x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Large
accelerated filer
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£
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Accelerated
filer
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£
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||
Non-accelerated
filer (Do not check if a smaller reporting company)
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£
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Smaller
reporting company
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T
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PART
I
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PAGE
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Item
1.
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4
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Item
2.
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10
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Item
3.
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10
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Item
4.
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10
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PART
II
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||
Item
5.
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12 | |
Item
7.
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13 | |
Item
8.
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18
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Item
9.
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36
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Item
9A(T).
|
36 | |
Item
9B.
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36
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PART
III
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||
Item
10.
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37
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Item
11.
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39
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Item
12.
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41 | |
Item
13.
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42 | |
Item
14.
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43
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PART
IV
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||
Item
15.
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44
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46
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·
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the
outright sale of our technology,
|
|
·
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joint
venture partnerships with health care companies,
or
|
|
·
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direct
marketing and selling of our products.
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·
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greater
brand name recognition;
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·
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established
relations with healthcare professionals, customers and third-party
payors;
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·
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established
distribution networks;
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·
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additional
lines of products, and the ability to offer rebates, higher discounts or
incentives to gain a competitive
advantage;
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·
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greater
experience in conducting research and development, manufacturing, clinical
trials, obtaining regulatory approval for products, and marketing approved
products; and
|
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·
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greater
financial and human resources for product development, sales and
marketing, and patent litigation.
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·
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Arbios
Systems, Inc. – developing a non-biologic liver filtration device
(“SEPET”) based on selective
hemofiltration
|
|
·
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Fresenius
AG – developed a non-biologic liver filtration system (“PROMETHEUS”) based
on a dialysis principle to remove water-soluble and albumin bound toxins
from the blood
|
|
·
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Gambro
AB – developed a non-biologic liver filtration system (“MARS”) based on a
dialysis principle to remove water-soluble and albumin bound toxins from
the blood
|
|
·
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Vital
Therapies, Inc. – developing a bioartificial liver device (“ELAD”) that
uses a line of human liver cells cultivated from a hepatoblastoma, a type
of liver tumor
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|
·
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Allow
survival without a transplant (a bridge to liver
regeneration)
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|
·
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Reduce
the risk of pre-transplant death
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·
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Help
keep liver failure patients alive and neurologically intact before, during
and immediately after
transplantation
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·
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Improve
survival in individuals with drug-induced liver
toxicity
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·
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Improve
survival with drug-induced liver
toxicity
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Votes
For
|
Votes
Against
|
Votes
Abstaining
|
||||||||||
Frank
Menzler
|
75,375,906 | 249,536 | 258,252 | |||||||||
Harmel
Rayat(1)
|
74,976,748 | 611,054 | 295,892 | |||||||||
Javier
Jimenez
|
75,376,206 | 242,860 | 264,630 | |||||||||
Roland
Schomer
|
75,414,859 | 206,215 | 262,622 |
Votes For
|
Votes Against
|
Votes Abstained
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75,459,046
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202,467
|
222,185
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
High
|
Low
|
|||||||
First
Quarter 2007
|
$ | 0.70 | $ | 0.41 | ||||
Second
Quarter 2007
|
$ | 1.76 | $ | 0.55 | ||||
Third
Quarter 2007
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$ | 1.07 | $ | 0.57 | ||||
Fourth
Quarter 2007
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$ | 0.85 | $ | 0.36 | ||||
First
Quarter 2008
|
$ | 0.47 | $ | 0.31 | ||||
Second
Quarter 2008
|
$ | 0.73 | $ | 0.45 | ||||
Third
Quarter 2008
|
$ | 0.48 | $ | 0.18 | ||||
Fourth
Quarter 2008
|
$ | 0.31 | $ | 0.14 | ||||
|
||||||||
January
1, 2009 – March 20, 2009
|
$ | 0.27 | $ | 0.15 |
Number of securities | ||||||||||||
remaining
available for
|
||||||||||||
Number
of Securities to
|
Weighted-average
exercise
|
future
issuance under
|
||||||||||
be
issued upon exercise of
|
price
of outstanding
|
equity
compensation plans
|
||||||||||
outstanding
options,
|
options,
warrants and
|
(excluding
securities
|
||||||||||
warrants
and rights
|
rights
|
reflected
in column (a))
|
||||||||||
Plan
Category
|
(a)
|
(b)
|
(c)
|
|||||||||
|
||||||||||||
Equity
compensation plans approved by security
holders
|
2,700,000 | $ | 0.53 | 35,098,000 | ||||||||
Equity compensation
plans not approved
by security holders
|
||||||||||||
Total
|
2,700,000 | $ | 0.53 | 35,098,800 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
|
PAGE
|
||
Report
of Independent Registered Public Accounting Firm
|
19
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
20
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and 2007,
and from Inception (October 21, 1997) to December 31,
2008
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21
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) from Inception (October 21,
1997) to December 31, 2008
|
22
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and 2007,
and from Inception (October 21, 1997) to December 31,
2008
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23
|
|
Notes
to Consolidated Financial Statements
|
24
|
HEPALIFE
TECHNOLOGIES, INC.
