10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from              to

Commission File Number: 000-50295

ADVANCED CELL TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	87-0656515
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
381 Plantation StreetWorcester, MA	01605
(Address of Principal Executive Offices)	(Zip Code)

(508) 756-1212

(Registrant’s Telephone Number, Including Area Code)

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 ý  No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý

As of August 12, 2005, the registrant had 23,225,212 shares of Common Stock, $0.001 par value per share, outstanding.

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED CELL TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2005			2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,246,126		$	—
Cash held in escrow for stock subscriptions	—			3,676,000
Accounts receivable, net of allowance for doubtful accounts of $236,399 and $128,684	29,000			104,150
Prepaid expenses	144,552			31,300
Deferred royalty fees, current portion	142,263			119,763
Total current assets	3,561,941			3,931,213
Property and equipment, net	266,464			98,455
Due from stockholder	655,630			394,015
Deferred royalty fees, less current portion	658,693			718,573
Deposits	82,954			17,954
Deferred offering costs	20,000			12,000
Total assets	$	5,245,682		$	5,172,210
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	3,338,335		$	3,246,482
Accrued expenses	714,418			507,570
Cash overdraft	—			1,409
Deferred revenue, current portion	332,508			332,508
Interest payable	75,207			111,821
Interest payable - stockholder	356,877			296,877
Advances payable - other	130,000			130,000
Note payable - stockholder	1,000,000			1,000,000
Notes payable - other	128,014			967,014
Total current liabilities	6,075,359			6,593,681
Deferred revenue, net of current portion	1,828,796			1,995,049
Preferred units subscribed	—			4,175,999
Total liabilities	7,904,155			12,764,729
Stockholders’ deficit:
Common stock, $0.001 par value; 50,000,000 shares authorized, 23,225,212 and 8,325,883 shares issued and outstanding, respectively	23,225			8,326
Additional paid-in capital	14,741,034			6,158,954
Deferred compensation	(21,586		)	—
Accumulated deficit	(17,401,146		)	(13,759,799		)
Total stockholders’ deficit	(2,658,473		)	(7,592,519		)
Total liabilities and stockholders’ deficit	$	5,245,682		$	5,172,210

The accompanying notes are an integral part of these consolidated financial statements.

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ADVANCED CELL TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenue:
License fees and royalties	$	120,626		$	256,497		$	228,753		$	439,733
Cost of revenue	58,251			101,132			103,942			170,298
Gross profit	62,375			155,365			124,811			269,435
Operating expenses:
Research and development	657,024			243,333			933,619			536,903
Grant reimbursements	(189,408		)	—			(425,218		)	(140,171		)
General and administrative	2,037,020			593,126			3,241,500			1,085,651
Total operating expenses	2,504,636			836,459			3,749,901			1,482,383
Loss from operations	(2,442,261		)	(681,094		)	(3,625,090		)	(1,212,948		)
Other income (expense):
Interest income	13,852			—			25,959			—
Gain on settlement of debt	—			—			86,513			—
Interest expense and late fees	(18,605		)	(17,168		)	(68,729		)	(36,230		)
Interest expense - stockholder	(30,000		)	(30,000		)	(60,000		)	(60,000		)
Total other income (expense)	(34,753		)	(47,168		)	(16,257		)	(96,230		)
Net loss	$	(2,477,014	)	$	(728,262	)	$	(3,641,347	)	$	(1,309,178	)
Net loss per share, basic and diluted	$	(0.11	)	$	(0.09	)	$	(0.16	)	$	(0.16	)
Weighted average shares outstanding, basic and diluted	23,225,212			8,325,883			23,219,212			8,325,883

The accompanying notes are an integral part of these consolidated financial statements.

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ADVANCED CELL TECHNOLOGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

CHANGE IN CASH AND CASH EQUIVALENTS

(UNAUDITED)

	Six Months Ended June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,641,347	)	$	(1,309,178	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	45,504			70,728
Bad debt	32,715			—
Amortization of deferred charges	59,880			102,674
Amortization of deferred revenue	—			(209,732		)
Stock based compensation	106,988			—
Gain on settlement of accounts payable	(86,513		)	—
Shares issued for services	15,000			—
Amortization of deferred compensation	6,768			—
Changes in operating assets and liabilities:
(Increase) decrease in:	—
Accounts receivable	42,435			239,566
Prepaid expenses	(113,252		)	31,350
Other current assets	—			(2,695		)
Due from stockholder	(261,615		)	(94,574		)
Deposits	(65,000		)	—
Deferred charges	(22,500		)	(108,000		)
Increase (decrease) in:
Accounts payable and accrued expenses	331,939			804,637
Interest payable	100,769			72,813
Deferred revenue	(166,253		)	250,000
Net cash used in operating activities	(3,614,482		)	(152,411		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment	—			(6,377		)
Cash paid for acquisition net of cash acquired	10,000			—
Purchases of property and equipment	(213,513		)	—
Net cash used in investing activities	(203,513		)	(6,377		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred unit subscriptions, net of cost	3,639,530			—
Payments on notes and leases	(250,000		)	(23,752		)
Cash overdraft	(1,409		)	178,758
Net cash provided by financing activities	3,388,121			155,006
Net decrease in cash	(429,874		)	(3,782		)
Cash and cash equivalents, beginning of period	$	3,676,000		$	3,782
Cash and cash equivalents, end of period	$	3,246,126		$	—
Cash paid for:
Interest	$	—		$	1,247
Income taxes	—			—
Supplemental schedule of non-cash financing activities:
During the six months ended June 30, 2005:
105,177 Preferred Units, valued at $89,400, were issued in partial settlement of accounts payable.
616,124 shares of common stock, and 306,062 common stock purchase warrants, were issued upon conversion of $500,000 of notes payable and $23,708 of accrued interest.
469,247 shares of common stock, and 234,629 common stock purchase warrants, valued at an aggregate of $398,860, were issued in consideration of services related to the Preferred Unit Offering.
A note for $150,000 was issued as a part of a settlement of a note payable of $339,000 and related accrued interest of $53,675.
9,411,778 shares of preferred stock converted to 9,411,778 shares of common stock in the Merger.

The accompanying notes are an integral part of these consolidated financial statements.

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ADVANCED CELL TECHNOLOGY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005

(UNAUDITED)

									Additional						Total
	Preferred Stock				Common Stock				Paid-In		Deferred		Accumulated		Stockholders’
	Shares		Amount		Shares		Amount		Capital		Compensation		Deficit		Deficit
Balance, December 31, 2004	—		—		8,325,883		8,326		6,158,954		—		(13,759,799	)	(7,592,519	)
Sale of preferred units for cash	9,306,601		9,306		—		—		7,901,294		—		—		7,910,600
Issuance of preferred units for services provided	105,177		105		—		—		89,295		—		—		89,400
Issuance of shares for debt conversion	—		—		616,124		616		523,092		—		—		523,708
Issuance of shares for services	—		—		17,647		18		14,982		—		—		15,000
Issuance of units for offering services	—		—		469,247		469		398,391		—		—		398,860
Conversion of preferred	(9,411,778	)	(9,411	)	9,411,778		9,411		—		—		—		—
Cost of offering	—		—		—		—		(486,530	)	—		—		(486,530	)
Shares retained by public shareholders	—		—		4,374,007		4,374		5,626		—		—		10,000
Fair value of consultant options	—		—		—		—		72,354		(21,586	)	—		50,768
Shares cancelled	—		—		(1,474	)	(1	)	—		—		—		(1	)
Net Loss 3 months to March 2005													(1,164,333	)	(1,164,333	)
Balance, March 31, 2005	—		—		23,213,212		23,213		14,677,458		(21,586	)	(14,924,132	)	(245,047	)
Options Exercised	—		—		12,000		12		588				—		600
Stock based compensation									62,988						62,988
Net loss 3 months to June 2005	—		—		—		—		—		—		(2,477,014	)	(2,477,014	)
Balance, June 30, 2005	—		—		23,225,212		23,225		14,741,034		(21,586	)	(17,401,146	)	(2,658,473	)

The accompanying notes are an integral part of these consolidated financial statements.

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ADVANCED CELL TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2005

(UNAUDITED)

1.ORGANIZATIONAL MATTERS

Organization

On January 31, 2005, Advanced Cell Technology, Inc. (formerly known as A.C.T. Holdings, Inc.) (the “Company”) completed the Merger with Advanced Cell, Inc. (formerly known as Advanced Cell Technology, Inc.), a Delaware corporation (“ACT”), pursuant to which a wholly-owned subsidiary of the Company merged with and into ACT, with ACT remaining as the surviving corporation and a wholly-owned subsidiary of the Company.  Upon the completion of the Merger, the Company ceased all of its pre-Merger operations and adopted the business of ACT.

Prior to the Merger, the Company had minimal business, operations, revenues and assets, and had been involved in an industry entirely unrelated to the business of ACT. Therefore, the acquisition of ACT by the Company represented a complete change in the nature of the Company’s business and operations, and changed the nature of any prior investment in the Company.

The transaction has been accounted for as a recapitalization of ACT, the accounting acquirer. The historical financial statements presented for periods prior to the merger are those of ACT. The consolidated accounts of the Company have been included from January 31, 2005.  All comparisons of financial results for periods prior to the Merger are to the financial results of ACT.  Any differences that would result from the inclusion of the pre-Merger financial results of the Company would not be material.

Nature of Business

The Company is a biotechnology company focused on developing and commercializing human stem cell technology in the emerging fields of regenerative medicine and stem cell therapy. Principal activities to date have included obtaining financing, securing operating facilities and conducting research and development.  The Company has no therapeutic products currently available for sale and does not expect to have any therapeutic products commercially available for sale for a period of years, if at all.  These factors indicate that the Company’s ability to continue its research and development activities is dependent upon the ability of management to obtain additional financing as required.

Basis of Presentation

The accompanying unaudited financial statements as of June 30, 2005 and for the six month periods ended June 30, 2005 and 2004 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including Form 10-QSB and Regulation S-B. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended December 31, 2004 as disclosed in the Company’s annual report on Form 10-KSB for that year as filed with the SEC, as it may be amended and in conjunction with ACT’s audited financial statements and explanatory notes for the year ended December 31, 2004 as disclosed in the Company’s current report on Form 8-K/A as filed with the SEC on April 18, 2005.

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Interim results of operations are not necessarily indicative of the results to be expected for the year ending December 31, 2005.

2.SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates—These financial statements have been prepared in accordance with accounting principles generally accepted in the United States and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Specifically, our management has estimated the expected economic life and value of our licensed technology, our net operating loss for tax purposes and our stock, option and warrant expenses related to compensation to employees and directors, consultants and investment banks.  Actual results could differ from those estimates.

Revenue Recognition—Our revenues are generated from license and research agreements with collaborators. Licensing revenue is recognized ratably over the shorter of the life of the license or the estimated economic life of the patents related to the license. Deferred revenue represents the portion of the license and other payments received that has not been earned. Costs associated with the license revenue are deferred and recognized over same term as the revenue. Reimbursements of research expense pursuant to grants are recorded as a reduction of research and development expense in the period during which collection of the reimbursement is reasonably assured, because the reimbursements are subject to approval.

Research and Development Costs—Research and development costs consist of expenditures for the research and development of patents and technology, which are not capitalizable. Our research and development costs consist mainly of payroll and payroll related expenses, research supplies and research grants.

Reimbursements of research expense pursuant to grants are recorded as a reduction of research and development expense in the period during which collection of the reimbursement is reasonably assured, because the reimbursements are subject to approval.

Stock Based Compensation—SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of the grant or the date at which the performance of the services is completed and is recognized over the periods in which the related services are rendered.  The statement also permits companies to elect to continue using the current intrinsic value accounting method specified in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for stock-based compensation to employees.  We have elected to use the intrinsic value based method for grants to our employees and directors and have disclosed the pro forma effect of using the fair value based method to account for our stock-based compensation to employees.

The Company uses the fair value method for equity instruments granted to non-employees and uses the Black Scholes model for measuring the fair value.  The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the periods in which the related services are rendered.

Pro Forma Information

Employee and Director Common Share Purchase Options—Pro forma information regarding the effects on operations of employee and director common share purchase options as required by SFAS No. 123 and SFAS No. 148 has been determined as if the Company had accounted for those options under the fair value method. Pro forma information is computed using the Black Scholes method at the date of grant of the options.  There were no new grants of options during the quarter ended
June 30, 2005. The option valuation model requires input of highly subjective assumptions. 

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Because common share purchase options granted to employees and directors have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value of estimate, the existing model does not in the opinion of our management necessarily provide a reliable single measure of fair value of common share purchase options we have granted to our employees and directors.

Pro forma information relating to employee and director common share purchase options is as follows:

	For theThree Months Ended			For TheThree Months Ended			For theSix Months Ended			For TheSix Months Ended
	June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
Net loss as reported	$	(2,477,014	)	$	(728,262	)	$	(3,641,347	)	$	(1,309,178	)
Current period expense calculated under APB 25	—			—			—			—
Stock compensation calculated under SFAS 123	51,542			—			(74,939		)	—
Pro forma net loss	$	(2,425,472	)	$	(728,262	)	$	(3,716,286	)	$	(1,309,178	)
Basic and diluted historical loss per share	$	(0.11	)	$	(0.09	)	$	(0.16	)	$	(0.16	)
Pro forma basic and diluted loss per share	$	(0.10	)	$	(0.09	)	$	(0.16	)	$	(0.16	)

Net Loss Per Share—We use SFAS No. 128, “Earnings Per Share” for calculating the basic and diluted loss per share.  We compute basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding.  Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional shares were dilutive. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

For the three and six months ended June 30, 2005, 23,078,952 potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share. There were no potentially dilutive shares at June 30, 2004.

3.PROPERTY AND EQUIPMENT

Our property and equipment as of June 30, 2005 is as follows:

Machinery and equipment	$	826,068
Computers and office equipment	153,469
Leasehold improvements	21,451
Furniture and fixtures	25,782
Total property and equipment	1,026,770
Accumulated depreciation	760,306
Property and equipment, net	$	266,464

Depreciation expense amounted to $45,504 and $70,728 during the six months ended June 30, 2005 and 2004, respectively.

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4.CONVERTIBLE NOTES PAYABLE

During 2004, we issued promissory notes aggregating $500,000 face value for cash proceeds of $450,000 and the assumption of $50,000 of debt owed by our parent to one of the investors. As a result of the assumption of  the $50,000 of debt, we have recorded a financing cost in that amount. The notes bear interest at 10% per year. $350,000 of notes matured on December 31, 2004 and $150,000 matures on September 30, 2005. The notes are convertible at the option of the holder into shares of our capital stock sold in a subsequent financing, at an amount equal to the lowest per share selling price of shares of that stock issued in such financing (see Note 7).

As additional consideration for the purchase of the notes, we granted to the note holders warrants entitling them to purchase 700,000 common shares at an exercise price of $0.05. Warrants for 300,000 shares were exercisable immediately upon issuance and expire two years from the date of issue.  Warrants for 400,000 shares are exercisable on or after February 1, 2006 and expire February 1, 2008. The fair value of the warrants was estimated at $0, using the Black Scholes option pricing model. The assumptions used in the Black Scholes model are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 2.75%, and (4) expected life of 2 years. Pursuant to EITF 98-6 and EITF 00-27, there has been no allocation of the proceeds of the notes to the warrants and no beneficial conversion feature, because the conversion rate is unknown at the date of issue and is presumed to be at market value.

