Attached files

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EX-31.1 - EXHIBIT 31.1 - Alliqua BioMedical, Inc.ex311.htm
EX-32.1 - EXHIBIT 32.1 - Alliqua BioMedical, Inc.ex321.htm
EX-23.1 - EXHIBIT 23.1 - Alliqua BioMedical, Inc.consent1231091.htm
EX-3.2 - EXHIBIT 3.2 - Alliqua BioMedical, Inc.exhibit32amendedbylaws.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2009

 

OR

 

¨ 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: 000-29819

 

HEPALIFE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

FLORIDA

(State or other jurisdiction of incorporation or organization)

 

58-2349413

(I.R.S. Employer Identification No.)

60 State Street, Suite 700, Boston, MA 02109

(Address of principal executive offices)

 

(800) 518-4879

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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

Common Stock, $0.001 par value per share

(Title of Class)

 

Over The Counter Bulletin Board (OTCBB)

(Name of exchange on which registered)

 

 

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

 

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required 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 for the past 90 days. Yes [X] No [  ]

 


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [  ] No [  ] Not Applicable [X]

 

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

 

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

 

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer (Do not check if a smaller reporting company)

 

 

Smaller reporting company

 x

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [   ] No [X]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock on June 30, 2009: $11,165,989.   

 

Number of shares of Common Stock, $0.001 par value, outstanding as of March 22, 2010: 101,494,158.

 

Documents incorporated by reference:  None.


  TABLE OF CONTENTS   
  HEPALIFE TECHNOLOGIES, INC.   
  ANNUAL REPORT ON FORM 10-K   
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 
 
PART I    PAGE 
Item 1. Business 4
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 39
Item 9A(T). Controls and Procedures 39
Item 9B. Other Information 39
PART III     
Item 10. Directors, Executive Officers and Corporate Governance 40
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 45
Item 13. Certain Relationships and Related Transactions, and Director Independence 46
Item 14. Principal Accounting Fees and Services 48
PART IV     
Item 15. Exhibits, Financial Statement Schedules 49
  Signatures  51 

 


 

PART I

 

Item 1.  Business.

 

Forward-Looking Statements

 

Except for the historical information presented in this document, the matters discussed in this Form 10-K for the fiscal year ending December 31, 2009, contain forward-looking statements. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for working capital.  Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “could,” “might,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology.  This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements.  These statements may be found under “Management's Discussion and Analysis of Financial Condition and Results of Operations,”  “Business,” “Properties,” as well as in this report generally. 

 

The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. The reader is cautioned that no statements contained in this Form 10-K should be construed as a guarantee or assurance of future performance or results. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks described in this report and matters described in this report generally.  In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.  These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this Form 10-K and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business.

 

The Company

 

We are a Florida corporation, formed in 1997 under the name Zeta Corporation. We changed our name on April 17, 2003, to more accurately reflect our business.  We are authorized to issue up to 300,000,000 shares of common stock (of which 101,494,158 were issued and outstanding on March 12, 2010) and 1,000,000 shares of preferred stock (none of which has been issued).

 

Our principal executive offices are located at 60 State Street, Suite 700, Boston, MA  02109.  Our telephone number is 800-518-4879.  The address of our website is www.hepalife.com.  Information on our website is not part of this Form 10-K.

 

Because we are a smaller reporting company, certain disclosures otherwise required to be made in a Form 10-K are not required to be made by the Company.

 

Description of Business

 

We are a development stage biotechnology company. We do not have, and may never develop, any commercialized products.  We have not generated any revenue from our current operations and do not expect to do so for the foreseeable future. On December 31, 2009, we had an accumulated deficit of $20,237,116

 

We are currently focused on the development of HepaMate™, a cell-based bioartificial liver system, as a potential treatment for liver failure patients. HepaMate™ is designed to provide whole liver function in patients with the most severe forms of liver failure by combining the process of removing toxins from the patient’s blood (detoxification) with concurrent liver cell therapy. HepaMate™ has been successfully tested in a clinical Phase I study and was previously known as “HepatAssist”.

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We acquired the HepatAssist technology and related assets from Arbios Systems, Inc. (“Arbios”) in October 2008, as part of our ongoing efforts to enhance and strengthen our bioartificial liver development program.  The assets we acquired (collectively, the “HepatAssist Related Assets”) from Arbios, include: over 12 patents and patent licenses; miscellaneous scientific equipment; United States Food and Drug Administration (“FDA”) Investigative New Drug application, including orphan drug and fast track designation; Phase I and Phase II/III clinical protocols and clinical data; and standard operating procedures for manufacturing and quality control.  The HepatAssist related Assets relate to the bioartificial liver device formerly known as “HepatAssist,” now referred to as “HepaMate™.”

 

We are currently working towards optimizing our HepaMate™ bioartificial liver device for utilization in a new clinical Phase III study followed, if warranted, by commercialization upon final regulatory approval.

 

Prior to our acquisition of the HepatAssist Related Assets from Arbios, we focused our efforts on the research and development of: a porcine stem cell line, and subclones thereof, which we refer to as the “PICM-19 cell line” for use in a bioartificial liver and in-vitro toxicology testing; and on the development and potential commercialization of a chicken cell line, and subclones thereof, which we refer to as the “PBS-1 cell line.”

 

The PICM-19 cell line has been developed for potential use in a bioartificial liver device and in-vitro toxicology platforms, and was exclusively licensed from the U.S. Department of Agriculture, Agricultural Research Service (“USDA, ARS”) in November 2007.  In September 2008, the license was amended in order to expand the field-of-use to allow for use of the PICM-19 cell line as in-vitro infection host systems for viral and protozoan agents such as malaria. We are continuing to evaluate the further optimization of our PICM-19 liver stem cell line.

 

The PBS-1 cell line was developed for potential use in cell-based vaccine production and was exclusively licensed from Michigan State University (“MSU”) in June 2006. In January 2009, we provided written notice to MSU terminating the license agreement effective April 24, 2009.

 

HepaMate™ Bioartificial Liver System

 

We are developing HepaMate™ for patients with acute or severe liver failure.  HepaMate™ is the most clinically-studied bioartificial liver with more than 50 scientific papers and book chapters published on the technology.   Over 200 patients have participated in two clinical trials in the United States and Europe.

 

HepaMate™ is an extracorporeal (outside the body), temporary liver support system designed to provide ‘whole’ liver function to patients with acute or severe liver failure. Unlike conventional technologies which use mechanical methods to perform rudimentary filtration of a patient’s blood or partially detoxify blood by using albumin or sorbents, HepaMate™ combines the process of removing toxins from the patient’s blood (detoxification) with concurrent biologic liver cell therapy. 

 

During HepaMate™ therapy, the patient’s plasma is first separated from whole blood, then exposed to the HepaMate™ bioartificial liver, and finally, returned to the patient. HepaMate™ is comprised of a blood plasma separation cartridge, a hollow-fiber bioreactor filled with proprietary porcine liver cells, a charcoal column, an oxygenator, and a plasma reservoir. These components are assembled into a patented blood/plasma circulation system, which is placed on our HepaDrive™ perfusion platform.