|
||||||||
(A
Development Stage Company)
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
December
31, 2008 and 2007
|
||||||||
(Expressed
in U.S. Dollars)
|
2008
|
2007
|
||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 3,084,155 | $ | 534,113 | ||||
Prepaid
expenses (Note 7)
|
98,716 | 4,338 | ||||||
Total
current assets
|
3,182,871 | 538,451 | ||||||
Equipment, net (Note
6)
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- | 10,882 | ||||||
License
fee
|
- | 75,000 | ||||||
Deferred financing costs
(Note 8)
|
- | 210,728 | ||||||
Total
assets
|
$ | 3,182,871 | $ | 835,061 | ||||
LIABILITIES
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 105,250 | $ | 4,800 | ||||
Accounts
payable - related parties (Note 5)
|
- | 208,330 | ||||||
Notes
payable - related party (Note 5)
|
- | 877,800 | ||||||
Total
current liabilities
|
105,250 | 1,090,930 | ||||||
Contract
commitment payable (Note 4)
|
200,000 | - | ||||||
Discount
on contract commitment payable
|
(12,873 | ) | - | |||||
Convertible promissory note,
at face value (Note 8)
|
- | 755,000 | ||||||
Discount
on convertible promissory notes
|
- | (468,343 | ) | |||||
187,127 | 286,657 | |||||||
Total
liabilities
|
292,377 | 1,377,587 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Stockholders'
equity (deficit) (Note 9)
|
||||||||
Preferred
stock: $0.10 par value; Authorized: 1,000,000 Issued and outstanding:
none
|
- | - | ||||||
Common
stock: $0.001 par value; Authorized: 300,000,000Issued and outstanding:
91,996,829 (2007: 76,264,584)
|
91,998 | 76,265 | ||||||
Additional
paid-in capital
|
22,120,493 | 15,039,050 | ||||||
Accumulated
other comprehensive income
|
(381 | ) | (3,772 | ) | ||||
Loss
accumulated during the development stage
|
(19,321,616 | ) | (15,654,069 | ) | ||||
Total
stockholders' equity (deficit)
|
2,890,494 | (542,526 | ) | |||||
Total
liabilities and stockholders' equity
|
$ | 3,182,871 | $ | 835,061 |
HEPALIFE
TECHNOLOGIES, INC.
|
||||||||||||
(A
Development Stage Company)
|
||||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
For
the years ended December 31, 2008 and 2007
|
||||||||||||
and
from inception (October 21, 1997) to December 31, 2008
|
||||||||||||
From
inception
|
||||||||||||
(October
21, 1997)
|
||||||||||||
to
December 31,
|
||||||||||||
(Expressed
in U.S. Dollars)
|
2008
|
2007
|
2008
|
|||||||||
Revenue
|
$ | - | $ | - | $ | - | ||||||
Expenses
|
||||||||||||
Salary
and benefits
|
1,157,785 | 1,513,522 | 5,634,755 | |||||||||
Research
and development (Notes 4 and 7)
|
892,386 | 172,533 | 1,913,674 | |||||||||
Shareholder
and investor relations
|
354,308 | 544,943 | 4,154,714 | |||||||||
Administrative
and general
|
324,393 | 307,035 | 1,259,340 | |||||||||
Professional
fees- accounting and legal
|
204,422 | 99,893 | 711,943 | |||||||||
Director,
management and consulting fees (Note 5)
|
20,705 | 26,932 | 1,023,042 | |||||||||
Depreciation
|
7,821 | 16,255 | 35,410 | |||||||||
Stock
offering costs
|
- | - | 1,926,713 | |||||||||
2,961,820 | 2,681,113 | 16,659,591 | ||||||||||
Operating
Loss
|
(2,961,820 | ) | (2,681,113 | ) | (16,659,591 | ) | ||||||
Other
income and expenses
|
||||||||||||
Interest
on promissory note (Note 5)
|
(41,615 | ) | (80,431 | ) | (355,112 | ) | ||||||
Interest,
bank charges and foreign exchange loss
|
(11,261 | ) | (8,561 | ) | (35,807 | ) | ||||||
Interest
income
|
30,831 | 39,451 | 120,119 | |||||||||
Loss
on disposal of fixed assets
|
(3,061 | ) | - | (3,061 | ) | |||||||
Amortization
of discount on convertible notes (Note 8)
|
(469,893 | ) | (1,624,756 | ) | (2,094,649 | ) | ||||||
Amortization
of deferred financing costs (Note 8)
|
(210,728 | ) | (82,787 | ) | (293,515 | ) | ||||||
(705,727 | ) | (1,757,084 | ) | (2,662,025 | ) | |||||||
Net
loss available to common stockholders
|
$ | (3,667,547 | ) | $ | (4,438,197 | ) | $ | (19,321,616 | ) | |||
Loss per share - basic
and diluted
|
$ | (0.04 | ) | $ | (0.06 | ) | ||||||
Weighted average number of
common shares outstanding - basic and
diluted
|
85,952,917 | 74,101,897 |
