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EX-32.1 - MultiCell Technologies, Inc.v175714_ex32-1.htm
EX-23.1 - MultiCell Technologies, Inc.v175714_ex23-1.htm
EX-21.1 - MultiCell Technologies, Inc.v175714_ex21-1.htm
EX-31.1 - MultiCell Technologies, Inc.v175714_ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

x
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended November 30, 2009.

¨
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to ________

Commission File Number:  001-10221
   
MultiCell Technologies, Inc.
(Exact name of registrant as specified in its charter)
   
DELAWARE
(State or other jurisdiction of incorporation or organization)
52-1412493
(I.R.S. Employer Identification No.)
   
68 Cumberland Street, Suite 301,Woonsocket, RI 02895
(Address number of principal executive offices)  (Zip Code)
 
Registrant’s telephone number, including area code 401-762-0045
 
Securities registered under Section 12(b) of the Exchange Act:   None
   
Securities registered pursuant to Section 12(g) of the Act:
 Common Stock, $0.01 par value per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No x

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No o

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

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

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  As of May 31, 2009, the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the issuer was $2,804,259.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of February 25, 2010, the issuer had 327,423,214 shares of issued and outstanding common stock, par value $0.001.

DOCUMENTS INCORPORATED BY REFERENCE.  None.

 
 

 

MULTICELL TECHNOLOGIES, INC.

FORM 10-K

TABLE OF CONTENTS

   
PAGE
PART I
   
     
Item 1.
BUSINESS
4
Item 1A.
RISK FACTORS
11
Item 1B.
UNRESOLVED STAFF COMMENTS
23
Item 2.
PROPERTIES
23
Item 3.
LEGAL PROCEEDINGS
23
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
23
     
PART II
   
     
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
24
Item 6.
SELECTED FINANCIAL DATA
24
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
24
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
29
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
29
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
29
Item 9A(T).
CONTROLS AND PROCEDURES
30
Item 9B.
OTHER INFORMATION
31
     
PART III
   
     
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
32
Item 11.
EXECUTIVE COMPENSATION
36
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
39
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
41
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
42
     
PART IV
   
   
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
44
     
 
SIGNATURES
44
     
 
CONSOLIDATED FINANCIAL STATEMENTS
F1 – F22

 
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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.

 
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PART I

ITEM 1.  BUSINESS

About MultiCell Technologies, Inc.

MultiCell Technologies, Inc. was incorporated in Delaware on April 28, 1970 as Exten Ventures, Inc., and subsequently changed its name to Exten Industries, Inc. (“Exten”).  An agreement of merger between Exten and an entity then called MultiCell Associates, Inc. (“MTI”), was entered into on March 20, 2004 whereby MTI ceased to exist and all of its assets, property, rights and powers, as well as all debts due it, were transferred to and vested in Exten as the surviving corporation.  Effective April 1, 2004 Exten changed its name to MultiCell Technologies, Inc. (“MultiCell”).  MultiCell operates three subsidiaries, MCT Rhode Island Corp. (wholly owned), Xenogenics Corporation (“Xenogenics”) (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.
 
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),

 
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·
Our therapeutic antibody technology, Epitope-based T-cell Immunotherapy, can effectively deliver epitopes to the immune system, and can produce positive clinical outcomes in cases where tolerization is the targeted response,
·
Unlike DNA-based immunostimulatory CpG motifs or antisense and siRNA technologies, our use of dsRNA signaling thru TLR3 is not species or sequence-specific, and therefore has the potential to have application in a broader spectrum of therapeutic applications, and
·
Coupling TLR3 signaling with our therapeutic antibody technology allows for the delivery of disease-associated epitope peptides in concert with TLR3 signaling, creating more effective anticancer therapeutics.

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

·
MCT-125, a Phase IIb therapeutic candidate for the treatment of PMSF with demonstrated efficacy in 138 patients
·
MCT-465, a preclinical adjuvant therapeutic candidate for the treatment of TLR3+ cancers
·
MCT-475, a preclinical therapeutic candidate for the treatment of TLR3+ breast cancer
 
Multiple Sclerosis Therapeutic Program
 
Multiple Sclerosis, or MS, is an autoimmune disease in which immune cells attack and destroy the myelin sheath, which insulates neurons in the brain and spinal cord.  When the myelin is destroyed, nerve messages are sent more slowly and less efficiently.  Scar tissue then forms over the affected areas, disrupting nerve communication.  MS symptoms occur when the brain and spinal cord nerves cease to communicate properly with other parts of the body.

Approximately 350,000 individuals have been diagnosed with MS in the United States and more than one million persons worldwide are afflicted with MS.  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-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.

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

Stem Cells and Cancer

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

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

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

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

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

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.

 
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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; and
US Patent # 6,872,389 Liver Stem Cell expires on July 8, 2019.

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

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

Government Regulation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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.


 
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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:

 
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 2009, our Company spent $195,990 on research and development.  Research and development costs during fiscal year 2008 were $317,130.  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;

 
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·
Our employees’ skills and our ability to recruit and retain skilled employees;
 
·
Our cash flows under existing and potential future arrangements with licensees, partners and other parties; and
 
·
The availability of substantial capital resources to fund development and commercialization activities.

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

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

Employees

As of November 30, 2009, we had two employees, both of whom are full-time employees.

ITEM 1A.  RISK FACTORS
 
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, 2009, our accumulated deficit was $39,620,302.  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, 2009, relative to our ability to continue as a going concern.  Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Our ability to obtain additional funding will determine our ability to continue as a going concern.  Since March 2008, the Company has operated on working capital provided by La Jolla Cove Investors (“LJCI”). Under terms of the agreement, LJCI can convert a portion of the convertible debenture by simultaneously exercising a warrant at $1.09 per share. As of February 25, 2010 there are 8,281,959 shares remaining on the stock purchase warrant and a balance of $82,820 remaining on the convertible debenture. Should LJCI continue to exercise all of its remaining warrants approximately $9.0 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.

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We are subject to a variety of general business risks.

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

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

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

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

We also anticipate the need for additional financing in the future in order to fund continued research and development and to respond to competitive pressures.  We anticipate that our future cash requirements may be fulfilled by potential direct product sales, the sale of additional securities, debt financing and/or the sale or licensing of our technologies.  We cannot guarantee, however, that enough future funds will be generated from operations or from the aforementioned or other potential sources.  Although we raised gross proceeds of $1,510,240 and $144,925 during 2009 and 2008 from the exercise of stock warrants and the issuance of notes payable to related parties, 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.
 