 

HepaMate™ is designed to provide whole liver function by using liver cells which are expected to remove toxins and produce albumin and other important liver-specific proteins.  In order to easily and safely store and distribute our liver cells, we use a patented liver cell cryopreservation process which freezes the cells and allows for their prolonged storage.  We believe our patented cryopreservation process provides us with a significant commercial and logistical advantage over technologies reliant upon the delivery of fresh cells which cannot typically be stored for prolonged periods and therefore, have shorter shelf-lifetimes than our cells used in HepaMate™.

 

HepaMate™, previously known as “'HepatAssist,” has been clinically evaluated in a successful Phase I clinical trial. Following these results, a pivotal Phase II/III prospective, randomized, controlled trial in 171 patients (with fulminant/subfulminant hepatic failure and primary non-function following a failed liver transplant) was conducted in 11 U.S. and 9 European medical centers. The clinical data was published in 2004 and showed that, based on a

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retrospective analysis, liver failure patients with fulminant and sub-fulminant hepatic failure who were treated with the bioartificial liver achieved a significant survival advantage when compared against the patient control group receiving standard-of-care treatment without bioartificial liver support.

 

We believe the inclusion of a subset of 24 patients who had undergone a prior, failed liver transplant negatively impacted the Phase II/III trial’s outcome since such patients are known to have poor survival outcomes.  As a consequence, the pivotal Phase II/III trial was unable to achieve its primary 30-day survival endpoint in the overall study population. Based on our retrospective statistical analysis of the clinical trial data, we anticipate, but cannot assure, that a new Phase III clinical trial without the inclusion of such failed liver transplant patients may be successful.

 

There is no assurance that we will achieve all or any of our goals.

 

Due to the pre-revenue, clinical development stage of our business, we expect to incur losses as we continue conducting our ongoing product development program. We will require additional funding to continue our product development program, to conduct a new clinical Phase III trial for HepaMate™, for operating expenses, to pursue regulatory approvals for our product, for the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims, if any, for any possible acquisitions or new technologies, and we may require additional funding to establish manufacturing and marketing capabilities in the future.

 

We currently do not have any arrangements or agreements with any third parties relating to such additional funding. We may seek to access the public or private equity markets whenever conditions are favorable. We may also seek additional funding through strategic alliances and other financing mechanisms. We cannot assure you that funding will be available in amounts and on terms acceptable to us, if at all. If adequate funds are not available, we may be required to curtail significantly our development program or obtain funds through arrangements with collaborators or others. This may require us to relinquish rights to certain of our technologies or product candidates. To the extent that we are unable to obtain third-party funding for such expenses, we expect that increased expenses will result in increased losses from operations. We cannot assure you that we will successfully develop our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit.  

 

USDA Agricultural Research Service

 

In November 2007, we entered into an exclusive license agreement with the USDA, ARS for the use of patented PICM-19 liver cell lines in bioartificial liver devices and in-vitro toxicological testing platforms. In September 2008, we amended our license agreement to expand the field-of-use to allow for use of the PICM-19 cells as “in-vitro infection host systems” for viral and protozoan agents such as malaria. The license agreement gives us exclusive rights to the use of PICM-19 liver cell lines in artificial liver devices and in-vitro toxicological testing platforms patented by two issued and one pending patent. Under the terms of the license agreement, we paid USDA, ARS a one-time license execution fee and are obligated to pay certain maintenance fees, milestone payments and royalties on future sales, if any.

 

The exclusive license agreement for the PICM-19 liver cell line with the USDA, ARS for the use of patented liver cell lines in artificial liver devices and in-vitro toxicological testing platforms remains in force and effect; the license was recently expanded for the additional use of PICM-19 as in-vitro infection host system for viral and protozoan agents such as malaria. We are continuing to evaluate the further optimization of our PICM-19 liver stem cell line for potential use in a future generation of the HepaMate™ bioartificial liver system

 

While we are currently maintaining the license agreement for the PICM-19 liver cell line in effect, contemporaneously with our acquisition of the HepatAssist related assets, we, through our subsidiary, HepaLife Biosystems, Inc. (“HepaBio”), have notified the USDA, ARS that HepaBio has elected to terminate the Cooperative Research and Development Agreement (the “CRADA”) between us and the USDA, ARS effective November 30, 2008.

 

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Michigan State University

 

In June 2006, we, through our subsidiary, Phoenix BioSystems, Inc. (“PBS”), entered into an exclusive worldwide license agreement with Michigan State University for the use of the patented PBS-1 chick cell lines for the development of new cell-culture based flu vaccines. In February 2008, PBS amended the license agreement to include use of the PBS-12SF chick cell line for the development of new cell-culture based flu vaccines. The license agreement granted us exclusive rights to five issued patents. Under the terms of the license agreement, we paid MSU a one-time license execution fee and are obligated to pay royalties based on future sales, if any, subject to annual minimum payments. In January 2009, in order to more fully focus our resources on the development of the HepaMate™ and related technologies, we provided written notice to MSU to terminating the license agreement relating to the PBS-12SF chick cell line effective April 24, 2009. 

 

Our Strategy

 

Currently, we are focusing a significant portion of our financial resources on the continued development of HepaMate™ and related technologies.  We believe that our bioartificial liver development program, due to our existing pivotal clinical trial data, is one of the most advanced development programs of its kind.  We expect to conduct a new Phase III clinical trial as soon as possible, subject to the availability of required funding which we estimate will exceed our current working capital.

 

Although there is no assurance that we will be successful, if we succeed in our efforts to develop our bioartificial liver and in obtaining regulatory approval for commercialization following successful clinical phase III trials of HepaMate™, we will explore a number of commercial opportunities, including, but not limited to:

·    the outright sale of our technology,

·    joint venture partnerships with health care companies, or

·    direct marketing and selling of our products.     

 

Ultimately, our commercial success will depend on our ability and the ability of our partners, if any, to compete effectively in product development areas such as, but not limited to, safety, efficacy, ease of use, patient or customer compliance, price, marketing and distribution as well as the efficacy of competing technologies.

    

Competition

 

The biotechnology industry is characterized by intense competition, rapid product development and technological change. A number of companies, research institutions and universities are working on technologies and products that may be similar and/or potentially competitive with our cell-based bioartificial liver. Non–cell-based techniques initially developed for other conditions, have been used to treat severe acute liver failure for more than a decade. Until now, no controlled, multicenter, large, randomized, prospective trials have been carried out using non-cell-based systems; therefore, their effect on survival remains unknown.

 

There can be no assurance that competitors will not succeed in developing alternative clinical therapies that are more effective than any that may ultimately be derived from our development efforts or that would render any such product obsolete and non-competitive.

 

We face competition from a number of companies, some of which are substantially larger than we are and have access to resources far greater than ours. Some companies enjoy numerous competitive advantages over us, including:

 

·         greater brand name recognition;

·         established relations with healthcare professionals, customers and third-party payors;

·         established distribution networks;

·         additional lines of products, and the ability to offer rebates, higher discounts or incentives to gain a competitive advantage;

·         greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products, and marketing approved products; and

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·         greater financial and human resources for product development, sales and marketing, and patent litigation.