(The
accompanying notes are an integral part of these financial
statements)
|
Common
Stock
|
Additional
|
Accumulated other
comprehensive |
Loss
accumulated during
development |
Comprehensive
|
Total stockholders' |
|||||||||||||||||||||||
(Expressed
in U.S. Dollars)
|
Shares
|
Amount
|
paid-in
capital
|
income
|
stage
|
income
(loss)
|
equity
(deficit)
|
|||||||||||||||||||||
Common
stock issued for service rendered at $0.00025 per share, October
21, 1997
|
12,000,000 | $ | 12,000 | $ | (9,000 | ) | $ | - | $ | - | $ | - | $ | 3,000 | ||||||||||||||
Common
stock issued for cash at $0.0625 per share during
1997
|
1,200,000 | 1,200 | 73,800 | - | - | - | 75,000 | |||||||||||||||||||||
Comprehensive
income
|
||||||||||||||||||||||||||||
Income
from inception
|
||||||||||||||||||||||||||||
(October
21, 1997) to December 31, 1997
|
- | - | - | - | 42 | 42 | 42 | |||||||||||||||||||||
Total
comprehensive income
|
42 | |||||||||||||||||||||||||||
Balance,
December 31, 1997
|
13,200,000 | 13,200 | 64,800 | - | 42 | - | 78,042 | |||||||||||||||||||||
Common
stock issued for service rendered at $0.025 per share, December 15,
1998
|
16,000,000 | 16,000 | 384,000 | - | - | - | 400,000 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 1998
|
- | - | - | - | (471,988 | ) | (471,988 | ) | (471,988 | ) | ||||||||||||||||||
Total
comprehensive income
|
(471,988 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 1998
|
29,200,000 | 29,200 | 448,800 | - | (471,946 | ) | 6,054 | |||||||||||||||||||||
Common
stock issued for cash at $0.025 per share, March
1999
|
12,000,000 | 12,000 | 288,000 | - | - | - | 300,000 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 1999
|
- | - | - | - | (121,045 | ) | (121,045 | ) | (121,045 | ) | ||||||||||||||||||
Total
comprehensive income
|
(121,045 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 1999
|
41,200,000 | 41,200 | 736,800 | - | (592,991 | ) | - | 185,009 | ||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2000
|
- | - | - | - | (80,608 | ) | (80,608 | ) | (80,608 | ) | ||||||||||||||||||
Total
comprehensive income
|
(80,608 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2000
|
41,200,000 | 41,200 | 736,800 | - | (673,599 | ) | 104,401 | |||||||||||||||||||||
Conversion
of debt to equity at $0.015 per share, July 31,
2001
|
8,933,332 | 8,933 | 125,067 | - | - | - | 134,000 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2001
|
- | - | - | - | (160,364 | ) | (160,364 | ) | (160,364 | ) | ||||||||||||||||||
Total
comprehensive income
|
(160,364 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2001
|
50,133,332 | 50,133 | 861,867 | - | (833,963 | ) | - | 78,037 | ||||||||||||||||||||
Common
stock issued for services at $0.06 per share, April 23,
2002
|
10,000 | 10 | 590 | - | - | - | 600 | |||||||||||||||||||||
Conversion
of debt to equity at $0.05 per share, April 26,
2002
|
2,160,000 | 2,160 | 105,840 | - | - | - | 108,000 | |||||||||||||||||||||
Common
stock issued for investor relations services at
$0.05 per share, July 25,
2002
|
2,390,000 | 2,390 | 117,110 | - | - | - | 119,500 | |||||||||||||||||||||
Conversion
of debt to equity at $0.05 per share, December 18,
2002
|
1,920,000 | 1,920 | 94,080 | - | - | - | 96,000 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2002
|
- | - | - | - | (375,472 | ) | (375,472 | ) | (375,472 | ) | ||||||||||||||||||
Total
comprehensive income
|
(375,472 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2002
|
56,613,332 | 56,613 | 1,179,487 | - | (1,209,435 | ) | 26,665 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of stock
options during the year at between $0.07
to $2.11 per share
|
282,500 | 283 | 398,317 | - | - | - | 398,600 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of share
purchase warrants in November 2003 at
$0.025 per share
|
7,300,000 | 7,300 | 175,200 | - | - | - | 182,500 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2003
|
- | - | - | - | (1,102,723 | ) | (1,102,723 | ) | (1,102,723 | ) | ||||||||||||||||||
