2008 that have materially affected, or are
reasonable likely to materially affect, our internal control over financial
reporting.





Item
8B. OTHER INFORMATION





None.


34


PART III





ITEM
9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT




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
                            
                            71
                            
                            Chairman,
      Acting Chief Executive Officer, Chief Financial Officer, Secretary and
      Director
                            
                            December 1, 1995(3)Stephen
      Chang
                            
                            52
                            
                            Director
                            
                            June 16,
      2004(2)Edward
      Sigmond
                            
                            47
                            
                            Director
                            
                            May 17,
      2000Thomas A.
      Page
                            
                            74
                            
                            Director
                            
                            September 11, 2003Anthony E.
      Altig
                            
                            50
                            
                            Director
                            
                            September 15,
      2005
 (1)
            Each
      director serves until the next annual meeting of
    stockholders.(2)
            Resigned
      as President and Chief Executive Officer on December 21,
    2007.(3)
            Elected
      as Acting Chief Executive Officer on December 21,
  2007.





W. Gerald “Jerry” Newminjoined
the Company 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.  Dr. Chang is presently Chief Scientific Officer of Stemgen,
Inc.  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 is on the board of BIOCOM, San
Diego’s premier life sciences organization.  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.


35





Edward Sigmond has served as a
director of the Company since May 2000.  He has been in sales,
marketing and operations management for the past 20 years.  Mr.
Sigmond has served as president of Kestrel Holdings, Inc., a holding company,
since its inception in 1997.  Mr. Sigmond served as president of
Kestrel Development, a Texas based real estate development company, from 1993 to
1998 when it was dissolved.  He studied Marketing and Chemistry at
Duquesne University.





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 San Diego Regional Economic
Development Corporation, Community National Bank, Sys Technologies 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 a doctorate in management, all from Purdue
University.  He has been licensed as an engineer and as a certified
public accountant (CPA).  Mr. Page also serves on the University of
California Presidents Council on the National Laboratories.





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.  Mr. Altig has extensive
experience in financial management, strategic planning and financial reporting
primarily with biotechnology and other technology companies.  Since
2004, Mr. Altig has been the Chief Financial Officer of Diversa 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 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 ten meetings in 2008, three 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 ten meetings except for
Mr. Chang who missed four meetings and Mr. Page who missed three
meetings.





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 five times during
2008. The Nominating, Corporate Governance and Compensation Committee met one
time during 2008.


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-KSB; 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 Tom 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 A. 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 A. 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 five times
during the fiscal year ended November 30, 2008.





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.


37





·
            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.





·
            Administers
      the stock incentive plans.





The
members of the Nominating, Corporate Governance and Committee are Ed Sigmond,
Chairman, Tony Altig and Tom Page. The Committee met once
during the fiscal year ended November 30, 2008.





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.


38


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.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires the Company's directors, executive officers
and persons who own more than 10% of the Company's stock (collectively,
"Reporting Persons") to file with the SEC initial reports of ownership and
changes in ownership of any class of the Company's equity securities. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) reports they file. To the Company's knowledge, based solely on
its review of the copies of any such reports filed with the SEC within the last
fiscal year and any written representations received by the Company from
Reporting Persons that no other reports were required, the Company believes that
during its fiscal year ended November 30, 2008, all Reporting Persons timely
complied with all applicable filing requirements.





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
10. 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.


39




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.




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
salaries we paid to our executives in 2008 and 2007 are 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.


40




Summary
Compensation Table





Name
      and Principal Position(1)
              
              Year
              
              Salary
                  ($)
              
              
              All
      Other
                  Compensation
                  ($)
      (5)
              
              
              Total
                ($)W.
      Gerald Newmin, (2)
              
              2008
              
              $
              180,000
              {4)
              
              $
              30,000
              
              
              $
              210,000Chairman
      of the Board, Chief Executive
              
              2007
              
              $
              84,600
              
              
              $
              21,000
              
              
              $
              105,600Officer, President, Chief FinancialOfficer,
      Treasurer, Secretary and DirectorDr.
      Stephen Chang Ph.D. (3)Former Chief Executive Officer, former
              
              2008
              
              $
              10,385
              
              
              $
              18,000
              
              
              $
              28,385President,  and
      current Director
              
              2007
              
              $
              180,069
              
              
              $
              21,000
              
              
              $
              201,069





(1)
During fiscal years ended November 30 2007 and 2008, the listed persons were the
only Principal Executive Officers of the Company and the only persons 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)
Resigned as President and Chief Executive Officer on December 21,
2007.


(4) Of
Mr. Newmin’s salary for the year ended November 30, 2008, $108,681 is unpaid at
November 30, 2008 and is included in accrued expenses.


(5) The
amounts set forth in this column reflect monies earned in consideration for
directors attending meetings of our Board of Directors.  Each of Mr.
Newmin and Dr. Chang earned $3,000 for each meeting of the Board of Directors
attended during fiscal years 2007 and 2008.  The Company may pay any
such fees in cash or capital stock of the Company, although the Company has
traditionally paid such fees in capital stock of the Company.  The
Company has not yet paid any of the director fees set forth in this column which
were earned in fiscal year 2008.   The Company has paid all such
fees earned in fiscal year 2007 in capital stock of the Company, other than
$9,000 to each of Mr. Newmin and Dr. Chang.  All of the aforementioned
earned and unpaid fees are included in the Company’s accrued
expenses.





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.





Employment Agreement with Stephen
Chang, Ph.D.  Dr. Chang’s base salary for fiscal year 2007 was
$15,000 per month.  Pursuant to his employment agreement with the
Company dated February 1, 2005, one third of his monthly salary was to be paid
quarterly in stock, but the agreement was orally amended so that Mr. Chang
received the entirety of his salary in cash.  Dr. Chang resigned from
position as Chief Executive Officer and President effective December 21,
2007.


41


OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END





The
following table shows for the fiscal year ended November 30, 2008, 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
                                                                                                        ofShares
                                                                                                        or
      Units
                                                                                                        of
      Stock
                                                                                                        That
                                                                                                        HaveNot
                                                                                                        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
                                                                                                      
                                                                                                      50,000
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      $1.35
                                                                                                      
                                                                                                      9/16/09
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0Dr.
      Stephen Chang Ph.D.
                                                                                                      
                                                                                                      30,000
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      $1.25
                                                                                                      
                                                                                                      6/14/09
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      050,000
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      $1.25
                                                                                                      
                                                                                                      6/14/09
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      050,000
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      $1.35
                                                                                                      
                                                                                                      9/16/09
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      01,000,000
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      0
                                                                                                      
                                                                                                      
                                                                                                      $1.40
                                                                                                      
                                                                                                      1/27/10
                                                                                                      
                                                                                                      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, 2008.





Name
                
                Fees
      Earned or
                  Paid
      in Cash ($) (1)
                
                
                Stock
      Awards ($)
                
                
                Option
      Awards ($)
                
                
                Total
      ($)Anthony
      F. Altig
                
                $
                51,000
                
                
                $
                0
                
                
                $
                0
                
                
                $
                51,000Thomas
      A.  Page
                
                $
                26,000
                
                
                $
                0
                
                
                $
                0
                
                
                $
                26,000Edward
      Sigmond
                
                $
                36,000
                
                
                $
                0
                
                
                $
                0
                
                
                $
                36,000





(1)  Director
fees earned during the year ended November 30, 2008 have not been paid in cash
or otherwise settled and appear in our financial statements as accrued
expenses.  Historically, we have paid director fees through the
issuance of our common stock and may still do so in the future.





Director
Compensation Arrangements





Each
director of the Company earns fees of $3,000 for each board meeting
attended.  The Chairman of the Audit Committee earns $4,000 for each
Audit Committee meeting attended and each other Audit Committee member earns
$1,000 per Audit Committee meeting attended.  The Chairman of the
Nominating, Corporate Governance and Compensation Committee earns $2,000 per
Nominating, Corporate Governance and Compensation Committee meeting attended and
each other member of the Nominating, Corporate Governance and Compensation
Committee earns $1,000 per Nominating, Corporate Governance and Compensation
Committee meeting attended. 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 also receives a one time stock option grant of 50,000 on
the date he or she joins the Board of Directors (which shall be referred to as
the “Directors’ Plan”).  Currently, any options granted would be
pursuant to our 2004 Equity Incentive Plan.  None of the options
granted pursuant to the Directors’ Plan are incentive stock options, as defined
in the Internal Revenue Code.  The exercise price of options granted
underthe Directors’
Plan is 100% of the fair market value of the common stock subject to the option
on the date of the option grant.The standard terms of
the plan call for vesting in equal installments over three years and expiring in
five years.