 

As a result, we may not be able to compete effectively against these companies or their products.

 

The brief description of the products and technologies being developed or marketed by our competitors listed below have been taken from publicly available documents or reports filed by these companies with the United States Securities and Exchange Commission.

 

Competitors With Artificial Liver Device Technologies In Advanced Clinical Evaluation

 

·         Arbios Systems, Inc. – developing a non-biologic liver filtration device (“SEPET”) based on selective hemofiltration

 

·         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

 

·         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

 

·         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

 

We believe  that in order for us to compete with such companies, both for the acquisition of rights to viable biotechnologies and the financial resources required to ultimately attempt to commercialize such technologies, it is important for us to establish and maintain “brand” name recognition. Accordingly, we have undertaken a program designed to establish “brand” name recognition within the investment and scientific communities; we intend to continue to develop and market our brand name pending commercialization.

 

Our Intended Markets

 

Liver failure and the Need for an Artificial Liver Device

 

Each year an estimated two million people die of liver disease. The World Health Organization estimates that over 650 million people worldwide are affected by some form of liver disease, including 30 million Americans. China has the world’s largest population of Hepatitis B patients (approx. 120 million) with 500,000 people dying of the liver disease every year.

 

In the US alone, there are around 500,000 critical episodes of liver problems requiring hospitalization with 80,000 deaths annually. Liver transplantation is currently the only therapy proven to extend survival but the waiting list for liver transplants is extensive and many on the list will not receive an organ due to a dramatic shortage of donors or not being eligible.

 

In 2007, according to the United Network for Organ Sharing, there were nearly 17,000 individuals on the US waiting list for a liver transplant. Only 30% of those in need were transplanted. The average waiting time was more than 400 days. The same year, about 1,300 people died while waiting for a suitable donor with no medical option for saving their life available. For those patients with fulminant hepatic failure, a severe liver disease with 60-90% mortality, depending on the cause, only 10% received a transplant. Liver transplantation has a relatively high mortality of 30-40% at 5 -8years with 65% of the deaths occurring in the first 6 months. In addition, patients who have undergone transplantation must use lifelong immunosuppressive therapy.

 

The need for a bioartificial liver device able to remove toxins and improve survival results is more critical today than ever before. Limited treatment options, a low number of donor organs, the high price of transplants and follow up costs, a growing base of hepatitis, alcohol abuse, drug overdoses, liver cancer and other factors, all clearly indicate a strong need for a bioartificial liver device.

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Liver Failure Treatment

 

For 30 years the medical world has tried to create a life-saving bioartificial liver device. Hepatocytes, or liver cells, are the key to a functioning bioartificial liver. However, the liver is a complex organ to functionally replicate: it takes in oxygen and nutrients, and returns metabolic byproducts to the plasma; it must regulate the balance of fluids, electrolytes, and glucoses. The liver synthesizes albumin, globulins, and heparin, and filters out ammonia and toxins.

 

Currently, the standard treatment for acute liver failure involves supportive care that focuses on bridging patients to either transplantation or spontaneous recovery. Orthotopic liver transplantation is the only current therapy shown to improve patient survival.

 

Several extracorporeal liver support systems have been used to treat acute liver failure, attempting to bridge patients to either recovery or to transplantation. These include cell-based and non–cell-based systems. In the absence of treatment alternatives, non–cell-based techniques (eg, high-volume plasma exchange and albumin dialysis) initially developed for other conditions, have been used to treat severe acute liver failure for more than a decade. However, the clinical effect on patient survival in severe acute liver failure was limited.

 

Extracorporeal liver perfusion using whole human and pig livers rather than cells has been shown to effectively support patients with acute liver failure for several days, but it is impractical for wider use because of limited availability of human livers and lack of quality control and consistency for animal livers. As a result, several extracorporeal cell-based devices were developed. Early Phase I studies have been performed using whole blood or plasma perfusion through cartridges (mostly hollow-fiber bioreactors) containing either human hepatoblastoma (tumor) cells or freshly isolated porcine hepatocytes. While such devices appeared to be well tolerated by patients, the studies did not demonstrate a survival advantage over standard care in appropriately controlled settings.

 

The Market Segments

 

Assuming the results from our development efforts and anticipated clinical trials prove successful, and subject to receiving regulatory approvals, we believe that we will have the potential to address two important clinical needs and market segments:

 

Acute Liver Failure

 

Acute liver failure (ALF) can develop from several distinct disease processes that are associated with the rapid loss of liver function, including fulminant hepatic failure (FHF), subfulminant hepatic failure, and primary nonfunction of a transplanted liver. FHF is usually used as a generic term encompassing a range of definitions that are based on the time of onset of hepatic encephalopathy (coma). 

 

FHF is the final common pathway for a variety of liver injuries. In FHF, the need for a liver replacement is urgent because of rapid deterioration in the patient’s condition, often associated with irreversible brain damage.

 

In severe FHF, the mortality rate without liver transplantation approaches up to 90% and individuals diagnosed with FHF are placed at the top of the transplant waiting list (Status I). We anticipate that our HepaMate™ bioartificial liver may help keep patients alive and maintain their neurological state until their own liver potentially recovers and regenerates to normal function (bridge to recovery), or until a donor liver becomes available for transplantation to the patient (bridge to transplantation).

 

In FHF patients, we anticipate that our HepaMate™ bioartificial liver therapy will:

 

·         Allow survival without a transplant (a bridge to liver regeneration)

·         Reduce the risk of pre-transplant death

·         Help keep liver failure patients alive and neurologically intact before, during and immediately after transplantation

·         Improve survival in individuals with drug-induced liver toxicity

·         Improve survival with drug-induced liver toxicity

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Acute-on-Chronic and Chronic Liver Failure

 

These patients experience recurrent acute episodes of liver failure which are very difficult and costly to treat. The large majority of these patients do not become eligible for liver transplantation until very late in their disease course, if ever, by which time they may be contraindicated for such an invasive surgical procedure.  Thus, we anticipate that the principal objective for use of our HepaMate™ bioartificial liver will be to bridge these patients to regeneration and recovery of their own liver.  Over several years, we anticipate that such patients may be repeatedly treated with our HepaMate™ bioartificial liver in response to recurring, acute episodes.

 

For acute-on-chronic and chronic liver failure patients, we anticipate that potential indications for the HepaMate™ bioartificial liver may include its use in: (a) treatment of acute episodes (or flares) of chronic liver disease, or acute-on-chronic liver failure arising from specific viral hepatitis strains; (b) prevention of acute-on-chronic episodes of liver failure; (c) treatment of acute alcoholic hepatitis, and; (d) use in conjunction with multi-drug anti-viral therapy in refractory viral hepatitis patients, where liver injury may impede immune response to conventional administration of antiviral drugs.