During the first quarter of 2005, the $500,000 of notes, plus accrued interest of $23,708, were converted into investment units consisting of 616,124 shares of common stock, plus 308,063 common stock purchase warrants, exercisable at $1.27 per share.

5.OTHER NOTES PAYABLE

On July 1, 2003, we issued a promissory note with a face amount of $339,000 to a law firm as a payment of fees due them. The note bears interest at a rate of 10% per year. The note was due on October 1, 2003. During the first quarter of 2005, the note, plus accrued interest of $53,675, was settled through (i) the issuance of 105,177 shares of preferred stock and 52,589 warrants pursuant to the preferred stock offering described in Note 7, valued at $89,400, (ii) a cash payment of $100,000, and (iii) a new note with a face value of $150,000. The new note bears interest at 10%, is due in 3 monthly payments of 50,000 each and matures on May 1, 2005. The balance of the note was paid during the quarter ended June 30, 2005.

On July 8, 2003, we issued a promissory note with a face amount of $272,108 to a law firm as a payment of fees due them. The note bears interest at a rate of 5% per year. The note is payable in monthly installments of $25,000, including interest. The note matured on October 1, 2003. We made payments through January, 2004. At June 30, 2005 there is a remaining principal balance of $128,014, as well as accrued interest of $9,232 and accrued late fees of $57,500, included in accrued interest. Late fees accrue at the rate of $2,500 per month.

6.NOTE PAYABLE — STOCKHOLDER

On July 12, 2002, we issued a promissory note with a face amount of $1,000,000 to our majority stockholder as a repayment of advances received from the stockholder. The note bears interest at a rate of 12% per year. The note matures on December 31, 2005.

7.STOCKHOLDERS’ EQUITY TRANSACTIONS

We are authorized to issue two classes of capital stock, to be designated, respectively, Preferred Stock and Common Stock.  The total number of shares of capital stock which we are authorized to issue is 55,000,000.  The total number of shares of Preferred Stock we are authorized to issue is 5,000,000, par value $0.001 per share.  The total number of shares of Common Stock we are authorized to issue is 50,000,000, par value $0.001 per share.  We had no Preferred Stock outstanding as of June 30, 2005.  We had 23,225,212 shares of Common Stock outstanding as of June 30, 2005.

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On January 31, 2005, the Company closed the Merger described in Note 1.  As a result of the Merger, all of the outstanding shares of the capital stock of ACT were converted, on a pro rata basis, into approximately 18,000,000 shares of the Company’s Common Stock.  In addition, all outstanding options and warrants to acquire shares of the capital stock of ACT were converted into the right to receive shares of the Company’s Common Stock, and the Company has adopted the ACT stock option plans and all options granted thereunder.

On or about January 27, 2005, the Company issued 616,124 shares of its common stock and granted associated warrants to purchase 308,062 shares of common stock at a per share price of $1.27 to five holders of $500,000 aggregate principal amount of short-term promissory notes, plus interest of $23,708 in exchange for and in retirement of the notes. The fair value of the warrants was estimated at $0, using the Black Scholes option pricing model. The assumptions used in the Black Scholes model are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 3.25%, and (4) expected life of 2 years.

On or about January 15, 2005, the Company issued 17,647 shares of common stock, valued at $15,000, in consideration of accounting services provided to the Company.

During the period beginning January 3, 2005 through January 31, 2005, ACT completed a preferred unit offering in which ACT sold 4,705,890 investment units to a group of accredited investors (within the meaning of Rule 501 of Regulation D) for total consideration of $8,000,000. ACT received gross cash proceeds of $7,910,600 and the balance of $89,400 was for payment of non-Merger related legal fees.  The completion of the offering resulted in the issuance of 9,411,788 shares of ACT’s Series A Preferred Stock and associated warrants to purchase 4,705,890 shares of common stock at a per share price of $1.27.  In consideration of services rendered in connection with the preferred unit offering, ACT paid consultants to the preferred unit offering 469,247 investment units, which resulted in the issuance by the Company of 469,247 shares of Common Stock and associated warrants to purchase 234,629 shares of common stock at a per share price of $1.27. All preferred shares issued pursuant to the preferred offering were converted into common stock prior to the Merger.

On December 30, 2004, ACT granted warrants to purchase 1,833,260 shares of common stock at a per share price of $0.85 and warrants to purchase 1,291,615 shares of common stock at a per share price of $2.00. These warrants are exercisable on or after December 30, 2005 and lapse if unexercised on December 30, 2014. The warrants were granted as a portion of the consideration for services provided in connection with the Merger. The recipients of the warrants received other fair value consideration for services rendered, with warrants providing incentive compensation, the value of which is not readily determinable or separable from the overall compensation arrangement; therefore, the Company has utilized a Black Scholes analysis as the most readily determinable measure of value. The warrants have been valued at $0, using the Black Scholes pricing model with the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 0%, (3) risk-free interest rate of 2.75%, and (4) expected life of 3 years.

On December 13, 2004, ACT granted warrants to purchase 1,954,000 shares of common stock at a per share price of $0.25. Of these warrants, 1,488,000 are exercisable on February 1, 2006 and lapse if unexercised on December 13, 2014 and 546,000 are exercisable immediately upon issuance and lapse if unexercised on December 13, 2006. The warrants were granted as a portion of the consideration for services provided. The recipients of the warrants received other fair value consideration for services rendered, with warrants providing incentive compensation, the value of which is not readily determinable or separable from the overall compensation arrangement; therefore, the Company has utilized a Black Scholes analysis as the most readily determinable measure of value. The warrants have been valued at $0, using the Black Scholes pricing model with the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 0%, (3) risk-free interest rate of 2.75%, and (4) expected life of 3 years.

On November 30, 2004, ACT granted warrants to purchase 100,000 shares of common stock at a per share price of $0.25. The warrants are exercisable on or after April 1, 2005 and lapse if unexercised on April 1, 2010. The recipient received the warrants as part of a negotiated settlement package, including other

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consideration, the value of which is not readily determinable or separable from the overall severance package; therefore, the Company has utilized a Black Scholes analysis as the most readily determinable measure of value. The warrants have been valued at $0, using the Black Scholes pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 2.75%, and (4) expected life of 3 years.

On November 26, 2004, ACT granted warrants to purchase 250,000 shares of common stock at a per share price of $0.05. The warrants are exercisable immediately upon issuance and lapse if unexercised on November 26, 2006. The warrants were granted as consideration for the early release of funds from escrow, related to the preferred unit offering. The warrants have been valued at $983, using the Black Scholes pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 2.75%, and (4) expected life of 2 years.

8.OPTIONS OUTSTANDING

Stock Plans

On August 12, 2004, ACT’s Board of Directors approved the establishment of the 2004 Stock Option Plan (the “2004 Stock Plan”), subject to approval by ACT’s stockholders on or before August 12, 2005. Stockholder approval was received on December 13, 2004. The total number of common shares available for grant and issuance under the plan may not exceed 2,800,000 shares, subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions.  Common stock purchase options may be exercisable by the payment of cash or by other means as authorized by the Board of Directors or a committee established by the Board of Directors.  At December 31, 2004, ACT had granted 2,604,000 common share purchase options under the plan.

On December 13, 2004, ACT’s Board of Directors and stockholders approved the establishment of the 2004 Stock Option Plan II (the “2004 Stock Plan II”). The total number of common shares available for grant and issuance under the plan may not exceed 1,301,161 shares, subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions.  Common stock purchase options may be exercisable by the payment of cash or by other means as authorized by the Board of Directors or a committee established by the Board of Directors.  At December 31, 2004, ACT had granted 1,301,161 common share purchase options under the plan.

On January 31, 2005, the Company’s Board of Directors approved the establishment of the 2005 Stock Incentive Plan (the “2005 Plan”), subject to approval of our shareholders.  The total number of common shares available for grant and issuance under the plan may not exceed 9 million shares, plus an annual increase on the fist day of each of the Company’s fiscal years beginning in 2006 equal to 5% of the number of shares of our common stock outstanding on the last day of the immediately preceding fiscal year, subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions.  Common stock purchase options may be exercisable by the payment of cash or by other means as authorized by the Board of Directors or a committee established by the Board of Directors.  At June 30, 2005, we had granted 7,808,335 common stock purchase options under the plan.

Pursuant to the 2005 Plan, on January 31, 2005, we granted 7,273,335 common stock purchase options to our employees. The options granted to employees have an exercise price of $0.85 per share and vest over periods not exceeding 4 years. The fair value of the options was estimated at $385,472 for pro forma purposes using the Black Scholes option pricing model. The assumptions used in the Black Scholes model are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 3.25%, and (4) expected life of 2 years.

Pursuant to the 2005 Plan, on January 31, 2005, we granted 535,000 common stock purchase options to consultants. The options have an exercise price of $0.85 per share and vest over periods not exceeding 4 years. The fair value of the options at the date of grant was estimated at $28,354 using the Black Scholes

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option pricing model. The assumptions used in the Black Scholes model are as follows: (1) dividend yield of 0%; (2) expected volatility of 0%, (3) risk-free interest rate of 3.25%, and (4) expected life of 2 years.  This initial estimate of fair value will be expensed over the option vesting period.  In addition to this initial estimate of fair value, the Company calculates additional quarterly expense based upon options which vest during the period.  During the quarter ended June 30, 2005, vested shares resulted in an additional charge of $61,580.  This amount, plus amortization of initial fair value, resulted in a total charge of $62,988 in the quarter ended June 30, 2005, bringing total charges related to these options to $106,988 for the six months ended June 30, 2005.  The assumptions used in the Black Scholes model for this quarterly calculation are as follows: (1) dividend yield of 0%, (2) expected volatility of 139%, (3) risk free interest rate of 3.625%, and (4) expected life of 2 years.

Common Share Options and Warrants Issued

The following table summarizes information on all common share purchase options and warrants of the Company outstanding as of June 30, 2005.

	June 30, 2005
	Number		Weighted Average Exercise Price
Outstanding at beginning of the period	10,034,036		$	0.51
Option granted to employees and consultants during the period	7,808,335		0.85
Warrants issued during the period	5,248,581		1.27
Exercise during the period	(12,000	)	.05
Outstanding at end of the period	23,078,952		0.80

9.COMMITMENTS AND CONTINGENCIES

We are a party to a research collaboration agreement and license agreement with the University of Massachusetts, as amended from time to time (the “UMass License”). Under the UMass License, we were granted certain exclusive rights to license and sublicense certain products and services invented as part of the collaborative effort. The term of the UMass License extends to the later of the expiration of the related patents or April 16, 2006.  We are required to pay royalties ranging from 2.5% to 4.5% of net sales of licensed products and services, as defined.  Minimum royalties of $45,000 per year must be paid to UMass.  For 2005 and 2004, we have paid only the minimum royalty required. Additionally, we are required to pay sublicense fees of 18% for sublicense income, as defined. We are required to spend a minimum annual amount of $200,000 on research and development.

During 2004, we entered into license agreements with two parties, the terms of which provide for the initial payment of the license fee through an aggregate of six promissory notes totaling $1,400,000. The notes mature as follows: $333,333 on December 1, 2005; $666,667 on December 1, 2006; and $400,000 on June 1, 2007. There is no stated interest rate for $1,000,000 of notes, the remaining $400,000 bear interest at 10% per year, but only if the notes are not paid at maturity. Because of the uncertainty of the ultimate collection of the principal amount of the notes, they have not been recorded in the financial statements and will not be recorded until their collectibility is reasonable assured.

We have entered into a lease for our office space commencing December 20, 2004 and expiring April 30, 2010. Annual minimum lease payments are as follows:

2005	$	218,346
2006	225,296
2007	232,246
2008	239,196
2009	246,146
2010	83,400

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Rent expense recorded in the financial statements for the six month periods ended June 30, 2005 and 2004 was $219,388 and $219,637, respectively.

We have entered into employment contracts with certain executives and research personnel. The contracts provide for salaries, bonuses and stock option grants, along with other employee benefits. The employment contracts generally have no set term and can be terminated by either party. There is a provision for payments of three months to one year of annual salary as severance if we terminate a contract without cause, along with the acceleration of certain unvested stock option grants. Certain of the agreements provide for salary increases upon the closing of an equity funding of $10 million.

10.LEGAL PROCEEDINGS

Geron-Related Proceedings

Campbell et al. v. Stice et al., Patent Interference Nos. 104,746 and 105,192. These two interference proceedings were initiated January 30, 2002 at the request of Geron Corporation in an effort to obtain rights to U.S. Patent Nos. 5,945,577 and 6,235,970, which are licensed by the University of Massachusetts exclusively to the Company. In both proceedings, the Board of Patent Appeals and Interferences issued a decision adverse to the Company. Both of these decisions are being challenged in proceedings described below. This proceeding and the two proceedings discussed immediately below are referred to as the “Geron-Related Proceedings.” Adverse determinations in this proceeding would have a materially adverse effect on our business.

University of Massachusetts and Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron Corporation and Exeter Life Sciences, Inc., U.S. District Court for the District of Columbia. The Company filed an action on February 18, 2005 in the U.S. District Court for the District of Columbia. The Company brought this action under 35 U.S.C. 146 to reverse the decision of the Board of Patent Appeals and Interferences regarding a patent to a method of cloning non-human animals. The patent, U.S. Patent No. 5,945,577, is licensed by the University of Massachusetts exclusively to the Company. The parties have agreed to stay all proceedings until September 8, 2005.  Adverse determinations in this proceeding would have a materially adverse effect on our business.

University of Massachusetts and Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron Corporation and Exeter Life Sciences, Inc., U.S. District Court for the District of Columbia. The Company filed an action on April 7, 2005 in the U.S. District Court for the District of Columbia. The Company brought this action under 35 U.S.C. 146 to reverse the decision of the Board of Patent Appeals and Interferences regarding a patent to a method of creating embryonic stem cells. The patent, U.S. Patent No. 6,235,970, is licensed by the University of Massachusetts exclusively to the Company. The parties have agreed to stay all proceedings until September 8, 2005.  Adverse determinations in this proceeding would have a materially adverse effect on our business.

Other Legal Proceedings

Gary D. Aronson and John Gorton v. A.C.T. Group, Inc., Advanced Cell Technology, Inc., Michael D. West, and Gunnar L. Engstrom. Commonwealth of Massachusetts Superior Court, Worcester. C.A. No. 040523B. This proceeding is a claim for breach of contract and failure to pay brought by two of the individuals who hold Promissory Notes issued by ACT Group Inc., a Delaware corporation (“ACT Group”). ACT is a named defendant in this proceeding. In April 2004, the court entered an order denying a request for a temporary restraining order and preliminary injunction with respect to our subsidiary ACT. In its order, the Court stated that, based upon the record before the Court at that stage of the proceeding, ACT was “not legally

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responsible” for these ACT Group obligations. In August 2004, the plaintiffs obtained a judgment against ACT Group for $690,040. The Massachusetts Superior Court before which this proceeding is pending has entered an Order requiring all 6,811,146 shares of our stock held by ACT Group be placed in escrow pending sale to satisfy this judgment. Although the Order specifies that the sale must be conducted in a commercially reasonable manner, we cannot assure you that the plaintiffs in this action will effect the sale in a manner that will not have a materially adverse impact upon the trading value of our stock.  The Company and certain officers and directors have been named as contemnors in a related contempt complaint seeking to enforce the judgment against ACT Group and have been ordered to show cause why they should not be held in contempt for allegedly aiding and abetting ACT Group’s alleged contempt.  The Company and certain officers have moved to dismiss the contempt complaint.  At the request of the parties, the Massachusetts Superior Court has delayed scheduling a hearing on the show cause order and the Company’s motion to dismiss. If ACT Group is unable to resolve this dispute on terms that are satisfactory to it and the Company, our business may be materially adversely affected. Although our operations and those of ACT Group are distinct and separate, with separate governance structures, and the two companies observe strict corporate formalities distinct to the respective entities, the plaintiffs in this action seek to pierce the corporate veil and hold us responsible for ACT Group’s liabilities. To date, those claims have not been successful. However, we cannot assure you that there will not be further attempts to pierce the corporate veil, or that they will be unsuccessful in doing so. If there are such future attempts, they could result in significant legal expenses in defending such claims. Moreover, if the plaintiffs creditors are successful in piercing the corporate veil and holding us responsible for these ACT obligations, there will be a material adverse effect on our business and operations.