42


ITEM
11.  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 March 9, 2009, 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)
              
              
              2,962,910
              
              
              
              2.07
              %
              
              
              7,891
              
              
              
              35.9
              %La
      Jolla Cove Investors, Inc. (4)
              
              
              14,740,864
              
              
              
              9.99
              %
              
              
              –
              
              
              
              –Asset
      Managers International, Ltd (5)
              
              
              5,556,362
              
              
              
              3.81
              %
              
              
              4,923
              
              
              
              22.38
              %W.
      Gerald Newmin (6)(11)
              
              
              6,399,042
              
              
              
              4.50
              %
              
              
              –
              
              
              
              –Thomas
      A. Page (7)(11)
              
              
              1,008,542
              
              
              
              *
              
              
              
              –
              
              
              
              –Stephen
      Chang, Ph.D. (8) (11)
              
              
              1,916,445
              
              
              
              1.35
              %
              
              
              –
              
              
              
              –Edward
      Sigmond (9)(11)
              
              
              1,049,806
              
              
              
              *
              
              
              
              –
              
              
              
              –Anthony
      Altig (10)(11)
              
              
              375,139
              
              
              
              *
              
              
              
              –
              
              
              
              –All
      executive officers and directors as a group (five persons)
              
              
              10,748,974
              
              
              
              7.43
              %
              
              
              –
              
              
              –





*
            Represents
      less than 1% of the issued and outstanding shares of the applicable class
      of equity securities of the Company as of March 9,
  2009.





(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 140,429,181 shares of common stock and 21,996
      shares of preferred stock outstanding on March 9, 2009 (of which 16,262
      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”) and (ii) 2,465,938 shares of our common stock issuable to MPF upon
      conversion of its preferred stock.  The shares of preferred
      stock held by MPF are all shares of our Series B preferred
      stock.  MPF is in liquidation.  William Tacon serves
      as the liquidator of MPF and, as such, now has control over the securities
      owned by MPF.   The foregoing information is as of December 31,
      2008 and is based solely upon information contained in a Schedule 13G/A
      filed with the SEC by MPF on January 14,
2009.





(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 March 9,
      2009.  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 March 9,
      2009, there are a total of 9,683,500 shares remaining on the stock
      purchase warrant and a balance of $96,835 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).


43





(5)
            Includes
      (i) 2,118,513 shares of common stock issuable to Asset Managers
      International, Ltd upon the exercise of warrants within 60 days of March
      9, 2009 and (ii) 3,437,849 shares of our common stock issuable to Asset
      Managers International, Ltd. upon conversion of its Series B preferred
      stock.





(6)
            Includes
      (i) 3,999,844 shares of common stock, (ii) 1,373,065 shares of common
      stock issuable to Mr. Newmin upon the exercise of warrants within 60 days
      of March 9, 2009, 9, (iii)  50,000 shares of common stock
      issuable to Mr. Newmin under options exercisable within 60 days of March
      9, 2009, (iv) 694,133 shares of common stock owned by Mr. Newmin’s spouse,
      and (v) warrants to purchase 282,000 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 Mrs. Newmin, except to the extent of his pecuniary interest
      therein.





(7)
            Includes
      (i) 432,639 shares of common stock, (ii) 525,903 shares of common stock
      issuable upon the exercise of common stock warrants within 60 days of
      March 9, 2009, and (iii) 50,000 shares of common stock issuable under
      options exercisable within 60 days of March 9,
  2009.





(8)
            Includes
      (i) 422,374 shares of common stock, (ii) 364,071 shares of common stock
      issuable upon the exercise of common stock warrants within 60 days of
      March 9, 2009 and (iii) 1,130,000 shares of common stock issuable under
      options exercisable within 60 days of March 9,
  2009.





(9)
            Includes
      (i) 838,229 shares of common stock, (ii) 161,577 shares of common stock
      issuable upon the exercise of common stock warrants within 60 days of
      March 9, 2009 and (iii) 50,000 shares of common stock issuable under
      options exercisable within 60 days of March 9,
  2009.





(10)
            Includes
      (i) 152,209 shares of common stock, (ii) 172,930 shares of common stock
      issuable upon the exercise of common stock warrants within 60 days of
      March 9, 2009 and (iii) 50,000 shares of common stock issuable under
      options exercisable within 60 days of March 9,
  2009.





(11)
            Does
      not include any shares issuable in connection with director’s fees earned
      by the reporting person as of March 9,
2009.





EQUITY
COMPENSATION PLAN INFORMATION





The
following table summarizes the securities authorized for issuance under equity
compensation plans as of November 30, 2008.





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)
                            
                            
                            2,000,000
                            
                            
                            $
                            1.16
                            
                            
                            
                            109,739Equity
      compensation plans not approved by shareholders (2)
                            
                            
                            2,150,000
                            
                            
                            $
                            0.544,150,000
                            
                            
                            $
                            0.84





(1)
Pursuant to the 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.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.





ITEM
12.    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, 2008, 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:


44




·
            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, 2007, 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.





Pursuant
to the Debenture Purchase Agreement, the Company sold a convertible debenture to
LJCI in the principal amount of $1,000,000 (receivable in four payments)
maturing on February 28, 2008 (the “Initial Debenture”).  The first
payment of $250,000 was received by the Company on March 7, 2007. The Initial
Debenture accrued interest at 7.75% per year, payable monthly in cash or common
stock.  Under the terms of this agreement, certain officers, director
and shareholders of the Company pledged 2,527,638 shares of common stock and
guaranteed the repayment of a $250,000 advance against the Initial Debenture. As
of November 30, 2007, LJCI had sold all of the pledged shares, received proceeds
of $202,081, and reduced the amount due on the advance to
$47,919.  During the year ended November 30, 2008, LJCI converted the
remaining $47,919 of the Initial Debenture into 4,710,250 shares of common
stock.





The
Company also 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 “Second
Debenture”).  The Second 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 Second Debenture were deposited on March
5, 2007. In connection with the Second 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 Second Debenture,
LJCI is required to simultaneously exercise and purchase that same percentage of
the warrant shares equal to the percentage of the dollar amount of the Second
Debenture being converted.  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
Second 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 Second
Debenture being converted multiplied by 110, minus the product of the Conversion
Price multiplied by 100 times the dollar amount of the Second 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, 2008, LJCI converted $825 of the Second Debenture into 19,384,509
shares of common stock.  Simultaneously with these conversions, LJCI
exercised warrants to purchase 82,500 shares of the Company’s common
stock.  Proceeds from the exercise of the warrants were
$89,925.  As of November 30, 2008, the balance of the Second Debenture
was $99,175 and there were remaining warrants to purchase 9,917,500 shares of
common stock at $1.09 per share.  During the period from December 1,
2008 through March 9, 2009, LJCI has converted an additional $2,340 of the
Second Debenture into 57,048,967 shares of common
stock.  Simultaneously with these additional conversions, LJCI
exercised additional warrants to purchase 234,000 shares of the Company’s common
stock.  Proceeds from the additional exercise of warrants were
$255,060.  As of March 9, 2009, the balance of the Second Debenture is
$96,835 and there are remaining warrants to purchase 9,683,500 shares of common
stock at $1.09 per share.


45




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,
Tony Altig, Tom Page and Ed Sigmond meet the definition of "independent
director" under Rule 4200(A)(15) of the NASD Manual; Dr. Chang and Mr. Newmin do
not.





ITEM
13.    EXHIBITS





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





ITEM
14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table summarizes the fees of (i) J.H. Cohn, LLC., our former
independent auditor, and (ii) Hansen, Barnett and Maxwell, our current
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
                
                2008
                
                
                2007Audit
      Fees(1)
                
                $
                67,342
                
                
                $
                80,175Audit-Related
      Fees(2)
                
                $
                0
                
                
                $
                47,000Tax
      Fees(3)
                
                $
                0
                
                
                $
                0All
      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, 2008 and
2007.





(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.


46


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 16, 2009





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
      16, 2009W.
      Gerald Newmin
                                    
                                    Treasurer
      and Secretary/s/
      Stephen Chang
                                    
                                    Director
                                    
                                    March
      16, 2009Stephen
      Chang/s/
      Edward Sigmond
                                    
                                    Director
                                    
                                    March
      16, 2009Edward
      Sigmond/s/
      Thomas A. Page
                                    
                                    Director
                                    
                                    March
      16, 2009Thomas  A.
      Page/s/
      Anthony Altig
                                    
                                    Director
                                    
                                    March
      16, 2009Anthony Altig




47


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
      (2)
                                  
                                  Bylaws,
      as amended May 18, 2005.3.10
      (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, 20074.4
      (5)
                                  
                                  Registration
      Rights Agreement between Multicell Technologies, Inc. and La Jolla Cove
      Investors, Inc. dated February 28, 20074.5
      (5)
                                  
                                  Stock
      Pledge Agreement dated February 28, 20074.6
      (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, 20074.10
      (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, 20074.12
      (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.




48





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, 2007.10.1
      (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,
      2007.31.1*
              
              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)  In
corporated 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 October 26, 2006.


(13)
Incorporated by reference from an exhibit to our Current Report on Form 8-K
filed on June 28, 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.