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.

 
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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;

 
·
adequate supply of clinical trial material;

 
·
uncertain dosing issues;

 
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·
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;
 
 
·
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.

 
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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.
 
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;

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

Our future funding requirements will depend on many factors, including, but not limited to:
 
 
·
the rate of progress and cost of our clinical trials and other research and development activities;
 
 
·
the costs and timing of seeking and obtaining regulatory approvals;
 
 
·
the costs associated with establishing manufacturing and commercialization capabilities;
 
 
·
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
 
 
·
the costs of acquiring or investing in businesses, products and technologies;
 
 
·
the effect of competing technological and market developments; and
 
 
·
the payment and other terms and timing of any strategic alliance, licensing or other arrangements that we may establish.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings and strategic alliances.  We cannot be certain that additional funding will be available on acceptable terms, or at all.  If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or future commercialization initiatives.
 
We have limited capacity to carry out our own clinical trials in connection with the development of our drug candidates and potential drug candidates, and to the extent we elect to develop a drug candidate without a strategic partner we will need to expand our development capacity, and we will require additional funding.

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

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

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.

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

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

To the extent that we are not successful in commercializing any products or drugs ourselves or through a strategic alliance, our product revenues will suffer, we will incur significant additional losses and the price of our common stock will be negatively affected.
 
We have no manufacturing capacity and depend on our partners or contract manufacturers to produce our products and clinical trial drug supplies for each of our drug candidates and potential drug candidates, and anticipate continued reliance on contract manufacturers for the development and commercialization of our potential products and drugs.

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

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

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

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

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.

 
17

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

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

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

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

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

 
18

 

We will compete for market share against large pharmaceutical and biotechnology companies and smaller companies that are collaborating with larger pharmaceutical companies, new companies, academic institutions, government agencies and other public and private research organizations.  Many of these competitors, either alone or together with their partners, may develop new products and drug candidates that will compete with ours, as these competitors may, and in certain cases do, operate larger research and development programs or have substantially greater financial resources than we do.  Our competitors may also have significantly greater experience in:
 
 
·
developing products and drug candidates;
 
 
·
undertaking preclinical testing and clinical trials;
 
 
·
building relationships with key customers and opinion-leading physicians;
 
 
·
obtaining and maintaining FDA and other regulatory approvals;
 
 
·
formulating and manufacturing; and
 
 
·
launching, marketing and selling products and drugs.

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

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

Regulatory approval of an NDA or NDA supplement is never guaranteed, and the approval process typically takes several years and is extremely expensive.  The FDA also has substantial discretion in the drug approval process.  Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon clinical trials or to repeat or perform additional preclinical testing and clinical trials.  The number and focus of preclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate.  The FDA can delay, limit or deny approval of a drug candidate for many reasons, including:
 
 
·
a drug candidate may not be safe or effective;
 
 
·
FDA officials may not find the data from preclinical testing and clinical trials sufficient;
 
 
·
the FDA might not approve our or our contract manufacturer’s processes or facilities; or
 
 
·
the FDA may change its approval policies or adopt new regulations.
 
The use of immortalized hepatocytes for drug discovery purposes does not require FDA approval.
 
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.

 
19

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

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

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

Even if our drug candidates obtain regulatory approval, resulting drugs, if any, may not gain market acceptance among physicians, healthcare payors, patients and the medical community.  Even if the clinical safety and efficacy of drugs developed from our drug candidates are established for purposes of approval, physicians may elect not to recommend these drugs for a variety of reasons including, but not limited to:
 
 
·
timing of market introduction of competitive drugs;
 
 
·
clinical safety and efficacy of alternative drugs or treatments;
 
 
·
cost-effectiveness;
 
 
·
availability of reimbursement from health maintenance organizations and other third-party payors;
 
 
·
convenience and ease of administration;
 
 
·
prevalence and severity of adverse side effects;
 
 
·
other potential disadvantages relative to alternative treatment methods; and
 
 
·
insufficient marketing and distribution support.

If our drugs fail to achieve market acceptance, we may not be able to generate significant revenue and our business would suffer.
 
The coverage and reimbursement status of newly approved drugs is uncertain and failure to obtain adequate coverage and reimbursement could limit our ability to market any drugs we may develop and decrease our ability to generate revenue.

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

 
20

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

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

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

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

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

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

Risks Related To Our Common Stock
 
We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or above your investment price.

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

 
21

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

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

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

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

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.

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

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

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

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

ITEM 1B.  UNRESOLVED STAFF COMMENTS

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

ITEM 2.  PROPERTIES

On March 26, 2008, the Company negotiated a lease agreement at 68 Cumberland Street, Suite 301, Woonsocket RI  02895.  The lease was a one year lease commencing on May 1, 2008 through April 30, 2009.  The Company has renewed the lease through April 30, 2010.  The Company agreed to pay $900 per month. The Company expects to renew the lease when it expires on April 30, 2010.  The leased facilities are fully utilized and adequate for our current operations.

ITEM 3.  LEGAL PROCEEDINGS

On May 14, 2008, George Colin filed a lawsuit in Orange County Superior Court against the Company and W. Gerald Newmin alleging causes of action for breach of written contract and intentional misrepresentation.  In September  2009, the case was dismissed in its entirety with prejudice pursuant to a settlement agreement providing for a total payment of $105,000 to Mr. Colin, of which $100,000 was covered by insurance.

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.

 
23

 

PART II

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

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

The table below gives the range of high and low closing prices of our common stock for the fiscal years ended November 30, 2009 and November 30, 2008 based on information provided by the OTC Bulletin Board.

Fiscal Year Ended November 30, 2009
   
High
   
Low
 
First quarter
  $ .0539     $ .004  
Second quarter
  $ .0175     $ .009  
Third quarter
  $ .034     $ .007  
Fourth quarter
  $ .027     $ .013  

Fiscal Year Ended November 30, 2008
   
High
   
Low
 
First quarter
  $ .050     $ .025  
Second quarter
  $ .027     $ .006  
Third quarter
  $ .011     $ .004  
Fourth quarter
  $ .020     $ .002  

No cash dividends have been paid on our common stock for the 2009 and 2008 fiscal years and no change of this policy is under consideration by the Board of Directors.