11.SUBSEQUENT EVENTS

On July 6, 2005, the Company’s shareholders approved an amendment to the Company’s Certificate of Incorporation to increase the authorized capital stock of the Company to 50,000,000 shares of Preferred Stock and 100,000,000 shares of Common Stock.

In consideration for service on the Company’s Board of Directors and Audit Committee, on August 1, 2005, the Company granted Dr. Alan Shapiro the option to purchase 50,000 shares of Common Stock under the Company’s 2005 Stock Incentive Plan. The options are fully vested as of the date of grant.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

This Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties.We use words such as “may,” “assumes,” “forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,” “estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,” “budgets,” “potential,” “continue” and variations thereof, and other statements contained in quarterly report, and the exhibits hereto, regarding matters that are not historical facts and are forward-looking statements. Because these statements involve risks and uncertainties, as well as certain assumptions, actual results may differ materially from those expressed or implied by such forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to risks inherent in:  our early stage of development, including a lack of operating history, lack of profitable operations and the need for additional capital; the development and commercialization of largely novel and unproven technologies and products; our ability to protect, maintain, and defend our intellectual property rights: uncertainties regarding our ability to obtain the capital resources needed to continue research and development operations and to conduct research, preclinical development and clinical trials necessary for regulatory approvals; uncertainty regarding the outcome of clinical trials and our overall ability to compete effectively in a highly complex, rapidly developing, capital intensive and competitive industry.  See “RISK FACTORS THAT MAY AFFECT FUTURE RESULTS” set forth in Part I, Item 2 of this Quarterly Report on Form 10-QSB for a more complete discussion of these factors.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-QSB.

We are a biotechnology company focused on developing and commercializing human stem cell technology in the emerging fields of regenerative medicine and stem cell therapy.

SIGNIFICANT ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. We do not believe that there have been significant changes to our accounting policies during the three months ended June 30, 2005, as compared to those policies disclosed in the December 31, 2004 financial statements filed in our Current Report on Form 8-K/A with the SEC on April 18, 2005.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:

Use of Estimates - These financial statements have been prepared in accordance with accounting principles generally accepted in the United States and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Specifically, our management has estimated the expected economic life and value of our licensed technology, our net operating loss for tax purposes and our stock, option and warrant expenses related to compensation to employees and directors, consultants and investment banks.  Actual results could differ from those estimates.

Fair Value of Financial Instruments - For certain of our financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable, bank overdraft, advances payable and notes payable, the carrying amounts approximate fair value due to their relatively short maturities.

Cash and Equivalents - Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased.  We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits.  We have not experienced any losses in such account.

Equipment - We record our equipment at historical cost.  We expense maintenance and repairs as incurred. Depreciation is provided for by the straight-line method over three to six years.

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Revenue Recognition - Our revenues are generated from license and research agreements with collaborators. Licensing revenue is recognized ratably over the life of the license. Deferred revenue represents the portion of the license and other payments received that has not been earned. Costs associated with the license revenue are deferred and recognized over the same term as the revenue. Reimbursements of research expense pursuant to grants are recorded as a reduction of research and development expense once the reimbursements are approved and the Company is assured of collectibility.

Intangible and Long-Lived Assets - We follow SFAS No. 144, “Accounting for Impairment of Disposal of Long-Lived Assets”, which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long lived asset to be held and used.  Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.  During the periods ended June 30, 2005 and March 31, 2005, no impairment losses were recognized.

Research and Development Costs - Research and development costs consist of expenditures for the research and development of patents and technology, which are not capitalizable. Our research and development costs consist mainly of payroll and payroll related expenses, research supplies and costs incurred in connection with specific research grants.

Stock Based Compensation - SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of the grant or the date at which the performance of the services is completed and is recognized over the periods in which the related services are rendered.  The statement also permits companies to elect to continue using the current intrinsic value accounting method specified in APB Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for stock-based compensation to employees.  We have elected to use the intrinsic value based method for grants to our employees and directors and have disclosed the pro forma effect of using the fair value based method to account for our stock-based compensation to employees.

ACT uses the fair value method for equity instruments granted to non-employees and uses the Black Scholes model for measuring the fair value.  The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the periods in which the related services are rendered.

RESULTS OF OPERATIONS

Revenues

Revenues for the three and six months ended June 30, 2005 and  June 30, 2004 were approximately $121,000, $229,000, $256,000 and $440,000 respectively. These amounts relate primarily to license fees and royalties collected that are being amortized over the period of the license granted. The reduction in revenue in current periods was due to decreased revenue levels from licensees’ operations.

Research and Development Expenses and Grant Reimbursements

Research and development expenses for the three and six months ended June 30, 2005 and June 30, 2004 were approximately $657,000, $934,000, $243,000 and $537,000, respectively.  The increase in expenses in current periods, which consist mainly of payroll and payroll related expenses, research supplies and costs incurred in connection with specific research grants, relate principally to increased staffing and spending for scientific research being done

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pursuant to a scientific grant from the US National Institute of Standards and Technology (NIST) that expires in 2006.

Our research and development expenses consist primarily of costs associated with basic and pre-clinical research exclusively in the field of human stem cell therapies and regenerative medicine, with focus on development of our technologies in cellular reprogramming, reduced complexity applications, and stem cell differentiation. These expenses represent both pre-clinical development costs and costs associated with non-clinical support activities such as quality control and regulatory processes. The cost of our research and development personnel is the most significant category of expense; however, we also incur expenses with third parties, including license agreements, sponsored research programs and consulting expenses.

We do not segregate research and development costs by project because our research is focused exclusively on human stem cell therapies as a unitary field of study.  Although we have three principal areas of focus for our research, these areas are completely intertwined and have not yet matured to the point where they are separate and distinct projects.  The intellectual property, scientists and other resources dedicated to these efforts are not separately allocated to individual projects, but rather are conducting our research on an integrated basis.

We expect that research and development expenses will continue to increase in the foreseeable future as we add personnel, expand our pre-clinical research, begin clinical trial activities, and increase our regulatory compliance capabilities. The amount of these increases is difficult to predict due to the uncertainty inherent in the timing and extent of progress in our research programs, and initiation of clinical trials. In addition, the results from our basic research and pre-clinical trials, as well as the results of trials of similar therapeutics under development by others, will influence the number, size and duration of planned and unplanned trials. As our research efforts mature, we will continue to review the direction of our research based on an assessment of the value of possible commercial applications emerging from these efforts.  Based on this continuing review, we expect to establish discrete research programs and evaluate the cost and potential for cash inflows from commercializing products, partnering with others in the biotechnology or pharmaceutical industry, or licensing the technologies associated with these programs to third parties.

We believe that it is not possible at this stage to provide a meaningful estimate of the total cost to complete our ongoing projects and bring any proposed products to market. The use of human embryonic stem cells as a therapy is an emerging area of medicine, and it is not known what clinical trials will be required by the FDA in order to gain marketing approval. Costs to complete could vary substantially depending upon the projects selected for development, the number of clinical trials required and the number of patients needed for each study. It is possible that the completion of these studies could be delayed for a variety of reasons, including difficulties in enrolling patients, delays in manufacturing, incomplete or inconsistent data from the pre-clinical or clinical trials, and difficulties evaluating the trial results. Any delay in completion of a trial would increase the cost of that trial, which would harm our results of operations. Due to these uncertainties, we cannot reasonably estimate the size, nature nor timing of the costs to complete, or the amount or timing of the net cash inflows from our current activities. Until we obtain further relevant pre-clinical and clinical data, we will not be able to estimate our future expenses related to these programs or when, if ever, and to what extent we will receive cash inflows from resulting products.

Grant reimbursements for the three and six months ended June 30, 2005 and June 30, 2004 were approximately $189,000, $425,000, $0 and $140,000, respectively. These amounts represent approved reimbursements pursuant the grant from NIST. At June 30, 2005, ACT had approximately $1,000,000 of funds available under the grant that can be used to reimburse future approved research expenditures. We will lose the availability of any unused funds upon the expiration of the grant.

General and Administrative Expenses

General and administrative expenses for the three and six months ended June 30, 2005 and June 30, 2004 were approximately $2,037,000, $3,242,000, $593,000 and $1,086,000, respectively.  The principal increase in expense in the current periods versus the same periods last year is a result of additional salary costs related to the

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addition of key personnel, increased professional fees related to ACT’s merger into a public company, and costs of preparing documents and records for various public filings with the Securities and Exchange Commission.

Other Income (Expense)

Other expense for the three and six months ended June 30, 2005 and June 30, 2004 were approximately $35,000, $16,000, $47,000 and $96,000, respectively.

Net Loss

Net loss for the three and six months ended June 30, 2005 and June 30, 2004 was approximately $2,477,000, $3,641,000, $728,000 and $1,309,000, respectively.  The increased loss in the current periods is the result of increased general and administrative expenses, offset in part by increased interest income and the gain on settlement of debt.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance.  Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished.  Opinion 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets.  The FASB believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carryover basis.  By focusing the exception on exchanges that lack commercial substance, the FASB believes this statement produces financial reporting that more faithfully represents the economics of the transactions.  SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.  Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance.  The provisions of SFAS 153 shall be applied prospectively.  The Company has evaluated the impact of the adoption of SFAS 153, and does not believe the impact will be significant to the Company’s overall results of operations or financial position.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”.  SFAS 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements.  That cost will be measured based on the fair value of the equity or liability instruments issued.  SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.  SFAS 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees.  However, that statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used.  Public entities (other than those filing as small business issuers) will be required to apply SFAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. SFAS 123(R) is applicable for ACT effective the first interim period that starts after December 15, 2005. The Company has evaluated the impact of the adoption of SFAS 123(R), and believes that the impact may be significant to the Company’s overall results of operations and financial position (a pro forma effect, as estimated by management, is disclosed earlier in this note).

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing

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Transactions, an amendment of FASB Statements No. 66 and 67 (SFAS 152)”. The amendments made by Statement 152 amend FASB Statement No. 066, “Accounting for Sales of Real Estate”, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions”. This Statement also amends FASB Statement No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects”, to state that the guidance for (1) incidental operations and (2) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This statement is effective for financial statements for fiscal years beginning after June 15, 2005, with earlier application encouraged. The Company has evaluated the impact of the adoption of SFAS 152, and does not believe the impact will be significant to the Company’s overall results of operations or financial position since the Company does not enter into such transactions.

In December 2004, the FASB issued two FASB Staff Positions—FSP FAS 109-1, Application of FASB Statement 109 “Accounting for Income Taxes” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate in the related activities.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. The amendments made by Statement 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Company’s overall results of operations or financial position since the Company currently does not have any manufacturing operations or inventory.

In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 are effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements for certain investments are effective for annual periods ending after December 15, 2003, and for other investments such disclosure requirements are effective for annual periods ending after June 15, 2004.

In December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No. 104 (“SAB No. 104”), “Revenue Recognition.” SAB No. 104 supersedes SAB No. 101, “Revenue Recognition in Financial Statements.” SAB No. 104, which was effective upon issuance, rescinded certain guidance contained in SAB No. 101 related to multiple element revenue arrangements, and replaced such guidance with that contained in EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB No. 104 rescinded the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB No. 101. The revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104, and therefore the adoption of SAB No. 104 did not have a material effect on the Company’s results of operations or financial condition.

In January 2003, the FASB issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities” (“FIN 46”). In December 2003, FIN 46 was replaced by FASB interpretation No. 46(R) “Consolidation of Variable Interest Entities.” FIN 46(R) clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46(R) requires an enterprise to consolidate a variable interest entity if that enterprise will absorb a majority of the entity’s expected losses, is entitled to receive a majority of the entity’s expected residual returns, or both. FIN 46(R) is effective for entities being evaluated under

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FIN 46(R) for consolidation no later than the end of the first reporting period that ends after March 15, 2004. The Company does not currently have any variable interest entities that will be impacted by adoption of FIN 46(R).

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 154, Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.  SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change.  Indirect effects of a change in accounting principle, such as a change in nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change.  SFAS No. 154 also requires that a change in depreciation, amortization or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle.  SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued.  Management does not expect the implementation of this new standard to have a material impact on our financial position, results of operations and cash flows.

In March 2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment”(“SAB 107”), which provides interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations.  It also provides the SEC staff’s views regarding valuation of share-based payment arrangements.  In April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow companies to implement the standard at the beginning of their next fiscal year, instead of the next reporting period beginning after June 15, 2005.  Management is currently evaluating the impact SAB 107 will have on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

We are financing our operations primarily with the proceeds of the sale of $8,000,000 of investment units, consisting of Series A Preferred Stock and associated warrants, by our subsidiary, ACT, in January 2005, prior to the closing of the Merger.  To a substantially lesser degree, financing of our operations is provided through grant funding, payments received under license agreements, and interest earned on cash and cash equivalents.

With the exception of 2002, when we sold certain assets of a subsidiary resulting in a gain for the year, we have incurred substantial net losses each year since inception as a result of research and development and general and administrative expenses in support of our operations. We anticipate incurring substantial net losses in the future.

Cash, cash equivalents, and cash held in escrow at June 30, 2005 and December 31, 2004 were approximately $3,246,000 and $3,676,000, respectively.  We have expended a substantial portion of the proceeds of the 8,000,000 Series A Preferred Stock and warrants issued in January 2005 to support ongoing operations.  The increase in the current period is the result of closing the financing described above, net of amounts spent for payment of notes and accounts payable, increased legal and accounting fees, and increases in other general and administrative expenses.

At June 30, 2005 and December 31, 2004, we had a note payable in the principal amount of $1,000,000, and related accrued interest of  approximately $357,000 and $297,000, respectively.  As an offset to these amounts owed to ACT Group, we had a receivable at June 30, 2005 and December 31, 2004 of approximately $656,000 and $394,000, respectively, primarily related to expenses incurred by ACT on behalf of ACT Group for salaries, legal fees and other costs incurred.