49
  INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                    F-2Consolidated
      Balance Sheets – November 30, 2008 and 2007
                    F-3Consolidated
      Statements of Operations for the Years Ended November 30, 2008 and
      2007
                    F-4Consolidated
      Statements of Stockholders’ Deficiency for the Years Ended November
      30,2007
      and 2008
                    F-5Consolidated
      Statements of Cash Flows for the Years Ended November 30, 2008 and
      2007
                    F-6Notes
      to Consolidated Financial Statements
                    F-7
  F-1
 
 HANSEN,BARNETT& MAXWELL,
      P.C.A
      Professional Corporation
                  
                  Registered
      with the Public CompanyCERTIFIED
      PUBLIC ACCOUNTANTS
                  
                  Accounting
      Oversight Board5
      Triad Center, Suite 750
                    Salt
      Lake City, UT 84180-1128
                    Phone:
      (801) 532-2200Fax:
      (801) 532-7944
                  
                  A
      Member of the Forum of Firmswww.hbmcpas.com
 
 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, 2008 and 2007, and the
related consolidated statements of operations, stockholders' 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, 2008 and 2007, 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, 2008 and 2007 and as of November 30, 2008, the Company had a
working capital deficit and a stockholders’ deficit. 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 13,
2009
  F-2
 
 MULTICELL
      TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSNovember
      30,
                    
                    
                    November
      30,2008
                    
                    
                    2007ASSETSCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    6,022
                    
                    
                    $
                    411,691Accounts
      and royalties receivable
                    
                    
                    —
                    
                    
                    
                    31,582Other
      current assets
                    
                    
                    32,854
                    
                    
                    
                    59,431Total
      current assets
                    
                    
                    38,876
                    
                    
                    
                    502,704Property
      and equipment, net of accumulated depreciation of $57,146 and $138,231 at
      November 30, 2008 and 2007, respectively
                    
                    
                    15,501
                    
                    
                    
                    36,354Intangible
      assets, net of accumulated amortization and impairment of $1,285,719 and
      $155,322 at November 30, 2008 and 2007, respectively
                    
                    
                    —
                    
                    
                    
                    1,130,397Other
      assets
                    
                    
                    2,979
                    
                    
                    
                    22,210Total
      assets
                    
                    $
                    57,356
                    
                    
                    $
                    1,691,665LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCurrent
      liabilitiesConvertible
      debentures, net of discount
                    
                    $
                    —
                    
                    
                    $
                    44,924Notes
      payable - related parties
                    
                    
                    55,000
                    
                    
                    
                    —Due
      stockholders and affiliates
                    
                    
                    —
                    
                    
                    
                    202,081Accounts
      payable and accrued expenses
                    
                    
                    1,617,304
                    
                    
                    
                    1,383,424Current
      portion of deferred revenue
                    
                    
                    96,385
                    
                    
                    
                    94,440Total
      current liabilities
                    
                    
                    1,768,689
                    
                    
                    
                    1,724,869Non-current
      liabilitiesConvertible
      debentures, net of discount
                    
                    
                    34,175
                    
                    
                    
                    15,000Deferred
      income, net of current portion
                    
                    
                    696,012
                    
                    
                    
                    745,329Total
      non-current liabilities
                    
                    
                    730,187
                    
                    
                    
                    760,329Total
      liabilities
                    
                    
                    2,498,876
                    
                    
                    
                    2,485,198Commitments
      and contingencies
                    
                    
                    —
                    
                    
                    
                    —Series
      B redeemable convertible preferred stock, 17,000 shares designated; 16,262
      shares issued and outstanding; liquidation value of $1,926,952 and
      $1,777,748 at November 30, 2008 and 2007, respectively
                    
                    
                    1,886,952
                    
                    
                    
                    1,737,748Stockholders'
      DeficiencyUndesignated
      preferred stock, $0.01 par value; 970,800 shares
authorized
                    
                    
                    —
                    
                    
                    
                    —Series
      I convertible preferred stock, 12,200 shares designated; 5,734 and 12,200
      shares issued and outstanding at November 30, 2008 and 2007, respectively;
      liquidation value of $573,400 and $1,220,000 at November 30, 2008 and
      2007, respectively
                    
                    
                    573,400
                    
                    
                    
                    1,220,000Common
      stock, $0.01 par value; 200,000,000 shares authorized; 83,146,214 and
      48,690,777 shares issued and outstanding at November 30, 2008 and 2007,
      respectively
                    
                    
                    831,462
                    
                    
                    
                    486,908Additional
      paid-in capital
                    
                    
                    32,894,705
                    
                    
                    
                    32,145,711Accumulated
      deficit
                    
                    
                    (38,628,039
                    )
                    
                    
                    (36,383,900
                    )Total
      stockholders' deficiency
                    
                    
                    (4,328,472
                    )
                    
                    
                    (2,531,281
                    )Total
      Liabilities and Stockholders' Deficiency
                    
                    $
                    57,356
                    
                    
                    $
                    1,691,665
  See
accompanying notes to consolidated financial statements
  F-3
  MULTICELL
      TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the Years EndedNovember 30,2008
                          
                          
                          2007Revenue
                          
                          $
                          209,835
                          
                          
                          $
                          251,797Operating
      expensesSelling,
      general and administrative
                          
                          
                          842,067
                          
                          
                          
                          2,518,213Research
      and development
                          
                          
                          317,130
                          
                          
                          
                          757,866Depreciation
      and amortization
                          
                          
                          80,256
                          
                          
                          
                          113,815Write-down
      of intangible assets due to impairment in value
                          
                          
                          1,061,365
                          
                          
                          
                          —Total
      operating expenses
                          
                          
                          2,300,818
                          
                          
                          
                          3,389,894Loss
      from operations
                          
                          
                          (2,090,983
                          )
                          
                          
                          (3,138,097
                          )Other
      income (expense)Interest
      expense
                          
                          
                          (35,373
                          )
                          
                          
                          (86,014
                          )Interest
      income
                          
                          
                          1,807
                          
                          
                          
                          4Gain
      on disposition of equipment
                          
                          
                          29,613
                          
                          
                          
                          3,054Minority
      interest in net loss of subsidiary
                          
                          
                          —
                          
                          
                          
                          14,248Other
                          
                          
                          —
                          
                          
                          
                          34,167Total
      other income (expense)
                          
                          
                          (3,953
                          )
                          
                          
                          (34,541
                          )Net
      loss
                          
                          
                          (2,094,936
                          )
                          
                          
                          (3,172,638
                          )Preferred
      stock dividends
                          
                          
                          (149,203
                          )
                          
                          
                          (151,548
                          )Net
      loss attributable to common stockholders
                          
                          $
                          (2,244,139
                          )
                          
                          $
                          (3,324,186
                          )Basic
      and Diluted Loss Per Common ShareAttributable
      to Common Stockholders
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.07
                          )Basic
      and Diluted Weighted-AverageCommon
      Shares Outstanding
                          
                          
                          63,996,659
                          
                          
                          
                          44,400,864
  See
accompanying notes to consolidated financial statements
  F-4
  MULTICELL
      TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' DEFICIENCYFor
      the Years Ended November 30, 2007 and
2008
  Additional
                          
                          
                          
                          
                          
                          TotalPreferred Stock - Series I
                          
                          
                          Common stock
                          
                          
                          Paid in
                          
                          
                          Accumulated
                          
                          
                          Stockholders'Shares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Par Value
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          DeficiencyBalance
      at Novmeber 30, 2006
                          
                          
                          12,200
                          
                          
                          $
                          1,220,000
                          
                          
                          
                          38,479,499
                          
                          
                          $
                          384,795
                          
                          
                          $
                          30,069,979
                          
                          
                          $
                          (33,059,714
                          )
                          
                          $
                          (1,384,940
                          )Stock-based
      compensation for services
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          316,839
                          
                          
                          
                          —
                          
                          
                          
                          316,839Common
      stock issued for services and settlement of accrued
    expenses
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          8,189,204
                          
                          
                          
                          81,892
                          
                          
                          
                          812,256
                          
                          
                          
                          —
                          
                          
                          
                          894,148Stock-based
      compensation for warrants issued for pledging of shares
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          354,358
                          
                          
                          
                          —
                          
                          
                          
                          354,358Common
      stock issued in conjunction with equity line
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,022,074
                          
                          
                          
                          20,221
                          
                          
                          
                          429,779
                          
                          
                          
                          —
                          
                          
                          
                          450,000Discount
      on convertible debentures (including beneficial conversion
      charge)
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          162,500
                          
                          
                          
                          —
                          
                          
                          
                          162,500Dividends
      on Series B preferred stock
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (151,548
                          )
                          
                          
                          (151,548
                          )Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (3,172,638
                          )
                          
                          
                          (3,172,638
                          )Balance
      at Novmeber 30, 2007
                          
                          
                          12,200
                          
                          
                          $
                          1,220,000
                          
                          
                          
                          48,690,777
                          
                          
                          $
                          486,908
                          
                          
                          $
                          32,145,711
                          
                          
                          $
                          (36,383,900
                          )
                          
                          $
                          (2,531,281
                          )Common
      stock issued for services
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          5,247,807
                          
                          
                          
                          52,478
                          
                          
                          
                          26,772
                          
                          
                          
                          —
                          
                          
                          