The payment of cash dividends in the future will be determined by the Board of Directors in light of conditions then existing, including our Company's earnings, financial requirements, and opportunities for reinvesting earnings, business conditions, and other factors.  There are otherwise no restrictions on the payment of dividends.  The number of shareholders of record of our Company's Common Stock on February 24, 2010 was approximately 339, not including any persons who hold their stock in “street name”.

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

ITEM 6.  SELECTED FINANCIAL DATA

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

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

The Management’s Discussion and Analysis for the years ended November 30, 2009 and 2008 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.

 
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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 BioFactories™ technology, to identify drug targets and for other applications related to the Company’s internal drug development programs.
 
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, 2009 and 2008, research and development costs were $195,990 and $317,130, 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.

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-K, the Company's revenues have been generated primarily from license revenue under agreements with Corning, Pfizer, and Eisai.  Management believes such sources of revenue will be part of the Company's ongoing operations.  The Company recognizes revenue from licensing and research agreements as services are performed, provided a contractual arrangement exists, the contract price is fixed or determinable and the collection of the contractual amounts is reasonably assured.  In situations where the Company receives payment in advance of the performance of services, such amounts are deferred and recognized as revenue as the related services are performed.  Deferred revenues associated with services expected to be performed within the 12 - month period subsequent to the balance sheet date are classified as a current liability.  Deferred revenues associated with services expected to be performed at a later date are classified as non-current liabilities.

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

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

 
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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, 2009 compared to Year Ended November 30, 2008

Revenue. Total revenue for the year ended November 30, 2009 was $174,240, as compared to revenue of $209,835 for the same period in the prior fiscal year, a decrease of $35,595.  For the year ended November 30, 2009, revenue consisted of license revenue totaling $174,240 under agreements with Corning, Pfizer, and Eisai.  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.

Operating Expenses. Total operating expenses for the year ended November 30, 2009 were $988,969, as compared to operating expenses of $2,300,818 for the year ended November 30, 2008, representing a decrease of $1,311,849 as compared to the prior fiscal year.  This decrease principally represents the net effect of the following changes between 2009 and 2008:  1) the reduction in 2009 of director fees by approximately $150,000 resulting from the change in the compensation arrangement with directors; 2) a reduction in amortization of intangibles of approximately $70,000 due to the write off of intangible assets at November 30, 2008; 3) a reduction in the expense for director and officer insurance of approximately $40,000; and 4) the write-down of intangible assets due to impairment in value in 2008 in the approximate amount of $1,060,000.  At November 30, 2008, the Company 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 wrote down the value of the patent applications directly related to MCT-465 carried on its balance sheet at November 30, 2008.

Other income/(expense). The total of other expense, net of other income, increased from $3,953 for the year ended November 30, 2008 to $29,143 for the year ended November 30, 2009, representing an increase of $25,190.  The principal cause of the increase is that in the prior year there was a gain on the disposition of equipment of $29,613 compared to a loss on disposal of $412 in 2009.

Net Loss. Net loss for the year ended November 30, 2009 was $843,872, as compared to a net loss of $2,094,936 for the year ended November 30, 2008, representing a decrease in the net loss of $1,251,064 (60%).  The primary reasons for the decrease are the reductions in operating expenses as described above.

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, 2009 and 2008, the Company paid and/or accrued preferred dividends in the amount of $148,391 and $149,203, respectively.

 
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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, 2009 and November 30, 2008:
 
   
November 30, 2009
   
November 30, 2008
 
Cash and cash equivalents
  $ 396,554     $ 6,022  
                 
Current assets
  $ 402,996     $ 38,876  
Current liabilities
    (1,426,348 )     (1,825,606 )
                 
Working capital deficiency
  $ (1,023,352 )   $ (1,786,730 )
 
The Company will have to raise additional capital in order to initiate Phase IIb clinical trials for MCT-125, the Company’s therapeutic product for the treatment of fatigue in multiple sclerosis patients.  Management is evaluating several sources of financing for its clinical trial program.  Additionally, with our strategic shift in focus to therapeutic programs and technologies, we expect our future cash requirements to increase significantly as we advance our therapeutic programs into clinical trials. Until we are successful in raising additional funds, we may have to prioritize our therapeutic programs and delays may be necessary in some of our development programs.

Commencing is about March 2008, the Company has operated on working capital provided by LJCI in connection with its exercise of warrants issued to it by the Company (which LJCI must exercise whenever it wants to convert amounts owning under the convertible debenture it holds), all as discussed in more detail below.  The warrants are exercisable at $1.09 per share.  As of February 25, 2010 there were 8,281,959 shares remaining on the stock purchase warrant.  Should LJCI continue to exercise all of its remaining warrants approximately $9.0 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.  The Company expects that LJCI will continue to exercise the warrants and convert the debenture over the next year, but cannot assure that LJCI will do so. We are investigating the possible sale or license of certain assets that we did not already license to Corning in October 2007.  We are presently pursuing discussions with companies operating in the stem cell research market and the general life science research market.

On July 14, 2006, the Company completed a private placement of Series B convertible preferred stock.  A total of 17,000 Series B shares were sold to accredited investors at a price of $100 per share.  The Series B shares are convertible at any time into common stock at a conversion price determined by dividing the purchase price per share of $100 by $0.32 per share (the “Conversion Price”).  The Conversion Price is subject to equitable adjustment in the event of any stock splits, stock dividends, recapitalizations and the like.  In addition, the Conversion Price is subject to weighted average anti-dilution adjustments in the event the Company sells common stock or other securities convertible into or exercisable for common stock at a per share price, exercise price or conversion price lower than the Conversion Price then in effect in any transaction (other than in connection with an acquisition of the securities, assets or business of another company, joint venture and employee stock options).  The conversion of the Series B preferred stock is limited for each investor to 9.99% of the Company’s common stock outstanding on the date of conversion.  The Series B preferred stock does not have voting rights.  Commencing on the date of issuance of the Series B preferred stock until the date a registration statement registering the common shares underlying the preferred stock and warrants issued was declared effective by the SEC, the Company paid on each outstanding share of Series B preferred stock a preferential cumulative dividend at an annual rate equal to the product of multiplying $100 per share by the higher of (a) the Wall Street Journal Prime Rate plus 1%, or (b) 9%.  In no event 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. 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.

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

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

 
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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, 2009, 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.
 