 

Marketing of Commercialized Products

 

We do not have any commercialized products, nor is there any assurance that we will have any such products; accordingly, we have no sales organization or agreements with third parties regarding the sale and marketing of any products which we may eventually commercialize. To the extent that we may enter into distribution, co-marketing, co-promotion or sublicensing arrangements for the marketing and sale of any such products, any revenues received by us will be dependent on the efforts of third parties. If any of such parties were to breach or terminate their agreement with us or otherwise fail to conduct marketing activities successfully, and in a timely manner, the commercialization of products, if any, derived from our development efforts would be delayed or terminated.

 

Our ability to achieve profitability is dependent in part on ultimately obtaining regulatory approvals for products, if any, which are derived from our development efforts, and then commercialize either through our own sales force or by entering into sales/marketing agreements for the commercialization of any such products with third parties or strategic partners. There can be no assurance that such regulatory approvals will be obtained or such agreements will be entered into. The failure to obtain any such necessary regulatory approvals or to enter into any such necessary agreements could delay or prevent us from achieving profitability and would have a material adverse effect on the business, financial position and results of our operations. Further, there can be no assurance that our operations will become profitable even if products, if any, which are derived from our development efforts, are commercialized.

 

If FDA and other approvals are ultimately obtained with respect to any product submitted by us in the future for approval, we expect to market and sell any such product ourselves, through distribution, co-marketing, co-promotion or sublicensing arrangements with third parties.

 

Employees

 

At December 31, 2009 we had one full-time employee. We do not have any part-time employees. Our employee is not represented by a labor union or other collective bargaining groups. We consider relations with our employee to be good. To the best of our knowledge, none of our employees, officers or directors are bound by restrictive covenants from prior employers which would preclude them from providing services to us. We currently plan to retain and utilize the services of outside consultants for additional research, testing, regulatory, accounting, legal compliance and other services on an as needed basis.

 

Item 2.  PROPERTIES.

 

Our current corporate office is located at 60 State Street, Suite 700, Boston, MA  02109. 

 

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Item 3.  LEGAL PROCEEDINGS.

 

We are not a party to any current legal proceedings.

 

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

 

Our Annual Meeting of Stockholders (the “Annual Meeting”) was held on December 21, 2009, at which time the stockholders voted on the following proposals:

                               

1.     The election of a board of directors to serve until the next Annual Meeting or until their respective successors are duly elected and have qualified. 

                                                               

Votes For

Votes Against

Votes Abstaining

Javier Jimenez

53,074,383

585,332

118,803

Joseph Sierchio

53,074,365

577,330

126,821

Jatinder Bhogal

53,069,437

583,088

124,991

 

2.     Ratifying the appointment of Peterson Sullivan LLP as our auditors for the fiscal year ending December 31, 2009.

 

Votes For

Votes Against

Votes Abstaining

53,356,738

253,594

168,185

 

 

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PART II

 

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

 

Market Information

 

Our Company's Common Stock is traded on the Over the Counter Bulletin Board (“OTCBB”) under the symbol "HPLF." We are engaged in a highly dynamic industry, which often results in significant volatility of our common stock price.

 

The following table sets forth the high and low sale prices for the periods indicated:

 

                                High                       Low

 

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

 

First Quarter 2009                                                               $0.30                      $0.15

Second Quarter 2009                                                          $0.22                      $0.16

Third Quarter 2009                                                             $0.35                      $0.16

Fourth Quarter 2009                                                           $0.38                      $0.13

 

As of March 22, 2010, there were approximately 76 stockholders of record.

 

Dividend Policy

We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future, but intend to retain our capital resources for reinvestment in our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors as the board of directors deems relevant. Our board of directors has the right to authorize the issuance of preferred stock, without further shareholder approval, the holders of which may have preferences over the holders of the Common Stock as to payment of dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

                                                                                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                  250,000                                   $0.35                                       37,548,000

 

Equity compensation plans not

approved by security holders 

_____________________________________________________________________________________________

Total                                                        250,000                                   $0.35                                       37,548,000

 

12


item 7.  management’s discussion and analysis of financial condition and results of operations.

 

Discussion and Analysis

 

The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, and should be read in conjunction with our financial statements and related notes. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In addition, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in “Forward Looking Statements,” and elsewhere in this Form 10-K.

 

 

Overview 

 

We are a development stage biotechnology company focusing on the development of a cell-based bioartificial liver system, HepaMate™, as a potentially lifesaving treatment for liver failure patients. The technology has previously been successfully tested in a clinical phase I study. As an extracorporeal cell-based bioartificial liver system, HepaMate™ is designed to combine blood detoxification with liver cell therapy to provide whole liver function in patients with the most severe forms of liver failure.

 

On October 3, 2008, we acquired HepatAssist Related Assets from Arbios, which included over 12 patents and patent licenses; miscellaneous scientific equipment; FDA Investigative New Drug (IND) application, including orphan drug and fast track designation; phase I and phase II/III clinical protocols and clinical data; and standard operating procedures for manufacturing and quality control. The acquired assets relate to a bioartificial liver device formerly known as “ HepatAssist. ” HepatAssist passed clinical phase I studies was evaluated in the largest-ever phase II/III clinical study (prospective, randomized, multicenter, controlled trial involving over 170 patients) to test the safety and efficacy of a bioartificial liver assist device. The clinical data was published in 2004 and showed for bioartificial liver device treated patients in fulminant and sub-fulminant hepatic failure a significant survival advantage compared with the patient control group receiving standard-of-care treatment.

 

We are working towards optimizing the former HepatAssist bioartificial liver device for utilization in a new clinical phase II/III study followed, if warranted, by commercialization upon final regulatory approval.

 

Previously we focused our research, development and commercialization efforts on the development of a porcine stem cell line, and subclones thereof, which we refer to as the “ PICM-19 cell line ” for use in a bioartificial liver and in-vitro toxicology testing, and on the commercialization of a chicken cell line, and subclones thereof, which we refer to as the “ PBS-1 cell line .” The PBS-1 cell line was developed for potential use in cell-based vaccine production and was exclusively licensed from Michigan State University (“ MSU ”) in June 2006.    In January 2009, we provided written notice to MSU terminating the license agreement effective April 24, 2009.

The PICM-19 cell line was developed for potential use in a bioartificial liver device and in-vitro toxicology platforms and was exclusively licensed from USDA Agricultural Research Service on November 2007. In September 2008 the license was amended for the expanded field-of-use as in-vitro infection host systems for viral and protozoan agents such as malaria.

 

On May 23, 2008, we completed a private placement of securities for an aggregate purchase price of $4,530,800.  Simultaneously with the completion of the private placement, n satisfaction of the $877,800 outstanding principal amount of the promissory note which we previously issued, we issued 2,065,412 Units consisting of 2,065,412 shares and 2,065,412 Series C Warrants; the note holder agreed to accept $150,000 in full payment and satisfaction of the accrued and unpaid interest on the note payable in the amount of $249,945.

 

13


 

Asset Purchase Agreement

 

On October 3, 2008, we entered into and consummated the transactions contemplated by a purchase agreement with Arbios pursuant to which, we purchased certain specified assets of Arbios relating to the pig cell based liver device technology that was being developed by Arbios.