Our cash and cash equivalents are limited.  We expect to require substantial additional funding.  Our future cash requirements will depend on many factors, including the pace and scope of our research and development programs, the costs involved in filing, prosecuting, maintaining and enforcing patents and other costs associated with commercializing our potential products.  We intend to seek additional funding primarily through public or private financing transactions, and, to a lesser degree, new licensing or scientific collaborations, grants from

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governmental or other institutions, and other related transactions.   If we are unable to raise additional funds, we will be forced to either scale back our business efforts or curtail our business activities entirely. We anticipate that our available cash and expected income will be sufficient to finance most of our current activities  for at least twelve months from the date of the financial statements, although certain of these activities and related personnel may need to be reduced.  We cannot assure you that public or private financing or grants will be available on acceptable terms, if at all.  Several factors will affect our ability to raise additional funding, including, but not limited to, the volatility of our Common Stock.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

Our business is subject to various risks, included but not limited to those described below.  You should carefully consider these factors, together with all the other information disclosed in this Quarterly Report on Form 10-QSB.  Any of these risks could materially adversely affect our business, operating results and financial condition.

Risks Relating to Our Early Stage of Development

We have a limited operating history on which potential investors may evaluate our operations and prospects for profitable operations.We have a limited operating history on which a potential investor may base an evaluation of us and our prospects.  If we are unable to begin and sustain profitable operations, investors may lose their entire investment in us. We are in the development stage, and our prospects must be considered speculative in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly in light of the uncertainties relating to the new, competitive and rapidly evolving markets in which we anticipate we will operate. To attempt to address these risks, we must, among other things, further develop our technologies, products and services, successfully implement our research, development, marketing and commercialization strategies, respond to competitive developments and attract, retain and motivate qualified personnel. A substantial risk is involved in investing in us because, as a development stage company,

•we have fewer resources than an established company;

•our management may be more likely to make mistakes at such an early stage; and

•we may be more vulnerable operationally and financially to any mistakes that may be made, as well as to external factors beyond our control.

These difficulties are compounded by our heavy dependence on emerging and sometimes unproven technologies.  In addition, the fact that some of our significant potential revenue sources involve ethically sensitive and controversial issues which could become the subject of legislation or regulations that could materially restrict our operations and, therefore, harm our financial condition, operating results and prospects for bringing our investors a return on their investment.

We have a history of operating losses, and we cannot assure you that we will achieve future revenues or operating profits.We have generated insignificant revenue to date from our operations.  Historically, we have had net operating losses each year since our inception.  We have limited current potential sources of revenue from license fees and product development revenues, and we cannot assure you that we will be able to develop such revenue sources or that our operations will become profitable, even if we are able to commercialize our technologies or any products or services developed from those technologies.  If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment.

We have no commercially marketable products and no immediate ability to generate revenue from commercial products, nor any assurance of being able to develop our technologies for commercial applications.  As a result, we may never be able to operate profitably. We are just beginning to identify products available for pre-clinical trials and may not receive significant revenues from commercial sales of our products for the next several years, if at all, although we do generate revenues from licensing activities.  We have marketed only a limited amount of services based on our technologies and have little experience in doing so. Our technologies and any potential products or services that we may develop will require significant additional effort and investment prior to material commercialization and, in the case of any biomedical products, pre-clinical and clinical testing and regulatory

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approvals.  We cannot assure you that we will be able to develop any such technologies or any products or services, or that such technologies, products or services will prove to be safe and efficacious in clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable costs or be successfully marketed.  For that reason, we may not be able to generate revenues from commercial production or operate profitably.

We have sold the agricultural portion of our business in order to finance operations.  The agricultural applications of our technology generally have a more rapid realization of revenues due to more limited regulatory requirements and testing.  Our ability to generate revenue from any agricultural applications of our technology is limited to existing license royalties.

We will require substantial additional funds to continue operating which may not be available on acceptable terms, if at all.We believe our cash from all sources (cash, cash equivalents and anticipated revenue stream from licensing fees and sponsored research contracts) is sufficient for the Company to continue as a going concern through June 30, 2006.  However, without substantial additional financing during this period, we will need to significantly limit our capital and operational spending and therefore be limited in our ability to advance our scientific efforts or further our efforts to operate profitably.

We are evaluating alternatives and sources for additional funding, which may include public or private investors, strategic partners, and grant programs available through specific states or foundations. Lack of necessary funds may require us to delay, scale back or eliminate some or all of our research and product development programs and/or our capital expenditures or to license our potential products or technologies to third parties.

In addition, our cash requirements may vary materially from those now planned because of results of research and development, potential relationships with strategic partners, changes in the focus and direction of our research and development programs, competition, litigation required to protect our technology, technological advances, the cost of pre-clinical and clinical testing, the regulatory process of the United States Food and Drug Administration, or FDA, and foreign regulators, whether any of our products become approved or the market acceptance of any such products and other factors.  Our current cash reserves are not sufficient to fund our operations through the commercialization of our first products or services.

We have limited clinical testing, regulatory, manufacturing, marketing, distribution and sales capabilities which may limit our ability to generate revenues.Because of the relatively early stage of our research and development programs, we have not yet invested significantly in clinical testing, regulatory, manufacturing, or in marketing, distribution or product sales resources. We cannot assure you that we will be able to develop any such resources successfully or as quickly as may be necessary. The inability to do so may harm our ability to generate revenues or operate profitably.

Risks Relating to Our Technology

We rely on nuclear transfer and embryonic stem cell technologies that we may not be able to successfully develop, which will prevent us from generating revenues, operating profitably or providing investors any return on their investment.We have concentrated our research on our nuclear transfer and embryonic stem cell technologies, and our ability to operate profitably will depend on being able to successfully develop these technologies for human applications. These are emerging technologies with, as yet, limited human applications. We cannot guarantee that we will be able to successfully develop our nuclear transfer and embryonic stem cell technologies or that such development will result in products or services with any significant commercial utility. We anticipate that the commercial sale of such products or services, and royalty / licensing fees related to our technology, would be our primary sources of revenues. If we are unable to develop our technologies, investors will likely lose their entire investment in us.

The outcome of pre-clinical, clinical and product testing of our products is uncertain, and if we are unable to satisfactorily complete such testing, or if such testing yields unsatisfactory results, we will be unable to commercially produce our proposed products.  Before obtaining regulatory approvals for the commercial sale of

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any potential human products, our products will be subjected to extensive pre-clinical and clinical testing to demonstrate their safety and efficacy in humans.  We cannot assure you that the clinical trials of our products, or those of our licensees or collaborators, will demonstrate the safety and efficacy of such products at all, or to the extent necessary to obtain appropriate regulatory approvals, or that the testing of such products will be completed in a timely manner, if at all, or without significant increases in costs, program delays or both, all of which could harm our ability to generate revenues.  In addition, our prospective products may not prove to be more effective for treating disease or injury than current therapies. Accordingly, we may have to delay or abandon efforts to research, develop or obtain regulatory approval to market our prospective products. Many companies involved in biotechnology research and development have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and efficacy of a therapeutic product under development could delay or prevent regulatory approval of the product and could harm our ability to generate revenues, operate profitably or produce any return on an investment in us.

While the marketing of cloned or transgenic animals does not currently require regulatory approval, such approval may be required in the future.  We cannot assure you that we would obtain such approvals or that our licensees’ products would be accepted in the marketplace.  This lack of approval could reduce or preclude any royalty revenues we might receive from our licensees in that field.

We may not be able to commercially develop our technologies and proposed product lines, which, in turn, would significantly harm our ability to earn revenues and result in a loss of investment.Our ability to commercially develop our technologies will be dictated in large part by forces outside our control which cannot be predicted, including, but not limited to, general economic conditions, the success of our research and pre-clinical and field testing, the availability of collaborative partners to finance our work in pursuing applications of nuclear transfer technology and technological or other developments in the biomedical field which, due to efficiencies, technological breakthroughs or greater acceptance in the biomedical industry, may render one or more areas of commercialization more attractive, obsolete or competitively unattractive. It is possible that one or more areas of commercialization will not be pursued at all if a collaborative partner or entity willing to fund research and development cannot be located.  Our decisions regarding the ultimate products and/or services we pursue could have a significant adverse affect on our ability to earn revenue if we misinterpret trends, underestimate development costs and/or pursue that wrong products or services. Any of these factors either alone or in concert could materially harm our ability to earn revenues and could result in a loss of any investment in us.

If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.We are engaged in activities in the biotechnology field, which is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other biotechnology, agricultural, pharmaceutical or other companies will not render our technologies or potential products or services uneconomical or result in products superior to those we develop or that any technologies, products or services we develop will be preferred to any existing or newly-developed technologies, products or services.

We may not be able to protect our proprietary technology, which could harm our ability to operate profitably.The biotechnology and pharmaceutical industries place considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, to a substantial degree, on our ability to obtain and enforce patent protection for our products, preserve any trade secrets and operate without infringing the proprietary rights of others. We cannot assure you that:

•we will succeed in obtaining any patents, obtain them in a timely manner, or that the breadth or degree of protection that any such patents will protect our interests;

•the use of our technology will not infringe on the proprietary rights of others;

•patent applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued, such patents will afford adequate protection to us or not be challenged, invalidated or infringed; or

•patents will not issue to other parties, which may be infringed by our potential products or technologies.

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We are aware of certain patents that have been granted to others and certain patent applications that have been filed by others with respect to nuclear transfer technologies.  The fields in which we operate have been characterized by significant efforts by competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors’ purported patent rights and the technologies they actually utilize in their businesses.

Our business is highly dependent upon maintaining licenses with respect to key technology.Several of the key patents we utilize are licensed to us by third parties.  These licenses are subject to termination under certain circumstances (including, for example, our failure to make minimum royalty payments or to timely achieve development and commercialization benchmarks).  The loss of any of such licenses, or the conversion of such licenses to non-exclusive licenses, could harm our operations and/or enhance the prospects of our competitors.

Certain of such licenses also contain restrictions (e.g., limitations on our ability to grant sublicenses)  that could materially interfere with our ability to generate revenue through the licensing or sale to third parties of important and valuable technologies that we have, for strategic reasons, elected not to pursue directly.  The possibility exists that in the future we will require further licenses to complete and/or commercialize our proposed products.  We cannot assure you that we will be able to acquire any such licenses on a commercially viable basis.

Certain of our technology is not protectable by patent.Certain parts of our know-how and technology are not patentable. To protect our proprietary position in such know-how and technology, we intend to require all employees, consultants, advisors and collaborators to enter into confidentiality and invention ownership agreements with us.  We cannot assure you, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, in the absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business.

We may not be able to adequately protect against piracy of intellectual property in foreign jurisdictions. Considerable research in the areas of stem cells, cell therapeutics and regenerative medicine is being performed in countries outside of the United States, and a number of our competitors are located in those countries.  The laws protecting intellectual property in some of those countries may not provide protection for our trade secrets and intellectual property adequate to prevent our competitors from misappropriating our trade secrets or intellectual property.  If our trade secrets or intellectual property are misappropriated in those countries, we may be without adequate remedies to address the issue.

Risks Relating to Government Regulation

Companies such as ours engaged in research using nuclear transfer and embryonic stem cells are currently subject to strict government regulations, and our operations could be harmed by any legislative or administrative efforts impacting the use of nuclear transfer technology or human embryonic material. Our business is focused on human cell therapy, which includes the production of human differentiated cells from stem cells and involves the use of nuclear transfer technology, human oocytes, and embryonic material.  Nuclear transfer technology, commonly known as therapeutic cloning, and research utilizing embryonic stem cells are controversial subjects, and are currently subject to intense scrutiny, both in the United States, the United Nations and throughout the world, particularly in the area of nuclear transfer of human cells and the use of human embryonic material.

We cannot assure you that our operations will not be harmed by any legislative or administrative efforts by politicians or groups opposed to the development of nuclear transfer technology generally or the use of nuclear transfer for therapeutic cloning of human cells specifically. Further, we cannot assure you that legislative or administrative restrictions directly or indirectly delaying, limiting or preventing the use of nuclear transfer technology or human embryonic material or the sale, manufacture or use of products or services derived from nuclear transfer technology or human embryonic material will not be adopted in the future.

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Restrictions on the use of human embryonic stem cells, and the ethical, legal and social implications of that research, could prevent us from developing or gaining acceptance for commercially viable products in these areas.  Some of our most important programs involve the use of stem cells that are derived from human embryos. The use of human embryonic stem cells gives rise to ethical, legal and social issues regarding the appropriate use of these cells. In the event that our research related to human embryonic stem cells becomes the subject of adverse commentary or publicity, the market price for our common stock could be significantly harmed.  Some political and religious groups have voiced opposition to our technology and practices. We use stem cells derived from human embryos that have been created for in vitro fertilization procedures but are no longer desired or suitable for that use and are donated with appropriate informed consent for research use. Many research institutions, including some of our scientific collaborators, have adopted policies regarding the ethical use of human embryonic tissue. These policies may have the effect of limiting the scope of research conducted using human embryonic stem cells, thereby impairing our ability to conduct research in this field.

Potential and actual legislation and regulation related to our technology could limit our activities and ability to develop products for commercial sales, depriving us of our anticipated source of future revenues. In July 2001, the House of Representatives of the United States Congress passed a bill, HR 2505, the “Human Cloning Prohibition Act of 2001”.  This bill was placed on the calendar of the U.S. Senate in August 2002, where it did not pass.  However, similar bills could be introduced in the future aiming to prohibit the use or commercialization of somatic cell nuclear transfer technology or of any products resulting from it, including those related to human therapeutic cloning and regenerative medicine.  If passed, such a bill could have a significant influence on our ability to pursue our research, development and commercialization plans in the United States.

The Commonwealth of Massachusetts House of Representatives and Senate have passed a bill, S.2039, “An Act Relative to Enhancing Regenerative Medicine in the Commonwealth,” which has been sent to the Governor of the Commonwealth for action.  The bill, among other things, permits research and clinical applications involving the derivation and use of human embryonic stem cells, including somatic cell nuclear transfer, human adult stem cells from any source, umbilical cord stem cells, parthenotes, and placental cells; requires that all research involving the derivation human embryonic stem cells through the use human genetic material, including somatic cell nuclear transfer, and parthenogenesis or other asexual means be conducted only upon the written approval of a duly authorized Institutional Review Board (IRB); and prohibits the knowing purchase, sale or transfer of human embryos or gametes for valuable consideration for research purposes.  The bill also directs the biomedical research advisory council created pursuant to the bill to investigate the feasibility of permitting companies’ such as ours whose stock is publicly traded to use an alternative method of approval in lieu of the requirement of having to acquire IRB approval before conducting embryonic stem cell research.  If the bill becomes law, the biomedical research advisory council will be required to report its findings and recommendations (if any) by October 31, 2005.  If passed, this bill could have a significant influence on the Company’s ability to pursue its research, development and commercialization plans in Massachusetts.

Any future or additional government-imposed restrictions in these or other jurisdictions with respect to use of embryos or human embryonic stem cells in research and development could have a material adverse effect on us, by, among other things:

•      harming our ability to establish critical partnerships and collaborations;

•      delaying or preventing progress in our research and development;

•      limiting or preventing the development, sale or use of our products; and

•      causing a decrease in the price of our stock.

Because we or our collaborators must obtain regulatory approval to market our products in the United States and other countries, we cannot predict whether or when we will be permitted to commercialize our products. Federal, state and local governments in the United States and governments in other countries have significant regulations in place that govern many of our activities.  We are or may become subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with our research and development work. The preclinical testing and clinical trials of the products that

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we or our collaborators develop are subject to extensive government regulation that may prevent us from creating commercially viable products from our discoveries. In addition, the sale by us or our collaborators of any commercially viable product will be subject to government regulation from several standpoints, including manufacturing, advertising and promoting, selling and marketing, labeling, and distributing.

