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, 2008
 
 OR
 
 o
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period
from  ____________________    to   _____________________
 
 Commission
File Number: 000-29819
 
 HEPALIFE
TECHNOLOGIES, INC.
 (Exact
name of registrant as specified in its charter)
 
 FLORIDA
 (State or
other jurisdiction of incorporation)
 
 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
Each 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
T
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 of Section 15(d) of the Act. Yes £   No
T
 
 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
T   No
£
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
be contained, to the best of 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. o
 
 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
              T
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £   No
T
 
 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, 2008: $26,445,762.
 
 Number of
shares of Common Stock, $0.001 par value, outstanding as of March 20, 2009:
91,996,829.
 
 Documents
incorporated by reference:None.
  
 
  TABLE OF CONTENTS
 
 HEPALIFE
TECHNOLOGIES, INC.
 ANNUAL
REPORT ON FORM 10-K
 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
 
 PART
      I
                                                
                                                PAGEItem
      1.
                                                Business
                                                4Item
      2.
                                                Properties
                                                10Item
      3.
                                                Legal Proceedings
                                                10Item
      4.
                                                Submission of Matters to a Vote of Security
      Holders
                                                10PART
      IIItem
      5.
                                                Market for Registrant’s Common Equity, Related Stockholder
      Matters and
      Issuer Purchases of Equity Securities
                                                12Item
      7.
                                                Management's Discussion and Analysis of Financial Condition
      and
      Results of Operations
                                                13Item
      8.
                                                Financial Statements and Supplementary
Data
                                                18Item
      9.
                                                Changes in and Disagreements With Accountants on Accounting
      and
      Financial Disclosure
                                                36Item
9A(T).
                                                Controls and Procedures
                                                36Item
      9B.
                                                Other Information
                                                36PART
      IIIItem
      10.
                                                Directors, Executive Officers and Corporate
      Governance
                                                37Item
      11.
                                                Executive Compensation
                                                39Item
      12.
                                                Security Ownership of Certain Beneficial Owners and
      Management and
      Related Stockholder Matters
                                                41Item
      13.
                                                Certain Relationships and Related Transactions, and
      Director Independence
                                                42Item
      14.
                                                Principal Accounting Fees and Services
                                                43PART
      IVItem
      15.
                                                Exhibits, Financial Statement Schedules
                                                44Signatures
                                                46
  Table of Contents
 
 PART
I
 
 ITEM1.  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, 2008, 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 91,996,829 were issued and outstanding on March 20, 2009)
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, 2008, we had an accumulated deficit of $19.3 million.
 
 We are
currently focused on the development of HepaMateTM, a cell-based bioartificial
liver system, as a potential treatment for liver failure patients. HepaMateTM 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. HepaMateTM has been
successfully tested in a clinical Phase I study and was previously known as
“HepatAssist”.
 
 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 “HepaMateTM.”
 
 4
 Table of Contents
 
 We are
currently working towards optimizing our HepaMateTM 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.
 
 HepaMateTM
Bioartificial Liver System
 
 We are
developing HepaMateTM for patients with acute or severe liver
failure.  HepaMateTM 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.
 
 HepaMateTM
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, HepaMateTM combines the process of removing toxins
from the patient’s blood (detoxification) with concurrent biologic liver cell
therapy.
 
 During
HepaMateTM therapy, the patient’s plasma is first separated from whole blood,
then exposed to the HepaMateTM bioartificial liver, and finally, returned to the
patient. HepaMateTM 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
HepaDriveTM perfusion platform.
 
 HepaMateTM
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 HepaMateTM.
 
 HepaMateTM,
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
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.
 
 5
 Table of Contents
 
 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 HepaMateTM, 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 HepaMateTM 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.
 
 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 HepaMateTM 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.
 
 6
 Table of Contents
 
 Our
Strategy
 
 Currently,
we are focusing a significant portion of our financial resources on the
continued development of HepaMateTM 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 HepaMateTM,
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
 ·
              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
 
 7
 Table of Contents
 ·
              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.
 
 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.
 
 8
 Table of Contents
  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 HepaMateTM 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 HepaMateTM 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
 
 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 HepaMateTM 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 HepaMateTM
bioartificial liver in response to recurring, acute episodes.
 
 For
acute-on-chronic and chronic liver failure patients, we anticipate that
potential indications for the HepaMateTM 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.
 
 9
 Table of Contents
  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, 2008, 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 the Company. 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.  Until August 30, 2008, our administrative office
was located at 1628 West First Avenue, Suite 216, Vancouver, BC, Canada, V6J
1G1. A private corporation controlled by Mr. Harmel S. Rayat, a former
secretary, treasurer, chief financial officer, chairman, director and majority
stockholder, owns the Vancouver, BC premises.
  ITEM 3.  LEGAL PROCEEDINGS.
 
 The
Company is not party to any current legal proceedings.
 
 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
 
 The
Annual Meeting of Stockholders (the “Annual Meeting”) of the Company was held on
October 15, 2008, 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
      AbstainingFrank
      Menzler
                  
                  
                  75,375,906
                  
                  
                  
                  249,536
                  
                  
                  
                  258,252Harmel
      Rayat(1)
                  
                  
                  74,976,748
                  
                  
                  
                  611,054
                  
                  
                  
                  295,892Javier
      Jimenez
                  
                  
                  75,376,206
                  
                  
                  
                  242,860
                  
                  
                  
                  264,630Roland
      Schomer
                  
                  
                  75,414,859
                  
                  
                  
                  206,215
                  
                  
                  
                  262,622
 (1)    Mr.
Rayat had resigned on September 12, 2008 and did not stand for re-election even
though his name was on the ballot.
 10
 Table of Contents
  2.      Ratifying
the appointment of Peterson Sullivan LLP as our auditors for the fiscal year
ending December 31, 2008.
 
 Votes For
                    Votes Against
                    Votes Abstained75,459,046
                    202,467
                    222,185
 
 In
addition, shareholders (the “Consenting Stockholders”) owning an aggregate of
48,196,884 shares of our Common Stock constituting  approximately 52%
of the voting stock of the Company executed and delivered to us a written
consent effective October 15, 2008 electing each of Jatinder S.Bhogal and Joseph
Sierchio to our Board of Directors.
 
 11
 Table of Contents
 
 PART
II
 
 ITEM
      5.
                MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES.
 Market
Information
  The
Company's Common Stock is listed on the OTC Bulletin Board 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
                          
                          
                          LowFirst
      Quarter 2007
                          
                          $
                          0.70
                          
                          
                          $
                          0.41Second
      Quarter 2007
                          
                          $
                          1.76
                          
                          
                          $
                          0.55Third
      Quarter 2007
                          
                          $
                          1.07
                          
                          
                          $
                          0.57Fourth
      Quarter 2007
                          
                          $
                          0.85
                          
                          
                          $
                          0.36First
      Quarter 2008
                          
                          $
                          0.47
                          
                          
                          $
                          0.31Second
      Quarter 2008
                          
                          $
                          0.73
                          
                          
                          $
                          0.45Third
      Quarter 2008
                          
                          $
                          0.48
                          
                          
                          $
                          0.18Fourth
      Quarter 2008
                          
                          $
                          0.31
                          
                          
                          $
                          0.14January
      1, 2009 – March 20, 2009
                          
                          $
                          0.27
                          
                          
                          $
                          0.15
 
 On March
20, 2009, the closing price of a share of our common stock as reported on the
OTCBB was $0.22.  As of March 20, 2009, there were approximately 69
stockholders of record of the Company's Common Stock.
 
 Dividend
Policy
 
 We have
never paid cash dividends on our capital 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 securitiesremaining
      available forNumber
      of Securities to
                                  
                                  
                                  Weighted-average
      exercise
                                  
                                  
                                  future
      issuance underbe
      issued upon exercise of
                                  
                                  
                                  price
      of outstanding
                                  
                                  
                                  equity
      compensation plansoutstanding
      options,
                                  
                                  
                                  options,
      warrants and
                                  
                                  
                                  (excluding
      securitieswarrants
      and rights
                                  
                                  
                                  rights
                                  
                                  
                                  reflected
      in column (a))Plan
      Category
                                  
                                  (a)
                                  
                                  
                                  (b)
                                  
                                  
                                  (c)Equity
      compensation plansapproved by security
    holders
                                  
                                  
                                  2,700,000
                                  
                                  
                                  $
                                  0.53
                                  
                                  
                                  
                                  35,098,000Equity compensation
      plans not approved
      by security holdersTotal
                                  
                                  
                                  2,700,000
                                  
                                  
                                  $
                                  0.53
                                  
                                  
                                  
                                  35,098,800
  12
 Table of Contents
 ITEM
      7.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION.
 
 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 bioartficial liver system, HepaMate(TM),  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(TM) 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, in order to enhance and strengthen our pre-existing
bioartificial liver development program, we acquired HepaAssist Related
Assets from Arbios Systems, Inc. (“Arbios”), which assets 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, successful clinical Phase II/III study followed 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 in June
2006.
 
 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, we converted our outstanding note payable of $877,800 into
equity and the note holder 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.
 
 Asset
Purchase Agreement
 
 On
October 3, 2008, the Company entered into and consummated the transactions
contemplated by a purchase agreement with Arbios. Pursuant to the purchase
agreement, the Company, in order to enhance and strengthen its current PICM-19
porcine liver cell line based bioartifical liver technology, purchased
certain specified assets of Arbios relating to the pig cell based liver device
technology that was being developed by Arbios.
  13
 Table of Contents
 
 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 $200,000 payment is 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 the Company 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.
 
 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 the Company’s
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, the Company’s 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 the
Company into an aggregate of  2,065,412  Units, each Unit consisting
of one share of the Company’s 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.
 
 Warrants
 
 As of
December 31, 2008, the following warrants were outstanding: 12,989,830 Series C
warrants with an exercise price of $0.34 per share exercisable into common stock
until May 23, 2010; 750,000 Series D warrants with an exercise price of $0.35
per share exercisable into common stock until October 3, 2013; and 737,000
warrants with an exercise price of $1.50 per share exercisable into common stock
until May 11, 2012.
 
 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 prospectus, we believe the following
accounting policies to be critical to the judgments and estimates used in the
preparation of our financial statements:
 
 14
 Table of Contents
  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. Third-party costs paid by us relating to 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 Expense
 
 On
January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123
(revised 2004), "Share-Based Payment," (SFAS 123R), which requires the
measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors based on estimated fair values. Our
consolidated financial statements reflect the impact of SFAS 123(R) from
the date of adoption.
 
 Results
of Operations
 
 We have
yet to establish any history of profitable operations and our accumulated
deficit from inception through December 31, 2008 is $19.3 million.  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.
 
 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 2010. The future of the Company after March 2010 will depend in
large part on our ability to successfully raise capital from external sources to
pay for planned expenditures and to fund operations.
 
 Results
of Operations for Years Ended December 31, 2008 and 2007
 
 We had no
revenues in 2008 and 2007.
 