                          79,250Issuance
      of common stock in payment of liability to stockholders and
      affiliates
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,527,638
                          
                          
                          
                          25,276
                          
                          
                          
                          176,805
                          
                          
                          
                          —
                          
                          
                          
                          202,081Issuance
      of common stock for conversion of 7.75% debentures
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          4,710,250
                          
                          
                          
                          47,102
                          
                          
                          
                          817
                          
                          
                          
                          —
                          
                          
                          
                          47,919Issuance
      of common stock for conversion of 4.75% debentures
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          19,384,509
                          
                          
                          
                          193,845
                          
                          
                          
                          (193,020
                          )
                          
                          
                          —
                          
                          
                          
                          825Issuance
      of common stock for exercise of warrants
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          82,500
                          
                          
                          
                          825
                          
                          
                          
                          89,100
                          
                          
                          
                          —
                          
                          
                          
                          89,925Insuance
      of common stock for conversion of Series I preferred stock
                          
                          
                          (6,466
                          )
                          
                          
                          (646,600
                          )
                          
                          
                          2,586,400
                          
                          
                          
                          25,864
                          
                          
                          
                          620,736
                          
                          
                          
                          —
                          
                          
                          
                          —Stock-based
      compensation
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          26,948
                          
                          
                          
                          —
                          
                          
                          
                          26,948Dividends
      on Series B preferred stock
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (149,203
                          )
                          
                          
                          (149,203
                          )Adjustment
      of shares issued in prior
      periods
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (83,667
                          )
                          
                          
                          (836
                          )
                          
                          
                          836
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (2,094,936
                          )
                          
                          
                          (2,094,936
                          )Balance
      at November 30, 2008
                          
                          
                          5,734
                          
                          
                          $
                          573,400
                          
                          
                          
                          83,146,214
                          
                          
                          $
                          831,462
                          
                          
                          $
                          32,894,705
                          
                          
                          $
                          (38,628,039
                          )
                          
                          $
                          (4,328,472
                          )
 
 See
accompanying notes to consolidated financial statements
  F-5
  MULTICELL
      TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS
  For the Years EndedNovember 30,2008
                          
                          
                          2007Cash
      flows from operating activitiesNet
      loss
                          
                          $
                          (2,094,936
                          )
                          
                          $
                          (3,172,638
                          )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
                          
                          
                          11,223
                          
                          
                          
                          44,783Amortization
                          
                          
                          69,032
                          
                          
                          
                          69,032Stock-based
      compensation for services and pledging of stock
                          
                          
                          106,198
                          
                          
                          
                          1,386,845Write-down
      of intangible assets due to impairment in value
                          
                          
                          1,061,365
                          
                          
                          
                          —Minority
      interest in loss of subsidiary
                          
                          
                          —
                          
                          
                          
                          (14,248
                          )Gain
      on disposition of equipment
                          
                          
                          (29,613
                          )
                          
                          
                          (3,054
                          )Interest
      expense from amortization of discounton
      convertible debentures
                          
                          
                          22,995
                          
                          
                          
                          74,505Changes
      in assets and liabilitiesAccounts
      and royalties receivable
                          
                          
                          31,582
                          
                          
                          
                          (13,962
                          )Other
      current assets
                          
                          
                          43,916
                          
                          
                          
                          (16,625
                          )Other
      assets
                          
                          
                          21,122
                          
                          
                          
                          13,681Accounts
      payable and accrued liabilities
                          
                          
                          233,881
                          
                          
                          
                          452,175Deferred
      income
                          
                          
                          (47,372
                          )
                          
                          
                          758,610Net
      cash used in operating activities
                          
                          
                          (570,607
                          )
                          
                          
                          (420,896
                          )Cash
      flows from investing activitiesCollection
      of principal on note receivable
                          
                          
                          15,436
                          
                          
                          
                          —Proceeds
      from sale of equipment
                          
                          
                          4,577
                          
                          
                          
                          29,485Net
      cash provided by investing activities
                          
                          
                          20,013
                          
                          
                          
                          29,485Cash
      flows from financing activitiesProceeds
      from issuance of convertible debentures
                          
                          
                          —
                          
                          
                          
                          350,000Proceeds
      from issuance of common stock, net
                          
                          
                          —
                          
                          
                          
                          450,000Proceeds
      from issuance of notes payable to related parties
                          
                          
                          55,000
                          
                          
                          
                          30,000Payments
      of notes payable to related parties
                          
                          
                          —
                          
                          
                          
                          (30,000
                          )Proceeds
      from the exercise of stock warrants
                          
                          
                          89,925
                          
                          
                          
                          —Preferred
      stock dividends paid
                          
                          
                          —
                          
                          
                          
                          (13,009
                          )Redemption
      of Series B convertible preferred stock
                          
                          
                          —
                          
                          
                          
                          (61,500
                          )Net
      cash provided by financing activities
                          
                          
                          144,925
                          
                          
                          
                          725,491Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          (405,669
                          )
                          
                          
                          334,080Cash
      and cash equivalents at beginning of year
                          
                          
                          411,691
                          
                          
                          
                          77,611Cash
      and cash equivalents at end of year
                          
                          $
                          6,022
                          
                          
                          $
                          411,691Supplemental
      Disclosures of Cash Flow Information:Cash
      paid for interest
                          
                          $
                          10,922
                          
                          
                          $
                          9,087Noncash
      Investing and Financing Activities:Issuance
      of common stock in payment of liability tostockholders
      and affiliates
                          
                          
                          202,081
                          
                          
                          
                          —Issuance
      of common stock for conversion of 7.75% debentures
                          
                          
                          47,919
                          
                          
                          
                          —Issuance
      of common stock for conversion of 4.75% debentures
                          
                          
                          825
                          
                          
                          
                          —Issuance
      of common stock for conversion of Series I preferred stock
                          
                          
                          646,600
                          
                          
                          
                          —Issuance
      of note receivable in connection with the sale of
equipment
                          
                          
                          34,665
                          
                          
                          
                          —Settlement
      of accrued expenses with common stock
                          
                          
                          —
                          
                          
                          
                          178,500Settlement
      of accounts payable with transfer of equipment
                          
                          
                          —
                          
                          
                          
                          24,572
  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, 2008 and 2007
 
 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.  (“Xenogenics”), is a 56.4%-owned subsidiary with a focus on the
research and development of Sybiol technology.  Xenogenics has not
generated any revenues as of November 30, 2008.  MultiCell holds
approximately 67% of the outstanding shares (on as as if converted basis) of
MCTI.  As used herein, the “Company” refers to MultiCell, together
with MCT, Xenogenics, and MCTI.
 
 Historically,
the Company has specialized in developing primary liver cell immortalization
technologies to produce cell-based assay systems for use in drug
discovery.  The Company seeks to become an integrated
biopharmaceutical company that will use its proprietary cell-based systems and
immune system modulation technologies to discover, develop and commercialize new
therapeutics itself and with strategic partners.  Following the
formation of MCTI during September 2005, the Company is pursuing research and
development of therapeutics in addition to continuing to advance its cellular
systems business.
 
 Basis of
Consolidation – The consolidated financial statements include the
accounts of MultiCell Technologies Inc. and its subsidiaries.  All
significant intercompany balances and transactions have been eliminated in
consolidation.  Non-controlling interests in consolidated subsidiaries
are recognized as minority interest.  Losses from consolidated
subsidiaries are allocated between the Company and the minority interest based
upon the percentages owed.  When losses applicable to the minority
interest in a consolidated subsidiary exceed the minority interest in the equity
capital of the subsidiary, such excess and any further losses applicable to the
minority interest are charged against the operations of the
Company.
 
 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 and royalties receivable, accounts payable, accrued
expenses, and notes payable to related parties approximate fair market value
because of the short maturity of those instruments.  The fair value of
convertible debentures was approximately $99,175 and $147,919 at November 30,
2008 and 2007, respectively.
 
 Credit
Risk – It is the Company’s practice to place its cash equivalents in high
quality money market securities with one major banking
institution.  Periodically, the Company maintains cash balances at
this institution 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 revenues have been generated primarily from license revenue under
agreements with Corning, Pfizer, and Eisai, as well as the sale of cells or
royalties on the license for the sale of cells through its sale and distribution
agreement with XenoTech, LLC.  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.
  F-7
 
 MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  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 –In
accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets”, the Company does not amortize intangible assets with indefinite
useful lives.  The Company amortizes identifiable intangible assets
over the estimated useful lives of the assets.  The Company performs
its annual intangible asset impairment tests during the fourth quarter of its
fiscal year and more frequently if an event or circumstance indicates that
impairment has occurred.  If the assets were considered to be
impaired, the impairment charge would be the amount by which the carrying value
of the assets exceeds the fair value of the assets.
 