Cash provided by (used in) operating, investing and financing activities for the years ended November 30, 2009 and November 30, 2008 is as follows:
 
   
November 30, 2009
   
November 30, 2008
 
Operating activities
  $ (1,112,064 )   $ (570,607 )
Investing activities
    17,356       20,013  
Financing activities
    1,485,240       144,925  
Net increase (decrease) in cash and cash equivalents
  $ 390,532     $ (405,669 )
 
Operating Activities

For the year ended November 30, 2009, the most significant differences between our net loss and our net cash used in operating activities are due to changes in working capital, which included a decrease in accounts payable and accrued liabilities of $285,704.  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.

Investing Activities

Net cash provided by investing activities in 2009 was related to the collections of principal on a note receivable.  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.

 
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Financing Activities

During the year ended November 30, 2009, LJCI converted $13,855 of the 4.75% Convertible Debenture into common stock and exercised warrants to purchase 1,385,541 shares of common stock at a price of $1.09 per share.  Additionally, we repaid short-term notes payable to two related parties in the amount of $25,000.  The remaining $30,000 of the short-term notes payable to related parties was repaid subsequent to November 30, 2009.  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.

Through November 30, 2009, a significant portion of our financing has been provided through private placements of preferred and common stock, the exercise of stock options and warrants and issuance of convertible debentures.  We have in the past increased, and if funding permits plan to increase further, our operating expenses in order to fund higher levels of product development, undertake and complete the regulatory approval process, and increase our administrative resources in anticipation of future growth.  In addition, acquisitions such as MCTI increase operating expenses and therefore negatively impact, in the short term, the liquidity position of the Company.

Commencing in March 2008, the Company has operated on working capital provided by LJCI. Under terms of the agreement LJCI can convert a portion of the convertible debenture by simultaneously exercising a warrant at $1.09 per share. As of February 25, 2010, there are 8,281,959 shares remaining on the stock purchase warrant and a balance of $82,820 remaining on the convertible debenture. Should LJCI continue to exercise all of its remaining warrants approximately $9.0 million of cash would be provided to the Company. The agreement limits LJCI’s investment to an aggregate ownership that does not exceed 9.99% of the outstanding shares of the Company. The Company expects that LJCI will continue to exercise the warrants and convert the debenture over the next year. We anticipate that our future cash requirements may be fulfilled by potential direct product sales, the sale of additional equity securities, debt financing and/or the sale or licensing of our technologies.  We also anticipate the need for additional financing in the future in order to fund continued research and development and to respond to competitive pressures.  We cannot guarantee, however, that enough future funds will be generated from operations or from the aforementioned or other potential sources.  If adequate funds are not available or are not available on acceptable terms, we may be unable to fund expansion, develop new or enhance existing products and services or respond to competitive pressures, any of which could have a material adverse effect on our business, results of operations and financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The full text of the Company's audited consolidated financial statements for the fiscal years ended November 30, 2009 and 2008 begins on page F-1 of this Annual Report.

ITEM 9.  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.

 
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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 9A(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, 2009 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.

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 and 2009, 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.

 
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Due to this material weakness, management has concluded that our internal control over financial reporting was not effective as of November 30, 2008 and 2009.

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, 2009 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

Item 9B. OTHER INFORMATION

None.

 
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PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
 
The Directors and Executive Officers of the Company

Our executive officers, key employees and directors are listed in the below table. There are no family relationships among any of our executive officers, key employees and directors.
Name
  
Age
  
Position
  
Director since the
below date (1)
W. Gerald Newmin
  
72
  
Chairman, Acting Chief Executive Officer, Chief Financial Officer, Secretary and Director
  
December 1, 1995(3)
Stephen Chang
  
53
  
Director
  
June 16, 2004(2)
Edward Sigmond
  
48
  
Director
  
May 17, 2000
Thomas A. Page
  
75
  
Director
  
September 11, 2003
Anthony E. Altig
  
52
  
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” Newmin joined the Company as a director in June 1995.  He currently serves as the Chairman, Chief Executive Officer, President, Chief Financial Officer and Secretary.  Mr. Newmin served as Chief Executive Officer of the Company from June 1995 to May 2006, and was appointed to serve again as Chief Executive Officer on December 21, 2007.  Mr. Newmin is Chairman, Chief Executive Officer, Secretary and a director of Xenogenics, a partially-owned subsidiary, Chairman, Chief Executive Officer, Secretary and director of MCT Rhode Island Corp, a wholly-owned subsidiary of the Company and Chief Executive Officer, Secretary and a director of MCTI, a partially-owned subsidiary of the Company. He has managed NYSE and American Stock Exchange Fortune 500 companies. He has been President of HealthAmerica Corporation, then the nation’s largest publicly held HMO management company. He was Chief Executive Officer and President of The International Silver Company, a diversified multi-national manufacturing company that he restructured. He was Chief Operating Officer of numerous Whittaker Corporation operating units, including Production Steel Company, Whittaker Textiles, Bertram Yacht, Trojan Yacht, Columbia Yacht, Narmco Materials and Anson Automotive. He was instrumental in Whittaker’s entry into the US and international health care markets. He was Western Regional Vice President of American Medicorp, Inc, where he managed 23 acute care hospitals in the Western United States. He retired as Chairman and Chief Executive Officer of SYS Technologies, Inc., a high-growth defense technology company in 2003.  Mr. Newmin has a Bachelor’s degree in Accounting from Michigan State University.

Stephen Chang, Ph.D. has served as a director of the Company since June 2004, became President of the Company in February 2005, and became Chief Executive Officer in May 2006.  Dr. Chang resigned as Chief Executive Officer and President on December 21, 2007.  On December 21, 2007, Dr. Chang also resigned as President and CEO of MultiCell Immunotherapeutics, Inc., a subsidiary of the Company.  Dr. Chang is presently Chief Scientific Officer and Founder of Stemgent, 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 was chief science officer and vice president of Canji Inc./Schering Plough Research Institute in San Diego from 1998 to 2004.  Dr. Chang earned his doctoral degree in Biological Chemistry, Molecular Biology and Biochemistry from the University of California, Irvine.  Prior to that he received a bachelor of science in Zoology, Microbiology, and Cell and Molecular Biology from the University of Michigan and a USPHS Postdoctoral Fellowship at the Baylor College of Medicine

Edward 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.

 
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Thomas A. Page has served as a director of the Company since September 2003.  Mr. Page is Director Emeritus and former Chairman of the Board and CEO of Enova Corporation and San Diego Gas and Electric Company (now part of Sempra Energy).  Prior to the formation of Sempra Energy Corporation as a holding company in 1996, at various times Mr. Page was SDG&E’s chairman, president and CEO and  held one or more of these positions until his retirement in 1998.  Mr. Page joined SDG&E in 1978 as executive vice president and COO.  In 1981, he was elected president and CEO and added the chairmanship in 1983.  Mr. Page has been active in numerous industrial, community and governmental associations and has funded medical research.  He is a director of the Coronado First Bank, 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.