 Operating
expenses were $2,961,820 for the year ended December 31, 2008, an increase of
$280,707 or 10.5%, from $2,681,113 during the same period in
2007.  The increase was due to the following: a $719,853 or 417.2%
increase in research and development costs primarily relating to the effective
purchase price of $548,325 of in-process research and development, as well as an
increase in costs resulting from the renegotiation of the CRADA agreement in
November 2007; and an increase in legal and accounting expenses of $104,529 or
104.6% due to increased activity. These increases were offset by a net decrease
of $355,737 or 23.5% in salaries and benefits cost due to the closing of the
administration office in Canada and the refocus of our technology efforts
resulting in the termination of certain employees, as well as a $191,120 or
35.4% decrease in investor relations expenses. Shareholder and investor
relations expenses include a $170,000 charge that was settled by issuing 400,000
common stock shares at an effective price of $0.425 per share.
  15
 Table of Contents
 
 Interest
income decreased 21.8% to $30,831 in 2008 from $39,451 in 2007 resulting from a
substantially lower interest rate environment during 2008. The net of interest
expense and amortization of both debt discount and deferred financing costs
decreased $1,063,039 or 59.2% from $1,796,535 to $733,496 due to the conversion
of debt to equity during 2007 with the remainder in 2008.
 
 We
recorded a loss on disposal of fixed assets of $3,061 in 2008 as a result of
removing the cost and related accumulated depreciation of equipment that was
either no longer in service or deemed obsolete. Substantially all of this
equipment was located at the Company’s administrative office in Vancouver,
British Columbia, Canada, which, effective September 1, 2008, was
closed.
 
 Our net
loss to common stockholders for 2008 decreased 17.4% to $3,667,547 from
$4,438,197 in 2007. On a basic and diluted per share basis, the net loss to
common stockholders improved from $0.06 per share net loss in 2007 to $0.04 per
share net loss in 2008.  As of December 31, 2008, we have an
accumulated deficit of $19,321,616.  We may incur substantial
operating losses in future periods.
 
 Liquidity
and Capital Resources
 
 We had
cash and cash equivalents of $3,084,155 and $534,113 as of December 31, 2008
and, 2007, respectively.  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. For the year ended December 31, 2007, net
cash provided by financing activities was $2,259,276 from the purchase of
891,019 shares of common stock by Fusion Capital for total proceeds of $495,001
and proceeds of $2,125,000 from the issuance of convertible notes (which have
been converted to equity in their entirety as of December 31, 2008), offset by
$132,200 repayment of promissory notes and $228,525 amortization of deferred
financing costs.
 
 Net cash
flow used in operating activities was $1,984,149 for the year ended December 31,
2008, compared to net cash flow used of $1,895,400 for the same period in
2007.  We have financed operations primarily from cash on hand and
through private placements of securities, as well as through the issuance of
convertible debt. The accompanying financial statements have been prepared
assuming we will continue as a going concern.  We incurred cumulative
losses of $19,321,616 from inception through December 31,
2008.  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 2010. The future
of the Company after March 2010 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
 
 Director and Management Fees:
For the year ended December 31, 2008, we incurred $19,343 in board fees for
non-employee directors of the Company.  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
year ended December 31, 2008, we recorded $12,541 as stock compensation expense
relating to these stock grants.  During the year ended December 31,
2007, we paid management fees of $4,900 to the directors. There is no management
or consulting agreements in effect.
 
 Legal Fees: In relation to
our May 2008 Private Placement, we settled $21,250 in legal costs by issuing
50,000 Units to our attorney who also serves as a board member.  Legal
fees expensed for the year ended December 31, 2008 that were paid or were due to
this attorney total $111,150.
  Notes Payable and Accrued
Interest: On May 23, 2008, we reached an agreement with Mr. Harmel Rayat
pursuant to which Mr. Rayat (i) converted the entire outstanding principal
amount ($877,800) of his loan to the Company into an aggregate
of  2,065,412  Units, each Unit consisting of one share of
the Company’s 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.
  16
 Table of Contents
 
 Rent: Until August 31,
2008, our administrative office was located at 1628 West 1st Avenue, Suite 216,
Vancouver, British Columbia, Canada, V6J 1G1. 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 (2007: $35,740). Effective September 1, 2008, we closed
this administrative office, terminating all of our employees at this
location.  There were no severance arrangements with any of the
terminated employees.
 
 Mr.
Harmel S. Rayat was an officer and director of the Company until September 12,
2008 and a majority stockholder of the Company until September 9, 2008.
 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
 
 The
Company has no off-balance sheet arrangements.
 
 Recent
Accounting Pronouncements
 
 See Note
2 to the Consolidated Financial Statements in this Form 10-K.
  17
 Table of Contents
  ITEM8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
  Index
to Financial Statements
 
 
 PAGEReport
      of Independent Registered Public Accounting Firm
                                    
                                    19Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                                    
                                    20Consolidated
      Statements of Operations for the years ended December 31, 2008 and 2007,
      andfrom Inception (October 21, 1997) to December 31,
      2008
                                    
                                    21Consolidated
      Statements of Stockholders’ Equity (Deficit) from Inception (October 21,
      1997)to December 31, 2008
                                    
                                    22Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and 2007,and from Inception (October 21, 1997) to December 31,
      2008
                                    
                                    23Notes
      to Consolidated Financial Statements
                                    
                                    24
 
 18
 Table of Contents
  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 Subsidiaries (a development stage company) ("the Company") as of
December 31, 2008 and 2007, 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, 2008.  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 Subsidiaries (a development stage company) as of December 31, 2008 and
2007, 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, 2008, in conformity with accounting principles generally
accepted in the United States.
 
   March 20,
2009
 Seattle,
Washington
  19
 Table of Contents
  HEPALIFE
      TECHNOLOGIES, INC.(A
      Development Stage Company)CONSOLIDATED
      BALANCE SHEETSDecember
      31, 2008 and 2007(Expressed
      in U.S. Dollars)
                            
                            2008
                            
                            
                            2007ASSETSCurrent
      assetsCash
      and cash equivalents
                            
                            $
                            3,084,155
                            
                            
                            $
                            534,113Prepaid
      expenses (Note 7)
                            
                            
                            98,716
                            
                            
                            
                            4,338Total
      current assets
                            
                            
                            3,182,871
                            
                            
                            
                            538,451Equipment, net (Note
      6)
                            
                            
                            -
                            
                            
                            
                            10,882License
      fee
                            
                            
                            -
                            
                            
                            
                            75,000Deferred financing costs(Note 8)
                            
                            
                            -
                            
                            
                            
                            210,728Total
      assets
                            
                            $
                            3,182,871
                            
                            
                            $
                            835,061LIABILITIESCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                            
                            $
                            105,250
                            
                            
                            $
                            4,800Accounts
      payable - related parties (Note 5)
                            
                            
                            -
                            
                            
                            
                            208,330Notes
      payable - related party (Note 5)
                            
                            
                            -
                            
                            
                            
                            877,800Total
      current liabilities
                            
                            
                            105,250
                            
                            
                            
                            1,090,930Contract
      commitment payable (Note 4)
                            
                            
                            200,000
                            
                            
                            
                            -Discount
      on contract commitment payable
                            
                            
                            (12,873
                            )
                            
                            
                            -Convertible promissory note,at face value (Note 8)
                            
                            
                            -
                            
                            
                            
                            755,000Discount
      on convertible promissory notes
                            
                            
                            -
                            
                            
                            
                            (468,343
                            )187,127
                            
                            
                            
                            286,657Total
      liabilities
                            
                            
                            292,377
                            
                            
                            
                            1,377,587STOCKHOLDERS'
      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
                            
                            
                            
                            76,265Additional
      paid-in capital
                            
                            
                            22,120,493
                            
                            
                            
                            15,039,050Accumulated
      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
 
 (The
accompanying notes are an integral part of these financial
statements)
 20
 Table of Contents
  HEPALIFE
      TECHNOLOGIES, INC.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the years ended December 31, 2008 and 2007and
      from inception (October 21, 1997) to December 31, 2008From
      inception(October
      21, 1997)to
      December 31,(Expressed
      in U.S. Dollars)
                                                                                                    
                                                                                                    2008
                                                                                                    
                                                                                                    
                                                                                                    2007
                                                                                                    
                                                                                                    
                                                                                                    2008Revenue
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    -ExpensesSalary
      and benefits
                                                                                                    
                                                                                                    
                                                                                                    1,157,785
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,513,522
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,634,755Research
      and development (Notes 4 and 7)
                                                                                                    
                                                                                                    
                                                                                                    892,386
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    172,533
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,913,674Shareholder
      and investor relations
                                                                                                    
                                                                                                    
                                                                                                    354,308
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    544,943
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    4,154,714Administrative
      and general
                                                                                                    
                                                                                                    
                                                                                                    324,393
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    307,035
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,259,340Professional
      fees- accounting and legal
                                                                                                    
                                                                                                    
                                                                                                    204,422
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    99,893
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    711,943Director,
      management and consulting fees (Note 5)
                                                                                                    
                                                                                                    
                                                                                                    20,705
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    26,932
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,023,042Depreciation
                                                                                                    
                                                                                                    
                                                                                                    7,821
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,255
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    35,410Stock
      offering costs
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    -
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,926,7132,961,820
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,681,113
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    16,659,591Operating
      Loss
                                                                                                    
                                                                                                    
                                                                                                    (2,961,820
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (2,681,113
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (16,659,591
                                                                                                    )Other
      income and expensesInterest
      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
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    120,119Loss
      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)
  21
 Table of Contents
 
 HEPALIFE
TECHNOLOGIES, INC.
 (A
Development Stage Company)
  CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 from
inception (October 21, 1997) to December 31, 2008
 