Total
comprehensive income
|
(1,102,723 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2003
|
64,195,832 | 64,196 | 1,753,004 | - | (2,312,158 | ) | - | (494,958 | ) | |||||||||||||||||||
Common
stock issued pursuant to exercise of stock
options during the year between
$0.07 to $2.11 per share
|
1,622,000 | 1,622 | 1,339,998 | - | - | - | 1,341,620 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of share
purchase warrants in December 2004 at
$0.025 per share
|
2,000,000 | 2,000 | 48,000 | - | - | - | 50,000 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2004
|
- | - | - | - | (1,435,613 | ) | (1,435,613 | ) | (1,435,613 | ) | ||||||||||||||||||
Total
comprehensive income
|
(1,435,613 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2004
|
67,817,832 | 67,818 | 3,141,002 | - | (3,747,771 | ) | - | (538,951 | ) | |||||||||||||||||||
Common
stock issued pursuant to exercise of stock options in
March 2005 at $3.10 per
share
|
50,000 | 50 | 154,950 | - | - | - | 155,000 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of stock options in
May 2005 at $2.11 per
share
|
45,000 | 45 | 94,905 | - | - | - | 94,950 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of stock options in
June 2005 at $2.11 per
share
|
100,000 | 100 | 210,900 | - | - | - | 211,000 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of stock options in
October 2005 at $2.11 per
share
|
40,000 | 40 | 84,360 | - | - | - | 84,400 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of stock options in
March 2005 at $2.11 per
share
|
50,000 | 50 | 105,450 | - | - | - | 105,500 | |||||||||||||||||||||
Common
stock issued pursuant to exercise of share
purchase warrants in March 2005 at
$0.025 per share
|
1,250,000 | 1,250 | 30,000 | - | - | - | 31,250 | |||||||||||||||||||||
Restricted
common stock issued in June 2005 pursuant to share
purchase agreement
|
20,000 | 20 | 37,580 | - | - | - | 37,600 | |||||||||||||||||||||
Restricted
common stock issued in July 2005 pursuant to share
purchase agreement
|
691,598 | 692 | 1,382,504 | - | - | - | 1,383,196 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2005
|
- | - | - | - | (2,813,602 | ) | (2,813,602 | ) | (2,813,602 | ) |
Total
comprehensive income
|
(2,813,602 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2005
|
70,064,430 | 70,065 | 5,241,651 | - | (6,561,373 | ) | - | (1,249,657 | ) | |||||||||||||||||||
Restricted
common stock issued in January 2006 pursuant to share
purchase agreement
|
374,753 | 375 | 505,542 | - | - | - | 505,917 | |||||||||||||||||||||
Common
stock issued in the first quarter of 2006 to Fusion
Capital for cash
|
431,381 | 431 | 449,569 | - | - | - | 450,000 | |||||||||||||||||||||
Common
stock issued in the second quarter of 2006 to Fusion
Capital for cash
|
416,303 | 416 | 329,584 | - | - | - | 330,000 | |||||||||||||||||||||
Common
stock issued in the third quarter of 2006 to Fusion
Capital for cash
|
758,606 | 759 | 584,234 | - | - | - | 584,993 | |||||||||||||||||||||
Common
stock issued in the fourth quarter of 2006 to Fusion
Capital for cash
|
548,371 | 548 | 354,455 | - | - | - | 355,003 | |||||||||||||||||||||
Exercise
of stock options
|
175,000 | 175 | 12,075 | - | - | - | 12,250 | |||||||||||||||||||||
Stock
based compensation expenses
|
- | - | 2,607,302 | - | - | - | 2,607,302 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Loss,
year ended December 31, 2006
|
- | - | - | - | (4,654,499 | ) | (4,654,499 | ) | (4,654,499 | ) | ||||||||||||||||||
Total
comprehensive income
|
(4,654,499 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2006
|
72,768,844 | 72,769 | 10,084,412 | - | (11,215,872 | ) | (1,058,691 | ) | ||||||||||||||||||||
Common
stock issued in the first quarter of 2007 to Fusion
Capital for cash
|
382,000 | 382 | 204,619 | - | - | - | 205,001 | |||||||||||||||||||||
Common
stock issued in the second quarter of 2007 to Fusion
Capital for cash
|
509,019 | 509 | 289,491 | - | - | - | 290,000 | |||||||||||||||||||||
Common
stock converted from convertible promissory