If, and to the extent that, we are unable to comply with these regulations, our ability to earn revenues will be materially and negatively impacted.  The regulatory process, particularly in the biotechnology field, is uncertain, can take many years and requires the expenditure of substantial resources. Biological drugs and non-biological drugs are rigorously regulated. In particular, proposed human pharmaceutical therapeutic product candidates are subject to rigorous preclinical and clinical testing and other requirements by the FDA in the United States and similar health authorities in other countries in order to demonstrate safety and efficacy. We may never obtain regulatory approval to market our proposed products.

Our products may not receive FDA approval, which would prevent us from commercially marketing our products and producing revenues.The FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacture and marketing of pharmaceutical products through lengthy and detailed laboratory, pre-clinical and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more and varies substantially based upon the type, complexity and novelty of the proposed product. We cannot yet accurately predict when we might first submit any Investigational New Drug, or IND, application to the FDA, or whether any such IND application would be granted on a timely basis, if at all, nor can we assure you that we will successfully complete any clinical trials in connection with any such IND application. Further, we cannot yet accurately predict when we might first submit any product license application for FDA approval or whether any such product license application would be granted on a timely basis, if at all.  As a result, we cannot assure you that FDA approvals for any products developed by us will be granted on a timely basis, if at all. Any such delay in obtaining, or failure to obtain, such approvals could have a material adverse effect on the marketing of our products and our ability to generate product revenue.

For-profit entities may be prohibited from benefiting from grant funding.  There has been much publicity about grant resources for stem cell research, including Proposition 71 in California. To date, California has not provided any funding related to research activities pursuant to this Proposition, and there is ongoing litigation in California that may delay, or prevent the sale of State bonds that would fund the activities contemplated by California voters.  In addition, rules and regulations related to any funding that may ultimately be provided, the type of entity that will be eligible for funding, the science to be funded, and funding details have not been finalized.  As a result of these uncertainties regarding Proposition 71, we cannot assure you that funding, if any, will be available to the Company, or any for-profit entity.

The government maintains certain rights in technology that we develop using government grant money and we may lose the revenues from such technology if we do not commercialize and utilize the technology pursuant to established government guidelines. Certain of our and our licensors’ research has been or is being funded in part by government grants. In connection with certain grants, the U.S. Government retains rights in the technology developed with the grant. These rights could restrict our ability to fully capitalize upon the value of this research.

Risks Relating to Competition

Our competition includes both public and private organizations and collaborations among academic institutions and large pharmaceutical companies, most of which have significantly greater experience and financial resources than we do.The biotechnology and pharmaceutical industries are characterized by intense competition. We compete against numerous companies, many of which have substantially greater financial and other resources than we have. Several such enterprises have initiated cell therapy research programs and/or efforts to treat the same diseases targeted by us. Companies such as Geron Corporation, Genzyme Corporation, StemCells, Inc., Aastrom Biosciences, Inc. and Viacell, Inc., as well as others, have substantially greater resources and experience in our fields than we do, and are well situated to compete with us effectively.  Of course, any of the world’s largest pharmaceutical companies represents a significant actual or potential competitor with vastly greater resources than ours.

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These companies hold licenses to genetic selection technologies and other technologies that are competitive with those of our technologies.  These and other competitive enterprises have devoted, and will continue to devote, substantial resources to the development of technologies and products in competition with us.

Private and public academic and research institutions also compete with us in the research and development of human therapeutic or agricultural products.  In the past several years, the pharmaceutical industry has selectively entered into collaborations with both public and private organizations to explore the possibilities that stem cell therapies may present for substantive breakthroughs in the fight against disease.

In addition, many of our competitors have significantly greater experience and financial resources than we have in the development, pre-clinical testing and human clinical trials of biotechnology and pharmaceutical products, in obtaining FDA and other regulatory approvals of such products and in manufacturing and marketing such products. Accordingly our competitors may succeed in obtaining FDA approval for products more rapidly or effectively than we can. Our competitors may also be the first to discover and obtain a valid patent to a particular stem cell which may effectively block all others from doing so.  It will be important for us or our collaborators to be the first to discover any stem cell that we are seeking to discover. Failure to be the first could prevent us from commercializing all of our research and development affected by that discovery. Additionally, if we commence commercial sales of any products, we will also be competing with respect to manufacturing efficiency and sales and marketing capabilities, areas in which we have no experience.

The United States is encountering tremendous competition from many foreign countries that are providing an environment more attractive for stem cell research. The governments of numerous foreign countries are investing in, providing facilities, personnel and legal environments intended to attract biotechnology companies and encourage stem cell research and development of stem cell-related technologies.

These efforts by foreign countries may make it more difficult to effectively compete in our industry and may generate competitors with substantially greater resources than ours.

Risks Relating to Our Reliance on Third Parties

We depend on our collaborators to help us develop and test our proposed products, and our ability to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful.  Our strategy for the development, clinical testing and commercialization of our proposed products requires that we enter into collaborations with corporate partners, licensors, licensees and others. We are dependent upon the subsequent success of these other parties in performing their respective responsibilities and the continued cooperation of our partners. Our collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to our research and development activities related to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us.

Under agreements with collaborators, we may rely significantly on such collaborators to, among other things:

•design and conduct advanced clinical trials in the event that we reach clinical trials;

•fund research and development activities with us;

•pay us fees upon the achievement of milestones; and

•market with us any commercial products that result from our collaborations.

The development and commercialization of potential products will be delayed if collaborators fail to conduct these activities in a timely manner or at all. In addition, our collaborators could terminate their agreements with us and we may not receive any development or milestone payments. If we do not achieve milestones set forth in the agreements, or if our collaborators breach or terminate their collaborative agreements with us, our business may be materially harmed.

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Our reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities are not wholly within our control, may lead to delays in development of our proposed products. We rely extensively upon and have relationships with scientific consultants at academic and other institutions, some of whom conduct research at our request, and other consultants with expertise in clinical development strategy or other matters. These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time to be dedicated to our activities.

In addition, we have formed research collaborations with academic and other research institutions throughout the world. These research facilities may have commitments to other commercial and non-commercial entities. We have limited control over the operations of these laboratories and can expect only limited amounts of time to be dedicated to our research goals.

We also rely on other companies for certain process development or other technical scientific work. We have contracts with these companies that specify the work to be done and results to be achieved, but we do not have direct control over their personnel or operations.  If any of these third parties are unable or refuse to contribute to projects on which we need their help, our ability to generate advances in our technologies and develop our products could be significantly harmed.

Risks Relating to A.C.T. Group, Inc.

One of our largest shareholders is in financial distress which may harm our ability to conduct operations.One ofour largest shareholders, ACT Group, is facing insolvency.  Two of our Board members also serve in similar positions at ACT Group.  Our Chairman, President and Chief Scientific Officer is the President of ACT Group.  Although our operations and those of ACT Group are distinct and separate, with separate governance structures, and the two companies observe strict corporate formalities distinct to the respective entities, there have been several attempts by the debt holders of ACT Group, via a legal complaint, to pierce the corporate veil and hold ACT responsible for ACT Group’s liabilities.  To date, those claims have not been successful.  However, we cannot assure you that there will not be further attempts by creditors of ACT Group to pierce the corporate veil, or that they will be unsuccessful in doing so.  If there are such future attempts, they could result in significant legal expenses in defending such claims.  Moreover, if ACT Group creditors are successful in piercing the corporate veil and holding us responsible for ACT Group debts, there will be a material adverse effect on our business and operations.

ACT Group is involved in certain litigation proceedings, which, if not resolved on terms satisfactory to us, could adversely affect our business.  ACT Group is involved in litigation relating to a claim for breach of contract and failure to pay brought by two of the individuals who hold Promissory Notes issued by ACT Group, as discussed in more detail in Part II, Item 1 “LEGAL PROCEEDINGS.”  The plaintiffs have obtained a judgment in the amount of approximately $690,000.  Our subsidiary, ACT, is a named defendant in this proceeding.  If ACT Group is unable to resolve this dispute on terms that are satisfactory to it and ACT, our business may be materially adversely affected.  The Massachusetts Superior Court has entered an order requiring all shares of our stock held by ACT Group be placed in escrow pending sale to satisfy this judgment.  Although the order specifies that the sale must be conducted in a commercially reasonable manner, we cannot assure you that the plaintiffs in this action will effect the sale in a manner that will not have a materially adverse impact upon the trading value of our stock.  Other creditors of ACT Group have also filed suit against ACT Group.  We cannot assure you that these creditors will not also take action against that company that could have a material adverse impact upon the trading value of our stock due to the significant block of our stock held by ACT Group.

General Risks Relating to Our Business

We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.  Our business may bring us into conflict with our licensees, licensors, or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us.

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That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.  Additional discussion regarding litigation in which the Company and/or ACT is involved is contained in Part II, Item 1 “LEGAL PROCEEDINGS.”

Patent litigation presents an ongoing threat to our business with respect to both outcomes and costs.We have previously been involved in patent interference litigation with Infigen, Inc., and are currently involved in two patent disputes with Geron Corporation, and it is possible that further litigation over patent matters with one or more competitors could arise. We could incur substantial litigation or interference costs in defending ourselves against suits brought against us or in suits in which we may assert our patents against others. If the outcome of any such litigation, including our current disputes with Geron Corporation, is unfavorable, our business would likely be materially adversely affected. To determine the priority of inventions, we may also have to participate in interference proceedings declared by the United States Patent and Trademark Office, which could result in substantial cost to us.  Without additional capital, we may not have the resources to adequately defend or pursue this litigation.

We may not be able to obtain third-party patient reimbursement or favorable product pricing, which would reduce our ability to operate profitably. Our ability to successfully commercialize certain of our proposed products in the human therapeutic field may depend to a significant degree on patient reimbursement of the costs of such products and related treatments at acceptable levels from government authorities, private health insurers and other organizations, such as health maintenance organizations. We cannot assure you that reimbursement in the United States or foreign countries will be available for any products we may develop or, if available, will not be decreased in the future, or that reimbursement amounts will not reduce the demand for, or the price of, our products with a consequent harm to our business. We cannot predict what additional regulation or legislation relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such regulation or legislation may have on our business. If additional regulations are overly onerous or expensive, or if health care related legislation makes our business more expensive or burdensome than originally anticipated, we may be forced to significantly downsize our business plans or completely abandon our business model.

Our products are likely to be expensive to manufacture, and they may not be profitable if we are unable to control the costs to manufacture them.  Our products are likely to be significantly more expensive to manufacture than most other drugs currently on the market today.  Our present manufacturing processes produce modest quantities of product intended for use in our ongoing research activities, and we have not developed processes, procedures and capability to produce commercial volumes of product We hope to substantially reduce manufacturing costs through process improvements, development of new science, increases in manufacturing scale and outsourcing to experienced manufacturers. If we are not able to make these, or other improvements, and depending on the pricing of the product, our profit margins may be significantly less than that of most drugs on the market today. In addition, we may not be able to charge a high enough price for any cell therapy product we develop, even if they are safe and effective, to make a profit. If we are unable to realize significant profits from our potential product candidates, our business would be materially harmed.

To be successful, our proposed products must be accepted by the health care community, which can be very slow to adopt or unreceptive to new technologies and products.  Our proposed products and those developed by our collaborative partners, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community in general may decide not to accept and utilize these products. The products that we are attempting to develop represent substantial departures from established treatment methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any of our developed products will depend on a number of factors, including:

•our establishment and demonstration to the medical community of the clinical efficacy and safety of our proposed products;

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•our ability to create products that are superior to alternatives currently on the market;

•our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

•reimbursement policies of government and third-party payors.

If the health care community does not accept our products for any of the foregoing reasons, or for any other reason, our business would be materially harmed.

Our current source of revenues depends on the stability and performance of our sublicensees. Our ability to collect royalties on product sales from our sublicensees will depend on the financial and operational success of the companies operating under a sublicense.  We have numerous licensees to third parties including Lifeline Cell Technology, Exeter Life Sciences and GTC Biotherapeutics, as well as others that hold licenses to our technology.  Revenues from those licensees will depend upon the financial and operational success of those third parties.  We cannot assure you that these licensees will be successful in obtaining requisite financing or in developing and successfully marketing their products.  These licensees may experience unanticipated obstacles including regulatory hurdles, and scientific or technical challenges, which could have the effect of reducing their ability to generate revenues and pay us royalties.

We depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly hinder our ability to move forward with our business plan.Because of the specialized nature of our business, we are highly dependent on our ability to identify, hire, train and retain highly qualified scientific and technical personnel for the research and development activities we conduct or sponsor. The loss of one or more certain key executive officers, or scientific officers, would be significantly detrimental to us.  In addition, recruiting and retaining qualified scientific personnel to perform research and development work is critical to our success. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing and marketing, will require the addition of new management personnel and the development of additional expertise by existing management personnel. There is intense competition for qualified personnel in the areas of our present and planned activities, and there can be no assurance that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business. The failure to attract and retain such personnel or to develop such expertise would adversely affect our business.

Our credibility as a business operating in the field of human embryonic stem cells is largely dependent upon the support of our Ethics Advisory Board.Because the use of human embryonic stem cells gives rise to ethical, legal and social issues, the Company consults with its Ethics Advisory Board on a regular basis.  The Company’s Ethics Advisory Board is made up of highly qualified individuals with expertise in the field of human embryonic stem cells.  We cannot assure you that these members will continue to serve on our Ethics Advisory Board, and the loss of any such member may affect the credibility and effectiveness of the Board.  As a result, our business may be materially harmed in the event of any such loss.

Our insurance policies may be inadequate and potentially expose us to unrecoverable risks.  We have limited director and officer insurance and commercial insurance policies. Any significant insurance claims would have a material adverse effect on our business, financial condition and results of operations.  Insurance availability, coverage terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate insurance coverage for insurable risks that we identify, however, we may fail to correctly anticipate or quantify insurable risks, we may not be able to obtain appropriate insurance coverage, and insurers may not respond as we intend to cover insurable events that may occur. We have observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions have resulted in higher premium costs, higher policy deductibles, and lower coverage limits. For some risks, we may not have or maintain insurance coverage because of cost or availability.

We have no product liability insurance, which may leave us vulnerable to future claims we will be unable to satisfy.The testing, manufacturing, marketing and sale of human therapeutic products entail an inherent risk of product liability claims, and we cannot assure you that substantial product liability claims will not be asserted against us. We have no product liability insurance. In the event we are forced to expend significant funds on

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defending product liability actions, and in the event those funds come from operating capital, we will be required to reduce our business activities, which could lead to significant losses.

We cannot assure you that adequate insurance coverage will be available in the future on acceptable terms, if at all, or that, if available, we will be able to maintain any such insurance at sufficient levels of coverage or that any such insurance will provide adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained in the future, any product liability claim could harm our business or financial condition.

We need to improve our financial control procedures.  Since the Merger, we have determined that there are serious deficiencies in the operating effectiveness of our internal controls over financial reporting that we believe would collectively constitute significant deficiencies and material weaknesses under standards established by the American Institute of Certified Public Accountants, resulting in more than a remote likelihood that a material misstatement of the annual or interim financial statements of the Company will not be prevented or detected.

In our opinion, we have not established and did not maintain effective internal control over financial reporting as of June 30, 2005.  We also believe that because of the effect of the material weakness we have identified, we have not maintained effective internal control over financial reporting as of June 30, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company has taken initial remedial steps, and will continue its on-going evaluation of internal controls and expects to improve its internal controls over financial reporting as necessary to assure their effectiveness, but there can be no assurance that it will succeed or that other deficiencies will not be identified.