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

CORPORATE GOVERNANCE

General

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

Board of Directors Meetings and Attendance

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

We have no formal policy regarding director attendance at the annual meeting of stockholders. The Board of Directors held six meetings in 2009, five of which were telephonic. All five board members were present, either by person or on the telephone in the case of the telephonic meetings, at all six meetings except for Mr. Chang, Mr. Page and Mr. Sigmond who each missed one meeting.

Board Committees

Our Board of Directors has established an Audit Committee and a Nominating, Corporate Governance and Compensation Committee. The members of each committee are appointed by our Board of Directors, upon recommendation of the Nominating Committee, and serve one-year terms. Each of these committees operates under a charter that has been approved by the Board of Directors. The charter for each committee is available on our website. The Audit Committee met five times during 2009. The Nominating, Corporate Governance and Compensation Committee met two times during 2009.

Audit Committee

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

 
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The Board of Directors annually reviews the NASDAQ listing standards definition of independence for Audit Committee members and has determined that all members of the Company’s Audit Committee are independent (as independence is currently defined in Rule 10A-3 of the Exchange Act of 1934). The Board of Directors has determined that Anthony Altig and Thomas Page each qualify as “audit committee financial experts”, as defined in applicable SEC rules.  The Board made a qualitative assessment of Anthony Altig’s and Thomas Page’s level of knowledge and experience based on a number of factors, including their formal education and experience as financial experts and their prior experience as certified public accountants.  The Audit Committee met five times during the fiscal year ended November 30, 2009.

Nominating, Corporate Governance and Compensation Committee

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

The Nominating, Corporate Governance and Compensation Committee responsibilities include:

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

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

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

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

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

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

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

 
·
Administers the stock incentive plans.

The members of the Nominating, Corporate Governance and Committee are Edward Sigmond, Chairman, Anthony Altig and Thomas Page. The Committee met two times during the fiscal year ended November 30, 2009.

 
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Director Candidates

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

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

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

 
·
Demonstrated financial and business expertise and experience,

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

 
·
Actual or potential conflicts of interest, and

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

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

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

Communicating with the Directors

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

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

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

 
35

 
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.com under "Investor Relations—Leadership & Governance." We intend to post on our website all disclosures that are required by applicable law, the rules of the Securities and Exchange Commission or OTCBB listing standards concerning any amendment to, or waiver from, our code of business conduct and ethics.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview of Executive Compensation Objectives and Philosophy

Our executive compensation plan’s objectives are to attract and retain highly competent executives and to compensate them based upon a pay-for-performance philosophy.  With the intent to increase short-term and long-term stockholder value, we have designed our executive compensation plan to reward:
 
 
·
Individual performance as measured against personal goals and objectives that contain quantitative components wherever possible; such personal goals depend on the position occupied by our executive officers and can include achieving technological advances, broadening of our products and services offerings, or building a strong team; and
 
 
·
Demonstration of leadership, team building skills and high ethical standards.  We design our overall compensation to align the long-term interests of our executives with those of our stockholders.  Our compensation plan is designed to encourage success of our executives as a team, rather than only as individual contributors, by attaining overall corporate success.

Elements of Executive Compensation

Executive compensation consists of the following elements:
 
 
·
Base salary; and
 
 
·
Long-Term Incentives.
 
Base Salary.  The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account his or her scope of responsibilities, qualifications, experience, prior salary and competitive salary information within our industry.  Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of her or his sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on the company’s business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace. Generally, we believe that executive base salaries should be targeted near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable companies.
 
Long-Term Incentive Program.  Our long-term incentives consist of stock option awards.  The objective of these awards is to align the longer-term interests of our stockholders and our executive officers and to complement incentives tied to annual performance.  We have historically elected to use stock options as our primary long-term equity incentive vehicle.  We have not adopted stock ownership guidelines.
 
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.

 
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The base salaries we paid to our executives in 2009 and 2008 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.
 
Summary Compensation Table

Name and Principal Position(1)
 
Year
 
Salary
($)
   
Option
Awards
($)
   
All Other
Compensation($) (4)
   
Total
($)
 
W. Gerald Newmin, (2)
 
2009
  $ 180,000     $ 11,000
(6)
  $ 2,250
(5)
  $ 193,250  
Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Treasurer, Secretary and Director
 
2008
  $ 180,000
(3)
  $ 0     $ 30,000
(4)
  $ 210,000  

(1) During fiscal years ended November 30 2008 and 2009, the listed person was the only Principal Executive Officer of the Company and the only person that earned more than $100,000 during either of such fiscal years.

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

(3) Of Mr. Newmin’s salary for the year ended November 30, 2008, $108,681 was unpaid at November 30, 2008, was included in accrued expenses at November 30, 2008, and was paid during the year ended November 30, 2009.

(4) This amount represents fees earned in consideration for attending meetings of our Board of Directors during fiscal year 2008.  Mr. Newmin earned $3,000 for each meeting of the Board of Directors attended during fiscal year 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.  All of Mr. Newmin’s director fees for the year ended November 30, 2008 was included in accrued expenses at November 30, 2008.  During the year ended November 30, 2009, the Company settled all of Mr. Newmin’s unpaid director fees from prior years ($39,000) through 1) the payment of cash in the amount of $6,824, 2) the issuance of 667,105 shares of common stock, and 3) the grant of options to acquire 333,553 shares of common stock at an exercise price of $0.019 per share.

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

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

 
37

 

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

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

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table shows for the fiscal year ended November 30, 2009, certain information regarding options granted to, exercised by, and held at year-end by, the Named Executive Officers:
 
   
Option Awards
 
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   
Option
Exercise
Price ($)
 
Option
Expiration
Date
 
Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)
   
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested ($)
   
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (#)
   
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)
 
W. Gerald Newmin
    250,000       750,000       0     $ 0.011  
6/25/14
    0       0       0       0  
W. Gerald Newmin
    333,553       0       0     $ 0.019  
9/23/14
    0       0       0       0  
 
NON-EMPLOYEE DIRECTOR COMPENSATION

The following table details the total compensation of our non-employee directors for the year ended November 30, 2009.