notes
|
2,604,721 | 2,605 | 1,742,395 | - | - | - | 1,745,000 | |||||||||||||||||||||
Stock
based compensation expenses
|
- | - | 935,044 | - | - | - | 935,044 | |||||||||||||||||||||
Proceeds
allocated to the warrants issued with the convertible
notes
|
- | - | 497,689 | - | - | - | 497,689 | |||||||||||||||||||||
Warrants
issued for the payment of broker's fees
|
- | - | 64,990 | - | - | - | 64,990 | |||||||||||||||||||||
Intrinsic
value of the beneficial conversion feature of the
notes
|
- | - | 1,220,410 | - | - | - | 1,220,410 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | (3,772 | ) | - | (3,772 | ) | (3,772 | ) | ||||||||||||||||||
Loss,
year ended December 31, 2007
|
- | - | - | - | (4,438,197 | ) | (4,438,197 | ) | (4,438,197 | ) | ||||||||||||||||||
Total
comprehensive income
|
(4,441,969 | ) | ||||||||||||||||||||||||||
Balance,
December 31, 2007
|
76,264,584 | 76,265 | 15,039,050 | (3,772 | ) | (15,654,069 | ) | (542,526 | ) | |||||||||||||||||||
Common
stock converted from convertible promissory notes in
January 2008
|
2,342,415 | 2,343 | 752,657 | - | - | - | 755,000 | |||||||||||||||||||||
Common
stock converted from notes in June
2008
|
2,065,412 | 2,065 | 975,680 | - | - | - | 977,745 | |||||||||||||||||||||
Common
stock and warrants issued for cash, at $0.425 per share
in May 2008 andin payment of placement and legal
fees
|
10,924,418 | 10,925 | 4,519,875 | - | - | - | 4,530,800 | |||||||||||||||||||||
Common
stock issued for services received in 2008
|
400,000 | 400 | 169,600 | - | - | - | 170,000 | |||||||||||||||||||||
Warrants
granted for purchase of in-process research and development in October
2008
|
- | - | 98,325 | - | - | - | 98,325 | |||||||||||||||||||||
Stock
based compensation expenses
|
- | - | 565,306 | - | - | - | 565,306 | |||||||||||||||||||||
Comprehensive
income (loss)
|
||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | 3,391 | - | 3,391 | 3,391 | |||||||||||||||||||||
Loss,
year ended December 31, 2008
|
- | - | - | - | (3,667,547 | ) | (3,667,547 | ) | (3,667,547 | ) | ||||||||||||||||||
Total
comprehensive income
|
$ | (3,664,156 | ) | |||||||||||||||||||||||||
Balance,
December 31, 2008
|
91,996,829 | $ | 91,998 | $ | 22,120,493 | $ | (381 | ) | $ | (19,321,616 | ) | $ | 2,890,494 |
HEPALIFE
TECHNOLOGIES, INC.
|
||||||||||||
(A
Development Stage Company)
|
||||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
for
the years ended December 31, 2008 and 2007
|
||||||||||||
and
from inception (October 21, 1997) to December 31, 2008
|
||||||||||||
From
inception
|
||||||||||||
(October
21, 1997)
|
||||||||||||
to
December 31,
|
||||||||||||
(Expressed
in U.S. Dollars)
|
2008
|
2007
|
2008
|
|||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
Loss
|
$ | (3,667,547 | ) | $ | (4,438,197 | ) | $ | (19,321,616 | ) | |||
Adjustments
to reconcile net loss to net cash from operating
activities:
|
||||||||||||
Depreciation
|
7,821 | 16,255 | 35,410 | |||||||||
Amortization
of license fees
|
87,500 | - | 87,500 | |||||||||
Services
paid by issuance of common stock
|
170,000 | - | 1,031,100 | |||||||||
Stock
offering costs paid by issuance of common stock
|
- | - | 1,926,713 | |||||||||
In-process
research and development partially purchased by issuance of common stock
warrants and a contract commitment payable, net of
discount
|
283,903 | - | 283,903 | |||||||||
Stock
based compensation expenses
|
565,306 | 935,044 | 4,107,652 | |||||||||
Amortization
of discount on convertible promissory notes and contract commitment
payable
|
469,893 | 1,624,756 | 2,094,649 | |||||||||
Amortization
of deferred financing costs
|
210,728 | 82,787 | 293,515 | |||||||||
Loss
on disposal of assets
|
3,061 | - | 3,061 | |||||||||
Change
in assets and liabilities:
|
||||||||||||
Decrease
(increase) in prepaid expenses
|
(106,880 | ) | (563 | ) | (111,218 | ) | ||||||
Increase
(decrease) in accounts payable
|
100,450 | (165,277 | ) | 105,250 | ||||||||
Increase
(decrease) in accounts payable - related party
|