 

The purchase price of the acquired assets consisted of: $450,000 in cash, of which $250,000 was paid at the closing and $200,000 has been deferred for up to 18 months; a Series D Stock Purchase Warrant to purchase up to 750,000 shares of the Company’s common stock at an exercise price of $0.35 per share for a period of 5 years.  The Deferred Cash Purchase Price of $200,000 was due and payable on the earlier of (i) the date on which we consummate one or more debt or equity financings in which the gross proceeds received in the aggregate equal or exceed $4,000,000, or (ii) the eighteen month anniversary of the closing date.

 

The issuance of the Series D Warrant was deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act in that the issuance did not involve a public offering. We granted Arbios certain registration rights, as more fully set forth in the Registration Rights Agreement dated October 3, 2008 between us and Arbios, with respect to the shares of the Company’s common stock issuable upon exercise of the Series D warrant.  Pursuant to the Registration Rights Agreement, if we have not filed with, and have declared effective by, the Securities and Exchange Commission, a registration statement within nine months of October 3, 2008, Arbios, to the extent applicable, will be entitled to utilize the cashless exercise provisions of the Series D Warrant.

 

Warrant Repurchase Agreement

 

On April 22, 2009, we consummated the transactions contemplated by a Warrant Repurchase Agreement between us and Arbios.  Pursuant to the Repurchase Agreement, we repurchased the Series D stock purchase warrant previously issued to Arbios as partial consideration pursuant to the Asset Purchase Agreement. The Series D Warrant entitled the holder to purchase up to 750,000 shares of our common stock at a price of $0.35 per share for a period of 5 years.  In consideration thereof we accelerated payment of the Deferred Cash Purchase Price to April 22, 2009 which was due on the earlier of (i) the date on which we consummate one or more debt or equity financings in which the gross proceeds received in the aggregate equal or exceed $4,000,000, or (ii) the eighteen month anniversary of the closing date.

 

May 2008 Private Placement

 

On May 23, 2008, we completed a private placement (May 2008 Private Placement) pursuant to which we sold 10,660,705 units (Units) at a price of $0.425 per Unit or $4,530,800 in the aggregate. Each Unit consists of one share of our common stock (the “Unit Shares”) and one Series C stock purchase warrant (Series C warrant) to purchase a share of common stock at the initial exercise price of $0.55 per share for a period of two years from the date of issuance.  In conjunction with our completion of the acquisition of the HepatAssist Related Assets in October 2008, we reduced the initial exercise price of the Series C warrants to $0.34 per share. We also issued an additional 263,713 Units in payment of placement and legal fees relating to this transaction.  We have agreed to register for resale the Unit Shares and the shares of our common stock issuable upon exercise of our common stock.

 

Loan Conversion

 

Simultaneously with the completion of the May 2008 Private Placement, we entered into an agreement with Mr. Harmel S. Rayat, our former Chief Financial Officer, Director and Controlling Shareholder, pursuant to which Mr. Rayat (i) converted the entire outstanding principal amount ($877,800) of his loan to us into an aggregate of  2,065,412  Units, each Unit consisting of one share of our common stock and one Series C warrant, at a conversion price of $0.425 per Unit and (ii) agreed to accept $150,000 in full payment and satisfaction of the accrued and unpaid interest on the loan in the amount of $249,945. 

 

14


Warrants

 

As of December 31, 2009, we had Warrant shares outstanding that we issued May 11, 2007 with an original exercise price of $1.50 and original warrant shares of 737,000 convertible into common stock until May 11, 2012.  The Warrant Agreement provides for an adjustment to the exercise price and number of shares if we issue shares of common stock or common stock equivalents for consideration less than the then market price at the date of issuance subject to a 1% adjustment floor.  As a result of this provision, the total number of Warrant shares outstanding as of December 31, 2009 was 825,000 with an exercise price of $1.34. 

 

Warrant Exchange/Exercise Agreement  

 

On October 27, 2009, we consummated the transactions contemplated by the Warrant Exchange/Exercise Agreement between us and each of the holders of the Series C Warrants. Pursuant to the terms of the Warrant Exchange/Exercise Agreement we issued 3,492,505 shares of restricted stock in exchange for 6,985,010 Series C Warrants and issued an aggregate of 6,004,824 shares of common stock in connection with the exercise of the balance of the Series C Warrants a price of $0.10 per share. As of December 31, 2009, there are no Series C Warrants outstanding.

 

The fair value of the Series C Warrant Liability at October 27, 2009, the effective date of the Warrant Exchange/Exercise Agreement, using the Black-Scholes pricing-model was $581,559, of which $268,838 was allocated to the 6,004,824 warrant shares exercised and $312,721 was allocated to the 6,985,010 warrant shares exchanged.

 

We received total cash proceeds of $600,483 from the 6,004,824 warrant shares exercised at $0.10 per warrant share as part of the Warrant Exchange/Exercise Agreement.  The fair value of the Series C Warrant liabilty attributable to the Warrants exercised was $268,838, prior to the impact of the reduction in exercise price. The fair value of the warrant liabilty increased by $691,934 and resulted in a carrying value of $960,772 from the reduction in exercise price. The increase in the fair value of the warrant liabilty of $691,934 was recorded as a component of the loss on extinguishment of warrant liabilty in the accompanying financial statements.

 

The fair value of the 3,492,505 shares of common stock issued to settle the exchange for 6,985,010 warrant shares was $908,952 based on the closing price of the Company’s common stock of $0.26 per share on October 27, 2009 as quoted on the Over the Counter Bulletin Board.  The Company recorded a loss on extinguishment of warrant liability on the shares exchanged for common stock in the amount of $595,330 on October 27, 2009 as a result of the excess of the consideration provided in the form of common stock over the fair value of the Series C Warrant Liability. 

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. We review our estimates on an ongoing basis.

 

We consider an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made; and changes in the estimate or different estimates that could have been made could have a material impact on our results of operations or financial condition. While our significant accounting policies are described in more detail in the notes to our financial statements included in this Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

 

Research and Development Expenses

 

Research and development expenses represent costs incurred to develop our technology, as well as purchased in-process research and development programs. Until October 2008, the majority of costs incurred were pursuant to our CRADA with the USDA’s Agricultural Research Service and pursuant to our sponsored research agreement with MSU. During 2009, research and development expenses were $185,081.  Third-party costs paid by us relating to

15


these agreements include salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, contract services and other applicable costs. In addition, costs may include third party laboratory work.  We charge all research and development expenses to operations as they are incurred, including internal costs, costs paid to sponsoring organizations, and purchased in-process research and development programs. We do not track research and development expenses by project.

 

General and Administrative Expenses

 

Our general and administrative expenses consist primarily of personnel related costs, legal costs, including intellectual property that is expensed when incurred, investor relations costs, stock-based compensation costs, accounting costs, and other professional and administrative costs.