 Impairment of
long-lived assets– The impairment of long-lived assets that do not have indefinite lives,
such as equipment, patents, and license agreements, is recognized when events or
changes in circumstances indicate that the undiscounted cash flows estimated to
be generated by such assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be
recoverable.  Impairment losses are then measured by comparing the
fair value of assets to their carrying amounts.  As of November 30,
2008, management tested the carrying value of its intangible assets for
impairment and concluded that they had been impaired.  The Company
recognized a charge of $1,061,365 to write off  the remaining carrying
value of the intangible assets in the year ended November 30,
2008.  (See Note 4).  As of November 30, 2007, management
tested the carrying value of the remaining intangible assets and concluded they
were not impaired.
 
 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.  Amounts received for research through grants are accounted
for as an offset to research and development expenses for the year.
 
 Income
Taxes – Deferred income taxes are provided for the estimated tax effects
of temporary differences between income for tax and financial reporting
purposes.  A valuation allowance is provided against deferred tax
assets, where realization is uncertain.
 
 Loss Per Common
Share – The Company computes basic and diluted loss per common share
amounts pursuant to Statement of Financial Accounting Standards No. 128, “Earnings Per
Share”.  Basic loss per common share is computed by dividing
the net loss applicable to common stockholders by the weighted average common
shares outstanding during each period.  Since the Company incurred
losses during the years ended 2008 and 2007, 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, 2008 and 2007 was 4,524,658,932
and 312,670,351, respectively.
 
 Use of
Estimates – The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets
and liabilities, at the dates of these financial statements, and the reported
amounts of revenues and expenses during the reporting periods.  Actual
results could differ from those estimates.
  F-8
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  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 pursuant to the
consensuses for EITF Issue No. 98-5 and EITF Issue No. 00-27.  Such
values are determined by first 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
debt discount, which is charged to interest expense over the term of the debt
instrument.  The intrinsic value of the beneficial conversion rights
at the commitment date is recorded as additional paid-in capital and debt
discount as of that date.
 
 Reclassifications–Certain
reclassifications have been made to the prior year financial statement
presentation to conform to the current year financial statement
presentation.  The reclassifications did not have any effect on
reported net losses for any period presented.
 
 Recently Enacted
Accounting Standards–In September 2006, the
Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements(SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. This statement was originally effective for financial
statements issued for fiscal years beginning after November 15,
2007.  In February 2008, the FASB issued FASB Staff Position (FSP FIN)
No. 157-2 which extended the effective date for certain nonfinancial assets and
nonfinancial liabilities to fiscal years beginning after November 15,
2008.  The Company adopted the effective portions of SFAS 157
effective December 1, 2007, which did not have a significant impact on the
Company’s consolidated financial statements.  The Company is currently
evaluating the impact of the remaining portions of SFAS 157 on its financial
statements and anticipates that the adoption of those portions of the statement
will not have a significant impact on the reporting of its financial position
and results of operations.
 
 In March
2007, the FASB issued FASB Staff Position EITF 07-03, Accounting for Nonrefundable Advance
Payments for Goods or Services to Be Used in Future Research and Development
Activities (FSP 07-03).  FSP 07-03 addresses whether
nonrefundable advance payments for goods or services that will be used or
rendered for research and development activities should be expensed when the
advance payment is made or when the research and development activity has been
performed.  FSP 07-03 will be effective for fiscal years beginning
after December 15, 2007, and interim periods within those fiscal
years.  The Company currently believes that the adoption of FSP 07-03
will have no material impact on its financial position or results of
operations.
  F-9
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)), which replaces SFAS 141, Business
Combinations.  SFAS 141(R) retains the underlying concepts of
SFAS 141 in that all business combinations are still required to be accounted
for at fair value under the acquisition method of accounting, but SFAS 141(R)
changed the method of applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as incurred;
noncontrolling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date; restructuring costs
associated with a business combination will generally be expensed subsequent to
the acquisition date; and changes in deferred tax asset valuation allowances and
income tax uncertainties after the acquisition date generally will affect income
tax expense. SFAS 141(R) is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the
first annual period subsequent to December 15, 2008, with the exception of
the accounting for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to
valuation allowances on deferred taxes and acquired tax contingencies associated
with acquisitions that closed prior to the effective date of SFAS 141(R) would
also apply the provisions of SFAS 141(R). Early adoption is not permitted. The
Company is currently evaluating the effects, if any, that SFAS 141(R) may have
on its financial statements.  The Company does not expect that it will
have any immediate effect on its financial statements, however, the revised
standard will govern the accounting for any future business combinations that
the Company may enter into.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51(SFAS
160).  This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008,
with earlier adoption prohibited. This statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. It also amends
certain of ARB No. 51’s consolidation procedures for consistency with the
requirements of SFAS 141(R).This statement also includes expanded disclosure requirements regarding
the interests of the parent and its noncontrolling interest. The Company is
currently evaluating this new statement and anticipates that the statement will
not have a significant impact on the reporting of its results of
operations.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement
No. 133, (SFAS No. 161), which requires companies to provide
additional disclosures about its objectives and strategies for using derivative
instruments, how the derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and related interpretations, and how
the derivative instruments and related hedged items affect the Company’s
financial statements. SFAS No. 161 also requires companies to disclose
information about credit risk-related contingent features in their hedged
positions. SFAS No. 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company does not currently believe
adoption will have a material impact on the Company’s financial position or
operating results.
 
 In May
2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles.  SFAS No. 162 identifies the sources of
accounting principles and provides entities with a framework for selecting the
principles used in preparation of financial statements that are presented in
conformity with GAAP.  The current GAAP hierarchy has been criticized
because it is directed to the auditor rather than the entity, it is complex, and
it ranks FASB Statements of Financial Accounting Concepts, which are subject to
the same level of due process as FASB Statements of Financial Accounting
Standards, below industry practices that are widely recognized as generally
accepted but that are not subject to due process.  The Board believes
the GAAP hierarchy should be directed to entities because it is the entity (not
its auditors) that is responsible for selecting accounting principles for
financial statements that are presented in conformity with GAAP.  The
adoption of FASB 162 is not expected to have a material impact on the Company’s
financial statements.
 
 In May
2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement(FSP APB 14-1) that changes the method of accounting for
convertible debt securities that require or permit settlement in cash either in
whole or in part upon conversion.  FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years.  Under FSP APB 14-1,
the debt and equity components of convertible debt securities that may be
settled in cash upon conversion will be bifurcated and accounted for separately
in a manner that will result in recognizing interest expense on these securities
at rates reflective of the entity’s borrowing rates for what the entity would
have incurred had it issued nonconvertible debt with otherwise similar terms.
The equity component of such convertible debt securities will be included in the
paid-in-capital section of stockholders’ equity on the consolidated balance
sheet and, accordingly, the initial carrying values of these debt securities
will be reduced.  Net loss for financial reporting purposes will be
increased by recognizing the accretion of the reduced carrying value of the
convertible debt securities to their face amounts as additional non-cash
interest expense.  The Company is currently evaluating the impact of
FSP APB 14-1 on its financial statements, but has not yet determined the effect
on its reporting of its consolidated financial position and results of
operations.
  F-10
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock (EITF
07-5).  EITF 07-5 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 on the impact
of foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The Company is currently
evaluating the impact of EITF 07-5 on its financial statements, if any, that
will occur upon the adoption of EITF 07-5.
 
 Note
2 - Going Concern
 
 These
condensed consolidated financial statements have been prepared assuming that the
Company will continue as a going concern.  As of November 30, 2008,
the Company has operating and liquidity concerns and, as a result of recurring
losses, has incurred an accumulated deficit of $38,628,039.  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.
 
 During
the past year 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, 2008, there are 9,917,500 shares remaining on the
stock purchase warrant and a balance of $99,175 remaining on the convertible
debenture. Should LJCI continue to exercise all of its remaining warrants,
approximately $10.8 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.
 
 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-11
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  Note
3– Property and Equipment
 
 Property
and equipment are recorded at cost, less accumulated depreciation, and is
comprised of the following:
 
 2008
                        
                        
                        2007Lab
      Equipment
                        
                        $
                        32,073
                        
                        
                        $
                        125,550Furniture
      and Office Equipment
                        
                        
                        40,574
                        
                        
                        
                        49,03572,647
                        
                        
                        
                        174,585Less:
      Accumulated depreciation
                        
                        
                        (57,146
                        )
                        
                        
                        (138,231
                        )Property
      and Equipment, Net
                        
                        $
                        15,501
                        
                        
                        $
                        36,354
 
 The
Company recorded depreciation expense of $11,223 and $44,783 for the years ended
November 30, 2008 and 2007, respectively.
 
 Note
4– Intangible Assets
 
 Intangible
assets consisted of patents, patent rights obtained under licensing agreements,
and patent application costs, and were amortized on a straight-line basis over
the estimated useful life which was 18 years.  As described in more
detail below, in its annual review for impairment for the year ended November
30, 2008, the Company made the determination that the carrying value of
intangible assets was probably in excess of estimated present value of future
cash flows from the related assets and that there were not probable future cash
flows from these assets.
 