(108,384 | ) | 49,795 | 99,946 | ||||||||
Net
cash used in operating activities
|
(1,984,149 | ) | (1,895,400 | ) | (9,364,135 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of property and equipment
|
- | (3,878 | ) | (38,471 | ) | |||||||
Purchase
of license fees
|
- | (75,000 | ) | (75,000 | ) | |||||||
Net
cash used in investing activities
|
- | (78,878 | ) | (113,471 | ) | |||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from issuance of common stock and warrants, net
|
4,530,800 | 495,001 | 9,787,867 | |||||||||
Proceeds
from issuance of convertible notes
|
- | 2,125,000 | 2,125,000 | |||||||||
Net
proceeds from (repayment of) promissory notes
|
- | (132,200 | ) | 877,800 | ||||||||
Increase
in deferred financing cost
|
- | (228,525 | ) | (228,525 | ) | |||||||
Net
cash provided by financing activities
|
4,530,800 | 2,259,276 | 12,562,142 | |||||||||
Increase
in cash and cash equivalents
|
2,546,651 | 284,998 | 3,084,536 | |||||||||
Effect
of foreign exchange rate
|
3,391 | (3,772 | ) | (381 | ) | |||||||
Cash and cash
equivalents, beginning of period
|
534,113 | 252,887 | - | |||||||||
Cash and cash
equivalents, end of period
|
$ | 3,084,155 | $ | 534,113 | $ | 3,084,155 | ||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||
Interest
paid in cash
|
$ | 150,000 | $ | 25,930 | $ | 247,575 | ||||||
Income
tax paid in cash
|
$ | - | $ | - | $ | - | ||||||
Non-cash
Investing and Financing Activities:
|
||||||||||||
Common
stock and warrants issued for professional services
|
$ | 282,078 | $ | - | $ | 1,143,078 | ||||||
Issuance
of common stock as stock offering costs
|
$ | - | $ | - | $ | 1,926,713 | ||||||
Issuance
of warrants for deferred financing costs
|
$ | - | $ | 64,990 | $ | 64,990 | ||||||
Conversion
of note payable and related interest to equity
|
$ | 977,745 | $ | - | $ | 977,745 | ||||||
Conversion
of debt to equity
|
$ | 755,000 | $ | 1,745,000 | $ | 2,500,000 |
Years
ended
|
||||||||
2008
|
2007
|
|||||||
Numerator
- net loss available to common stockholders
|
$ | (3,667,547 | ) | $ | (4,438,197 | ) | ||
Denominator
- weighted average number of common shares outstanding
|
85,952,917 | 74,101,897 | ||||||
Basic
and diluted loss per common share
|
$ | (0.04 | ) | $ | (0.06 | ) |
Cash
|
$ | 250,000 | ||
Contract
Commitment, discounted @5% or $14,422
|
200,000 | |||
Series
D warrants, at fair value
|
98,325 | |||
Assumed
liabilities
|
- | |||
Total
effective acquisition price
|
$ | 548,325 |
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Computer
equipment
|
$ | - | $ | 37,382 | ||||
Furniture
and fixtures
|
- | 1,089 | ||||||
- | 38,471 | |||||||
Less:
accumulated depreciation
|
- | (27,589 | ) | |||||
$ | - | $ | 10,882 |
Warrants
|
Series
C Warrants
|
Series
D Warrants
|
||||||||||
Warrants
outstanding and exercisable at December 31, 2008
|
737,000 | 12,989,830 | 750,000 | |||||||||
Exercise
price
|
$ | 1.50 | $ | 0.34 | $ | 0.35 | ||||||
Fair
value on date of grant
|
$ | 714,890 | $ | 1,898,867 | $ | 98,325 | ||||||
Black-Scholes
option pricing model assumptions:
|
||||||||||||
Risk-free
interest rate
|
4.58 | % | 2.46 | % | 2.64 | % | ||||||
Expected
term
|
5
years
|
2
years
|
5
years
|
|||||||||
Expected
volatility
|
96.20 | % | 94.10 | % | 84.50 | % | ||||||
Dividend
per share
|
$ | 0 | $ | 0 | $ | 0 | ||||||
Expiration
date
|
May
11, 2012
|
May
23, 2010
|
October
3, 2013
|
Number
of options
|
Weighted
average exercise price
|
Remaining
contractual term
|
Aggregate
intrinsic value
|
|||||||||||||
Outstanding
at December 31, 2006
|
10,350,000 | $ | 0.67 | |||||||||||||
Granted
|
2,026,750 | 0.52 | ||||||||||||||
Cancelled
|
(10,350,000 | ) | 0.67 | |||||||||||||
Outstanding
at December 31, 2007
|
2,026,750 | 0.52 | ||||||||||||||
Granted
|
775,000 | 0.54 | ||||||||||||||
Cancelled
|
(101,750 | ) | 0.43 | |||||||||||||
Outstanding
at December 31, 2008
|
2,700,000 | 0.53 | 8.44 | $ | - | |||||||||||
Exercisable
at December 31, 2008
|
100,000 | 0.61 | 9.45 | - | ||||||||||||
Available
for grant at December 31, 2008
|
35,098,000 |
Number