 

Stock-Based Compensation

 

We measure all stock-based compensation awards at fair value on the date of grant and recognize such expense in our consolidated financial statements over the requisite service period for awards expected to vest.  We use the Black-Scholes pricing model to determine the fair value of stock-based compensation awards on the date of grant.  The Black-Scholes pricing model requires management to make assumptions regarding the option lives, expected volatility, and risk free interest rates. See “Note 9. Stock Options” in the Notes to Consolidated Financial Statements for additional information on our stock-based compensation plans.

 

Fair Value

 

We measure fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. We utilize a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.  We have no assets or liabilities valued with Level 1 inputs.

 

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.  We have no assets or liabilities valued with Level 2 inputs. 

 

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Liabilities valued with Level 3 inputs are described in “Note 8. Stockholders’ Equity” in the Notes to Consolidated Financial Statements.

 

Warrant Liability Derivative

 

We evaluate financial instruments for freestanding or embedded derivatives.  The warrant liability derivative is recorded at fair value with changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change.

 

 

Results of Operations

 

We have yet to establish any history of profitable operations and our accumulated deficit from inception through December 31, 2009 is $20,237,116  We have not generated any revenues from operations during the past five years and do not expect to generate any revenues for the foreseeable future. We expect that our future revenues will not be sufficient to sustain our operations for the foreseeable future. Our profitability will require the successful completion of our research and development programs, and the subsequent commercialization of the results or of products derived from such research and development efforts. No assurances can be given when this will occur or that we will ever be profitable.

 

16


We expect to continue to incur losses from business operations and we believe our cash and cash equivalents balances, anticipated cash flows from operations, and other external sources of credit will be sufficient to meet our cash requirements through March 2011. Our future after March 2011 will depend in large part on our ability to successfully raise capital from external sources to pay for planned expenditures and to fund operations.

 

Operating Expenses

 

A summary of our operating expenses for the years ended December 31, 2009 and 2008 is as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 


Increase (Decrease)

% Change

Expenses

 

 

 

 

 

 

 

Salary and benefits

$

536,712

$

1,157,785

$

 (621,073)

 (53.6%)

Research and development

 

185,081

 

892,386

 

 (707,305)

 (79.3%)

Shareholder relations and name branding

 

37,246

 

354,308

 

 (317,062)

 (89.5%)

Administrative and general

 

228,593

 

324,393

 

 (95,800)

 (29.5%)

Professional fees- accounting and legal

 

378,690

 

204,422

 

174,268

85.2%

Director, management and consulting fees

 

147,606

 

20,705

 

126,901

612.9%

Depreciation

 

-

 

7,821

 

 (7,821)

 (100.0%)

 

$

1,513,928

$

2,961,820

$

 (1,447,892)

 (48.9%)

 

 

 

Salaries and benefits:  We incurred salaries and benefits expense of $536,712 for the year ended December 31, 2009 representing a decrease of $621,073 or 53.6% compared to the year ended December 31, 2008.  The majority of the decrease, representing $324,479, is primarily due to a decrease in stock compensation expense as certain option grants have been fully expensed. The remaining decrease of $296,594 is due to a lower compensation expense from fewer employees as we terminated our research scientists effective November 30, 2008 as a result of the Arbios Systems, Inc. asset acquisition and due to closing our corporate office in Vancouver, British Columbia on August 31, 2008.

 

Research and development:  We incurred $185,081 in research and development expenses for the year ended December 31, 2009 representing a decrease of $707,305 or 79.3% compared to the year ended December 31, 2008.  This decrease is due primarily to the cancellation of our purchased research and development program with the USDA effective October 2008 and the cancellation of our sponsored research agreement with Michigan State University (“MSU”) effective April 24, 2009. We cancelled both the USDA and MSU research programs as a result of repositioning our strategic direction.

 

Shareholder relations and name branding:  We incurred $37,246 of shareholder relations and name branding expenses for the year ended December 31, 2009 representing a decrease of $317,062 or 89.5% compared to the year-ended December 31, 2008, primarily as a result of the company’s decision to reduce name branding expenditures.

 

Administrative and general:  We incurred $228,593 in administrative and general expenses for the year ended December 31, 2009 representing a decrease of $95,800 or 29.5% compared to the year ended December 31, 2008. The change is primarily comprised of a decrease of $105,809 in facilities and travel expenses due to closing of the corporate office in Vancouver, British Columbia on August 31, 2008, offset by an increase of $ 7,309 for the first time incurrence of license maintenance fees and director and officer insurance.

 

Professional fees:  We incurred a total of $378,690 in professional fees for the year ended December 31, 2009 for an increase of $174,268 or 85.2% which is comprised of the following: an increase of $101,756 in legal fees, an increase of $54,158 for external accounting fees as these services were primarily performed by the corporate office in Vancouver, British Columbia in 2008 and are now outsourced; and an increase of $18,354 in audit and other consulting services.

 

17


 

Director, management and consulting fees:  We incurred a total of $147,606 in director, management and consulting expenses for the year ended December 31, 2009 for an increase of $126,901 or 612.9% compared to the year ended December 31, 2008.  The increase is attributable to an increase in the number of positions on the Board of Directors from three to five beginning in September 2008, increasing the Director’s fees from $750 to $2,500 on a quarterly basis, and also to our hiring a Chief Financial Officer, on a contract basis, in February 2009.  In addition, we hired an interim Chief Executive Officer in October 2009.

 

Depreciation:  Depreciation expense was zero for the year ended December 31, 2009 as all assets were retired in the year ended December 31, 2008.

 

Other Income and (Expense)

 

A summary of our other income and expense for years ended December 31, 2009 and 2008 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 


Increase (Decrease)

% Change

 

 

 

 

 

 

 

 

Other income and (expenses)

 

 

 

 

 

 

 

Interest on promissory note

$

-

$

 (41,615)

$

 (41,615)

100.0%

Bank charges and foreign exchange loss

 

 (1,226)

 

 (11,261)

 

 (10,035)

 (89.1%)

Interest income

 

29,619

 

30,831

 

 (1,212)

 (3.9%)

Loss on disposal of fixed assets

 

-

 

 (3,061)

 

 (3,061)

 (100.0%)

Amortization of discount on notes

 

 (12,873)

 

 (469,893)

 

 (457,020)

97.3%

Amortization of deferred financing costs

 

-

 

 (210,728)

 

 (210,728)

 (100.0%)

Change in fair value of warrant liability

 

 (62,297)

 

-

 

 62,297

0.0%

Loss on extinguishment of warrant liability

 

 (1,287,264)

 

-

 

1,287,264

0.0%

 

$

 (1,334,041)

$

 (705,727)

$

 625,890

71.0%

 

Interest on promissory note: Interest expense represents interest accrued on note payables to Mr. Harmel S. Rayat, at an annual rate of 8.5%. Mr. Rayat was our former Chief Financial Officer, former Director, and former majority shareholder. As part of the 2008 Private Placement the balance of this loan was converted to common stock and warrants.

 

Interest income: Interest income for the years ended December 31, 2009 and 2008 represents interest earned on cash and cash equivalents. 