The Company presently has members of management and other key employees located in various locations throughout the country which adds complexities to the operation of the business.  Presently, the Company has members of management and other key employees located in both California and Massachusetts, which adds complexities to the operation of our business.  The Company intends to maintain its research facilities in Massachusetts and establish corporate offices and an additional research facility in California.  The Company will likely incur significant costs associated with maintaining multiple locations.

We face risks related to compliance with corporate governance laws and financial reporting standards.  The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, required changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting (“Section 404”), have materially increased our legal and financial compliance costs and made some activities more time-consuming and more burdensome. Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management assess our internal control over financial reporting annually and include a report on its assessment in our annual report. Our independent registered public accounting firm is required to audit both the design and operating effectiveness of our internal controls and management’s assessment of the design and the operating effectiveness of its internal controls. As described below in Part I, Item 3 of this Quarterly Report on Form 10-QSB, there exist material weaknesses and deficiencies at this time in the Company’s internal controls.  These weaknesses and deficiencies could have a material adverse effect on our business and operations.

Risks Relating to Our Common Stock

Stock prices for biotechnology companies have historically tended to be very volatile.  Stock prices and trading volumes for many biotechnology companies fluctuate widely for a number of reasons, including but not limited to the following factors, some of which may be unrelated to their businesses or results of operations:

•clinical trial results;

•the amount of our cash resources and our ability to obtain additional funding;

•announcements of research activities, business developments, technological innovations or new products by us or our competitors;

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•entering into or terminating strategic relationships;

•changes in government regulation;

•disputes concerning patents or proprietary rights;

•changes in our revenues or expense levels;

•public concern regarding the safety, efficacy or other aspects of the products or methodologies we are developing;

•reports by securities analysts;

•activities of various interest groups or organizations;

•media coverage; and

•status of the investment markets.

This market volatility, as well as general domestic or international economic, market and political conditions, could materially and adversely affect the market price of our common stock and the return on your investment.

The sale or issuance of a substantial number of shares may adversely affect the market price for our common stock.  Sale of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could significantly and negatively affect the market price for our common stock.  We expect that we will likely issue a substantial number of shares of our capital stock in financing transactions in order to fund our operations and the growth of our business.  In addition, we have issued common stock to certain parties, such as vendors and service providers, as payment for products and services. Under these arrangements, we may agree to register the shares for resale soon after their issuance. We may also continue to pay for certain goods and services with equity, which would dilute your interest in the Company. Also, sales of the shares issued in this manner could negatively affect the market price of our stock.

We do not intend to pay cash dividends on our common stock in the foreseeable future.  Any payment of cash dividends will depend upon our financial condition, results of operations, capital requirements and other factors and will be at the discretion of the Board of Directors. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Furthermore, we may incur additional indebtedness that may severely restrict or prohibit the payment of dividends.

Our securities are quoted on the OTC Bulletin Board, which may limit the liquidity and price of our securities more than if our securities were quoted or listed on the Nasdaq Stock Market or a national exchange. Our securities are currently quoted on the OTC Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included in the Nasdaq Stock Market. Quotation of our securities on the OTC Bulletin Board may limit the liquidity and price of our securities more than if our securities were quoted or listed on The Nasdaq Stock Market or a national exchange. Some investors may perceive our securities to be less attractive because they are traded in the over-the-counter market.  In addition, as an OTC Bulletin Board listed company, we do not attract the extensive analyst coverage that accompanies companies listed on Nasdaq or any other regional or national exchange. Further, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities traded in the over-the-counter market. The factors may have an adverse impact on the trading and price of our securities.

Our common stock is subject to “penny stock” regulations and restrictions on initial and secondary broker-dealer sales. The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions.  Penny stocks are subject to certain additional oversight and regulatory requirements.  Brokers and dealers affecting transactions in our Common Stock in many circumstances must obtain the written consent of a customer prior to purchasing our Common Stock, must obtain information from the customer and must provide disclosures to the customer.  These requirements may restrict the ability of broker-dealers to sell our Common Stock and may affect your ability to sell your shares of our Common Stock in the secondary market.

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ITEM 3.  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  The Company’s management, with the participation of our principal executive officer, has evaluated the effectiveness of our 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”)), as of the end of the period covered by this Quarterly Report on Form 10-QSB. Based on such evaluation, due to the material weaknesses in our internal controls over financial reporting further described below, our principal executive officer has concluded that such disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  The Company is therefore in the process of designing new disclosure controls and procedures to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in applicable SEC rules and forms are effective.

(b) Changes in internal controls.  The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control system is intended to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.  The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2005. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.

Management’s assessment identified material deficiencies in the Company’s internal control over financial reporting.  These deficiencies include lack of segregation of duties, limited capability to interpret and apply United States generally accepted accounting principles, lack of adequate documentation of our system of internal controls, lack of formal accounting policy and procedures and related documentation, deficiencies in our information technology systems and lack of a formal budgeting process. We also have not yet instituted new internal control processes related to our identified material weaknesses, significant deficiencies and deficiencies, as has been characteristic of companies that have completed their review of internal controls and have had to report on the effect or such review. Accordingly, our internal control over financial reporting may be subject to additional material weaknesses and deficiencies that we have not identified.  Management has determined that these significant deficiencies, in the aggregate, constituted a material weakness in the design and operation of the Company’s internal controls in effect prior to June 30, 2005. Although the Company hired a chief financial officer on April 1, 2005, and added additional finance personnel, the new controls these additions allowed were in the process of being implemented during the quarter ended June 30, 2005.  As a result of the material weaknesses described in the preceding paragraph, we believe that, as of June 30, 2005, the Company’s internal control over financial reporting was not effective based on the COSO criteria.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Currently, we are involved in several legal proceedings as described in Part II, Item 1 of our Quarterly Report on Form 10-QSB for the period ended March 31, 2005, as filed with the Securities and Exchange Commission on May 23, 2005.  In addition, material developments with regard to such proceedings are disclosed herein.

Gary D. Aronson and John Gorton v. A.C.T. Group, Inc., Advanced Cell Technology, Inc., Michael D. West, and Gunnar L. Engstrom. Commonwealth of Massachusetts Superior Court. Worcester. C.A. No. 040523B.  This proceeding is a claim for breach of contract and failure to pay brought by two of the individuals who hold Promissory Notes issued by ACT Group. ACT is a named defendant in this proceeding.  In April 2004, the court entered an order denying a request for a temporary restraining order and preliminary injunction with respect to our subsidiary ACT.  In its order, the Court stated that, based upon the record before the Court at

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that stage of the proceeding, ACT, was “not legally responsible” for these ACT Group obligations.  In August 2004, the plaintiffs obtained a judgment against ACT Group for $690,040. The Massachusetts Superior Court before which this proceeding is pending has entered an Order requiring all 6,811,146 shares of our stock held by ACT Group be placed in escrow pending sale to satisfy this judgment.  Although the Order specifies that the sale must be conducted in a commercially reasonable manner, we cannot assure you that the plaintiffs in this action will effect the sale in a manner that will not have a materially adverse impact upon the trading value of our stock.  The Company and certain of its officers and directors have been named as contemnors in a related contempt complaint seeking to enforce the judgment against ACT Group.  and have been ordered to show cause why they should not be held in contempt for allegedly aiding and abetting ACT Group’s alleged contempt.  The Company and certain officers have moved to dismiss the contempt complaint.  At the request of the parties, the Massachusetts Superior Court has delayed scheduling a hearing on the show cause order and to Company’s motion to dismiss.   If ACT Group is unable to resolve this dispute on terms that are satisfactory to it and the Company, our business may be materially adversely affected.  Although our operations and those of ACT Group are distinct and separate, with separate governance structures, and the two companies observe strict corporate formalities distinct to the respective entities, the plaintiffs in this action seek to pierce the corporate veil and hold us responsible for ACT Group’s liabilities.  To date, those claims have not been successful.  However, we cannot assure you that there will not be further attempts to pierce the corporate veil, or that they will be unsuccessful in doing so.  If there are such future attempts, they could result in significant legal expenses in defending such claims.  Moreover, if the plaintiffs creditors are successful in piercing the corporate veil and holding us responsible for these ACT obligations, there will be a material adverse effect on our business and operations.

University of Massachusetts and Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron Corporation and Exeter Life Sciences, Inc., U.S. District Court for the District of Columbia. The Company filed an action on February 18, 2005 in the U.S. District Court for the District of Columbia. The Company brought this action under 35 U.S.C. 146 to reverse the decision of the Board of Patent Appeals and Interferences regarding a patent to a method of cloning non-human animals. The patent, U.S. Patent No. 5,945,577, is licensed by the University of Massachusetts exclusively to the Company.  The parties have agreed to stay all proceedings until September 8, 2005.  Adverse determinations in this proceeding would have a materially adverse effect on our business.

University of Massachusetts and Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron Corporation and Exeter Life Sciences, Inc., U.S. District Court for the District of Columbia. The Company filed an action on April 7, 2005 in the U.S. District Court for the District of Columbia. The Company brought this action under 35 U.S.C. 146 to reverse the decision of the Board of Patent Appeals and Interferences regarding a patent to a method of creating embryonic stem cells. The patent, U.S. Patent No. 6,235,970, is licensed by the University of Massachusetts exclusively to the Company. The parties have agreed to stay all proceedings until September 8, 2005.  Adverse determinations in this proceeding would have a materially adverse effect on our business.

University of Massachusetts v. James M. Robl and Phillippe Collas, Massachusetts Superior Court (Suffolk County).  The University of Massachusetts, referred to as UMass, filed a complaint on February 22, 2004 in the Superior Court (Suffolk County) for the Commonwealth of Massachusetts.  We are not a party to this litigation; however, a decision adverse to UMass in this litigation could have a materially adverse effect on the Company’s business.  ACT has moved to intervene in this action in which UMass is seeking to establish its ownership of inventions made by the defendants while they were employed UMass.  ACT filed its motion to protect is interest as exclusive licensee in the inventions made at UMass.  The court has yet to rule on the motion to intervene.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 6, 2005, the Company issued 12,000 shares to a former employee as a result of the exercise of stock options awarded under the Company’s 2004 Stock Option Plan.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

No matters were submitted to stockholders during the period covered by this Quarterly Report.

Following the close of the period covered by this Quarterly Report, on July 6, 2005, certain matters were submitted to a vote of our stockholders, and approved by the requisite vote of our stockholders as follows:

1.     To amend the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.001 per share, to 100,000,000, and to increase the number of authorized shares of the Company’s undesignated preferred stock, par value $0.001 per share, to 50,000,000, in each case with no change in the par value receiving the following votes:

Number of Shares
For	Against	Withheld	Not Voted
12,774,522	1,000	25	0

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2.     To adopt the Company’s 2005 Stock Incentive Plan which provides for equity based awards to the Company’s employees, directors and consultants, and to reserve up to 18,000,000 shares of Common Stock for issuance pursuant to the grant of awards thereunder receiving the following votes:

Number of Shares
For	Against	Withheld	Not Voted
12,775,197	225	125	0

The number of shares of our common stock eligible to vote as of the record date of June 6, 2005 was 23,225,212 shares.

ITEM 5.  OTHER INFORMATION

ITEM 6.  EXHIBITS

The exhibits listed on the accompanying exhibit index are filed as a part of this Quarterly Report on Form 10-QSB.

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SIGNATURES

Pursuant to the requirements 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.

	ADVANCED CELL TECHNOLOGY, INC.
Date: August 15, 2005	/s/ William M. Caldwell, IV
	William M. Caldwell, IV
	Chief Executive Officer
	(Principal Executive Officer)
Date: August 15, 2005	/s/ James G. Stewart
	James G. Stewart
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit
Number	Description
3.1	Certificate of Amendment to Certificate of Incorporation (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated July 7, 2005).
3.2	Certificate of Amendment to Certificate of Incorporation (previously filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated June 22, 2005).
10.1	Amendment No. 1 to Employment Agreement of Michael D. West, PhD, dated as of August 1, 2005 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed August 5, 2005).
10.2	Research Collaboration Agreement between the Registrant and The Burnham Institute dated as of May 23, 2005 (filed herewith).
14.1	Code of Ethics for Designated Senior Financial Managers (previously filed as Exhibit 14.1 to the Registrant’s Current Report on Form 8-K dated August 5, 2005).
14.2	Code of Business Conduct and Ethics (previously filed as Exhibit 14.2 to the Registrant’s Current Report on Form 8-K dated August 5, 2005).
16.1	Copy of letter from Pritchett, Siler & Hardy, P.A. (previously filed as Exhibit 16.1 to the Registrant’s Current Report on Form 8-K dated May 10, 2005).
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of 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.

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EX-10.2

Exhibit 10.2

RESEARCH COLLABORATION AGREEMENT

This Research Collaboration Agreement (“Agreement”) is made as of May 23, 2005 (the “Effective Date”), by and between The Burnham Institute, a California 501(c)(3) corporation with offices at 10901 North Torrey Pines Road, La Jolla, CA 92037 (hereinafter, “INSTITUTE”), and Advanced Cell Technology, Inc., a Nevada corporation doing business at 11100 Santa Monica Boulevard, Suite 850, Los Angeles, CA 90025 (“ACT”) and Advanced Cell, Inc., a Delaware corporation doing business at 381 Plantation Street, Worcester, MA 01605 (“Advanced Cell”) (ACT and Advanced Cell hereinafter referred to collectively as “COLLABORATOR”).  INSTITUTE or COLLABORATOR may each be referred to herein singularly as a “Party” or collectively as “Parties” to this Agreement.

WHEREAS, INSTITUTE and COLLABORATOR are engaged in the field of stem cell research;

WHEREAS, the Research Project (as defined herein) is of mutual interest and benefit to INSTITUTE and COLLABORATOR and may further the research mission of INSTITUTE in a manner consistent with its status as a non-profit, tax exempt research institution;

WHEREAS, INSTITUTE intends to conduct the study “Mapping Stem Cell-Specific Differentiation Markers” in cooperation with COLLABORATOR;

WHEREAS, COLLABORATOR wishes to be involved in the Research Project,  has biological and other research materials described herein and has associated know-how and documentation, which may be useful in the Research Project;

WHEREAS, INSTITUTE has developed biological and other research materials described herein, and has associated know-how and documentation which may be useful in the Research Project;

WHEREAS, Dr. Erkki Ruoslahti will coordinate the Research Project for the INSTITUTE, and David Larocca is designated to coordinate all interests of COLLABORATOR in the Research Project;

WHEREAS, INSTITUTE and David Larocca previously entered into that certain “Confidentiality, Trade Secret and Invention Agreement” (Facility User) dated June 2 , 2005 (the “Facility User Agreement”); and

WHEREAS, COLLABORATOR and INSTITUTE are willing to conduct the Research Project in accordance with the terms and conditions of this Agreement;

NOW, THEREFORE, the Parties agree as follows:

1.RESEARCH COLLABORATION

1.1The Agreement, Statements of Work and Research Projects.  COLLABORATOR and INSTITUTE desire to undertake collaborative research activities in the

1

field of Mapping Stem Cell-Specific Differentiation Markers as described in the Statement of Work attached hereto as Attachment A, which is incorporated herein by reference, or in such other Statements of Work as may be mutually agreed upon by the parties (the research or other activities described in the Statements of Work are referred to herein as the “Research Project”).  The Statements of Work, each of which shall specifically refer to this Agreement and be signed by the duly authorized representatives of the parties, shall at a minimum include a description of the Research Project, INSTITUTE Materials or COLLABORATOR Materials, as applicable (as defined below) to be used in connection with the Research Project, the time for performing and completing the Research Project, and the respective contributions of COLLABORATOR and INSTITUTE to the Research Project.  If there is any difference between the terms and conditions of any Statement of Work and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control.  The Research Project, as described in the Statements of Work shall not exceed the scope of work set forth on the applicable Statement of Work, provided that the INSTITUTE Principal Investigator (identified below) and the COLLABORATOR Principal Investigator (identified below) may agree to modifications of the Statement of Work that do not alter its scope, as they believe appropriate.  Any significant changes to a Statement of Work must be in writing and must be approved by COLLABORATOR and INSTITUTE.