 Common
      Stock
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Additional
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Accumulatedother
      comprehensive
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Loss
      accumulatedduring
      development
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Comprehensive
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Totalstockholders'(Expressed
      in U.S. Dollars)
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Shares
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              Amount
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              paid-in
      capital
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              income
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              stage
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              income
      (loss)
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              equity
      (deficit)Common
      stock issued for service renderedat $0.00025 per share, October
      21, 1997
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              12,000,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              $
                                                                                                                                                                                                                                                                                              12,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              $
                                                                                                                                                                                                                                                                                              (9,000
                                                                                                                                                                                                                                                                                              )
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              $
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              $
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              $
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              $
                                                                                                                                                                                                                                                                                              3,000Common
      stock issued for cashat $0.0625 per share during
      1997
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,200,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,200
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              73,800
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              75,000Comprehensive
      incomeIncome
      from inception(October
      21, 1997) to December 31, 1997
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              42
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              42
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              42Total
      comprehensive income
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              42Balance,
      December 31, 1997
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              13,200,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              13,200
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              64,800
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              42
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              78,042Common
      stock issued for service renderedat $0.025 per share, December 15,
      1998
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              16,000,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              16,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              384,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              400,000Comprehensive
      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
                                                                                                                                                                                                                                                                                              )
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              6,054Common
      stock issued for cashat $0.025 per share, March
      1999
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              12,000,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              12,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              288,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              300,000Comprehensive
      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
                                                                                                                                                                                                                                                                                              )
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              185,009Comprehensive
      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
                                                                                                                                                                                                                                                                                              )
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              104,401Conversion
      of debt to equity at $0.015per share, July 31,
      2001
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              8,933,332
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              8,933
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              125,067
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              134,000Comprehensive
      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
                                                                                                                                                                                                                                                                                              )
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              78,037Common
      stock issued for servicesat $0.06 per share, April 23,
      2002
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              10,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              10
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              590
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              600Conversion
      of debt to equity at $0.05per share, April 26,
      2002
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              2,160,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              2,160
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              105,840
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              108,000Common
      stock issued for investorrelations services at
      $0.05 per share,July 25,
      2002
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              2,390,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              2,390
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              117,110
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              119,500Conversion
      of debt to equity at $0.05 pershare, December 18,
      2002
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,920,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,920
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              94,080
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              96,000Comprehensive
      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
                                                                                                                                                                                                                                                                                              )
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              26,665Common
      stock issued pursuant toexercise of stock
      options during theyear at between $0.07
      to $2.11 per share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              282,500
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              283
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              398,317
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              398,600Common
      stock issued pursuant toexercise of share
      purchase warrantsin November 2003 at
      $0.025 per share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              7,300,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              7,300
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              175,200
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              182,500Comprehensive
      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 pursuantto exercise of stock
      options duringthe year between
      $0.07 to $2.11 per share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,622,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,622
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,339,998
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,341,620Common
      stock issued pursuantto exercise of share
      purchase warrants inDecember 2004 at
      $0.025 per share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              2,000,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              2,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              48,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              50,000Comprehensive
      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 exerciseof stock options in
      March 2005 at$3.10 per
      share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              50,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              50
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              154,950
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              155,000Common
      stock issued pursuant to exerciseof stock options in
      May 2005 at$2.11 per
      share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              45,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              45
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              94,905
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              94,950Common
      stock issued pursuant to exerciseof stock options in
      June 2005 at$2.11 per
      share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              100,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              100
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              210,900
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              211,000Common
      stock issued pursuant to exerciseof stock options in
      October 2005 at$2.11 per
      share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              40,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              40
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              84,360
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              84,400Common
      stock issued pursuant to exerciseof stock options in
      March 2005 at$2.11 per
      share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              50,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              50
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              105,450
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              105,500Common
      stock issued pursuant toexercise of share
      purchase warrantsin March 2005 at
      $0.025 per share
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,250,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,250
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              30,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              31,250Restricted
      common stock issued in June 2005pursuant to share
      purchase agreement
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              20,000
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              20
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              37,580
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              37,600Restricted
      common stock issued in July 2005pursuant to share
      purchase agreement
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              691,598
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              692
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,382,504
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              
                                                                                                                                                                                                                                                                                              1,383,196Comprehensive
      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 2006pursuant to share
      purchase agreement
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                374,753
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                375
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                505,542
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                505,917Common
      stock issued in the first quarter of2006 to Fusion
      Capital for cash
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                431,381
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                431
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                449,569
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                450,000Common
      stock issued in the second quarter of2006 to Fusion
      Capital for cash
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                416,303
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                416
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                329,584
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                330,000Common
      stock issued in the third quarter of2006 to Fusion
      Capital for cash
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                758,606
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                759
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                584,234
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                584,993Common
      stock issued in the fourth quarter of2006 to Fusion
      Capital for cash
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                548,371
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                548
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                354,455
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                355,003Exercise
      of stock options
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                175,000
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                175
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                12,075
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                12,250Stock
      based compensation expenses
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,607,302
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,607,302Comprehensive
      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 of2007 to Fusion
      Capital for cash
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                382,000
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                382
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                204,619
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                205,001Common
      stock issued in the second quarter of2007 to Fusion
      Capital for cash
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                509,019
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                509
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                289,491
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                290,000Common
      stock converted from convertiblepromissory
      notes
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,604,721
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,605
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                1,742,395
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                1,745,000Stock
      based compensation expenses
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                935,044
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                935,044Proceeds
      allocated to the warrants issued with the convertible
notes
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                497,689
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                497,689Warrants
      issued for the payment of broker's fees
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                64,990
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                64,990Intrinsic
      value of the beneficial conversionfeature of the
      notes
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                1,220,410
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                1,220,410Comprehensive
      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 convertiblepromissory notes in
      January 2008
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,342,415
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,343
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                752,657
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                755,000Common
      stock converted from notesin June
      2008
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,065,412
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                2,065
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                975,680
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                977,745Common
      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
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                4,530,800Common
      stock issued for services received in 2008
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                400,000
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                400
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                169,600
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                170,000Warrants
      granted for purchase of in-process research and development in October
      2008
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                98,325
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                98,325Stock
      based compensation expenses
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                565,306
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                565,306Comprehensive
      income (loss)Foreign
      currency translation adjustment
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                3,391
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                -
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                3,391
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                3,391Loss,
      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
 (The
accompanying notes are an integral part of these financial
statements)
 
 22
 Table of Contents
  HEPALIFE
      TECHNOLOGIES, INC.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF CASH FLOWSfor
      the years ended December 31, 2008 and 2007and
      from inception (October 21, 1997) to December 31, 2008From
      inception(October
      21, 1997)to
      December 31,(Expressed
      in U.S. Dollars)
                              
                              2008
                              
                              
                              2007
                              
                              
                              2008Cash
      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
                              
                              
                              
                              35,410Amortization
      of license fees
                              
                              
                              87,500
                              
                              
                              
                              -
                              
                              
                              
                              87,500Services
      paid by issuance of common stock
                              
                              
                              170,000
                              
                              
                              
                              -
                              
                              
                              
                              1,031,100Stock
      offering costs paid by issuance of common stock
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,926,713In-process
      research and development partially purchased by issuance of common stock
      warrants and a contract commitment payable, net of
discount
                              
                              
                              283,903
                              
                              
                              
                              -
                              
                              
                              
                              283,903Stock
      based compensation expenses
                              
                              
                              565,306
                              
                              
                              
                              935,044
                              
                              
                              
                              4,107,652Amortization
      of discount on convertible promissory notes and contract commitment
      payable
                              
                              
                              469,893
                              
                              
                              
                              1,624,756
                              
                              
                              
                              2,094,649Amortization
      of deferred financing costs
                              
                              
                              210,728
                              
                              
                              
                              82,787
                              
                              
                              
                              293,515Loss
      on disposal of assets
                              
                              
                              3,061
                              
                              
                              
                              -
                              
                              
                              
                              3,061Change
      in assets and liabilities:Decrease
      (increase) in prepaid expenses
                              
                              
                              (106,880
                              )
                              
                              
                              (563
                              )
                              
                              
                              (111,218
                              )Increase
      (decrease) in accounts payable
                              
                              
                              100,450
                              
                              
                              
                              (165,277
                              )
                              
                              
                              105,250Increase
      (decrease) in accounts payable - related party
                              
                              
                              (108,384
                              )
                              
                              
                              49,795
                              
                              
                              
                              99,946Net
      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
                              
                              
                              
                              9,787,867Proceeds
      from issuance of convertible notes
                              
                              
                              -
                              
                              
                              
                              2,125,000
                              
                              
                              
                              2,125,000Net
      proceeds from (repayment of) promissory notes
                              
                              
                              -
                              
                              
                              
                              (132,200
                              )
                              
                              
                              877,800Increase
      in deferred financing cost
                              
                              
                              -
                              
                              
                              
                              (228,525
                              )
                              
                              
                              (228,525
                              )Net
      cash provided by financing activities
                              
                              
                              4,530,800
                              
                              
                              
                              2,259,276
                              
                              
                              
                              12,562,142Increase
      in cash and cash equivalents
                              
                              
                              2,546,651
                              
                              
                              
                              284,998
                              
                              
                              
                              3,084,536Effect
      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
                              
                              
                              $
                              3,084,155Supplemental
      disclosure of cash flow information:Interest
      paid in cash
                              
                              $
                              150,000
                              
                              
                              $
                              25,930
                              
                              
                              $
                              247,575Income
      tax paid in cash
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -Non-cash
      Investing and Financing Activities:Common
      stock and warrants issued for professional services
                              
                              $
                              282,078
                              
                              
                              $
                              -
                              
                              
                              $
                              1,143,078Issuance
      of common stock as stock offering costs
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              1,926,713Issuance
      of warrants for deferred financing costs
                              
                              $
                              -
                              
                              
                              $
                              64,990
                              
                              
                              $
                              64,990Conversion
      of note payable and related interest to equity
                              
                              $
                              977,745
                              
                              
                              $
                              -
                              
                              
                              $
                              977,745Conversion
      of debt to equity
                              
                              $
                              755,000
                              
                              
                              $
                              1,745,000
                              
                              
                              $
                              2,500,000
  (The
accompanying notes are an integral part of these financial
statements)
 
 23
 Table of Contents
  HEPALIFE
TECHNOLOGIES, INC.
 (A
Development Stage Company)
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (Expressed
in U.S. Dollars)
 
 NOTE1 -BASIS OF
PRESENTATION,GOING CONCERN
UNCERTAINITIES
 
 We are a
development stage biotechnology company focusing on the development of a
cell-based bioartificial liver system.
 
 We have
incurred net operating losses since inception. We face all the risks common to
companies in early stages of development, including undercapitalization and
uncertainty of funding sources, high initial expenditure levels, uncertain
revenue streams, and difficulties in managing growth. 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
2010. The future of the Company after March 2010 will depend in large part on
our ability to successfully raise capital from external sources to pay for
planned expenditures and to fund operations.
 
 NOTE2
-SIGNIFICANT
ACCOUNTING POLICIES
 
 Principles of
Consolidation
 
 The
accompanying consolidated financial statements have been prepared on the accrual
basis in accordance with accounting principles generally accepted in the United
States, and include the accounts of HepaLife Technologies, Inc. and its
subsidiaries, Phoenix BioSystems, Inc., HepaLife Technologies Ltd. and HepaLife
Biosystems, Inc. Phoenix BioSystems, Inc. was incorporated under the laws of the
State of Nevada on June 6, 2006. HepaLife Technologies Ltd. was incorporated on
April 11, 2007 in British Columbia, Canada, for the purpose of streamlining
business operations in Canada. HepaLife Biosystems, Inc. was incorporated in
State of Nevada on April 17, 2007 for the purpose of categorizing operations and
accounting associated with the Company’s research and development efforts with
its patented PICM-19 cell line, artificial liver technologies, and in vitro
toxicology testing systems. All significant inter-company transactions and
accounts have been eliminated in consolidation.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management makes its best estimate of the ultimate outcome for
these items based on historical trends and other information available when the
financial statements are prepared. Changes in estimates are recognized in
accordance with the accounting rules for the estimate, which is typically in the
period when new information becomes available to us. Actual results could differ
from those estimates.
 
 Reclassification
 
 Certain
prior period amounts have been reclassified to conform with the current year
presentation.
 
 Cash and Cash
Equivalents
 
 We
consider all highly liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. We did not have any cash
equivalents at December 31, 2008 and 2007.  We periodically have cash
deposits in excess of insured limits.
  24
 Table of Contents
  Equipment and
Depreciation
 
 Equipment
is initially recorded at cost and is depreciated under the straight-line method
over their estimated useful life as follows:
 
 Computer
equipment - 2 years
 Furniture
and fixtures - 2 years
 
 Repairs
and maintenance expenses are charged to operations as incurred.
 
 Research and
Development
 
 Research
and development costs are expensed as incurred and include purchased in-process
research and development programs.
 
 Income
Taxes
 
 We
account for income taxes under the provisions of Statement of Financial
Accounting Standard (or "SFAS") No. 109, “Accounting for Income
Taxes.” Under
SFAS No. 109, deferred income tax assets and liabilities are computed for
differences between the financial statements and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amount
expected to be realized.
 