Name
 
Fees Earned or
Paid in Cash ($) (1)
   
Stock Awards ($)
   
Option Awards 
($) (2)
   
Total ($)
 
                         
Anthony F. Altig
  $ 5,250     $ 0     $ 11,000     $ 16,250  
                                 
Stephen Chang
  $ 2,000     $ 0     $ 11,000     $ 13,000  
                                 
Thomas A.  Page
  $ 3,750     $ 0     $ 11,000     $ 14,750  
                                 
Edward Sigmond
  $ 3,500     $ 0     $ 11,000     $ 14,500  

(1)  For director fees earned in fiscal year 2009, the Company has the option to pay one half of such fees in cash and the other half of such fees in capital stock of the Company or may pay such fees entirely in cash.

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

Director Compensation Arrangements

Effective December 1, 2008, the Board of Directors changed the director compensation plan.  Under the revised plan, each director of the Company earns fees of $1,000 for each board meeting attended and $250 for each teleconference of the board.  The Chairman of the Audit Committee and the Chairman of the Nominating, Corporate Governance and Compensation Committee earn $500 for each Committee meeting, whether attended in person or by teleconference.  Each member of the Nominating, Corporate Governance and Compensation Committee and each member of the Audit Committee earns $250 per Committee meeting, whether  attended in person or by teleconference.  The members of the Board of Directors are also eligible for reimbursement for their expenses incurred in attending Board meetings in accordance with Company policy.

 
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Each director of the Company was also granted an option on June 25, 2009 to purchase 1,000,000 shares of the Company’s common stock.  The options have an exercise price of $0.011, vest quarterly over one year from the grant date, and expire five years after the grant date.  The options granted are pursuant to our 2004 Equity Incentive Plan.  None of the options granted are incentive stock options, as defined in the Internal Revenue Code.

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

Beneficial Ownership of Directors, Officers and 5% Stockholders

The following table sets forth, as of February 25, 2010, 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
Owned
 
Monarch Pointe Fund, Ltd. (3)
    18,985,228       5.49 %     13,625       61.9 %
La Jolla Cove Investors, Inc. (4)
    36,339,939       9.99 %            
Asset Managers International, Ltd. (5)
    12,101,819       3.59 %     4,923       22.38 %
W. Gerald Newmin (6)(11)
    8,350,911       2.53 %            
Thomas A. Page (7)(11)
    3,468,410       1.05 %            
Stephen Chang, Ph.D. (8) (11)
    2,358,812       *              
Edward Sigmond (9)(11)
    2,780,446       *              
Anthony Altig (10)(11)
    4,180,139       1.27 %            
All executive officers and directors as a group (five persons)
    21,138,718       6.28 %            

*
Represents less than 1% of the issued and outstanding shares of the applicable class of equity securities of the Company as of February 25, 2010.

(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 327,423,214 shares of common stock and 21,996 shares of preferred stock outstanding on February 25, 2010 (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”), (ii) 5,096,203 shares of common stock issuable to MPF upon the exercise of warrants within 60 days of February 25, 2010, (iii) 2,293,600 shares of common stock issuable to MPF upon conversion of 5,734 shares of Series I Preferred Stock and (iv) 11,098,453 shares of common stock issuable to MPF upon conversion of 7,891 shares of Series B Preferred Stock. According to a Schedule 13G/A filed with the SEC by MPF on January 14, 2009, MPF is in liquidation, William Tacon serves as the liquidator of MPF and, as such, now has control over the securities owned by MPF. 

 
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(4)
Represents the maximum possible amount of shares of our commons stock (i) held by LJCI, (ii) issuable to LJCI upon the exercise of a common stock warrant it holds, and (iii) issuable to LJCI upon the conversion of a 4.75% convertible debenture its holds, all as of February 25, 2010.  Pursuant to the terms of the warrant and convertible debenture, LJCI may not acquire shares of our commons stock to the extent such acquisition would cause LJCI to own more than 9.99% of our outstanding common stock immediately after such acquisition.  Provided the aforementioned 9.99% cap is complied with, LJCI may in the future exercise or convert into, as applicable, a significant amount of additional shares of our common stock (e.g. as of February 25, 2010, there are a total of 8,281,959 shares remaining on the stock purchase warrant and a balance of $82,820 remaining on the convertible debenture, which is convertible pursuant to the formula set forth in the debentures listed in the Exhibits section of this report).

(5)
Includes (i) 666,666 shares of common stock held by Asset Managers International, Ltd. (“AMI”), (ii) 3,177,769 shares of common stock issuable to AMI upon the exercise of warrants within 60 days of February 25, 2010, (iii) 6,924,051 shares of common stock issuable to AMI upon conversion of 4,923 shares of Series B Preferred Stock, and (iv) 1,333,333 shares of common stock held by Pentagon Bernini Fund (“PBF”).  According to a schedule 13 G/A filed with the SEC by AMI on February 7, 2007, AMI is wholly-owned by several feeder funds, Cape Investment Advisors, Ltd. owns the only voting stock in AMI, and Pentagon Capital Management Plc. (“PCM”) controls the investments of AMI.  The Company has been advised that PCM is an affiliate of PBF and/or AMI.

(6)
Includes (i) 5,363,997 shares of common stock, (ii) 1,287,065 shares of common stock issuable to Mr. Newmin upon the exercise of warrants within 60 days of February 25, 2010, (iii)  1,083,553 shares of common stock issuable to Mr. Newmin under options exercisable within 60 days of February 25, 2010, (iv) 396,296 shares of common stock owned by Mr. Newmin’s spouse, and (v) warrants to purchase 220,000 shares of common stock issuable upon exercise of warrants owned by Mr. Newmin’s spouse.  Mr. Newmin disclaims beneficial ownership of the aforementioned stock beneficially owned by Mr. Newmin’s spouse, except to the extent of his pecuniary interest therein.

(7)
Includes (i) 1,635,676 shares of common stock, (ii) 525,903 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 25, 2010, and (iii) 1,305,921 shares of common stock issuable under options exercisable within 60 days of February 25, 2010.

(8)
Includes (i) 988,163 shares of common stock, (ii) 364,071 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 25, 2010 and (iii) 1,006,578 shares of common stock issuable under options exercisable within 60 days of February 25, 2010.

(9)
Includes (i) 1,560,974 shares of common stock, (ii) 161,577 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 25, 2010 and (iii) 1,057,895 shares of common stock issuable under options exercisable within 60 days of February 25, 2010.