1.2Principal Investigators. The Research Project shall be conducted under the guidance of the INSTITUTE Principal Investigator, Dr. Erkki Ruoslahti, and the COLLABORATOR Principal Investigator, Dr. David Larocca.

1.3Performance of Research Project.  Unless otherwise agreed in a Statement of Work, the Research Project, as described in the applicable Statement of Work, shall be conducted at and coordinated from the facilities of INSTITUTE, including from the lab and office space leased by COLLABORATOR as contemplated in Section 3 of this Agreement, under the supervision and direction of the Principal Investigators.  The parties agree that any work conducted in connection with the Research Project shall be performed by personnel (whether as employees, independent contractors, etc. of the parties) who are required to assign to COLLABORATOR or INSTITUTE, as applicable, all right, title and interest in and to any Research Results and/or Joint Patent Rights.  INSTITUTE shall be responsible for the overall administrative management of the Research Project.  The COLLABORATOR Principal Investigator and the INSTITUTE Principal Investigator, shall communicate on a regular basis both in person, by telephone, or by written (electronic or otherwise) communication, regarding the performance of the Research Project The parties agree that they will use reasonable commercial efforts to complete the Research Project within the period of time described in the applicable Statement of Work; however, neither COLLABORATOR nor INSTITUTE makes any warranties regarding the completion of the Research Project or the achievement of any particular results.

1.4Access and Information

The INSTITUTE and the COLLABORATOR shall each provide the other on an ongoing basis with such access to its facilities and research results as may be reasonably necessary to enable them to review and evaluate the progress of the Research Project.  Such access shall be at times mutually agreeable to both Parties.  Facilities access to INSTITUTE

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facilities by COLLABORATOR representatives other than COLLABORATOR Principal Investigator shall be limited to only the lab and office space contemplated in Section 3 herein.

1.5Reports.  The parties shall cooperate in preparing written reports (each, a “Report” or collectively, the “Reports”) for the Research Project, which Reports shall be completed within thirty (30) days after the end of the Research Project.  The Reports shall include all research results, including reference to laboratory notebooks, containing pertinent data, maintained in accordance with customary practice and issues related to the conduct of the Research Project.  Each party shall be entitled to retain copies of the Reports.

1.6Ownership of Equipment.  Upon termination or expiration of this Agreement, INSTITUTE shall retain title to all equipment purchased or fabricated by INSTITUTE for use in connection with the Research Project, and COLLABORATOR shall retain title to all equipment purchased or fabricated by COLLABORATOR for use in connection with the Research Project.

1.7Compliance with Law.  The parties agree that all studies, research, and testing done under this Agreement shall be performed in strict compliance with all applicable laws, rules and regulations governing the conduct of studies, research and testing at the site where such studies, research and testing are being conducted.

1.8Acknowledgment of Risks Associated with Research Project.  COLLABORATOR and INSTITUTE acknowledge, understand and agree that the subject of the Research Project is experimental, that its characteristics and functionality are not fully understood, and that there may be substantial risks associated with the unknown properties of the products of the Research Project or any other associated materials.

1.9Third Party Rights.  The Parties agree that they shall not use, or acquire for use, any third party materials or funds, directly or indirectly, in the Research Project, if the use of such materials or funds would provide such third party with any rights to the Research Project results without consultation with and written agreement from the other Party.

2.COLLABORATION MATERIALS.  Biological and other research materials, as defined herein, may be transferred between INSTITUTE and COLLABORATOR in connection with the Research Project.  COLLABORATOR agrees to provide INSTITUTE with biological and other research materials, including the materials described in Attachment B to this Agreement (“COLLABORATOR Material”), and INSTITUTE agrees to provide COLLABORATOR with biological and other research materials, including the materials described in Attachment B to this Agreement (“INSTITUTE Material”), subject to the agreement of the Parties to the following terms and conditions:

(a)The COLLABORATOR Material, including any and all unmodified descendents and derivatives of the COLLABORATOR Material, is the property of COLLABORATOR.

(b)The COLLABORATOR Material represents a significant investment on the part of, and is proprietary to, COLLABORATOR.  The INSTITUTE will not attempt to obtain a patent claiming the COLLABORATOR Material.

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(c)The INSTITUTE Material, including any and all unmodified descendents and derivatives of the INSTITUTE Material, is the property of INSTITUTE.

(d)The INSTITUTE Material represents a significant investment on the part of, and is proprietary to, INSTITUTE.  COLLABORATOR will not attempt to obtain a patent claiming the INSTITUTE Material.

(e)Except for the provision of materials between Parties in carrying out the Research Project, neither Party will transfer any “Material” (which term shall include INSTITUTE Material and COLLABORATOR Material) of the other Party to (i) any person who is not under direct supervision of the Party receiving the Material, nor (ii) any third party without first securing the advance written permission of the Party that owns the Material.  Each Party will ensure that all persons it authorizes to use the Material of the other Party as set forth in this Agreement are aware of, and agree to abide by all of the terms and conditions of, this Agreement.

(f)Any uses by a Party of the other Party’s Material other than in connection with the Research Project are expressly prohibited.  In no event will either Party attempt to reverse engineer, deconstruct or in any way determine the structure or composition of the other Party’s Materials provided hereunder.  Each Party expressly agrees that the provision of the other Party’s Material will not be construed as a grant of any right or license to make, use, sell, transfer, offer for sale or import such Material except as set forth herein.

(g)Materials transferred under this Agreement are provided for use in animals or in vitro only and shall not be used in humans.

(h)No rights are granted to either Party under any patents, patent applications, trade secrets or other proprietary rights of another Party other than the right to use the COLLABORATOR Material or the INSTITUTE Material in the Research Project, except as provided in the terms of this Agreement.

(i)All Material provided pursuant to the Research Project will remain the property of the providing Party, and will be used solely for the purposes of the Research Project.  Upon termination of this Agreement, the unused portions of such Material will be returned to the providing Party or will be disposed of as directed by the providing Party in writing.

3.RESEARCH FUNDING, LEASE.

3.1Each Party shall pay its own expenses for work performed in the Research Project, provided that COLLABORATOR agrees to the expenditures for the Research Project identified in the budget attached to this Agreement as Attachment C, including monthly reimbursement to the INSTITUTE for fifty percent (50%) of the salary and employee benefits for the INSTITUTE employee assigned to the Research Project.  The first monthly reimbursement of two thousand three hundred twenty-five dollars ($2,325.00) per Attachment C is due within five (5) days of execution of this Agreement, and each subsequent payment shall be made on the first day of each month thereafter.  Payments should be sent with the payments due under Paragraph 3.3 below to the INSTITUTE contact listed in Paragraph 9.11 herein.

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3.2COLLABORATOR, at its expense, may utilize INSTITUTE’S Shared Resources as listed and priced in Attachment D to perform the Research Project.  Prices are subject to change without notice.

3.3COLLABORATOR’s use of general lab supplies during the Project Period will be charged at a fixed rate of two thousand dollars ($2,000.00) per month for each full time equivalent as provided in Attachment C.  The first monthly payment of four thousand dollars ($4,000.00) is due within five (5) days of execution of this Agreement, and each subsequent payment shall be made on the first day of each month thereafter.  Payments should be sent to the INSTITUTE contact listed in Paragraph 9.11 herein.

3.4Project specific supplies will be purchased directly by the COLLABORATOR.

3.5COLLABORATOR will lease lab and office space from the INSTITUTE per the Lease Agreement of even date herewith attached as Attachment E.

4.PROJECT PERIOD.  The Research Project will commence on the Effective Date and will continue for a period of one (1) year, unless extended by agreement of the Parties in writing or sooner terminated as hereinafter provided.

5.CONFIDENTIALITY.  Subject to Section 6, any confidential information exchanged by the Parties in order to conduct the Research Project will be disclosed in writing and clearly marked “Confidential” at the time of disclosure to the receiving Party, or if orally disclosed, reduced to writing within thirty (30) days after disclosure by the disclosing Party and identified as confidential.  In addition, disclosures of Results and Inventions (as defined in Section 7 below) and Reports (as defined in Paragraph 1.5) shall be treated as Confidential Information, subject to this Section 5.  In order to avoid disclosure of Confidential Information, the Parties agree that for a period of five (5) years from the date of disclosure, they will treat any Confidential Information from the other Party with the same degree of care that they employ with respect to their own information, which they do not desire to have published or disseminated.  Confidential Information shall only be disclosed to the INSTITUTE Principal Investigator or COLLABORATOR Representative, who will have the right to refuse or accept any such information and the responsibility to control its distribution to his/her laboratory personnel participating in the Research Project.  It is understood that neither Party will be liable for any unauthorized disclosure unless they fail to safeguard the Confidential Information with such care; however, neither Party will have any obligation with respect to Confidential Information which:

(a)is publicly available prior to the date of this Agreement or becomes publicly available thereafter through no wrongful act of the receiving Party;

(b)was known to the receiving Party prior to the date of disclosure or becomes known to the receiving Party thereafter from a third party having an apparent bona fide right to disclose the information;

(c)is disclosed by the receiving Party with the disclosing Party’s prior written approval;

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(d)is disclosed by the disclosing Party without restriction on further disclosure;

(e)is independently developed by the receiving Party without use of the Confidential Information provided hereunder;

(f)the receiving Party is obligated to produce pursuant to an order of a court of competent jurisdiction or a valid administrative or Congressional subpoena, provided that the receiving Party (a) promptly notifies the disclosing Party and (b) cooperates reasonably with the disclosing Party’s efforts to contest or limit the scope of such order and (c) takes all necessary steps to protect the confidentiality of the Confidential Information including without limitation filing any documents with the court under seal.

6.PUBLICATION.  It is anticipated the results of the Research Project will be jointly published, however each Party may publish, or otherwise publicly disclose the results of their own information and data generated from the conduct of the Research Project, provided however that in all oral presentations or written publications concerning the Research Project, the disclosing or publishing Party agrees that no such publication or disclosure will include any of the other Party’s Confidential Information without such Party’s prior written approval.  If a proposed publication or other form of public disclosure is not a joint publication, the disclosing or publishing Party shall provide a copy of the proposed publication to the non-disclosing Party at least thirty (30) days prior to submission thereof for publication, in order to allow the non-disclosing Party an opportunity to identify information or intellectual property that should be protected by the filing of a patent application before public disclosure.  The disclosing Party agrees to delay any submission for up to an additional thirty (30) days for the purpose of permitting the other Party to prepare and file appropriate applications. In accordance with scientific custom, a Party’s provision of its Material will be noted in all written or oral public disclosures concerning the Research Project, as is appropriate.

7.RESEARCH PROJECT RESULTS, INTELLECTUAL PROPERTY.

7.1Research Results.  Each Party will keep complete and accurate records of its work on the Research Project and keep the other Party informed of research results obtained from its work on the Research Project.  Information shared in accordance with this Section shall be treated as confidential by the receiving Party (even if it is not identified as confidential by the disclosing Party) and shall be handled by the receiving Party in accordance with the procedures set forth in Section 5 (Confidentiality) until published or otherwise disclosed publicly in accordance with Section 6 (Publication).

7.2Right to use for Internal Purposes.  Each Party shall have the unrestricted, royalty-free right, during and following the term of this Agreement, to use for its own internal research purposes all research results resulting from the Research Project subject to the obligations of confidentiality in Section 5 and publication review in Section 6.  

7.3Inventions and Patent Rights.  An “Invention” means any novel discovery conceived and/or reduced to practice during the conduct and as a result of the Research Project that may be claimed in a patent application.  “Patent Rights” shall mean all right, title and

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interest in, to and under patent applications claiming Inventions, including divisions, continuations or continuations-in-part (but only to the extent such continuations-in-part are adequately supported in the parent application) thereof; any corresponding foreign applications thereof; and any U.S. or foreign patents issued therein or reissues, reexaminations or extensions thereof, assigned by inventors of Inventions to their respective institutions.

7.4Inventorship of Inventions.  Inventorship of any Inventions will be determined in accordance with U.S. Patent Law standards for determining inventorship.  Disputes involving inventorship will be resolved by a mutually acceptable third party patent attorney.  The costs for the third party patent attorney in resolving such disputes will be shared equally by the Parties.

7.5Assignment and Ownership of Inventions.  Each Party represents, warrants and covenants that each of its employees or agents involved in the Research Project shall be obligated to assign, and shall assign, all rights in any Inventions, including Patent Rights, developed during or as a result of the Research Project to such Party.  The Parties agree that, subject to paragraph 7.6 and any rights of the U.S. Government in any Invention, (a) in the case of Inventions developed solely by the employees or agents of a particular Party (“Sole Invention”), such Inventions shall be owned by such Party, and (b) in the case of Inventions developed jointly by employees or agents of both Parties, including employees or agents employed or engaged by both Parties (such as an INSTITUTE employee partially supported by COLLABORATOR), such invention shall be jointly owned by both Parties (“Joint Invention”) and the Parties shall jointly own all right, title and interest in Joint Inventions.  Each Party shall notify the other in writing within thirty (30) days after a disclosure of an Invention is received by, in the case of INSTITUTE, the Intellectual Property Department, and in the case of COLLABORATOR, its General Counsel and Director of Intellectual Property.

7.6Patent Protection.

(a)INSTITUTE Sole Inventions.  In the case of INSTITUTE Sole Inventions, INSTITUTE shall prepare and file appropriate patent applications covering INSTITUTE Sole Inventions at its sole discretion and expense.  If, however, INSTITUTE chooses not to file a patent application for its Sole Invention, INSTITUTE shall notify COLLABORATOR to determine if COLLABORATOR wishes to have a patent application filed at its expense and, if so, will consult with COLLABORATOR in the preparation of such patent application.  If COLLABORATOR does not agree in writing to support a patent application within sixty (60) days after all relevant information regarding an INSTITUTE Sole Invention has been provided to COLLABORATOR, COLLABORATOR shall have no further rights in that patent application.

(b)Joint Inventions.  Unless COLLABORATOR elects not to file and fund a patent application for a Joint Invention, both Parties shall be responsible for filing the patent application and shall consult each other in the selection of an appropriate patent attorney and in preparation of the patent application.  COLLABORATOR shall be responsible for all expenses incurred for the patent filing, prosecution and maintenance for Joint Inventions, and in the event COLLABORATOR elects not to file and fund a patent application for a Joint

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Invention, COLLABORATOR will not receive an option to license the INSTITUTE ownership portion of the Joint Invention in accordance with 7.7 below.

7.7Option to License INSTITUTE Sole or Joint Inventions.  