 Earnings (Loss) Per
Share
 
 Basic
earnings (loss) per share is based on the weighted average number of common
shares outstanding. Diluted earnings (loss) per share is based on the weighted
average number of common shares outstanding and dilutive common stock
equivalents. Basic earnings (loss) per share is computed by dividing income/loss
(numerator) applicable to common stockholders by the weighted average number of
common shares outstanding (denominator) for the period. All earnings (loss) per
share amounts in the financial statements are basic earnings or loss per share,
as defined by SFAS No. 128, “Earnings Per Share.” Diluted earnings (loss) per
share does not differ materially from basic earnings (loss) per share for all
periods presented. Convertible securities that could potentially dilute basic
earnings per share in the future, such as options and warrants, are not included
in the computation of diluted earnings or loss per share because to do so would
be anti-dilutive.
 
 Stock-Based
Compensation
 
 We account
for stock-based compensation under SFAS No. 123(R) “Share-Based Payment,” which requires measurement
of compensation cost for all stock-based awards at fair value on the date of
grant and recognition of compensation over the service period for awards
expected to vest. The fair value of stock options is determined using the
Black-Scholes valuation model.
 
 Comprehensive
Income
 
 SFAS No.
130, "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive
income, its components and accumulated balances.  We disclose required
information on the Consolidated Statements of Stockholders' Equity
(Deficit).  Comprehensive income comprises equity changes except those
resulting from investments by owners and distributions to owners.
 
 Foreign Currency
Translation
 
 We
maintain both U.S. Dollar and Canadian Dollar bank accounts at a financial
institution in Canada. Foreign currency transactions are translated into their
functional currency, which is U.S. Dollar, in the following manner:
  25
 Table of Contents
  At the
transaction date, each asset, liability, revenue and expense is translated into
the functional currency by the use of the exchange rate in effect at that date.
At the period end, monetary assets and liabilities are translated into U.S.
Dollars by using the exchange rate in effect at that date. Transaction gains and
losses that arise from exchange rate fluctuations are included in the results of
operations.
 
 Intangible
Assets
 
 SFAS No.
142, “Goodwill and Other
Intangible Assets” presumes that goodwill and certain intangible assets
have indefinite useful lives. Accordingly, goodwill and certain intangibles will
not be amortized but rather will be tested at least annually for impairment.
SFAS No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. No impairment of intangible
assets was recorded during the years ended December 31, 2008 and
2007.
 
 Impairment of Long-Lived
Assets
 
 Long-lived
assets are reviewed for impairment when changes in circumstances indicate their
carrying value has become impaired, pursuant to guidance established in SFAS No
144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”  We consider assets
to be impaired if the carrying amount of an asset exceeds the future projected
cash flows from related operations (undiscounted and without interest charges).
 If impairment is deemed to exist, the asset will be written down to fair
value and a loss is recorded as the difference between the carrying value and
the fair value. Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as applicable. Assets
to be disposed of are carried at the lower of carrying value or estimated net
realizable value.
 
 Fair Value of Financial
Instruments
 
 The
determination of fair value of financial instruments is made at a specific point
in time, based on relevant information about financial markets and specific
financial instruments.  As these estimates are subjective in nature,
involving uncertainties and matters of significant judgment, they cannot be
determined with precision. Changes in assumptions can significantly affect
estimated fair values. The carrying value of cash and accounts payable, accrued
liabilities and notes payable approximates their fair value because of the
short-term nature of these instruments. We place our cash with high credit
quality financial institutions.
 
 Related Party
Transactions
 
 A related
party is generally defined as (i) any person who holds 10% or more of the
Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone who directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties. (See Note
5).
 
 Recentand AdoptedAccounting
Pronouncements
 
 In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, “Fair Value
Measurements” (SFAS 157), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair-value
measurements required under other accounting pronouncements. It does not change
existing guidance as to whether or not an instrument is carried at fair value.
SFAS 157 was effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-1
(FSP FAS 157-1), which excludes SFAS No. 13, “Accounting for Leases” and
certain other accounting pronouncements that address fair value measurements
under SFAS 13, from the scope of SFAS 157. In February 2008, the FASB issued FSP
No. 157-2 (FSP FAS 157-2), which provides a one-year delayed application of
SFAS 157 for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  Therefore we have adopted the provisions
of SFAS 157 with respect to financial assets and liabilities only.  We
are required to adopt SFAS 157 as amended by FSP FAS 157-1 and FSP FAS 157-2 on
January 1, 2009, the beginning of our fiscal year, as related to
nonfinancial assets and liabilities.  We do not expect the application
of the amended aspects of SFAS No. 157 to have a material effect on the
Company’s consolidated financial statements.
  26
 Table of Contents
  In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of a
Financial Asset in a Market That Is Not Active” (FSP FAS 157-3), which
clarifies the application of SFAS 157 when the market for a financial asset is
inactive. Specifically, FSP FAS 157-3 clarifies how (1) management’s internal
assumptions should be considered in measuring fair value when observable data
are not present, (2) observable market information from an inactive market
should be taken into account, and (3) the use of broker quotes or pricing
services should be considered in assessing the relevance of observable and
unobservable data to measure fair value. The guidance in FSP FAS 157-3 is
effective immediately and did not have an impact on the Company’s consolidated
financial statements.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an amendment of FASB Statement
No. 115,” which is effective for fiscal years beginning after
November 15, 2007. The statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The Company has not
elected the fair value option under SFAS 159 for any instrument, but may elect
to do so in future periods.
 
 In July
2007, the Emerging Issues Task Force (EITF) issued EITF 07-3, “Accounting for Nonrefundable Advance
Payments for Goods or Services to be Used in Future Research and Development
Activities” (EITF 07-3). EITF 07-3 clarifies the accounting for
nonrefundable advance payments for goods or services that will be used or
rendered for research and development activities. EITF 07-3 states that
such payments should be capitalized and recognized as an expense as the goods
are delivered or the related services are performed. If an entity does not
expect the goods to be delivered or the services rendered, the capitalized
advance payment should be charged to expense. EITF 07-3 is effective for fiscal
years beginning after December 15, 2007. The Company’s adoption of EITF 07-3 did
not have an impact on the Company’s financial position or results of
operations.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. The Company must adopt SFAS 160 on January 1, 2009, the
beginning of its fiscal year 2009.  The Company does not expect the
application of SFAS 160 to have a material effect on the consolidated financial
statements.
 
 In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS
141R), which establishes principles and requirements for the reporting entity in
a business combination, including recognition and measurement in the financial
statements of the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008, and interim periods within those fiscal years. The
Company must adopt SFAS 141R on January 1, 2009, the beginning of its fiscal
year 2009.  For any business combinations entered into by the Company
subsequent to January 1, 2009, the Company will be required to apply the
guidance in SFAS 141R.
 
 In
December 2007, the FASB ratified a consensus opinion reached by the EITF on EITF
Issue 07-1, “Accounting for
Collaborative Arrangements” (EITF 07-1). The guidance in EITF 07-1
defines collaborative arrangements and establishes presentation and disclosure
requirements for transactions within a collaborative arrangement (both with
third parties and between participants in the arrangement). The consensus in
EITF 07-1 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2008. The consensus requires retrospective
application to all collaborative arrangements existing as of the effective date,
unless retrospective application is impracticable.  The
impracticability evaluation and exception should be performed on an
arrangement-by-arrangement basis. The Company intends to adopt EITF 07-1
effective January 1, 2009 and retrospectively apply the requirements of this
consensus to its collaborative arrangements in existence on that date, if any.
The Company currently does not believe that the adoption of EITF 07-1 will have
a significant effect on its financial statements.
 
 In
December 2007, the SEC staff issued Staff Accounting Bulletin (SAB) 110, “Share-Based Payment” (SAB
110) which amends SAB 107, “Share-Based Payment,” to
permit public companies, under certain circumstances, to use the simplified
method in SAB 107 for employee option grants after December 31, 2007. Use of the
simplified method after December 2007 is permitted only for companies whose
historical data about their employees’ exercise behavior does not provide a
reasonable basis for estimating the expected term of the options. The Company
currently uses the simplified method to estimate the expected term for employee
option grants as adequate historical experience is not available to provide a
reasonable estimate. SAB 110 is effective for employee options granted after
December 31, 2007. The Company adopted SAB 110 effective January 1, 2008 and
continues applying the simplified method until enough historical experience is
readily available to provide a reasonable estimate of the expected term for
employee option grants.
  27
 Table of Contents
 
 In June
2008, the FASB issued Staff Position EITF 03-06-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”
(FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class method in SFAS
No. 128, “Earnings per Share” and is effective for fiscal years beginning
after December 15, 2008.  We do not believe the implementation of FSP
EITF 03-06-1 will have any impact on the Company’s consolidated financial
statements.
 
 NOTE3- LOSS PER
SHARE
 
 Basic
earnings or loss per share is based on the weighted average number of common
shares outstanding.  Diluted earnings or loss per share is based on the
weighted average number of common shares outstanding and dilutive common stock
equivalents.  The computation of earnings (loss) per share is net loss
available to common stockholders (numerator) divided by the weighted average
number of common shares outstanding (denominator) during the periods presented.
 All earnings or loss per share amounts in the financial statements are
basic earnings or loss per share, as defined by SFAS No. 128, “Earnings Per Share.”
 Diluted loss per share does not differ materially from basic loss per
share for all periods presented.  Convertible securities that could
potentially dilute basic loss per share in the future are warrants, stock
options, and convertible debt and are not included in the computation of diluted
loss per share because to do so would be anti-dilutive.  All per share and
per share information are adjusted retroactively to reflect stock splits and
changes in par value, when applicable.
 
 Years
      ended2008
                      
                      
                      2007Numerator
      - net loss available to common stockholders
                      
                      $
                      (3,667,547
                      )
                      
                      $
                      (4,438,197
                      )Denominator
      - weighted average number of common shares outstanding
                      
                      
                      85,952,917
                      
                      
                      
                      74,101,897Basic
      and diluted loss per common share
                      
                      $
                      (0.04
                      )
                      
                      $
                      (0.06
                      )
 
 NOTE 4 – PURCHASED
IN-PROCESS RESEARCH AND DEVELOPMENT
 
 On
October 3, 2008, we purchased certain assets of Arbios Systems, Inc. in order to
enhance and strengthen our current PICM-19 porcine liver cell line based
bioartificial liver technology relating to the pig cell based liver device
technology formerly known as “HepatAssist.”  We re-trademarked the
device as “HepaMate.”
 
 The
effective purchase price of $548,325 was charged to operations in 2008 as
purchased in-process research and development expense and consists
of:
 
 Cash
                          
                          $
                          250,000Contract
      Commitment,  discounted @5% or $14,422
                          
                          
                          200,000Series
      D warrants, at fair value
                          
                          
                          98,325Assumed
      liabilities
                          
                          
                          -Total
      effective acquisition price
                          
                          $
                          548,325
 
 The
deferred $200,000 payment is 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 deferred payable
does not bear interest.  In accordance with Accounting Principles
Board (APB) Opinion No. 21 “Interest on Receivables and
Payables,” we discounted the payable with an effective annual interest
rate of 5% and the associated amortization of the discount is charged to
interest expense over the 18 month expected life of the note.  The
contract commitment payable of $200,000 is recorded in noncurrent liabilities,
net of unamortized discount of $12,873. For the year ended December 31, 2008,
$1,549 of discount amortization was charged to interest expense.
  28
 Table of Contents
 
 The fair
value of the 750,000 Series D warrants issued in connection with this
transaction was calculated as $98,325 using the Black-Scholes option pricing
model with assumptions for a risk free interest rate of 2.64%, an expected life
of 5 years, no dividend yield, and a volatility factor of 84.5%.
 