 The
Company has reviewed its patent portfolio strategy related to its Toll-like
receptor 3 (TLR3) technology acquired in September 2005 when MultiCell acquired
the assets of Astral, Inc. This intellectual property is the subject of three
patent applications, and is related to the Company's lead drug candidate
MCT-465. The Company may decide to cease further prosecution of the subject
patent applications and terminate its development work related to MCT-465.
Accordingly, the Company has written down the value of the patent applications
directly related to MCT-465 and recognized an impairment loss during the quarter
ended November 30, 2008 in the amount of $1,061,365, leaving a carrying value of
zero at November 30, 2008.
 
 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
accrue 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 have been extended to June  2009.  The note in the
amount of $5,000 is due in May 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, 2008, 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.
  F-12
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  On
December 31, 2005, the Company entered into a worldwide Exclusive License
Agreement (the “License Agreement”) with Amarin Neuroscience Limited
(“Amarin”).  Among other things, the License Agreement provides that
Amarin shall grant to the Company and its affiliates an exclusive worldwide
license with respect to therapeutic or commercial uses of certain technology of
Amarin, including LAX-202 (to be renamed MCT-125), and the Company shall develop
and seek to commercialize products based on such technology.  The
initial technology to be developed is Amarin’s LAX-202, which is a potential
treatment for fatigue in patients diagnosed with multiple
sclerosis.  The agreement, which has a term equal to the life of the
patents licensed, required MultiCell to make an initial non-refundable payment
of $500,000 to Amarin in January 2006 in addition to a second non-refundable
payment of $500,000 in May 2006.  In addition, the parties shall have
a four-year mutual option to exclusively negotiate with the other with respect
to entering into a commercial agreement with respect to certain additional
patents owned by Amarin related to the technology licensed to the
Company.  MultiCell will pay to Amarin (a) a one-time license fee, (b)
milestone payments based on time, approval by the Food and Drug Administration
of any products developed under the License Agreement, and sales by MultiCell of
such products, and (c) royalty payments based on sales by MultiCell of any such
products.  Amarin shall retain ownership of all licensed patent rights
under the License Agreement.  The License Agreement further includes
customary provisions related to, among other things, indemnification, insurance,
maintenance of patent rights, confidentiality, and arbitration.  On
June 28, 2006, the Company entered into a letter agreement with Amarin amending
the timing of the second license payment to be made to Amarin as outlined in the
original License Agreement.  In that letter agreement, the parties
agreed to extend the deadline for the Company to make its second licensing
payment which was to be made in May 2006.  Under the terms of the
agreement, the original second payment due to Amarin will be split into three
payments.  The first payment of $100,000 was made on July 17, 2006,
the second payment was made on November 2, 2006, and the final payment for 2006
was made on December 13, 2006.  Since no income can be projected from
this license, the Company has recorded as a charge to research and development
of $700,000 during the year ended November 30, 2007.
 
 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 permits 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 has received the first two annual installments
of 13 million yen ($109,070 and $121,030, based on exchange rates in effect at
the time of payment, during the years ended November 30, 2007 and 2008,
respectively).  The Company is recognizing the income ratably over
each year of the agreement.  The Company has recognized income of
$119,085 and $63,948 for the years ended November 30, 2008 and 2007,
respectively.  The balance of deferred revenue from this license is
$47,067 and $45,122 at November 30, 2008 and 2007, respectively.  The
deferred revenue will be amortized into revenue through April 2009.
 
 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 and $7,353 in income
for the year ended November 30, 2008 and 2007, respectively.  The
balance of deferred revenue from this license is $698,529 and $742,647 at
November 30, 2008 and 2007, respectively, and will be amortized into revenue
through October 2024.
  F-13
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  The
Company has another license agreement with Pfizer, for which revenue is being
deferred.  During the years ended November 30, 2008 and 2007, the
Company recognized $5,200 in each year and the balance of the deferred revenue
from this license is $46,800 and $52,000 at November 30, 2008 and 2007,
respectively, and will be amortized into revenue through January
2018.
 
 On
December 1, 2005, the Company entered into a Research Agreement (the
“Agreement”) with the Trustees of Columbia University
(“Columbia”).  The Company was to provide financial support for the
research during the two year term of the Agreement in an aggregate amount of at
least approximately $310,000, subject to certain adjustments. The Company also
paid Columbia an additional $50,000 in consideration of Columbia’s grant to the
Company of an option to enter into an exclusive worldwide license for any
invention resulting from the research, subject to certain conditions.
During  2007, the Company terminated the Agreement with Columbia
University. As a result of the termination of the Agreement, the Company was no
longer liable for financial support and eliminated the amount accrued as an
offset to research and development charges during the year ended November 30,
2007.
 
 Note
7- Convertible Debentures
 
 On
February 28, 2007, the Company entered into a Debenture Purchase Agreement (the
“Debenture Purchase Agreement”) with La Jolla Cove Investors, Inc. (“LJCI”)
pursuant to which the Company sold a convertible debenture to LJCI in the
principal amount of $1,000,000 (receivable in four payments) maturing on
February 28, 2008 (the “Initial Debenture”).  The first payment of
$250,000 was received by the Company on March 7, 2007. The Initial Debenture
accrued interest at 7.75% per year, payable monthly in cash or common
stock.  Under the terms of this agreement, certain officers, director
and shareholders of the Company pledged 2,527,638 shares of common stock and
guaranteed the repayment of a $250,000 advance against the Initial Debenture. As
of November 30, 2007, LJCI had sold all of the pledged shares, received proceeds
of $202,081, and reduced the amount due on the advance to $47,919.  At
November 30, 2007, the proceeds from the sale of the pledged shares was recorded
as a liability in the amount of $202,081 to the stockholders and affiliates who
had pledged their stock as collateral on the Initial Debenture.  LJCI
notified the Company that it intended to convert the remaining balance into
shares of the Company’s common stock subject to the terms set forth in the
Debenture Purchase Agreement. During the year ended November 30, 2008, LJCI
converted the remaining $47,919 of the Initial Debenture into 4,710,250 shares
of common stock.
 
 The
Initial Debenture was convertible at the option of LJCI 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 the Company’s common stock during the twenty trading days immediately
preceding the conversion date. For the Initial Debenture, if the holders elected
to convert a portion of the debentures and, on the day that the election was
made, the volume weighted average price was below $0.16, the Company would have
the right to repay that portion of the debenture that the holder elected to
convert, plus any accrued and unpaid interest, at 150% of each amount. In the
event that the Company elected to repay that portion of the debenture, holder
would have the right to withdraw its conversion notice.
  F-14
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  Based on
the excess of the aggregate fair value of the common shares that would have been
issued if the $250,000 convertible debentures had been converted immediately
over the proceeds allocated to the convertible debentures, the investors
received a beneficial conversion feature for which the Company recorded an
increase in additional paid-in-capital of $62,500, which has been amortized into
interest expense over the term of the Initial Debenture through February 28,
2008.
  The
Company also 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 “Second
Debenture”).  The Second 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 Second Debenture were deposited on March
5, 2007. In connection with the Second 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 Second Debenture,
LJCI is required to simultaneously exercise and purchase that same percentage of
the warrant shares equal to the percentage of the dollar amount of the Second
Debenture being converted.  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
Second 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 Second
Debenture being converted multiplied by 110, minus the product of the Conversion
Price multiplied by 100 times the dollar amount of the Second 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, 2008, LJCI converted $825 of the Second Debenture into 19,384,509
shares of common stock.  Simultaneously with these conversions, LJCI
exercised warrants to purchase 82,500 shares of the Company’s common
stock.  Proceeds from the exercise of the warrants were
$89,925.  As of November 30, 2008, the remainder of the Second
Debenture in the amount of $99,175 could have been converted by LJCI into
approximately 4.5 billion shares of common stock, which would require LJCI to
simultaneously exercise and purchase all of the remaining 9,917,500 shares of
common stock under the LJCI Warrant at $1.09 per share.  For the
Second Debenture, upon receipt of a conversion notice from the holder, the
Company may elect to immediately redeem that portion of the debenture that
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 this debenture not yet converted by the holder into common stock, plus
accrued and unpaid interest thereon.
 
 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 Second 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 $65,000 and
$85,000 at November 30, 2008 and 2007, respectively.
  F-15
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  Pursuant
to the Registration Rights Agreement with LJCI dated February 28, 2007 (the
"Rights Agreement"), the Company agreed to register for resale under the
Securities Act of 1933, as amended, 12,000,000 shares of common stock issuable
upon conversion of the Initial Debenture, and to use commercially reasonable
best efforts to have the Registration Statement declared effective by May 29,
2007.  There is no guarantee that the SEC will declare the
Registration Statement effective. In the event that the Registration Statement
is not declared effective by the required dates, then LJCI may claim the Company
is in default on these agreements, and the Company may face certain liquidated
damages in addition to other rights that LJCI may have. As of November 30, 2008,
the Registration Statement had not been declared effective by the SEC and the
Company has not received notice of default from LJCI.
 