 

Amortization of discount on notes and deferred financing costs: These accounts decreased due to the conversion of notes payable to common stock during 2008. 

 

Change in fair value and loss on extinguishment of warrant liability: On January 1 2009, we adopted guidance which is now part of ASC 815-40, Contracts in Entity’s Own Equity (ASC 815-40). We determined that our Warrants issued in May 2007 and our Series C Warrants issued in May 2008 contain a dilutive issuance provision that may result in an adjustment to the exercise price and number of underlying shares of common stock. As a result, we reclassified 737,000 Warrant shares from equity to noncurrent warrant liability and 12,989,830 Series C Warrants from equity to a current warrant liability and recorded a cumulative effect of the change in accounting principle adjustment that reduced our accumulated deficit as of January 1, 2009 by $1,932,469.

 

Our Warrants and Series C Warrants are considered derivative liabilities and are therefore required to be adjusted to fair value each quarter. We value our warrant liability using the Black-Scholes model. Our stock price, remaining term of the warrants and the volatility of our stock all impact the fair value of the warrants.

 

The amount recorded to adjust the Warrants and Series C Warrants to fair value resulted in a net non-cash loss of $62,297 for the year ended December 31, 2009.

18


 

 

On October 27, 2009, we consummated the transactions contemplated by a Warrant Exchange/Exercise Agreement between us and each of the holders of the Series C Warrants. Pursuant to the terms of the Warrant Exchange/Exercise Agreement we issued  3,492,505 shares of restricted stock in exchange for 6,985,010 Series C Warrants and issued an aggregate of 6,004,824 shares of restricted stock in connection with the exercise of the balance of the Series C Warrants a price of $0.10 per share.  Currently, there are no Series C Warrants issued and outstanding.

 

The fair value of the Series C Warrant Liability at October 27, 2009, the effective date of the Warrant Exchange/Exercise Agreement, using the Black-Scholes pricing-model (Level 3 inputs) was $581,559, of which $268,838 was allocated to the 6,004,824 warrant shares exercised and $312,721 was allocated to the 6,985,010 warrant shares exchanged.

 

We received total cash proceeds of $600,483 from the 6,004,824 warrant shares exercised at $0.10 per warrant share as part of the Warrant Exchange/Exercise Agreement.  The fair value of the Series C Warant liabilty attributable to the Warrants exercised was $268,838, prior to the impact of the reduction in exercise price. The fair value of the warrant liabilty increased by $691,934 and resulted in a carrying value of $960,772 from the reduction in exercise price. The increase in the fair value of the warrant liabilty of $691,934 was recorded as a component of the loss on extinguishment of warrant liabilty in the accompanying fiancial statements.

 

The fair value of the 3,492,505 shares of common stock issued to settle the exchange for 6,985,010 warrant shares was $908,952 based on the closing price of the Company’s common stock of $0.26 per share on October 27, 2009 as quoted on the Over the Counter Bulletin Board.  The Company recorded a loss on extinguishment of warrant liability on the shares exchanged for common stock in the amount of $595,330 on October 27, 2009 as a result of the excess of the consideration provided in the form of common stock over the fair value of the Series C Warrant Liability. 

 

Liquidity and Capital Resources

 

We had cash and cash equivalents of $2,310,200 and $3,084,155 as of December 31, 2009 and, 2008, respectively.  Net cash provided by financing activities was $400,483 for the year ended December 31, 2009 from the exercise of 6,004,824 shares of Series C Warrants as part of the Warrant Exchange or Exercise Agreement consummated on October 27, 2009 and from payment of $200,000 on a contract commitment.  Net cash provided by financing activities was $4,530,800 for the year ended December 31, 2008 from a private placement of securities of 10,660,705 units, with each unit consisting of one share of common stock and one common stock warrant.

 

Net cash flow used in operating activities was $1,174,819 for the year ended December 31, 2009, compared to net cash flow used of $1,984,149 for the year ended December 31, 2008.  We have financed operations primarily from cash on hand and through private placement of securities, as well as through the exercise of Series C Warrants.  The accompanying financial statements have been prepared assuming we will continue as a going concern.  We incurred cumulative losses of $20,237,116 from inception through December 31, 2009.  Additionally, we have expended a significant amount of cash in developing our technology.  We expect to continue to incur losses from business operations and we believe our cash and cash equivalents balances, anticipated cash flows from operations, and other external sources of credit will be sufficient to meet our cash requirements through March 2011. Our future after March 2011 will depend in large part on our ability to successfully raise capital from external sources to pay for planned expenditures and to fund operations.

 

At this time, we have no agreements or understandings with any third party regarding any financings.

 

Related Party Transactions

 

Employment Agreement: On September 30, 2009, we and Mr. Frank Menzler, who at the time was our Chief Executive Officer and President, entered into a restated employment agreement providing for the payment to Mr. Menzler of a signing bonus of $35,000, which was recorded as salary expense; a severance payment of up to six-months salary and benefits; cancelation of all stock option grants; and the resignation of Mr. Menzler as a Director and Chairman of our Board of Directors.

 

19


 

On October 13, 2009, Mr. Menzler resigned from his position as Chief Executive Officer and President.  Pursuant to the terms of the restated employment agreement, Mr. Menzler was appointed Special Technical Advisor and continues as an employee.  On March 16, 2010, we gave written notice to Mr. Menzler of our election to terminate the September 30, 2009 restated employment agreement effective March 31, 2010. 

 

On October 13, 2009, we entered into an Interim Executive Services Agreement (the “Agreement”) with Mr. Amit Dang in which Mr. Dang was appointed as our Interim Chief Executive Officer, President and Secretary. Mr. Dang will receive a fee of $7,000 per month during the term of the Agreement.  This agreement may be terminated at any time by the Company and upon 90 days prior written notice by Mr. Dang.  It is not expected that Mr. Dang will devote his full time and attention to our operations.

 

Mr. Dang was also granted an option to purchase, subject to vesting restrictions, up to 100,000 shares of our common stock, at a price of $0.32 per share (the closing price of our common stock as reported on the Over the Counter Bulletin Board on October 13, 2009). The options shall vest and become exercisable when either (a) with Mr. Dang’s support and contribution, we are able to successfully consummate a strategic transaction, or other such commercial transaction which the Board deems sufficiently substantial, or (b) the Board, in its sole discretion, elects to accelerate the vesting of the options.  We expect that the options shall vest within one year from the date of grant.

 

Executive Management: For the years ended December 31, 2009 and 2008, we incurred $21,000 and $0 in fees paid to Mr. Amit Dang our President, Chief Executive Officer, and Secretary. In addition, we recorded $2,708 and $0 as stock compensation expense for the award to Mr. Dang for the years ended December 31, 2009 and 2008, respectively.

 

Director Fees: For the years ended December 31, 2009 and 2008, we incurred $41,667 and $19,343, respectively, in board fees for our non-employee directors.  In addition, during June and September 2008, we granted stock options to purchase 50,000 shares each for a total of 200,000 shares of common stock to non-employee board members. For the years ended December 31, 2009 and 2008, we recorded $19,285 and $12,541, respectively, as stock compensation expense relating to these stock grants.