 NOTE 5 -RELATED PARTY
TRANSACTIONS
 
 Director and Management Fees:
For the year ended December 31, 2008, we incurred $19,343 in board fees for
non-employee directors of the Company.  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
year ended December 31, 2008, we recorded $12,541 as stock compensation expense
relating to these stock grants (refer to Note 10). During the year ended
December 31, 2007, we paid management fees of $4,900 to non-employee directors.
There is no management or consulting agreements in effect.
 
 Legal Fees: In relation to
our May 2008 Private Placement, we settled $21,250 in legal costs by issuing
50,000 Units to our attorney who also serves as a board member.  Legal
fees expensed for the year ended December 31, 2008 that were paid or are due to
this attorney total $111,150.
  Notes Payable and Accrued Interest: On May
23, 2008, we reached an agreement with Mr. Harmel Rayat to which Mr. Rayat (i)
converted the entire outstanding principal amount ($877,800) of his loan to the
Company into an aggregate of  2,065,412  Units, each Unit
consisting of one share of the Company’s 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.
 
 Rent: Until August 31,
2008, our administrative office was located at 1628 West 1st Avenue, Suite 216,
Vancouver, British Columbia, Canada, V6J 1G1. 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 (2007: $35,740). 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.
 
 Mr.
Harmel S. Rayat was an officer, director and majority stockholder of the Company
until June 2008.  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.
 
 NOTE 6–
EQUIPMENT
 
  December
      31,
                          
                          
                          December
      31,2008
                          
                          
                          2007Computer
      equipment
                          
                          $
                          -
                          
                          
                          $
                          37,382Furniture
      and fixtures
                          
                          
                          -
                          
                          
                          
                          1,089-
                          
                          
                          
                          38,471Less:
      accumulated depreciation
                          
                          
                          -
                          
                          
                          
                          (27,589
                          )$
                          -
                          
                          
                          $
                          10,882
  
 During
the year ended December 31, 2008, we removed the cost and related accumulated
depreciation for equipment that was either no longer in service or deemed
obsolete.  Substantially all of this equipment was located at the
Company’s administrative office in Vancouver, British Columbia, Canada, which,
effective September 1, 2008, was closed.  We recorded a loss on
disposal of fixed assets of $3,061 in the consolidated statement of operations
for the year ended December 31, 2008.
  29
 Table of Contents
  Depreciation
expenses charged to operations for the years ended December 31, 2008 and
2007 were $7,821 and $16,255 respectively.
 
 NOTE7-
COOPERATIVEAND
LICENSEAGREEMENTS
 
 USDA,
ARS CRADA:  In November 2002, we entered into a Cooperative
Research and Development Agreement (CRADA) with the U.S. Department of
Agriculture (USDA), Agricultural Research Service (ARS) pertaining to the
continued development and use of patented liver cell lines in artificial liver
devices and in-vitro toxicological testing platforms. This agreement was amended
several times, with a final agreement termination date of November
2009.  We terminated the CRADA effective November 30, 2008. For the
years ended December 31, 2008 and 2007, costs charged to research and
development expense under the CRADA totaled $268,359 and $144,103
respectively.
 
 USDA,
ARS License:  On November 20, 2007, we exercised our license
right under the CRADA by entering into an exclusive license agreement
with the USDA, ARS for existing and future patents related to the PICM-19
hepatocyte cell lines.  Under this license agreement, we incurred a
license execution fee of $150,000 with $75,000 paid in December 2007 and $75,000
paid in November 2008.  In addition to these payments during the first
two years of the contract, we are responsible for annual license maintenance
fees commencing in year 2010 for the term of the license, which is until
the expiration of the last to expire licensed patents unless terminated earlier.
These annual fees are capitalized to prepaid license costs when incurred and
amortized to operating expense over the course of each year.  The
license agreement also requires certain milestone payments, if and when
milestones are reached, as well as royalties on net sales of resulting licensed
products, if any.
 
 MSU
License: On June 15, 2006, we entered into an exclusive worldwide license
agreement with Michigan State University (MSU) through our subsidiary, Phoenix
BioSystems, Inc. (PBS), for the development of new cell-culture based flu
vaccines to protect against the spread of influenza viruses among humans,
including potentially the high pathogenicity H5N1 virus. The license agreement
was amended on February 2, 2008.  The license agreement provides us
exclusive rights to certain issued patents, for which we paid an initial fee of
$1,000 upon execution of the agreement in 2006. The agreement requires royalties
on net sales of resulting licensed products, if any, with minimum payments due
commencing in year 2010 for the term of the license, which is until the
expiration of the last to expire of the patents, or until fifteen (15) years
after the effective date of June 15, 2006, whichever is longer.
 
 We are
also required to make certain milestone payments to MSU, if and when
achieved.
 
 As part
of the license agreement, on October 2, 2006 PBS issued 17,650 common shares at
par value, or 15% of the total issued and outstanding shares of PBS, to an
individual who is also a member of the Company’s scientific advisory
board.  After issuance of the shares, we hold 85% of the total issued
and outstanding shares of PBS. We recorded the fair value of the 15% issued
shares at a nominal value.  As PBS had no assets or liabilities, no value
was allocated to the minority interest.
 
 For the
year ended December 31, 2007, we charged to research and development expense
$32,426 relating to the MSU license, with no costs incurred during 2008 and
costs incurred to date totaling $73,352.  In January 2009, we provided
notice to MSU to terminate the license agreement effective April 24, 2009. Any
costs for the remainder of the license agreement term will be charged to
operating expense as incurred.
 
 NOTE8 - CONVERTIBLE PROMISSORY
NOTE
 
 On May
11, 2007, we entered into a Securities Purchase Agreement with GCA Strategic
Investment Limited for the sale of a convertible note with a $2,500,000
aggregate principal amount and maturity date of May 11, 2009.  The
convertible note was issued on May 11, 2007 at a purchase price of $2,125,000
(eighty-five per cent of the principal amount). The convertible note does not
bear interest, except upon an event of default at which time interest would
accrue at the rate of 18% per annum. Under the terms of the agreement, the
purchaser agreed not to effect, or cause any affiliate or associate to effect, a
short sale of the Company's common stock. In connection therewith, we also
issued to the purchaser warrants to purchase up to an aggregate of 670,000
shares of the Company’s common stock at a price of $1.50 per share (the
warrants) for a term of five years.
  30
 Table of Contents
  In
connection with this transaction, we also agreed to pay the purchaser’s adviser
out of pocket fees of $15,000; and pay to Equinox Securities, Inc., a NASD
registered broker/dealer, pursuant to an agreement dated April 19, 2007, 10% of
the amount funded plus a warrant to purchase a number of shares of the Company’s
common stock equal to 10% of the number of shares subject to the warrants issued
in connection with the convertible at the same exercise price of $1.50 per
share, or 67,000 shares, in consideration of its efforts in securing, on behalf
of the Company, the financing with the purchaser.
 
 The
convertible note contained a prepayment option and redemption feature under
certain conditions and circumstances. A registration statement relating to the
resale of the common shares issuable under the conversion of the convertible
note and exercise of the warrants was declared effective on July 5,
2007.
 
 Conversion of the
Convertible Note
 
 The
convertible note (and any accrued and unpaid interest or liquidated damages
amount) may be converted into shares of the Company's common stock at a
conversion price of 95% of the trading volume weighted average price, as
reported by Bloomberg LP (the “VWAP”), for the five trading days immediately
prior to the date of notice of conversion.
 
 In 2007,
$1,745,000 of the convertible note was converted into 2,604,721 shares of common
stock.  In January 2008, the remaining $755,000 of the convertible
note was converted into 2,342,415 shares of common stock.  For the
year ended December 31, 2008, the remaining discount of $468,343 (2007:
$1,624,756) and issuance costs of $210,728 (2007: $82,787) relating to the
convertible note were charged to operations.
 
 Bifurcation of the Warrants
from the Convertible Note and the Intrinsic Value of the Beneficial Conversion
Feature of the Note
 
 The
convertible note contained a conversion feature that allowed the holder to
convert the debt into equity shares at any time within a specified period at a
price equal to 95% of the volume weighted average price of the Company’s common
shares for the five trading days prior to the conversion date. As the host
contract did not embody a claim to the residual interest in the Company, the
economic characteristics and risks of the host contract was considered that of a
debt instrument and classified as a liability.
 
 We
determined that the embedded conversion option did not meet the definition of a
derivative as described under SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities”paragraph 12(a) and 12(c) as the
conversion option results in a fixed monetary benefit to the holder known at the
measurement date.
 
 The
convertible note was a complex hybrid instrument bearing an option, the
alternative choices of which could not exist independently of one another. Thus,
the beneficial conversion feature could not be separated from the debt according
to paragraph 7 and 12 of APB Opinion No. 14 “Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants” (ABP 14).  The
embedded beneficial conversion feature was recognized and measured in accordance
with paragraph 5 of EITF 98-5 “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios” (EITF 98-5) and paragraph 5 of EITF 00-27 “Application of Issue No. 98-5 to
Certain Convertible Instruments” (EITF 00-27), whereby the intrinsic
value of the beneficial conversion feature was calculated at the commitment date
as the difference between the effective conversion price of the convertible note
and the fair value of the common stock into which the convertible note was
convertible, multiplied by the number of shares into which the convertible note
was convertible. The intrinsic value of the beneficial conversion feature,
$1,220,410, was treated as a discount on issuance of the convertible note and
amortized over the life of the convertible note (paragraph 10 of EITF 98-5 and
paragraph 19 of EITF 00-27).
 
 The
warrants are detached from the convertible note with no put option feature.
There is no liquidated damage or cash penalty payable to the warrant holder if
the Company was not able to register the shares underlying the warrants.
According to paragraph 16 of APB 14, the portion of the proceeds of the
convertible note issued with the detachable warrants which is allocable to the
warrants is accounted for as paid-in capital. The allocation was based on the
relative fair values of the two securities at the time of issuance. The portions
of the proceeds allocated to the convertible note and warrants were $1,627,311
and $497,689 (refer to Note 9), respectively. The resultant debt discount was
amortized over the life of the convertible note (paragraph 16 of
APB14).
  31
 Table of Contents
  NOTE9– STOCKHOLDERS’ EQUITY
(DEFICIT)
 
 Under the
New Purchase Agreement with Fusion Capital Fund II (“Fusion Capital”) dated
January 20, 2006, Fusion Capital had agreed to purchase from the Company up to
$15,000,000 of the Company’s shares of common stock over a thirty month period.
During the years ended December 31, 2007 and 2006, Fusion Capital had purchased
891,019 and 2,154,661 shares of common stock of the Company for total proceeds
of $495,001 and $1,719,996, respectively. On May 11, 2007, the Company and
Fusion Capital mutually terminated the Common Stock Purchase Agreement. The
Company did not incur any termination costs as a result of mutually terminating
this agreement.
 