(10)
Includes (i) 2,232,209 shares of common stock, (ii) 172,930 shares of common stock issuable upon the exercise of common stock warrants within 60 days of February 25, 2010 and (iii) 1,775,000 shares of common stock issuable under options exercisable within 60 days of February 25, 2010.

(11)
Does not include any shares issuable in connection with unpaid director’s fees earned by the reporting person as of February 25, 2010.

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes the securities authorized for issuance under equity compensation plans as of November 30, 2009.

   
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
   
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
   
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
 
                   
Equity compensation plans approved by shareholders (1)
    9,338,947     $ 0.19       10,485,266  
Equity compensation plans not approved by shareholders (2)
    1,150,000     $ 0.48          
      10,488,947     $ 0.23          

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

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

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

Except as described below, none of the following parties has, in the fiscal year ending November 30, 2009, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, other than as noted in this section:

 
·
Any of our directors or officers,

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

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

 
·
Any of our promoters, and

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

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since December 1, 2008, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeds the lesser of (1) $120,000 and (2) one percent of the average of our total assets at year end for the last three completed fiscal years, in which any director, executive officer or beneficial holder of more than 5% of any class of our voting securities or members of such person’s immediate family had or will have a direct or indirect material interest, other than the transactions described below.  All future transactions between us and any of our directors, executive officers or related parties will be subject to the review and approval of our Audit Committee.

La Jolla Cove Investors, Inc.

The Company 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, 2009, LJCI converted $13,855 of the Second Debenture into 210,075,223 shares of common stock.  Simultaneously with these conversions, LJCI exercised warrants to purchase 1,385,541 shares of the Company’s common stock.  Proceeds from the exercise of the warrants were $1,510,240.  As of November 30, 2009, the balance of the Second Debenture was $85,320 and there were remaining warrants to purchase 8,531,959 shares of common stock at $1.09 per share.  During the period from December 1, 2009 through February 25, 2010, LJCI has converted an additional $2,500 of the Second Debenture into 27,280,710 shares of common stock.  Simultaneously with these additional conversions, LJCI exercised additional warrants to purchase 250,000 shares of the Company’s common stock.  Proceeds from the additional exercise of warrants were $272,500.  As of February 25, 2010, the balance of the Second Debenture is $82,820 and there are remaining warrants to purchase 8,281,959 shares of common stock at $1.09 per share.

 
41

 

Common Stock Issued in Settlement of Director Fees

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

Notes Payable to Members of the Board of Directors

During the fiscal year ended November 30, 2008, we borrowed $55,000 from two members of our board of directors to meet working capital needs.  The notes 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 were extended initially to June 2009 and then extended a second time to December 2009.  The note in the amount of $5,000 was due in May 2009.  During the year ended November 30, 2009, we repaid $25,000 of the notes to related parties, leaving a balance of $30,000 as of November 30, 2009.  Subsequent to November 30, 2009, the Company has repaid the balance of these notes to these two directors.

Board Determination of Independence

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

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table summarizes the fees of (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
 
2009
   
2008
 
             
Audit Fees(1)
  $ 35,050     $ 67,342  
Audit-Related Fees(2)
  $ 6,135     $ 0  
Tax Fees(3)
  $ 8,071     $ 0  
All 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, 2009 and 2008.

(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.

 
42

 

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.

 
43

 

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

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

 
MULTICELL TECHNOLOGIES, INC.
 
(Registrant)
   
 
By /s/     W. Gerald Newmin
 
              W. Gerald Newmin
 
Chairman, CEO, CFO, President, Treasurer and Secretary
 
          Dated February 26, 2010

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,
 
February 26, 2010
W. Gerald Newmin
 
Treasurer and Secretary
   
         
/s/ 
Stephen Chang
 
Director
 
February 26, 2010
Stephen Chang
       
         
/s/ 
Edward Sigmond
 
Director
 
February 26, 2010
Edward Sigmond
       
         
/s/ 
Thomas A. Page
 
Director
 
February 26, 2010
Thomas  A. Page
       
         
/s/ 
Anthony Altig
 
Director
 
February 26, 2010
Anthony Altig
       

 
44

 

EXHIBIT INDEX

Exhibit
No.
 
Description of Exhibit
2.1 (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, 2007
4.4 (5)
 
Registration Rights Agreement between Multicell Technologies, Inc. and La Jolla Cove Investors, Inc. dated February 28, 2007
4.5 (5)
 
Stock Pledge Agreement dated February 28, 2007
4.6 (5)
 
7 ¾ % Convertible Debenture for $1,000,000 issued by Multicell Technologies, Inc. to La Jolla Cove Investors, Inc.
4.7 (5)
 
Escrow Letter dated February 28, 2007 from La Jolla Cove Investors, Inc.
4.8 (5)
 
Letter dated February 28, 2007 from La Jolla Cove Investors, Inc.
4.9 (5)
 
Securities Purchase Agreement between Multicell Technologies, Inc. and La Jolla Cove Investors, Inc. dated February 28, 2007
4.10 (5)
 
4 ¾ % Convertible Debenture for $100,000 issued by Multicell Technologies, Inc. to La Jolla Cove Investors, Inc.
4.11 (5)
 
Warrant to Purchase Common Stock dated February 28, 2007
4.12 (5)
 
Letter dated February 28, 2007 to Multicell Technologies, Inc. from La Jolla Cove Investors, Inc.
4.13 (6)
 
Warrant for the purchase of 1,572,327 Shares of Common Stock of Multicell Technologies, Inc. issued to and Fusion Capital Fund II, LLC dated May 3, 2006.
4.14 (7)
 
Amended and Restated Registration Rights Agreement, dated as of October 5, 2006, by and between Multicell Technologies, Inc. and Fusion Capital Fund II, LLC.
4.15 (8)
 
Form of Warrant to Purchase Common Stock (Cashless Exercise) dated July 14, 2006 issued by Multicell Technologies, Inc. to Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.
4.16 (8)
 
Form of Warrant to Purchase Common Stock (Cash Exercise), dated July 14, 2006, issued by Multicell Technologies, Inc. to Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.
4.17 (8)
 
Form of Registration Rights Agreement dated July 14, 2006 by and between Multicell Technologies, Inc. and Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.
4.18 (8)
 
Form of Shares of Series B Convertible Preferred Stock and Common Stock Warrants Subscription Agreement dated July 14, 2006 by and between Multicell Technologies, Inc. and Monarch Pointe Fund, Ltd., Mercator Momentum Fund III, L.P., Asset Managers International Ltd. and Pentagon Special Purpose Fund Ltd.
4.19 (9)
 
Amended and Restated Warrant to Purchase Common Stock issued to Anthony Cataldo dated July 25, 2006.
4.20 (10)
 
Form of Warrant to Purchase Common Stock dated February 1, 2006 issued by the Company to Trilogy Capital Partners, Inc.
4.21 (11)
 
Mutual Termination Agreement between Multicell Technologies, Inc. and Fusion Capital Fund II, LLC, dated as of July 18, 2007.
10.1 (12)
 
Letter Agreement between Amarin Neuroscience Limited and the Company dated October 26, 2006.