(a)Option to License.  The INSTITUTE hereby grants to COLLABORATOR, an option, exercisable for the term hereof and ninety (90) days thereafter, to negotiate a license to INSTITUTE Sole Inventions and the INSTITUTE ownership portion of Joint Inventions resulting from the Research Project. COLLABORATOR must exercise its option under this paragraph by providing to the INSTITUTE, within the sixty (60) day period immediately following the disclosure of the Invention to COLLABORATOR (“Option Period”), written notice of its desire to negotiate a mutually acceptable license agreement in connection with such INSTITUTE Sole Invention or Joint Inventions and any patents issuing thereunder (such Invention shall then be termed an “Elected Invention”).  Such license shall include payment of all costs associated with evaluating, prosecuting or maintaining patent rights, license fees, maintenance fees, milestone payments, sublicensing terms, and a reasonable royalty on the net sales of a product which results from or includes any Elected Invention.  If COLLABORATOR exercises the option within or before the Option Period, then the Parties shall negotiate in good faith for up to three (3) months after the exercise of the option (“Negotiation Period”) with the objective of entering into a license prior to the end of the Negotiation Period.  The Negotiation Period may be extended by mutual written agreement of INSTITUTE and COLLABORATOR.

(b)In the event COLLABORATOR fails to exercise its option by the end of the Option Period:

(i)In the case of INSTITUTE Sole Inventions, the INSTITUTE shall be free to license such Inventions to others with no further obligation to COLLABORATOR; or

(ii)In the case of Joint Inventions, then each Party shall have the right to use the Joint Invention for any purpose and license its use to others without any obligation to the other Party.

(c)For Elected Inventions:

(i)In the case of INSTITUTE Sole Inventions, if INSTITUTE and COLLABORATOR are unable to agree on the terms of a license within the Negotiation Period, then INSTITUTE shall be free to license such Invention to others with no further obligation to COLLABORATOR; or

(ii)In the case of Joint Inventions, if the Parties are unable to agree on the terms of a license for INSTITUTE’s rights to a Joint Invention within the Negotiation Period, then each Party shall have the right to use the Joint Invention for any purpose and to license its use to others without any obligation to the other Party.  However, the Parties may agree to a joint licensing approach for such Joint Inventions.

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8.INDEMNITY AND WARRANTY DISCLAIMER.

8.1

(a)COLLABORATOR shall indemnify, defend and hold harmless the INSTITUTE, its board members, officers, agents, servants, and employees, including the Principal Investigator (the “COLLABORATOR’s Indemnitees”) from and against any and all liability, loss, damage, claims, costs, actions, and suits, including costs, expenses, and attorneys fees, arising out of, resulting from, or directly or indirectly relating to, any claims, suits, actions, demands or judgments arising out of COLLABORATOR’s performance under this Agreement, to the extent such liability, loss, damage or expense is not attributable to the negligent act or omission or reckless conduct or willful misconduct of COLLABORATOR’s Indemnitees.

(b)The INSTITUTE shall indemnify, defend and hold harmless COLLABORATOR, its board members, officers, agents, servants and employees (the “INSTITUTE’s Indemnitees”) from and against any and all liability, loss, damage, claims, costs, actions and suits, including costs, expenses, and attorneys fees, arising out of, resulting from, or directly or indirectly relating to, any claims, suits, actions, demands or judgments arising out of the INSTITUTE’s performance, respectively, under this Agreement, to the extent such liability, loss, damage or expense is not attributable to the negligent act or omission or reckless conduct or willful misconduct of the INSTITUTE’s Indemnitees.

8.2NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE CONDITION, ORIGINALITY, OR ACCURACY OF THE RESEARCH OR ANY INVENTIONS OR MATERIALS, WHETHER TANGIBLE OR INTANGIBLE, CONCEIVED, DISCOVERED, OR DEVELOPED UNDER THIS AGREEMENT; OR THE OWNERSHIP, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE MATERIALS PROVIDED HEREUNDER, THE RESEARCH OR ANY SUCH INVENTIONS OR OTHER MATERIALS.  NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR ANY, CONSEQUENTIAL, SPECIAL, INCIDENTAL, EXEMPLARY OR PUNITIVE DAMAGES RESULTING FROM THE USE OF THE MATERIALS PROVIDED HEREUNDER, THE RESEARCH OR ANY SUCH INVENTIONS OR OTHER MATERIALS.  NEITHER PARTY MAKES ANY REPRESENTATIONS THAT THE MATERIALS PROVIDED OR DEVELOPED UNDER THIS AGREEMENT OR ANY INVENTION WILL NOT INFRINGE ANY PATENT OR PROPRIETARY RIGHTS OF THIRD PARTIES.

9.MISCELLANEOUS PROVISIONS.

9.1Compliance with Laws.  Nothing contained in this Agreement shall require or permit INSTITUTE or COLLABORATOR to do any act inconsistent with the requirements of any United States or foreign law, regulation or executive order as the same may be in effect from time to time. 

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9.2Assignment.  Neither Party may assign, transfer or encumber this Agreement, in whole or in part, without the prior written approval of the other Party, which approval shall not be unreasonably withheld.

9.3Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the Parties hereto.

9.4Independent Contractors.  The relationship between INSTITUTE and COLLABORATOR is that of independent contractors.  INSTITUTE and COLLABORATOR are not joint venturers, partners, principal and agent, master and servant, employer or employee, and have no other relationship other than independent contracting parties.  Neither Party shall have the power to bind or obligate the other Party in any manner other than as is expressly set forth in this Agreement.

9.5Dispute Resolution.

(a)Mediation.  The Parties agree to first submit any controversy or claim arising out of or relating to this Agreement, or the breach thereof, to non-binding mediation in San Diego by a mediator to be selected by the Parties from among the San Diego American Arbitration Association (“AAA”) mediation or commercial arbitration panelists.  The first preference in the selection of a mediator shall be a retired judge.

(b)Arbitration. Any controversy or claim not resolved by mediation, arising out of or relating to this Agreement, or the breach thereof, or any rights or materials licensed hereunder, shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the AAA, and the procedures set forth below.  In the event of any inconsistency between the Rules of AAA and the procedures set forth below, the procedures set forth below shall control.  Judgment upon the award rendered by the arbitrators may be enforced in any court having jurisdiction thereof.

(i)Location.  The location of the mediation and arbitration shall be in the County of San Diego, California.

(ii)Selection of Arbitrators.  The arbitration shall be conducted by a neutral arbitrator who is independent and disinterested with respect to the Parties, this Agreement, and the outcome of the arbitration.  If the Parties are unable to agree to an arbitrator, the arbitrator shall be appointed by AAA from among the San Diego AAA commercial arbitration panelists.  The first preference in the selection of an arbitrator shall be a retired judge.

(iii)Case Management.  Prompt resolution of any dispute is important to both Parties and the Parties agree that the arbitration of any dispute shall be conducted expeditiously.  The arbitrator is instructed and directed to assume case management initiative and control over the arbitration process (including scheduling of events, pre-hearing discovery and activities, and the conduct of the hearing), in order to complete the arbitration as expeditiously as is reasonably practical for obtaining a just resolution of the dispute.

(iv)Remedies.  The arbitrator may grant any legal or equitable remedy or relief that the arbitrator deems just and equitable, to the same extent that remedies or

10

relief could be granted by a state or federal court, provided however, that such remedy or relief is consistent with the remedies and limitations set forth in this Agreement.

(v)Expenses.  The expenses of the arbitration, including the arbitrator’s fees, expert witness fees, and attorneys’ fees, may be awarded to the prevailing Party, in the discretion of the arbitrator, or may be apportioned among the Parties in any manner deemed appropriate by the arbitrator.  Unless and until the arbitrator decides that one Party is to pay for all (or a share) of such expenses, or unless otherwise set forth in this Agreement, both Parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

(vi)Confidentiality.  Except as set forth below, the Parties shall keep confidential the fact of the arbitration, the dispute being arbitrated, and the decision of the arbitrator.  Notwithstanding the foregoing, the Parties may disclose information about the arbitration to persons who have a need to know, such as directors, trustees, management employees, witnesses, experts, investors, attorneys, lenders, insurers, and others who may be directly affected.  Additionally, if COLLABORATOR has stock, which is publicly traded, COLLABORATOR may make such disclosures as are required by applicable securities laws.  Further, if a Party is expressly asked by a third party about the dispute or the arbitration, the Party may disclose and acknowledge in general and limited terms that there is a dispute with the other Party which is being (or has been) arbitrated.  Once the arbitration award has become final, if the arbitration award is not promptly satisfied, then these confidentiality provisions shall no longer be applicable.

9.6Publicity.  Except as otherwise required by law, each Party agrees not to use or cite in any manner the name of the other, its employees anything related to the Research Project, INSTITUTE Principal Investigator or the COLLABORATOR Representative in any commercial or non-commercial advertising, article, press release or in any other forms of writing or publication medium without the prior written permission of the Party or individual whose name or other information is to be used.

9.7Governing Law; Venue; Jurisdiction.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the United States and the State of California without regard to its conflict of laws provisions.  The Parties irrevocably consent to the exclusive personal jurisdiction (except as to actions for the enforcement of a judgment, in which case the jurisdiction will be non-exclusive) of the federal and state courts located in San Diego County, California, and venue in San Diego County, California.

9.8Headings.  The headings for each Paragraph in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Paragraph.

9.9Severability.  Should any one or more of the provisions of this Agreement be held invalid or unenforceable by a court of competent jurisdiction, it shall be considered severed from this Agreement and shall not serve to invalidate the remaining provisions thereof.  The Parties shall make a good faith effort to replace any invalid or unenforceable provision with

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a valid and enforceable one such that the objectives contemplated by them when entering this Agreement may be realized.

9.10No Waiver.  Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, excepting only as to an express written and signed waiver as to a particular matter for a particular period of time.

9.11Notices.  Any notices required by this Agreement shall be in writing, shall specifically refer to this Agreement and shall be sent by registered or certified airmail via either U.S. Postal Service or reliable alternative carrier, postage prepaid, or by facsimile, to the respective addresses set forth below unless subsequently changed by written notice to the other Party given in accordance with this Paragraph.  Notice shall be deemed delivered upon the earlier of (a) when received, or (b) the date notice is sent via facsimile.  Notice shall be conclusively presumed to have been received when (x) a receipt therefor has been signed by any person at the address provided for such notice, or (y) facsimile printout reflects receipt at the address provided for such notice.

COLLABORATOR:	Jon Atzen, General Counsel
	Advanced Cell Technology, Inc.
	11100 Santa Monica Boulevard
	Suite 850
	Los Angeles, CA 90025
with a copy to:	Director of Intellectual Property
	Advanced Cell, Inc.
	381 Plantation Street
	Worcester, MA 01605
INSTITUTE:	Director, Intellectual Property
	Re: ACT Research Collaboration
	The Burnham Institute
	10901 North Torrey Pines Road
	La Jolla, CA 92037

9.12Force Majeure.  Neither Party shall be liable for delay in any performance or for the failure to render any performance of its obligations under this Agreement (except for a Party’s payment obligations under this Agreement) when such delay or failure is by reason of any non-commercial cause or causes beyond its reasonable control, including without limitation, acts of God, earthquake, flood, fire, epidemic, labor controversy, civil disturbance, war or armed conflict.  The non-performing Party shall give notice to the other Party promptly after it learns of the occurrence of said event and of the adverse results thereof.  Such notice shall set forth the nature and extent of the event.  The delay or failure shall not be excused unless such notice is so given.  Anything in this Paragraph to the contrary notwithstanding, if the non-performing Party remains in default of a material provision of this Agreement for a period of six (6) consecutive months by reason of any of the causes herein described, the other Party may terminate this Agreement.

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9.13Counterparts; Entire Agreement; Modification.  This Agreement may be executed in counterparts, all of which taken together shall constitute one single agreement between the Parties.  This Agreement sets forth the entire agreement and understanding between the Parties as to the subject matter set forth in this Agreement.  There shall be no amendments or modifications to this Agreement, except by a written document, which is signed by both Parties.  In the event of any inconsistency between any of the terms and conditions of this Agreement and the Facility User Agreement, the terms and conditions of this Agreement shall control.

9.14Termination.

Except as otherwise provided herein, termination of this Agreement shall not be construed to release either party from any obligation hereunder which has matured prior to the date of said termination.  Notwithstanding anything herein to the contrary,

(a)This Agreement may be terminated by either Party at any time upon the giving of thirty (30) days prior written notice to the other Party.  Written notice will be directed to the appropriate individual named in Paragraph 9.11 (“Notices”) of this Agreement.

(b)If the Research Project and this Agreement are terminated pursuant to Paragraph 9.14(a), Materials received pursuant to this Agreement by a Party shall, at the request of the other Party, be returned or properly destroyed, such destruction shall be confirmed in writing. Any jointly developed materials may be retained by both Parties, provided, however, that neither Party shall have any right to distribute or transfer to any third party any jointly developed materials that incorporate the other Party’s Materials without the other Party’s prior written consent.  Each Party agrees to promptly inform the other Party when an unauthorized transfer of jointly developed materials incorporating the other Party’s Materials to a recipient has occurred, including the name and contact information of the recipient, and to exercise commercially reasonable efforts to inform the recipient that the transfer was unauthorized and request immediate return of all such Materials to COLLABORATOR or INSTITUTE, including any copies, derivatives, or progeny thereof.

(c)Upon termination under this Paragraph 9.14, all expenses due to the INSTITUTE pursuant to Section 3 (“Research Funding, Lease”) incurred prior to the notice of termination but which have not yet been reimbursed by COLLABORATOR, and any commitments existing at the time the notice of termination is received shall be paid to the INSTITUTE by COLLABORATOR by the effective date of such termination.

9.15Survival.  The provisions of Paragraphs 2 (Material Transfer), 5 (Confidentiality), 6 (Publication), 7 (Research Project Results, Intellectual Property), 8 (Indemnification and Warranty Disclaimer)  and 9 (Miscellaneous Provisions) shall survive termination of this Agreement for any reason.

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Agreed by Authorized Officials:

THE BURNHAM INSTITUTE					ADVANCED CELL TECHNOLOGY, INC.
By:	/s/ Adrienne Day, Ph.D.				By:	/s/ William Caldwell, IV
	Adrienne Day, Ph.D.				Name:    William Caldwell, IV
	Vice President, Business Development				Title:      CEO
Date:			May 23, 2005		Date:		May 23, 2005
ADVANCED CELL, INC.
By:	/s/ William Caldwell, IV
Name:				William Caldwell, IV
Title:				CEO
Date:		May 23, 2005

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, William M. Caldwell, IV certify that:

1.I have reviewed this Quarterly Report on Form 10-QSB of Advanced Cell Technology, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b[Not applicable]

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

dDisclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 15, 2005	/s/ William M. Caldwell, IV
	William M. Caldwell, IV
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, James G. Stewart, certify that:

1.I have reviewed this Quarterly Report on Form 10-QSB of Advanced Cell Technology, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[Not applicable]

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 15, 2005	/s/ James G. Stewart
	James G. Stewart
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-QSB of Advanced Cell Technology, Inc. (the “Company”) for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William M. Caldwell, IV, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 15, 2005	/s/ William M. Caldwell, IV
	William M. Caldwell, IV
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-QSB of Advanced Cell Technology, Inc. (the “Company”) for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James G. Stewart, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 15, 2005	/s/ James G. Stewart
	James G. Stewart
	Chief Financial Officer