 The
liquidation damages of LJCI’s option include a decrease in the discount
multiplier used to calculate the conversion price of the debentures or an
acceleration of maturity. LJCI will not claim, and has not claimed these
damages, however, if the Company used commercially reasonable best efforts to
obtain effectiveness of this Registration Statement or changes in the
Commission's policies or interpretations make the Company unable to obtain
effectiveness of this Registration Statement.  The debentures required
the Company to register the shares of common stock into which the debentures
could be converted by the holder with the SEC. The Company was unable to obtain
SEC approval to register the subject shares, and consequently, the Company and
LJCI agreed to terminate the Debenture Purchase Agreement and to allow LJCI to
sell the common shares pledged as collateral under the Debenture Purchase
Agreement.
 
 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 has designated
17,000 shares as Series B convertible preferred stock.  The Series B
preferred stock does not have voting rights.  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.  Proceeds to the Company were
$1,660,000, net of $40,000 of issuance costs
 
 The
Series B convertible preferred stock is subject to redemption under certain
conditions.  Until the earlier of (a) two (2) years after the closing
date or (b) the date upon which all of the Series B shares have been converted
into common stock, the purchasers shall have a right of first refusal on any
financing in which the Company is the issuer of debt or equity
securities.  If (a) the Company raises debt or equity financing during
the right of first refusal period or (b) the Company’s common stock is trading
below the conversion price of the Series B shares at the time of such financing,
and (c) the purchasers do not exercise their right of first refusal, then the
Company shall, at the option of any purchaser, use 25% of the net proceeds from
such financing to redeem such purchasers’ shares of Series B preferred stock or
common stock, as determined by such purchaser.  Series B shares so
redeemed shall be redeemed at $100 per share, plus accrued and unpaid dividends
thereon, and shares of common stock so redeemed shall be redeemed at a price per
share equal to the value weighted average closing price of the Company’s Common
Stock over the immediately preceding five trading days, plus accrued and unpaid
dividends thereon.  In addition, if an event of default (as defined in
the agreement) occurs, the conversion price of the Series B shares (as set forth
below) shall be reduced to 85% of the then applicable conversion price of such
shares. The conversion price is also reduced as the result of the exercise of
warrants or other issuances of common stock at prices lower than the prior
conversion price. The new conversion price is determined by dividing the
proceeds received under that transaction by the prior conversion price, adding
the results to the number of shares outstanding prior to the transaction, and by
dividing that sum by the shares outstanding after the transaction multiplied by
the prior conversion price.
 
 The
Series B shares are only conditionally redeemable as described above and are
therefore not classified as a liability. However, redemption of the Series B
shares is not under the control of the Company; therefore, the Series B
preferred stock is classified outside of permanent equity.
  F-16
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  During
the fiscal year ended November 30, 2007 the Company drew proceeds from the
Company’s equity line of credit facility with Fusion Capital in the amount of
$450,000. The purchasers required the Company to use 25% of the gross proceeds
received by the Company under such equity line to repurchase and redeem
purchaser’s Series B shares or Series B preferred shares converted into common
stock, as determined in the discretion of such purchaser.  During the
year ended November 30, 2007, the Company redeemed 615 shares at $100 per share
for a total of $61,500.  During the year ended November 30, 2006, 123
shares were redeemed for a total of $12,300.
 
 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.  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 $0.2123 per share as of November
30, 2008.  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.
 
 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, as explained above. During the years ended
November 30, 2008 and 2007, the Company accrued preferred dividends in the
amounts of $149,203 and $151,548, respectively, on the Series B preferred
stock.  Total accrued preferred dividends on the Series B preferred
stock are $300,752 at November 30, 2008 and $151,548 at November 30, 2007, and
are reported as part of the carrying value of the Series B redeemable
convertible preferred stock in the accompanying balance sheet.
 
 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 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, 2008 and 2007
  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.  During the year
ended November 30, 2008, Series I preferred stockholders converted 6,466 shares
of preferred stock into 2,586,400 shares of the Company’s common
stock.
 
 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
January 31, 2008, the Company issued 2,527,638 shares of its common stock to the
stockholders and affiliates who had pledged their stock as collateral for the
Initial Debenture with La Jolla Cove Investors, Inc. (LJCI).  See Note
7 to these consolidated financial statements for further
discussion.  This issuance of common stock satisfied the liability in
the amount of $202,081 recorded during the year ended November 30, 2007 when
LJCI sold the pledged shares of common stock and applied the proceeds from the
sale against the balance of the Initial Debenture.
 
 During
the year ended November 30, 2008, the Company issued 5,247,807 shares of common
stock to a consultant in satisfaction of accounts payable for services performed
in the amount of $79,250, or an average of approximately $0.015 per
share.
 
 During
the year ended November 30, 2006, the Company entered into a common stock
purchase agreement with Fusion Capital.  Under the agreement, Fusion
Capital was obligated, under certain conditions, to purchase shares from the
Company up to an aggregate amount of $8 million from time to time over a 25
month period.  The Company authorized 8,000,000 shares of its common
stock for sale to Fusion Capital under the agreement.  The number of
shares ultimately offered for sale by Fusion Capital was dependent upon the
number of shares purchased by Fusion Capital under the agreement.  The
Company did not have the right to commence any sales of its shares to Fusion
Capital until the SEC has declared effective the registration
statement.  After the SEC has declared effective such registration
statement, generally the Company had the right but not the obligation from time
to time to sell its shares to Fusion Capital in amounts between $50,000 and $1
million depending on certain conditions.  The Company had the right to
control the timing and amount of any sales of its shares to Fusion
Capital.  The purchase price of the shares was determined based upon
the market price of the Company’s shares without any fixed
discount.  Fusion Capital did not have the right nor the obligation to
purchase any shares of the Company’s common stock on any business day that the
price of its common stock was below $0.20.  During the year ended
November 30, 2007, the Company issued 2,022,074 shares to Fusion Capital for a
value of $450,000.  The agreement was terminated by mutual agreement
on July 18, 2007.
 
 During
the year ended November 30, 2007, the Company issued 8,189,204 shares of common
stock to the members of the Board of Directors and to consultants for services
performed and in settlement of certain accrued expenses.  The total
value of the shares issued was $894,148, or an average of approximately $0.109
per share.
 
  F-18
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  The
potential issuable common shares as of November 30, 2008 and 2007 are as
follows:
 
 2008
                    
                    
                    2007Warrants
                    
                    
                    27,052,862
                    
                    
                    
                    35,440,946Stock
      options
                    
                    
                    2,000,000
                    
                    
                    
                    2,210,000Series
      B Redeemable Convertible Preferred Stock
                    
                    
                    7,659,915
                    
                    
                    
                    3,543,438Series
      I Convertible Preferred Stock
                    
                    
                    2,293,600
                    
                    
                    
                    4,880,000LJCI
      Second Debenture
                    
                    
                    4,485,652,555
                    
                    
                    
                    266,595,9674,524,658,932
                    
                    
                    
                    312,670,351
 
 The
Company does not currently have sufficient authorized shares of common stock to
meet the commitments entered into under the Second Debenture and the related
LJCI Warrants.  As further discussed in Note 7, upon the conversion of
any portion of the remaining $99,175 principal amount of the Second Debenture,
LJCI is required to simultaneously exercise and purchase that same percentage of
the remaining 9,917,500 warrant shares equal to the percentage of the dollar
amount of the Second 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 Second 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
February 15, 2000, the Company adopted a 2000 Stock Incentive Plan and a 2000
Employee Benefit Plan which authorizes the granting of shares and options to
employees, outside directors, consultants, and vendors.  The 2000
Stock Incentive Plan and 2000 Employee Benefit Plan were approved by
shareholders at the May 2000 annual meeting.  Under the Plans, awards
are made in the form of restricted shares or options, which may constitute
incentive stock options (“ISO”) or nonstatutory stock options
(“NSO”).  Only employees of the Company are eligible for the grant of
incentive stock options.
 
 2000 Stock Incentive
Plan.  The total number of options and restricted shares that
could have been awarded under the 2000 Stock Incentive Plan initially was
1,000,000.  As of the first day of each calendar year commencing
January 1, 2001, this total automatically increased by 2% of the total number of
common shares then outstanding or 100,000 shares, whichever was
less.  The option price, number of shares, grant date, and vesting
period are determined at the discretion of the Company’s Board of
Directors.  The exercise price of each ISO granted under the plan must
equal 100% of the market price of the Company’s stock on the date of
grant.  The exercise price of each NSO grant under the plan cannot be
less than 85% of the market price of the Company’s stock on the date of
grant.  An option’s maximum term is 10 years.  As of
November 30, 2004, the total number of options that were authorized for issuance
under the 2000 Stock Incentive Plan had increased from 1,000,000 shares to
1,400,000.  However, the Company has issued more options than were
authorized under the 2000 Stock Incentive Plan.  This was necessary to
provide an incentive to key employees to stay with the Company or one of its
subsidiaries.  The Company obtained stockholders’ approval for an
increase in the number of options authorized for issuance at its stockholders’
meeting.  There are no shares of common stock available for future
grants under this plan at November 30, 2008.
 