of Options
|
Weighted
Average Grant Date Fair Value
|
|||||||
Unvested,
December 31, 2006
|
4,650,000 | $ | 0.51 | |||||
Granted
|
2,026,750 | 0.43 | ||||||
Cancelled
|
(4,650,000 | ) | 0.51 | |||||
Unvested,
December 31, 2007
|
2,026,750 | 0.43 | ||||||
Granted
|
775,000 | 0.37 | ||||||
Vested
|
(100,000 | ) | 0.41 | |||||
Cancelled
|
(101,750 | ) | 0.26 | |||||
Unvested,
December 2008
|
2,600,000 | 0.42 |
Outstanding
|
Exercisable
|
|||||||||||||||||||||
Range
of Exercise Prices
|
Number
Outstanding at December 31, 2008
|
Weighted
Average Remaining Contractual Life (Years)
|
Weighted
Average Exercise Price
|
Number
Exercisable at December 31, 2008
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$ | 0.52 | 2,000,000 | 8.07 | $ | 0.52 | - | $ | - | ||||||||||||||
0.61 | 550,000 | 9.45 | 0.61 | 100,000 | 0.61 | |||||||||||||||||
0.57 | 50,000 | 9.47 | 0.57 | - | - | |||||||||||||||||
0.25 | 100,000 | 9.70 | 0.25 | - | - | |||||||||||||||||
$ | 0.53 | 2,700,000 | 8.44 | $ | 0.53 | 100,000 | $ | 0.61 |
2008
Stock Option Grants
|
2007
Stock Option Grants
|
|
Risk-free
interest rate
|
2.75%
- 3.57%
|
3.41%
- 4.85%
|
Expected
term
|
5
years
|
4.7
- 5 years
|
Expected
volatility
|
83.32%
- 90.53%
|
93.95%
- 94.73%
|
Weighted-average
volatility
|
84.2%
|
94.0%
|
Dividend
per share
|
$0
|
$0
|
2008
|
2007
|
|||||||
Net
operating loss carryforwards
|
$ | 3,180,000 | $ | 2,262,000 | ||||
Stock
compensation costs
|
1,397,000 | 1,204,000 | ||||||
Other
|
566,000 | 683,000 | ||||||
5,143,000 | 4,149,000 | |||||||
Valuation
allowance
|
(5,143,000 | ) | (4,149,000 | ) | ||||
Net
deferred tax assets
|
$ | - | $ | - |
2008
|
2007
|
|||||||
Statutory
federal income tax
|
-34.00 | % | -34.00 | % | ||||
Valuation
allowance
|
32.00 | 34.00 | ||||||
Stock
offering costs
|
2.00 | - | ||||||
Effective
income tax rate
|
0.00 | % | 0.00 | % |
Name
|
Age
|
Position
|
Director/Officer
Since
|
|||
Frank Menzler
|
40
|
President,
Chief Executive Officer, Chairman, Interims Chief Financial Officer and
Director
|
October
2006
|
|||
Jatinder Bhogal
|
41
|
Director
|
September
2008
|
|||
Javier Jimenez
|
43
|
Director
|
March
2007
|
|||
Roland Schomer
|
43
|
Director
|
June
2008
|
|||
Joseph Sierchio
|
58
|
Director
|
September
2008
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
|
Other
|
Securities
Underlying Options Granted
|
All
Other
Compensation
|
|||||||||||||||
Frank
Menzler
|
2008
|
$
|
225,000
|
$
|
0
|
$
|
0
|
500,000
|
$
|
0
|
|||||||||||
President,
CEO
|
2007
|
$
|
225,000
|
$
|
0
|
$
|
0
|
2,000,000
|
$
|
0
|
|||||||||||
Chairman,
and Director
|
2006
|
$
|
56,250
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||||||
Harmel
S. Rayat (1)
|
2008
|
$
|
0
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||||||
Former
Secretary, Treasurer
|
2007
|
$
|
0
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||||||
Chief
Financial Officer
|
2006
|
$
|
0
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||||||
Chairman,
and Director
|
|||||||||||||||||||||
Arian
Soheili (2)
|
2008
|
$
|
0
|
$
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||||||
Former
CEO, Secretary,
|
2007
|
$
|
0
|
$
|
0
|
$
|
1,050
|
0
|
$
|
0
|
|||||||||||
Treasurer,
Director
|
2006
|
$
|
0
|
$
|
0
|
$
|
3,600
|
0
|
$
|
0
|
(1)
|
Resigned
as an officer and director on September 12,
2008.
|
(2)
|
Includes
standard Board of Directors fees. Resigned as Secretary, Treasurer and
Director on March 14, 2007
|
Name
|
Number
of
Securities
Underlying
Options
|
%
of Total
Options
Granted
to
Employees
in
2008
|
Exercise
Price
($/sh)
|
Expiration
Date
|
|||||||||||||||
Frank
Menzler
|
500,000
|
71%
|
$
|
0.61
|
6/11/2018
|
||||||||||||||
Harmel
Rayat(1)
|
0
|
0
|
n/a
|
n/a
|
|||||||||||||||
Javier
Jimenez
|
50,000
|
7%
|
0.61
|
6/11/2018
|
|||||||||||||||
Roland
Schomer
|
50,000
|
7%
|
0.61
|
6/11/2018
|
|||||||||||||||
Jatinder
Bhogal
|
50,000
|
7%
|
0.26
|
9/12/2018
|
|||||||||||||||
Joseph
Sierchio
|
50,000
|
7%
|
0.26
|
9/12/2018
|
(1)
|
Resigned
as an officer and director on September 12,
2008.