 On May
23, 2008, we completed a private placement of 10,660,705 units at a price of
$0.425 per unit or $4,530,800 in the aggregate. Each unit consists of one share
of the Company’s common stock 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.  The
relative fair value of the common stock was estimated to be $2,972,407 and the
relative fair value of the warrants was estimated to be $1,558,393 as determined
based on the relative fair value allocation of the proceeds received. The
warrants were valued using the Black-Scholes option pricing model. 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. In connection with the private placement, the
agent was due a sales commission equal to $90,828 ortwo (2%) percent of the
gross proceeds, which was settled by issuing to the agent 213,713 units. In
addition, we issued an aggregate of 50,000 units in payment of legal fees in the
amount of $21,250 (refer to Note 5). These units were otherwise issued on the
same terms and conditions as the units sold in the private
placement.
 
 Pursuant
to the Subscription Agreement and the Registration Rights Agreement relating to
the private placement, the Company and the investor parties made other covenants
and representations and warranties regarding matters that are customarily
included in financings of this nature.  In the event that during the twelve
month period following the closing date the Company issues shares at a price per
share which is less than $0.425 per share (the “Base Share Price”), then the
Company is required to issue to the investors the number of shares equal to (1)
the quotient of the aggregate purchase price payable under the Securities
Purchase Agreement divided by Base Share Price less (2) the quotient of the
aggregate purchase price divided by the per share purchase price under the
Securities Purchase Agreement.
 
 On August
18, 2008, the Board of Directors agreed to issue 400,000 shares of its
restricted common stock for services provided by its investment banker for the
period January 1, 2008 to August 31, 2008.  The value of the issuance
was agreed to be the value of services provided, $170,000.  These
shares were issued November 8, 2008.
 
 Warrants
 We
account for warrants granted to unrelated parties in accordance with
EITF 00-19 “Accounting
for Derivative Financial Instruments Indexed to and Potentially Settled in a
Company’s Own Stock.”  In accordance with the EITF, the fair
value of such warrants is classified as a component of permanent equity within
additional paid-in capital and is calculated on the date of grant using the
Black-Scholes Option pricing model.
 
 Each of
the Company’s warrants outstanding entitles the holder to purchase one share of
the Company’s common stock for each warrant share held. No warrants were
exercised during the years ended December 31, 2008 and 2007. A summary of the
Company’s warrants outstanding, which are also described in Notes 4, 5, and 8,
is as follows:
 
 Warrants
                        
                        
                        Series
      C Warrants
                        
                        
                        Series
      D WarrantsWarrants
      outstanding and exercisable at December 31, 2008
                        
                        
                        737,000
                        
                        
                        
                        12,989,830
                        
                        
                        
                        750,000Exercise
      price
                        
                        $
                        1.50
                        
                        
                        $
                        0.34
                        
                        
                        $
                        0.35Fair
      value on date of grant
                        
                        $
                        714,890
                        
                        
                        $
                        1,898,867
                        
                        
                        $
                        98,325Black-Scholes
      option pricing model assumptions:Risk-free
      interest rate
                        
                        
                        4.58
                        %
                        
                        
                        2.46
                        %
                        
                        
                        2.64
                        %Expected
      term
                        
                        5
      years
                        
                        
                        2
      years
                        
                        
                        5
      yearsExpected
      volatility
                        
                        
                        96.20
                        %
                        
                        
                        94.10
                        %
                        
                        
                        84.50
                        %Dividend
      per share
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0Expiration
      date
                        
                        May
      11, 2012
                        
                        
                        May
      23, 2010
                        
                        
                        October
      3, 2013
  32
 Table of Contents
  A total
of 14,476,830 shares of the Company’s common stock have been reserved for
issuance upon exercise of warrants shares outstanding as of December 31,
2008.
 
 NOTE 10 - STOCK
OPTIONS
 
 We have
an active stock option plan that provides shares available for option grants to
employees, directors and others. A total of 40,000,000 shares of the Company’s
common stock have been reserved for award under the stock option plan, of which
35,098,000 were available for future issuance as of December 31, 2008. Options
granted under the Company’s option plan generally vest over two to five years or
as otherwise determined by the Board of Directors, have exercise prices equal to
the fair market value of the common stock on the date of grant, and expire no
later than ten years after the date of grant.
 
 Stock
option activity during the years ended December 31, 2008 and 2007 is summarized
as follows:
  Number
      of options
                                        
                                        
                                        Weighted
      average exercise price
                                        
                                        
                                        Remaining
      contractual term
                                        
                                        
                                        Aggregate
      intrinsic valueOutstanding
      at December 31, 2006
                                        
                                        
                                        10,350,000
                                        
                                        
                                        $
                                        0.67Granted
                                        
                                        
                                        2,026,750
                                        
                                        
                                        
                                        0.52Cancelled
                                        
                                        
                                        (10,350,000
                                        )
                                        
                                        
                                        0.67Outstanding
      at December 31, 2007
                                        
                                        
                                        2,026,750
                                        
                                        
                                        
                                        0.52Granted
                                        
                                        
                                        775,000
                                        
                                        
                                        
                                        0.54Cancelled
                                        
                                        
                                        (101,750
                                        )
                                        
                                        
                                        0.43Outstanding
      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
   The
aggregate intrinsic value in the table above represents the total pretax
intrinsic value for all “in-the-money” options (i.e. the difference between the
Company’s closing stock price on the last trading day of the year ended December
31, 2008 and the exercise price, multiplied by the number of shares) that would
have been received by the option holders had all option holders exercised their
options on December 31, 2008. This amount is based on the fair market value of
the Company’s stock. Total intrinsic value of options exercised was $nil at
December 31, 2008 (2007: $nil).
 
 A summary
of the Company’s unvested stock options and changes during the years ended
December 31, 2008 and 2007 is as follows:
 
 Number
      of Options
                          
                          
                          Weighted
      Average Grant Date Fair ValueUnvested,
      December 31, 2006
                          
                          
                          4,650,000
                          
                          
                          $
                          0.51Granted
                          
                          
                          2,026,750
                          
                          
                          
                          0.43Cancelled
                          
                          
                          (4,650,000
                          )
                          
                          
                          0.51Unvested,
      December 31, 2007
                          
                          
                          2,026,750
                          
                          
                          
                          0.43Granted
                          
                          
                          775,000
                          
                          
                          
                          0.37Vested
                          
                          
                          (100,000
                          )
                          
                          
                          0.41Cancelled
                          
                          
                          (101,750
                          )
                          
                          
                          0.26Unvested,
      December 2008
                          
                          
                          2,600,000
                          
                          
                          
                          0.42
  The
following table details further information regarding stock options outstanding
and exercisable at December 31, 2008:
  33
 Table of Contents
  Outstanding
                                            
                                            
                                            ExercisableRange
      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
                                            
                                            
                                            
                                            0.610.57
                                            
                                            
                                            
                                            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
 
 During
the years ended December 31, 2008 and 2007, we granted 775,000 and 2,026,750
stock options awards.  For purposes of determining the stock-based
compensation expense for stock option awards granted, the Black-Scholes
option-pricing model was used with the following weighted-average
assumptions:
 
 2008
      Stock Option Grants
                        2007
      Stock Option GrantsRisk-free
      interest rate
                        2.75%
      - 3.57%
                        3.41%
      - 4.85%Expected
      term
                        5
      years
                        4.7
      - 5 yearsExpected
      volatility
                        83.32%
      - 90.53%
                        93.95%
      - 94.73%Weighted-average
      volatility
                        84.2%
                        94.0%Dividend
      per share
                        $0
                        $0
 
 The
weighted average fair value of options granted during the year ended December
31, 2008 was $0.37 (2007: $0.43) per share.
 
 During
the year ended December 31, 2008, total compensation expense charged to
operations was $565,306 (2007: $935,044), with $552,765 classified as salaries
and benefits and $12,541 included in director fees. As of December 31, 2008, the
Company had $285,286 of total unrecognized compensation cost related to unvested
stock options, which is expected to be recognized over a weighted average period
of approximately 8.40 years. The fair value of stock options that vested during
the year ended December 31, 2008 was $41,000.
 
 We do not
repurchase shares to fulfill the requirements of options that are exercised.
Further, we issue new shares when options are exercised.
 
 NOTE11 –INCOME
TAXES
 
 There is
no current or deferred tax expense for the years ended December 31, 2008
and 2007 due to the Company’s loss position. The benefits of temporary
differences have not been recorded. The deferred tax consequences of temporary
differences in reporting items for financial statement and income tax purposes
are recognized, as appropriate. Realization of the future tax benefits related
to the deferred tax assets is dependent on many factors, including the Company’s
ability to generate taxable income. Management has considered these factors in
reaching its conclusion as to the valuation allowance for financial reporting
purposes and has recorded a full valuation allowance against the deferred tax
asset.
  The
income tax effect of temporary differences comprising the deferred tax assets on
the accompanying balance sheets is primarily a result of stock compensation
costs, research and development costs, and of start-up expenses, which are
capitalized for income tax purposes. Net deferred tax assets are summarized as
follows:
  34
 Table of Contents
 
 2008
                                                    
                                                    
                                                    2007Net
      operating loss carryforwards
                                                    
                                                    $
                                                    3,180,000
                                                    
                                                    
                                                    $
                                                    2,262,000Stock
      compensation costs
                                                    
                                                    
                                                    1,397,000
                                                    
                                                    
                                                    
                                                    1,204,000Other
                                                    
                                                    
                                                    566,000
                                                    
                                                    
                                                    
                                                    683,0005,143,000
                                                    
                                                    
                                                    
                                                    4,149,000Valuation
      allowance
                                                    
                                                    
                                                    (5,143,000
                                                    )
                                                    
                                                    
                                                    (4,149,000
                                                    )Net
      deferred tax assets
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
 
 The 2008
increase in the valuation allowance was $994,000 (2007: $957,000).
 
 The
Company has available net operating loss carryforwards of approximately
$9,534,000 for tax purposes to offset future taxable income which expire
commencing 2009 to 2028. Additionally, research and development, start-up costs
of approximately $1,665,000 are available to reduce taxable income assuming
normal operations have commenced.   The tax years 2006 through
2008 remain open to examination by federal authorities and other jurisdictions
of which the company operates.
 
 A
reconciliation between the statutory federal income tax rate (34%) and the
effective rate of income tax expense for 2008 and 2007 is as
follows:
 
 2008
                        
                        
                        2007Statutory
      federal income tax
                        
                        
                        -34.00
                        %
                        
                        
                        -34.00
                        %Valuation
      allowance
                        
                        
                        32.00
                        
                        
                        
                        34.00Stock
      offering costs
                        
                        
                        2.00
                        
                        
                        
                        -Effective
      income tax rate
                        
                        
                        0.00
                        %
                        
                        
                        0.00
                        %
  35
 Table of
Contents
 
 ITEM 9:   CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
 We have
had no disagreements with our independent registered public accountants with
respect to accounting practices, procedures or financial
disclosure.
 
 ITEM 9A(T):  CONTROLS AND PROCEDURES.
 
 Evaluation of Disclosure
Controls and Procedures
 
 Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, the Company conducted
an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the
period covered by this annual report. Based on this evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer concluded as of December 31,
2008 that the Company’s disclosure controls and procedures were effective such
that the information required to be disclosed in the Company’s United States
Securities and Exchange Commission (the “SEC”) reports is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
 Evaluation of and Report on
Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Management, with the participation of our
chief executive officer and chief financial officer, has evaluated the
effectiveness of our internal control over financial reporting as of December
31, 2008 based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations (COSO). Based on
this evaluation, management concluded that, as of December 31, 2008, our
internal control over financial reporting is effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
 
 This
annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management's report in
this annual report.
  Changes
in Internal Control over Financial Reporting
 There
have been no changes in internal controls, or in factors that
could materially affect internal controls, subsequent to the date that
management, including the Chief Executive Officer and the Chief Financial
Officer, completed their evaluation.
  ITEM 9B.  OTHER INFORMATION.
 