 2000 Employee Benefit
Plan.  On July 3, 2000, the Company filed an S-8 registration
statement (the “Registration Statement”) with the Securities and Exchange
Commission regarding its 2000 Employee Benefit Plan to register 7,000,000 shares
of the Company’s common stock issuable under the plan.  One or more
Performance Awards may be granted under the plan to any eligible person
providing services to or for the Company.  The value of such awards
may be linked to the market value, book value or other measure of the value of
the common stock or other specific performance criteria determined appropriate
by the Board of Directors or the Compensation Committee (the
“Committee”).  The Board or the Committee may approve stock payments
to eligible persons who elect to receive such payments in the manner determined
by the Board or the Committee.  The total number of shares that can be
awarded under the 2000 Employee Benefit Plan is 7,000,000.  There are
no shares of common stock available for future grants under this plan at
November 30, 2008.
  F-19
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  2004 Equity Incentive
Plan.  Effective June 16, 2004, the Company adopted an equity
incentive plan, which authorizes the granting of stock awards to employees,
directors, and consultants.  The purpose of the plan is to provide a
means by which eligible recipients of stock awards may be given the opportunity
to benefit from increases in the value of the common stock through granting of
incentive stock options, non-statutory stock options, stock purchase awards,
stock bonus awards, stock appreciation rights, stock unit awards and other stock
awards.  The shares of common stock may be issued pursuant to stock
awards shall not exceed in the aggregate 5,000,000 shares of common stock plus
an annual increase to be added of the first day of each Company fiscal year,
beginning in 2005 and ending in (and including) 2013, equal to the lesser of the
following amounts: (a) 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.  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.  There are 109,739 shares of common stock
available for future grants under this plan at November 30, 2008.
 
 The
Company accounts for stock options under Statement of Financial Accounting
Standards 123R (SFAS 123R). SFAS 123R requires the recognition of the cost of
employee services received in exchange for an award of equity instruments in the
financial statements and is measured based on the grant date fair value of the
award. SFAS 123R also 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-20
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  A summary
of the status of stock options at November 30, 2008 and 2007, 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, 2006
                                        
                                        
                                        2,860,000
                                        
                                        
                                        $
                                        1.16
                                        
                                        3.0
      years
                                        
                                        $
                                        —Granted
                                        
                                        
                                        350,000
                                        
                                        
                                        
                                        0.16Exercised
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Expired
                                        
                                        
                                        (1,000,000
                                        )
                                        
                                        
                                        0.94Outstanding
      at November 30, 2007
                                        
                                        
                                        2,210,000
                                        
                                        
                                        $
                                        1.09
                                        
                                        2.3
      years
                                        
                                        $
                                        —Granted
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Exercised
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Expired
                                        
                                        
                                        (210,000
                                        )
                                        
                                        
                                        0.51Outstanding
      at November 30, 2008
                                        
                                        
                                        2,000,000
                                        
                                        
                                        $
                                        1.16
                                        
                                        1.4
      years
                                        
                                        $
                                        —Exercisable
      at November 30, 2008
                                        
                                        
                                        1,861,944
                                        
                                        
                                        $
                                        1.24
                                        
                                        1.3
      years
                                        
                                        $
                                        —
 
 There
were no options granted during the year ended November 30, 2008.  For
grants during the year ended November 30, 2007, 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
73% to 146%; 0%; 1.58 to 5 years; and 3.26% to 4.96%;
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 value of options granted
during the year ended November 30, 2007 was $0.16.
 
 For the
years ended November 30, 2008 and 2007, the Company reported compensation
expense for services related to stock options and warrants of $26,949 and
$316,839, respectively.  As of November 30, 2008, there is no
unrecognized compensation cost related to stock options granted in the past that
will be recognized in the future.
 
 Note
12 – Warrants
 
 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.
 
 On
February 28, 2007, as consideration for consulting fees, the Company issued to
Capstone Investments a warrant to purchase 100,000 shares of the Company’s
common stock at an exercise price $0.2875 per share.  The warrant has
a term of five years and vested immediately.  The Company recorded a
charge of $20,285 to selling, general and administrative expense during the year
ended November 30, 2007, based on fair value of this warrant issued as
determined by Black-Scholes option pricing model.
  F-21
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  On
February 28, 2007, as more fully described in Note 7 to these consolidated
financial statements, as consideration for pledging 2,527,638 of the shares of
the Company’s common stock owned by certain officers, directors and major
stockholders, each pledgor received a stock purchase warrant equal to 110% of
the number of shares pledged, or a total of 2,780,401 warrants.  The
warrants have a term of five years and vested immediately.  The
Company recorded a charge of $354,358 to selling, general and administrative
expense during the year ended November 30, 2007, based on fair value of this
warrant issued as determined by Black-Sholes option pricing model.
 
 On
February 28, 2007, as consideration for consulting fees, the Company issued to
eight consultants warrants to purchase an aggregate of 400,000 shares of the
Company’s common stock at an exercise price $0.20 per share.  The
warrants have a term of ten years and vested immediately.  The Company
recorded a charge of $50,976 during the year ended November 30, 2007, based on
fair value of this warrant issued as determined by Black-Scholes option pricing
model.
 
 As more
fully discussed in Note 7 to these consolidated financial statements, LJCI
exercised warrants to purchase 82,500 shares of the Company’s common
stock.  Proceeds from the exercise of the warrants were
$89,925.
 
 A summary
of the status of warrants at November 30, 2008 and 2007, and changes during the
years then ended is presented in the following table:
 
 SharesUnderWarrantsOutstanding
      at November 30, 2006
                      
                      
                      23,160,545Granted
                      
                      
                      13,280,401Exercised
                      
                      
                      —Expired
                      
                      
                      (1,000,000
                      )Outstanding
      at November 30, 2007
                      
                      
                      35,440,946Granted
                      
                      
                      —Exercised
                      
                      
                      (82,500
                      )Expired
                      
                      
                      (8,305,584
                      )Outstanding
      at November 30, 2008
                      
                      
                      27,052,862
 
 Note
13 – Lease Commitment
 
 During
the years ended November 30, 2008 and 2007, the Company has leased facilities in
Rhode Island and in California that have housed activities related to
administration, research and development.  The Company’s lease in
California expired in August 2007 and was not renewed.  The Company
currently leases space in Rhode Island under a one-year lease that expires in
April 2009.  Current rent is $790 per month.
 
 Rent
expense under the Company’s operating leases was $12,671 and $187,453 for the
years ended November 30, 2008 and 2007, respectively.
  F-22
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  Note
14 – 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, 2008, the Company has U.S. Federal operating loss carryforwards of
approximately $23 million.  The operating losses expire, if not used,
from 2009 through 2028.  The Company had net deferred tax assets of
approximately $9.4 million and $8.6 million at November 30, 2008 and 2007
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.
 
 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, 2008 and 2007 is set forth below:
 
 2008
                    
                    
                    2007Benefit
      at federal statutory rate (34%)
                    
                    $
                    (712,278
                    )
                    
                    $
                    (1,078,697
                    )State
      income tax benefit, net of federal tax
                    
                    
                    (122,814
                    )
                    
                    
                    (148,080
                    )Tax
      effect of nondeductible permanent differences
                    
                    
                    9,301
                    
                    
                    
                    231,088Change
      in valuation allowance
                    
                    
                    825,791
                    
                    
                    
                    995,689Benefit
      from Income Taxes
                    
                    $
                    —
                    
                    
                    $
                    —
 
 Note
15 – Grant Income
 
 On June
22, 2006, The National Institutes of Health awarded a grant in the amount of
$210,000 to treat Type 1 Diabetes.  During the year ended November 30,
2007, the Company received $99,960 under this grant and has accounted for this
as an offset to research and development expenses for the year.
 
 Note
16– Contingent Liability
 
 On May
14, 2008, one of our stockholders, George Colin, filed a lawsuit against the
Company and W. Gerald Newmin in the Superior Court of California – City of
Orange, alleging causes of action for breach of written contract and intentional
misrepresentation.  The plaintiff seeks general damages to be
determined at trial, special and consequential damages according to proof, fees
and costs, plus interest.  The Company and Mr. Newmin believe this
claim is without merit and both parties intend to vigorously defend the
action.
  F-23
  MULTICELL
TECHNOLOGIES, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 For
the Years Ended November 30, 2008 and 2007
  Note
17– Subsequent Events
 
 Conversion of Debentures and
Exercise of Stock Warrants
 
 As
further described in Note 7 to these consolidated financial statements, the
Company is subject to a Securities Purchase Agreement with La Jolla Cove
Investors (LJCI) dated February 28, 2007 pursuant to which the Company agreed to
sell a convertible debenture in the original principal amount of
$100,000.  The debenture is convertible at the option of LJCI 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.  In connection with the 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.  Pursuant to the terms of the
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 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.
 
 During
the period subsequent to November 30, 2008 through March 9, 2009, LJCI converted
$2,340 of the debenture into 57,048,967 shares of common
stock.  Simultaneously with these conversions, LJCI exercised warrants
to purchase 234,000 shares of the Company’s common stock.  Proceeds
from the exercise of the warrants were $255,060.
  F-24