|
Common
Shares Underlying Unexercised Options on
|
Value
of Unexercised
In-the-money
Options on
|
|||||||||||||||
December
31, 2008
|
December
31, 2008
|
|||||||||||||||
Name
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||||
Frank
Menzler
|
100,000
|
2,400,000
|
$
|
0
|
$
|
730,000
|
||||||||||
Harmel
Rayat (1)
|
0
|
0
|
0
|
0
|
||||||||||||
Javier
Jimenez
|
0
|
50,000
|
0
|
0
|
||||||||||||
Roland
Schomer
|
0
|
50,000
|
0
|
0
|
||||||||||||
Jatinder
Bhogal
|
0
|
50,000
|
0
|
0
|
||||||||||||
Joseph
Sierchio
|
0
|
50,000
|
0
|
0
|
||||||||||||
Arian
Soheili (2)
|
0
|
0
|
0
|
0
|
||||||||||||
Jasvir
Kheleh (3)
|
0
|
0
|
0
|
0
|
(1)
|
Resigned
as an Officer and Director on September 12,
2008.
|
(2)
|
Resigned
as an Officer and Director on March 14,
2007
|
(3)
|
Resigned
as a Director on March 14, 2007
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
|
Person
or Group
|
Number
of Shares of Common Stock
|
Percent
|
Frank
Menzler (1)
|
100,000
|
<1%
|
60
State Street, Suite 700
|
||
Boston,
MA 02109
|
||
Javier
Jimenez
|
0
|
0%
|
60
State Street, Suite 700
|
||
Boston,
MA 02109
|
||
Roland
Schomer(2)
|
7,000
|
<1%
|
60
State Street, Suite 700
|
||
Boston,
MA 02109
|
||
Jatinder
S. Bhogal
|
0
|
0%
|
60
State Street, Suite 700
|
||
Boston,
MA 02109
|
||
Joseph
Sierchio(3)
|
100,000
|
<1%
|
60
State Street, Suite 700
|
||
Boston,
MA 02109
|
||
Harmel
S. Rayat (4)
|
33,228,468
|
36%
|
216-1628
West First Avenue
|
||
Vancouver,
B.C.
|
||
V6J
1G1 Canada
|
||
Directors
and Executive Officers
|
207,000
|
<1%
|
as
a group (5 persons)
|
1.
|
Represents
shares issuable pursuant to options granted on June 11, 2008 and vested on
October 1, 2008.
|
|
2.
|
Represents 7,000 shares acquired by Mr. Schomer in open market transactions in 2007 prior to his election to our Board of Directors. |
3.
|
Represents
50,000 shares of our common stock acquired by Mr. Sierchio in the private
placement we completed in May 2008 and 50,000 shares issuable pursuant to
Series C Warrants at an exercise price of $0.34 per
share.
|
4.
|
This
amount includes 30,025,274 shares held by 1420525 Alberta Ltd., a private
Alberta company wholly-owned by Mr. Rayat and 3,203,194 shares held
by Tajinder Chohan, Mr. Rayat’s
wife.
|
Year
Ended
December 31, 2008
|
Year
Ended
December 31, 2007
|
|||||||
Audit
fees
|
$ | 24,582 | $ | 25,770 | ||||
Audit-related
fees
|
- | - | ||||||
Tax
fees
|
11,457 | - | ||||||
All
other fees
|
- | - | ||||||
Total
|
$ | 36,039 | $ | 25,770 |
|
The
following financial statements are included in Part II, Item 8
of this Form 10-K:
|
|
·
|
Report
of Independent Registered Public Accounting
Firm
|
|
·
|
Consolidated
Balance Sheets as of December 31, 2008 and
2007
|
|
·
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and 2007,
and
|
|
·
|
Consolidated
Statements of Stockholders’ Equity (Deficit) from Inception (October 21,
1997)
|
|
·
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007,
|
|
·
|
Notes
to Consolidated Financial
Statements
|
Certification
of the Chief Executive Officer pursuant to Rule
13a-14(a)
|
Certification
of the Chief Financial Officer pursuant to
Rule 13a-14(a)
|
Certification
by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Certification
by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
HepaLife
Technologies, Inc
|
|
/s/ Frank Menzler
|
|
Frank
Menzler
|
|
President
and CEO and
|
|
Chairman
of the Board of
Directors
|
Signature
|
Title
|
Date
|
/s/ Frank
Menzler
|
Director
, Chairman of the Board,
|
March
30, 2009
|
Frank
Menzler
|
President
and Chief Executive Officer
|
|
/s/ Donna A.
Lopolito
|
Chief
Financial Officer
|
March
30, 2009
|
Donna
A. Lopolito
|
||
/s/
Jatinder
S. Bhogal
|
Director
|
March
30, 2009
|
Jatinder
S. Bhogal
|
||
/s/ Javier
Jimenez
|
Director
|
March
30, 2009
|
Javier
Jimenez
|
||
/s/ Roland
Schomer
|
Director
|
March
30, 2009
|
Roland
Schomer
|
||
/s/
Joseph
Sierchio
|
Director
|
March
30, 2009
|
Joseph
Sierchio
|