 None.
  36
 Table of Contents
 PART
III
 
 ITEM 10:  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
 
 The
following table and text set forth the names and ages of all of our directors
and executive officers as of December 31, 2008. The board of directors is
comprised of only one class. All of the directors will serve until the next
annual meeting of stockholders and until their successors are elected and
qualified, or until their earlier death, retirement, resignation or
removal.
 
 
 Name
                        
                        Age
                        
                        Position
                        Director/Officer
      SinceFrank Menzler
                        
                        
                        40
                        
                        President,
      Chief Executive Officer, Chairman, Interims Chief Financial Officer and
      Director
                        October
      2006Jatinder Bhogal
                        
                        
                        41
                        
                        Director
                        September
      2008Javier Jimenez
                        
                        
                        43
                        
                        Director
                        March
      2007Roland Schomer
                        
                        
                        43
                        
                        Director
                        June
      2008Joseph Sierchio
                        
                        
                        58
                        
                        Director
                        September
      2008
 
 There are
no family relationships between or among the directors, executive officers or
persons nominated or charged by our company to become directors or executive
officers. Executive officers are appointed by, and serve at the discretion of,
the Board of Directors.
 
 Recent
Management Changes:
 
 (1)           On
September 12, 2008, Mr. Harmel S. Rayat, resigned as the Company’s Secretary,
Treasurer, Chief Financial Officer, and as a director. Mr. Rayat resigned for
personal reasons and not as a result of any disagreement between himself and the
Company or the Board of Directors.
 
 (2)           On
October 6, 2008 Mr. Frank Fabio, accepted an appointment to
serve, on an interim basis, as the Company’s Chief Financial Officer. On
November 14, 2008, Mr. Frank Fabio resigned as the Company’s Interim
Chief Financial Officer and Secretary; Mr. Fabio resigned in order to
devote more time to his other endeavors and not as a result of any disagreement
between himself and the Company.
 
 (3)           On
March 14, 2007 Mr. Arian Soheili and Mr. Jasvir Kheleh resigned from their
positions as directors. Mr. Soheili and Mr. Kheleh resigned for personal reasons
and not as a result of any disagreement between himself and the Company or the
Board of Directors.
 
 The
following is a brief description of the business experience of each director and
executive officer during the past five years and an indication of directorships
held by each director in other companies subject to the reporting requirements
under the Federal securities laws.
 
 FRANK MENZLER.
Mr. Menzler earned a ‘Diplom-Ingenieur’ (Master’s of Science equivalent) in
Mechanical and Biomedical Engineering from RWTH Aachen, Germany’s largest
university of technology in 1996, and his Master’s degree in Business
Administration (MBA) from Northwestern University’s, Kellogg School of
Management in 2001. In 1998, Mr. Menzler co-founded Impella Cardiotechnik AG
(Germany), helping to raise more than $30 million in grants and venture capital
for one of the nation's first academically-sponsored research effort to receive
private venture capital funding. In 2002, Mr. Menzler served as Marketing
Manager for Europe, Middle East, Africa and Canada (EMEAC) at Guidant
Corporation's, Cardiac Surgery Business Unit in Brussels, Belgium.  In
2004, Mr. Menzler joined Abiomed, Inc. as General Manager, Europe, and then
in 2006 was named Director, International Distributors, and was responsible for
sales, training and operations.  Prior to his appointment as our President,
Chief Executive Officer, Director, Mr. Menzler was a member of our
Scientific Advisory Board. He was appointed Chairman of HepaLife Technologies,
Inc. on June 11, 2008. On November 14, 2008 he was appointed Interims Chief
Financial Officer.
  37
 Table of Contents
  JAVIER JIMENEZ.
Mr. Jimenez received both Bachelor and Masters degrees in Aeronautical
Engineering from Universidad Politecnica de Madrid, Spain in 1991, and his
Master’s degree in Business Administration (MBA) from Boston University in
1996.  In 2000, Mr. Jimenez joined GE Healthcare, a division of
General Electric Company.  During his tenure at GE Healthcare, Mr. Jimenez
held several key finance and management positions, including eBusiness Finance
Manager (Latin America), Finance Manager (Brazil), Finance Manager (Latin
American Distributors), Manager, Financial Planning & Analysis, Manager,
Global PET Operations and Director, Commercial Operations, in the United States
and Latin America.  In 2004, Mr. Jimenez joined ABIOMED, Inc., the
developer of the world’s first self-contained artificial heart, as Vice
President, Operations. Mr. Jimenez served in numerous positions, most
recently, as Vice President, General Manager Europe. In 2008 Mr. Jimenez
became Partner in the New England practice of Tatum, LLC. a firm that provides
companies with executive services and consulting, helping to maximize the Office
of the CFO. Mr. Jimenez joined the Board of Directors on March 14,
2007.
 
 ROLAND SCHOMER.
In 2001, Dr. Schomer joined Actelion Pharmaceuticals Deutschland GmbH,
where he built the company's German affiliate as General Manager,
Germany.  In 2003, Dr. Schomer served as Business Director, Europe,
Middle East and Africa, for Actelion Pharmaceuticals Ltd. in Switzerland. In
2004, Dr. Roland Schomer joined Novartis Pharma AG in Basel,
Switzerland, where he currently serves as Global Brand Director,
Transplantation.  Dr. Schomer joined the Board of Directors on June
18, 2008. Dr. Roland Schomer holds a Medical degree from Medical School of
Johannes-Gutenberg University in Mainz, Germany, and subsequently completed his
MBA from Northwestern University's Kellogg School of Management.
  JATINDER
S. BHOGAL. Since December 1993, Mr. Bhogal has worked as a business consultant
to emerging growth companies. For over 15 years, Mr. Bhogal has provided
early business development guidance and consulting to companies developing
healthcare services, medical devices, pharmaceuticals and vaccines,
solar-photovoltaics, biofuels, and information technology
solutions.
 
 JOSEPH
SIERCHIO.  Since 1975, Mr. Sierchio has practiced corporate and
securities law in New York City, representing and offering counsel to domestic
and foreign corporations, investors, entrepreneurs, and public and private
companies in the United States, Canada, United Kingdom, Germany, Italy,
Switzerland, Australia, and Hong Kong.  Mr. Sierchio is admitted in
all New York state courts and federal courts in the Eastern, Northern, and
Southern Districts of the State of New York as well as the federal Court of
Appeals for the Second Circuit. Mr. Sierchio earned his Doctor of Law
degree at Cornell University Law School in 1974, and a Bachelor
of Arts degree, with Highest Distinction in Economics, from Rutgers College
at Rutgers University, in 1971. Mr. Sierchio is also a member of Sierchio
& Company, LLP, counsel to the Company.
 
 During
the past five years none of our directors, executive officers, or control
persons have been:
  (a)           the
subject of any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
  (b)           convicted
in a criminal proceeding or is subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses);
 
 (c)           subject
to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or
 
 (d)           found
by a court of competent jurisdiction (in a civil action), the Commission or the
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law.
 
 Director
Independence
 
 As of the
date of this Report, because none of our securities is listed on a national
securities exchange or in an inter-dealer quotation system we are not required
to have a majority of independent directors .  However, after
considering all of the relevant facts and circumstances, the Board of Directors
has determined that Messrs. Jimenez and Sierchio, as well as Dr. Schomer
are independent from our management and qualify as “independent directors” under
the standards of independence set forth in Rule 4200(15) of the NASDAQ Stock
Market Rules.  This means that, in the judgment of the Board of
Directors none of Messrs. Jimenez and Sierchio, as well as Dr. Schomer (1)
is an officer or employee (during the prior three fiscal years) of the Company
or its subsidiaries or (2) has any direct or indirect relationship with the
Company that would interfere with the exercise of his independent judgment in
carrying out the responsibilities of a director.
  38
 Table of Contents
  Code
of Ethics
 
 Effective
December 31, 2008, our Board of Directors adopted an Amended and Restated Code
of Business Conduct and Ethics that applies to all of our employees, officers
and directors, including our principal executive officer, principal financial
officer and principal accounting officer. We are committed to the highest
standards of ethical and professional conduct, and the code provides guidance in
how to uphold these standards. The code consists of basic standards of business
practice as well as professional and personal conduct.
 
 Compliance
With Section 16(a) Of The Exchange Act
 
 Based
solely upon our review of Forms 3 and 4 and amendments thereto furnished to us
by each of Messrs. Menzler, Rayat and Jimenez pursuant to Rule 16a-3(e) of
during our current fiscal year and Form 5 and the amendments thereto furnished
to us with respect to our most recent fiscal year, we believe that all of our
directors, executive officers and persons who own more than 10% of our common
stock were in compliance with Section 16(a) of the Exchange Act of 1934 during
the fiscal year except for Messrs. Bhogal and Sierchio who did not timely file
their respective initial Form 3s following election to our Board of Directors.
During the fiscal 2007, all of our directors, executive officers and persons who
own more than 10% of our common stock were in compliance with section 16(a) of
the Exchange Act of 1934.
 
 Directors
 
 Our board
of directors currently consists of five members. Directors serve for a term of
one year and stand for election at our annual meeting of stockholders. Pursuant
to our Bylaws, any vacancy occurring in the board of directors, including a
vacancy created by an increase in the number of directors, may be filled by the
stockholders or by the affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors. A director elected to fill
a vacancy shall hold office only until the next election of directors by the
stockholders. If there are no remaining directors, the vacancy shall be filled
by the stockholders.
 
 At a
meeting of stockholders, any director or the entire board of directors may be
removed, with or without cause by our stockholders, provided the notice of the
meeting of our stockholders states that one of the purposes of the meeting is
the removal of the director. A director may be removed only if the number of
votes cast to remove him exceeds the number of votes cast against
removal.
 
 Currently
we do not have any committees.
 
 Compensation
of Directors
 
 In 2008
and 2007, we incurred $19,343 and $4,900, respectively, in fees to directors.
Stock-based compensation expense relating to director stock option awards
totaled $12,541 for the year ended December 31, 2008.
 
 Each non
employee director receives an initial stock option entitling him to purchase up
to 50,000 shares of stock at a price per share equal to the closing price of our
common stock, as reported on the Over the Counter Bulletin Board on the date of
the option grant; the options vest at the rate of 20% per annum in arrears. In
addition each non-employee director receives a quarterly cash payment, in
arrears, of $2,500. Each director is entitled to reimbursement of out of pocket
expenses incurred in connection with his services as a Director of the
Company.
 
 We have
no other arrangements pursuant to which any our directors were compensated
during the years ended December 31, 2008 and 2007 for services as a director.
  ITEM 11:  EXECUTIVE COMPENSATION.
 
