Attached files
| file | filename |
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| EX-23.1 - EX-23.1 - U.S. Stem Cell, Inc. | ex_23-1.htm |
| EX-5.1 - EX-5.1 - U.S. Stem Cell, Inc. | ex_5-1.htm |
As filed with the Securities and Exchange Commission on
January 19, 2012
Registration No.
001-_______
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
____________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
____________________________
BIOHEART, INC.
(Exact name of
Registrant as specified in its charter)
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Florida
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8731
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65-0945967
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(State or other
Jurisdiction
of Incorporation or
Organization)
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(Primary Standard
Industrial
Classification Code
Number)
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(I.R.S. Employer
Identification No.)
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13794
NW 4th Street, Suite 212
Sunrise, Florida 33325
(954)
835-1500
(Address, including zip
code, and telephone number including area code, of Registrant’s principal executive offices)
Mike
Tomas, Chief Executive Officer
Bioheart, Inc.
13794
NW 4th Street, Suite 212
Sunrise, Florida 33325
(954)
835-1500
(Name, address,
including zip code, and telephone number, including area code, of agent for service)
Copies to:
Gregory Sichenzia, Esq.
Andrew Smith, Esq.
Sichenzia Ross Friedman Ference LLP
61
Broadway, 32nd Floor
New
York, New York 10006
(212)
930-9700
(212)
930-9725 (fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after
this Registration Statement becomes effective.
If any of the
securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) check
the following box: x
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
Indicate by check mark
whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated
filer o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting
company x
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(Do not check if a
smaller reporting company)
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2
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Title of each class of securities
to
be Registered
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Amount to be Registered
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Proposed Maximum Offering Price Per Share
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Proposed Maximum Aggregate Offering Price
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Amount of Registration Fee
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Common Stock, $.001 par
value
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40,000,000 (1)
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$0.045(2)
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$1,800,000
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$206.28
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(1) Represents shares
offered by the Selling Stockholder. Includes an indeterminable number of additional shares of Common Stock, pursuant to Rule 416 under the Securities Act, that may be issued to prevent dilution from
stock splits, stock dividends or similar transaction that could affect the shares to be offered by Selling Stockholder.
(2) Estimated solely
for purposes of calculating the registration fee in accordance with Rule 457(e) under the Securities Act, using the average of the high and low prices as reported on the OTCBB marketplace
on January 13, 2012.
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
3
The information in this Prospectus is not complete and may be changed. The Selling Stockholder may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the sale is not
permitted.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED JANUARY 19, 2012
BIOHEART, INC.
40,000,000 Shares of Common Stock
This prospectus relates
to the public offering of up to 40,000,000
shares of Bioheart, Inc.’s $0.001 par value per share common stock (the "Common Stock") by Greystone Capital Partners (“GCP”) or any of GCP’s pledgees, assignees or
successors-in-interest (each a “Selling
Stockholder”). The Securities and Exchange Commission (“SEC”) may take the view that, under certain circumstances, any broker-dealers or agents that participate with the Selling
Stockholder in the distribution of the
shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). Commissions, discounts or concessions received
by any such broker-dealer or agent may
be deemed to be underwriting commissions under the Securities Act. GCP
has informed us that it is an “underwriter” within the meaning of the Securities Act. The Selling Stockholder may sell Common Stock from time to time in the principal market on which the
Registrant’s Common Stock is
quoted and traded at the prevailing market price or in negotiated transactions. We will not receive any of the proceeds from the sale of those shares being sold by the Selling Stockholder. We will
pay the expenses of registering these
shares.
The Common Stock is
quoted on the Over-The-Counter Bulletin Board and trades under the symbol “BHRT”. The last reported sale price of the Common Stock on the Over-the-Counter Bulletin Board on
January 13, 2012 was $0.05 per share.
The Selling Stockholder
is offering these shares of Common Stock. The Selling Stockholder may sell all or a portion of these shares from time to time in market transactions through any market on which the Common Stock is
then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or
brokers, who may act as agent or as principal or by a combination of such methods of sale. The Selling Stockholder will receive all proceeds from such sales of the Common Stock. For additional
information on the methods of sale, you should refer to the section entitled "Plan of Distribution."
Investing in these securities involves significant risks. See "Risk Factors" beginning on page 9.
We may amend or
supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your
investment decision.
Neither the SEC nor any
state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this
prospectus is January 19, 2012.