 

Legal Fees: Legal fees expensed for the year ended December 31, 2009 and 2008 that were paid or are due to our attorney who also serves as a board member totaled $204,193 and $111,150, respectively.  Also, as part of our May 2008 Private Placement, we settled $21,250 in legal costs by issuing 50,000 Units to this attorney. 

 

Notes Payable and Accrued Interest: On May 23, 2008, we reached an agreement with Mr. Harmel S. Rayat to which Mr. Rayat (i) converted the entire outstanding principal amount ($877,800) of his loan to us into an aggregate of  2,065,412  Units, each Unit consisting of one share of our common stock and one Series C warrant, at a conversion price of $0.425 per Unit and (ii) agreed to accept $150,000 in full payment and satisfaction of the accrued and unpaid interest on the loan in the amount of $249,945. Mr. Harmel S. Rayat was a former officer, director and majority stockholder of until June 2008.

 

Rent: Until August 31, 2008, our administrative office was located in Canada. This premise is owned by a private corporation controlled by Mr. Rayat. We paid rent of $26,866 for the year ended December 31, 2008 to the private corporation.  Effective September 1, 2008, we closed this administrative office, terminating all of its employees.  There were no severance arrangements with any of the terminated employees.

 

All related party transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course of business.

 

Off Balance Sheet Arrangements

 

We has no off-balance sheet arrangements.

 

Recent Accounting Pronouncements

 

See Note 2 to the Consolidated Financial Statements in this Form 10-K.

 

20


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.   
Index to Financial Statements
 
  PAGE 
Report of Independent Registered Public Accounting Firm  22 
Consolidated Balance Sheets as of December 31, 2009 and 2008  23 
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008, and from Inception (October 21, 1997) to December 31, 2009 24
Consolidated Statements of Stockholders’ Equity (Deficit) from Inception (October 21, 1997) to December 31, 2009 25
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008, and from Inception (October 21, 1997) to December 31, 2009 26
Notes to Consolidated Financial Statements  27 

 

 

 

21


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors

HepaLife Technologies, Inc.

Boston, Massachusetts

 

 

We have audited the accompanying consolidated balance sheets of HepaLife Technologies, Inc. and Subsidiary (a development stage company) ("the Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and for the period from October 21, 1997 (date of inception) to December 31, 2009.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HepaLife Technologies, Inc. and Subsidiary (a development stage company) as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, and for the period from October 21, 1997 (date of inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States.

 

/S/ PETERSON SULLIVAN LLP

 

Seattle, Washington

March 31, 2010

 

22


 

HEPALIFE TECHNOLOGIES, INC.

 (A Development Stage Company)

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

December 31, 2009 and 2008

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

ASSETS

 

 

 

 

Current assets

 

 

 

 

   Cash and cash equivalents

$

2,310,200

$

3,084,155

   Prepaid expenses

 

44,033

 

98,716

Total current assets

$

2,354,233

$

3,182,871

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

   Accounts payable and accrued liabilities

$

98,462

$

105,250

Total current liabilities

 

98,462

 

105,250

 

 

 

 

 

   Contract commitment payable (Note 4)

 

-

 

200,000

   Discount on contract commitment payable

 

-

 

 (12,873)

   Warrant liability  (Note 8)

 

9,815

 

-

Total liabilities

 

108,277

 

292,377

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Stockholders' equity (Note 8)

 

 

 

 

Preferred stock: $0.10 par value; Authorized: 1,000,000

 

 

 

 

    Issued and outstanding: none

 

-

 

-

Common stock: $0.001 par value; Authorized: 300,000,000

 

 

 

 

    Issued and outstanding: 101,494,158 (2008: 91,996,829)

 

101,495

 

91,998

Additional paid-in capital

 

22,381,577

 

22,120,493

Accumulated other comprehensive income

 

-

 

 (381)

Loss accumulated during the development stage

 

 (20,237,116)

 

 (19,321,616)

 

 

 

 

 

Total stockholders' equity

 

2,245,956

 

2,890,494

 

 

 

 

 

Total liabilities and stockholders' equity

$

2,354,233

$

3,182,871

 

 

 

 

 

 (The accompanying notes are an integral part of these financial statements)

 

23


 

HEPALIFE TECHNOLOGIES, INC.

 (A Development Stage Company)

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 2009 and 2008

and from inception (October 21, 1997) to December 31, 2009

 

 

 

 

 

 

 

From inception

 

 

 

 

(October 21, 1997) 

 

 

 

 

to December 31, 

 

 

2009

 

2008

 

2009

 

 

 

 

 

 

 

Revenue

$

-

$

-

$

-

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Salary and benefits

 

536,712

 

1,157,785

 

6,171,467

Research and development

 

185,081

 

892,386

 

2,098,755

Shareholder relations and name branding

 

37,246

 

354,308

 

4,191,960

Administrative and general

 

228,593

 

324,393

 

1,487,933

Professional fees- accounting and legal

 

378,690

 

204,422

 

1,090,633

Director, management and consulting fees (Note 5)

 

147,606

 

20,705

 

1,170,648

Depreciation

 

-

 

7,821

 

35,410

Stock offering costs

 

-

 

-

 

1,926,713

 

 

1,513,928

 

2,961,820

 

18,173,519

 

 

 

 

 

 

 

Operating Loss

 

 (1,513,928)

 

 (2,961,820)

 

 (18,173,519)

 

 

 

 

 

 

 

Other income and (expenses)

 

 

 

 

 

 

Interest on promissory note (Note 7)

 

-

 

 (41,615)

 

 (355,112)

Interest, bank charges and foreign exchange loss

 

 (1,226)

 

 (11,261)

 

 (37,033)

Interest income

 

29,619

 

30,831

 

149,738

Loss on disposal of fixed assets

 

-

 

 (3,061)

 

 (3,061)

Amortization of discount on notes (Note 4 and Note 7)

 

 (12,873)

 

 (469,893)

 

 (2,107,522)

Amortization of deferred financing costs (Note 7)

 

-

 

 (210,728)

 

 (293,515)

Change in fair value of warrant liability

 

 (62,297)

 

-

 

1,870,172

Loss on extinguishment of warrant liability

 

 (1,287,264)

 

-

 

 (1,287,264)

 

 

 (1,334,041)

 

 (705,727)

 

 (2,063,597)

 

 

 

 

 

 

 

Net loss available to common stockholders

$

 (2,847,969)

$

 (3,667,547)

$

 (20,237,116)

 

 

 

 

 

 

 

Loss per share - basic and diluted

$

 (0.03)

$

 (0.04)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

 

 

 

 

 

 

  outstanding - basic and diluted

 

93,688,134

 

85,952,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (The accompanying notes are an integral part of these financial statements)

 

24


 

HEPALIFE TECHNOLOGIES, INC.

 (A Development Stage Company)

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

from inception (October 21, 1997) to December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

Loss accumulated

 

Total   

 

Common Stock

Additional

other comprehensive

during development

Comprehensive

stockholders'

 

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