 
45

 


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.
21.1*
 
List of Subsidiaries
23.1*
 
Consent of Hansen, Barnett & Maxwell, P.C.
31.1*
 
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1*
 
Certification of Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*    Filed herewith.
(1) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on September 8, 2005.
(2) Incorporated by reference from an exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form SB-2 filed on May 6, 2005.
(3) Incorporated by reference from an exhibit to our Form SB-2 Registration Statement filed on August 12, 2004.
(4) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 19, 2006.
(5) Incorporated by reference from an exhibit to our Current Report on Form 8-K/A filed on March 7, 2007.
(6)  Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on May 3, 2006.
(7)  Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on October 5, 2006.
(8) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 20, 2006.
(9) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 28, 2006.
(10)  Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on February 6, 2006.
(11)  Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 19, 2007.
(12) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on November 1, 2006.
(13) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 5, 2006.
(14) Incorporated by reference from an exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form SB-2 filed on January 12, 2006.
(15) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on April 26, 2007.
(16) Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on October 10, 2007.

 
46

 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
   
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Balance Sheets – November 30, 2009 and 2008
F-3
   
Consolidated Statements of Operations for the Years Ended November 30, 2009 and 2008
F-4
   
Consolidated Statements of Stockholders’ Deficiency for the Years Ended November 30, 2008 and 2009
F-5
   
Consolidated Statements of Cash Flows for the Years Ended November 30, 2009 and 2008
F-6
   
Notes to Consolidated Financial Statements
F-7
 
 
F-1

 

HANSEN, BARNETT & MAXWELL, P.C.
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128
Phone: (801) 532-2200
Fax: (801) 532-7944
www.hbmcpas.com
 
 
Registered with the Public Company
Accounting Oversight Board
 

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, 2009 and 2008, 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, 2009 and 2008, 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, 2009 and 2008 and as of November 30, 2009, 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
February 25, 2010

 
F-2

 

MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
November 30,
   
November 30,
 
   
2009
   
2008
 
ASSETS
           
             
Current assets
           
Cash and cash equivalents
  $ 396,554     $ 6,022  
Other current assets
    6,442       32,854  
Total current assets
    402,996       38,876  
                 
Property and equipment, net of accumulated depreciation of $60,753 and $57,146 at November 30, 2009 and 2008, respectively
    5,714       15,501  
                 
Other assets
    1,685       2,979  
                 
Total assets
  $ 410,395     $ 57,356  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
Current liabilities
               
Notes payable - related parties
  $ 30,000     $ 55,000  
Accounts payable and accrued expenses
    1,297,486       1,674,221  
Current portion of deferred revenue
    98,862       96,385  
Total current liabilities
    1,426,348       1,825,606  
                 
Non-current liabilities
               
Convertible debentures, net of discount
    40,320       34,175  
Deferred income, net of current portion
    646,694       696,012  
Total non-current liabilities
    687,014       730,187  
                 
Total liabilities
    2,113,362       2,555,793  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' Deficiency
               
Undesignated preferred stock, $0.01 par value; 963,000 shares authorized
    -       -  
Series B convertible preferred stock, 17,000 shares designated; 16,262 shares issued and outstanding; liquidation value of $1,870,035
    1,830,035       1,830,035  
Series I convertible preferred stock, 20,000 shares designated; 5,734 shares issued and outstanding; liquidation value of $573,400
    573,400       573,400  
Common stock, $0.01 par value; 475,000,000 shares authorized; 299,892,504 and 83,146,214 shares issued and outstanding at November 30, 2009 and 2008, respectively
    2,998,925       831,462  
Additional paid-in capital
    32,514,975       32,894,705  
Accumulated deficit
    (39,620,302 )     (38,628,039 )
Total stockholders' deficiency
    (1,702,967 )     (2,498,437 )
                 
Total Liabilities and Stockholders' Deficiency
  $ 410,395     $ 57,356  
 
See accompanying notes to consolidated financial statements.

 
F-3

 
 
MULTICELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
For the Years Ended
 
   
November 30,
 
   
2009
   
2008
 
             
Revenue
  $ 174,240     $ 209,835  
                 
Operating expenses
               
Selling, general and administrative
    783,604       842,067  
Research and development
    195,990       317,130  
Depreciation and amortization
    9,375       80,256  
Write-down of intangible assets due to impairment in value
    -       1,061,365  
                 
Total operating expenses
    988,969       2,300,818  
                 
Loss from operations
    (814,729 )     (2,090,983 )
                 
Other income (expense)
               
Interest expense
    (29,370 )     (35,373 )
Interest income
    639       1,807  
Gain (loss) on disposition of equipment
    (412 )     29,613  
                 
Total other income (expense)
    (29,143 )     (3,953 )
                 
Net loss
    (843,872 )     (2,094,936 )
                 
Preferred stock dividends
    (148,391 )     (149,203 )
                 
Net loss attributable to common stockholders
  $ (992,263 )   $ (2,244,139 )
                 
Basic and Diluted Loss Per Common Share Attributable to Common Stockholders
  $ (0.01 )   $ (0.04 )
                 
Basic and Diluted Weighted-Average Common Shares Outstanding
    186,830,320       63,996,659  
 
See accompanying notes to consolidated financial statements.

 
F-4

 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
For the Years Ended November 30, 2008 and 2009
 
                                           
Additional
         
Total
 
   
Preferred Stock - Series B
   
Preferred Stock - Series I
   
Common stock
   
Paid in
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Par Value
   
Capital
   
Deficit
   
Deficiency
 
                                                       
Balance at November 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       -       79,250  
                                                                         
Issuance of common stock in payment of liability to stockholders and affiliates
    -       -       -       -       2,527,638       25,276       176,805       -       202,081  
                                                                         
Issuance of common stock for conversion of 7.75% debentures
    -       -       -       -       4,710,250       47,102       817       -