 The
following table shows, for the three-year period ended December 31, 2008, the
cash compensation paid by the Company, as well as certain other compensation
paid or accrued for such year, to the Company's Chief Executive Officer and the
Company's other most highly compensated executive officers. Except as set forth
on the following table, no executive officer of the Company had a total annual
salary and bonus for 2008 that exceeded $100,000.
  39
 Table of Contents
  Summary
Compensation Table
 
 Name
      and
                                        Principal
      Position
                                      Year
                                      
                                      Salary
                                      
                                      
                                      Bonus
                                      
                                      
                                      Other
                                      
                                      
                                      Securities
      Underlying Options Granted
                                      
                                      
                                      All
      Other
                                        CompensationFrank
      Menzler
                                      2008
                                      
                                      $
                                      225,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      500,000
                                      
                                      
                                      $
                                      0President,
      CEO
                                      2007
                                      
                                      $
                                      225,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      2,000,000
                                      
                                      
                                      $
                                      0Chairman,
      and Director
                                      2006
                                      
                                      $
                                      56,250
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      0Harmel
      S. Rayat (1)
                                      2008
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      0Former
      Secretary, Treasurer
                                      2007
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      0Chief
      Financial Officer
                                      2006
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      0Chairman,
      and DirectorArian
      Soheili (2)
                                      2008
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      0Former
      CEO, Secretary,
                                      2007
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      1,050
                                      
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      0Treasurer,
      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
 
 Stock
Option Grants in Last Fiscal Year
 
 Shown
below is further information regarding stock options awarded during 2008 to the
named officers and directors:
 
 Name
                  
                  Number
      of
                    Securities
                    Underlying
                    Options
                  
                  
                  %
      of Total
                    Options
      Granted
                    to
      Employees
                    in
      2008
                  
                  
                  Exercise
                    Price
      ($/sh)
                  
                  
                  Expiration
                    DateFrank
      Menzler
                  
                  
                  500,000
                  
                  
                  
                  71%
                  
                  
                  $
                  0.61
                  
                  
                  6/11/2018Harmel
      Rayat(1)
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  n/a
                  
                  
                  
                  n/aJavier
      Jimenez
                  
                  
                  50,000
                  
                  
                  
                  7%
                  
                  
                  
                  0.61
                  
                  
                  
                  6/11/2018Roland
      Schomer
                  
                  
                  50,000
                  
                  
                  
                  7%
                  
                  
                  
                  0.61
                  
                  
                  
                  6/11/2018Jatinder
      Bhogal
                  
                  
                  50,000
                  
                  
                  
                  7%
                  
                  
                  
                  0.26
                  
                  
                  
                  9/12/2018Joseph
      Sierchio
                  
                  
                  50,000
                  
                  
                  
                  7%
                  
                  
                  
                  0.26
                  
                  
                  
                  9/12/2018
 
 (1)
                Resigned
      as an officer and director on September 12,
  2008.
 
 Aggregated
Option Exercises During Last Fiscal Year and Year End Option Values
 
 The
following table shows certain information about unexercised options at year-end
with respect to the named officers and directors:
  40
 Table of Contents
 
 Common
      Shares Underlying Unexercised Options on
                    
                    
                    Value
      of Unexercised
                      In-the-money
      Options onDecember
      31, 2008
                    
                    
                    December
      31, 2008Name
                    
                    Exercisable
                    
                    
                    Unexercisable
                    
                    
                    Exercisable
                    
                    
                    UnexercisableFrank
      Menzler
                    
                    
                    100,000
                    
                    
                    
                    2,400,000
                    
                    
                    $
                    0
                    
                    
                    $
                    730,000Harmel
      Rayat (1)
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0Javier
      Jimenez
                    
                    
                    0
                    
                    
                    
                    50,000
                    
                    
                    
                    0
                    
                    
                    
                    0Roland
      Schomer
                    
                    
                    0
                    
                    
                    
                    50,000
                    
                    
                    
                    0
                    
                    
                    
                    0Jatinder
      Bhogal
                    
                    
                    0
                    
                    
                    
                    50,000
                    
                    
                    
                    0
                    
                    
                    
                    0Joseph
      Sierchio
                    
                    
                    0
                    
                    
                    
                    50,000
                    
                    
                    
                    0
                    
                    
                    
                    0Arian
      Soheili (2)
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0Jasvir
      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
  Employment
Contracts and Change in Control Arrangements
 
 Except
for our agreement with Mr. Menzler, we do not have any employment agreements
with any of our officers and directors. On October 1, 2006, the Company and Mr.
Menzler entered into an employment agreement whereas Mr. Menzler: (i) agreed to
serve as President and Chief Executive Officer, (ii) will receive an annualized
base salary of $225,000, (iii) has been granted options to purchase up to
2,250,000 shares of the Company’s common stock at an exercise price of $0.73.
Subsequently, on January 25, 2007, the Company agreed (simultaneously with the
termination of 2,250,000 stock options) to enter a stock option agreement with
Mr. Frank Menzler for 2,000,000 common shares at an exercise price of $0.52 per
share.  On June 11, 2008, the Company agreed to enter a stock option
agreement with Mr. Frank Menzler for 500,000 common shares at an exercise price
of $0.61 per share.
 
 The
Company does not have any change-of-control or severance agreements with any of
its executive officers or directors. In the event of the termination of
employment of the Named Executive Officers any and all unexercised stock options
shall expire and no longer be exercisable after a specified time following the
date of the termination.
 
 ITEM
      12:
                SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.
 
 The
following table sets forth, as of December 31, 2008, the beneficial ownership of
the Company's Common Stock by each director and executive officer of the Company
and each person known by the Company to beneficially own more than 5% of the
Company's Common Stock outstanding as of such date and the executive officers
and directors of the Company as a group.
  Person
      or Group
                                                                  Number
      of Shares of Common Stock
                                                                  PercentFrank
      Menzler (1)
                                                                  100,000
                                                                  <1%60
      State Street, Suite 700Boston,
      MA  02109Javier
      Jimenez
                                                                  0
                                                                  0%60
      State Street, Suite 700Boston,
      MA  02109Roland
      Schomer(2)
                                                                  7,000
                                                                  <1%60
      State Street, Suite 700Boston,
      MA  02109Jatinder
      S. Bhogal
                                                                  0
                                                                  0%60
      State Street, Suite 700Boston,
      MA  02109Joseph
      Sierchio(3)
                                                                  100,000
                                                                  <1%60
      State Street, Suite 700Boston,
      MA  02109Harmel
      S. Rayat (4)
                                                                  33,228,468
                                                                  36%216-1628
      West First AvenueVancouver,
      B.C.V6J
      1G1 CanadaDirectors
      and Executive Officers
                                                                  207,000
                                                                  <1%as
      a group (5 persons)
  41
 Table of Contents
 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.
 
 ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
 Director and Management Fees:
For the year ended December 31, 2008, we incurred $19,343 in board fees for
non-employee directors of the Company.  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
year ended December 31, 2008, we recorded $12,541 as stock compensation expense
relating to these stock grants (refer to Note 10). During the year ended
December 31, 2007, we paid management fees of $4,900 to non-employee directors.
There is no management or consulting agreements in effect.
 
 Legal Fees: In relation to
our May 2008 Private Placement, we settled $21,250 in legal costs by issuing
50,000 Units to our attorney who also serves as a board member.  Legal
fees expensed for the year ended December 31, 2008 that were paid or were due to
this attorney total $111,150.
  Notes Payable and Accrued Interest: On May
23, 2008, we reached an agreement with Mr. Harmel Rayat to which Mr. Rayat (i)
converted the entire outstanding principal amount ($877,800) of his loan to the
Company into an aggregate of  2,065,412  Units, each Unit
consisting of one share of the Company’s 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.
 
 Rent: Until August 31,
2008, our administrative office was located at 1628 West 1st Avenue, Suite 216,
Vancouver, British Columbia, Canada, V6J 1G1. 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 (2007: $35,740). Effective September 1, 2008, we closed
this administrative office, terminating all of our employees at this
location.  There were no severance arrangements with any of the
terminated employees.
 
 Mr.
Harmel S. Rayat was an officer and director of the Company until September 12,
2008 and a majority stockholder of the Company until September 9, 2008.
  42
 Table of Contents
  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.
 
 Director
Independence.
 
 Please
refer to “ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.”
 
 ITEM14:  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
 The firm
of Peterson Sullivan, LLP currently serves as the Company’s independent
accountants.  The Board of Directors of the Company, in its
discretion, may direct the appointment of different public accountants at any
time during the year, if the Board believes that a change would be in the best
interests of the stockholders.  The Board of Directors has considered
the audit fees, audit-related fees, tax fees and other fees paid to the
Company's accountants, as disclosed below, and had determined that the payment
of such fees is compatible with maintaining the independence of the
accountants.
 
 The
Company does not currently have an audit committee.
 
 The
following table presents aggregate fees for professional services rendered by
Peterson Sullivan, LLP for the years ended December 31, 2008 and
2007.
 
 Year
      Ended
                                December 31, 2008
                              
                              
                              Year
      Ended
                                December 31,2007Audit
      fees
                              
                              $
                              24,582
                              
                              
                              $
                              25,770Audit-related
      fees
                              
                              
                              -
                              
                              
                              
                              -Tax
      fees
                              
                              
                              11,457
                              
                              
                              
                              -All
      other fees
                              
                              
                              -
                              
                              
                              
                              -Total
                              
                              $
                              36,039
                              
                              
                              $
                              25,770
  43
 Table of Contents
  PART
IV
  ITEM 15:  EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.
 
 (a)  The
following exhibits are filed as part of this Form 10-K:
 
 1.   Financial
Statements
 
 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
 from
Inception (October 21, 1997) to December 31, 2008
 
 ·
                Consolidated
      Statements of Stockholders’ Equity (Deficit) from Inception (October 21,
      1997)
 to
December 31, 2008
 
 ·
                Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007,
 and from
Inception (October 21, 1997) to December 31, 2008
 
 ·
                Notes
      to Consolidated Financial
Statements
 
 2.   Financial
Statement Schedules.
 
 Financial
statement schedules are omitted because they are not required or are not
applicable, or the required information is provided in the consolidated
financial statements or notes described in Item 15(a)(1)
above.
  44
 Table of Contents
 3.   Other
Exhibits to this Form 10-K:
 
 31.1
                Certification
      of the Chief Executive Officer pursuant to Rule
  13a-14(a)
 
 31.2
                Certification
      of the Chief Financial Officer pursuant to
    Rule 13a-14(a)
 
 32.1
                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
 
 32.2
                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
 
 45
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act
of 1934, the Registrant has duly caused this amendment to its report on Form
10-K for the fiscal year ended December 31, 2008, to be signed on its behalf by
the undersigned,  thereunto duly  authorized on
this 30th day of March, 2009.
 
 HepaLife
      Technologies, Inc/s/ Frank MenzlerFrank
      MenzlerPresident
      and CEO andChairman
      of the Board of
Directors
   Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons  on  behalf of the
registrant and in capacities and on the dates indicated.
   Signature
                                Title
                                Date/s/ Frank
      Menzler
                                Director
      , Chairman of the Board,
                                March
      30, 2009Frank
      Menzler
                                President
      and Chief Executive Officer/s/ Donna A.
      Lopolito
                                Chief
      Financial Officer
                                March
      30, 2009Donna
      A. Lopolito/s/Jatinder
      S. Bhogal
                                Director
                                March
      30, 2009Jatinder
      S. Bhogal/s/ Javier
      Jimenez
                                Director
                                March
      30, 2009Javier
      Jimenez/s/ Roland
      Schomer
                                Director
                                March
      30, 2009Roland
      Schomer/s/Joseph
      Sierchio
                                Director
                                March
      30, 2009Joseph
      Sierchio
   46