You should rely only on
the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in
this prospectus.
The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless of when the time of delivery of this prospectus or the
sale of any Common Stock occurs. The Selling Stockholder may not sell the securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, the Common Stock in any jurisdiction in which the offer or sale is not permitted.
4
BIOHEART, INC.
TABLE
OF CONTENTS
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Page
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PART I
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Prospectus Summary
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6
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Risk Factors
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9
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Cautionary Note
Regarding Forward-Looking Statements
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18
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Use of Proceeds
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18
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Selling Stockholder
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18
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Interests of Named
Experts and Counsel
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19
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Capitalization
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20
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Market Price and
Dividends on Registrant’s Common Equity and Related Stockholder Matters
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21
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Dilution
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22
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Selected Financial
Data
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23
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Management’s
Discussion and Analysis of Financial Condition and Results of Operations
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25
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Description of
Business
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34
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Management
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56
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Certain
Relationships, Related Transactions and Director Independence
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68
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Security Ownership of
Certain Beneficial Owners and Management
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69
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Plan of Distribution
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72
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Description of
Securities to be Registered
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73
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Legal Matters
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74
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Other Experts
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74
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Disclosure of
Commission Position on Indemnification for Securities Act Liabilities
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74
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Where You Can Find
More Information
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75
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Index to Consolidated
Financial Statements
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76
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You may only rely on
the information contained in this prospectus or that we have referred you to via this prospectus. We have not authorized anyone to provide you with different or further information. This prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection
with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained herein by
reference thereto in this
prospectus is correct as of any time after its date.
5
The following summary
highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the Common Stock. Before making an investment
decision, you should read the entire prospectus carefully, including the "RISK FACTORS" section, the financial statements and the notes to the financial statements. As used throughout this
Registration Statement and prospectus, the term “Registrant” refers to Bioheart, Inc. and the terms "Company", "we," "us," or "our" refer to Bioheart, Inc. and its consolidated
subsidiaries unless the context otherwise requires.
Our
Company
Overview
We are committed to the
discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies, devices and biologics for the treatment of chronic and acute heart damage and peripheral
vascular disease. The number of heart failure patients is expected to increase from 25 million worldwide today to over 50 million in five years. Our focus is on serving these patients.
Our Core Products
Myocell
Specific to
biotechnology, we are focused on the discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies for the treatment of chronic and acute heart damage and
peripheral vascular disease. MyoCell is a clinical muscle-derived cell therapy designed to populate regions of scar tissue within a patient's heart with new living cells for the purpose of improving
cardiac function in chronic heart failure patients. Our most recent clinical trials of MyoCell include (a) the SEISMIC Trial, a completed 40-patient, randomized, multicenter, controlled, Phase II-a
study conducted in Europe, (b) the MYOHEART Trial, a completed 20-patient, multicenter, Phase I dose-escalation trial conducted in the United States, and (c) the MARVEL Trial, a 330-patient,
multicenter Phase II/III trial of MyoCell in
North America and Europe. Initial results for the 20 patients treated thus far in the MARVEL Trial showed a significant (35%) improvement compared to those who received a
placebo. The SEISMIC, MYOHEART and MARVEL Trials have been designed to test the safety and efficacy of MyoCell for the treatment of patients with severe, chronic damage to the
heart. Upon regulatory approval of MyoCell, we intend to generate revenue in the United States from the sale of MyoCell cell-culturing services for treatment of patients by qualified
physicians. Abroad, we are identifying centers where it is already acceptable to use the Myocell treatment so that greater numbers of patients with this problem can have access to
treatment.
Myocell SDF-1
We received approval
from the FDA in July of 2009 to conduct a Phase I safety study on 15 patients of a combined therapy (Myocell with SDF-1), which we believe is the first approval of a study combining gene and cell
therapies. We initially commenced work on this study, called the REGEN Trial, during the first quarter of 2010. The Company suspended activity on the trial in 2010 while seeking additional
funding necessary to conduct the trial. Work on the trial was reinitiated in 2011. Based on the results of the trial, we intend to either incorporate the combined treatment into the MARVEL Trial, or
continue with the MARVEL Trial based on the use of Myocell alone.
MyoCath
The MyoCath is a
deflecting tip needle injection catheter for delivering new cells to damaged cardiac tissue in therapeutic procedures to treat chronic heart ischemic and congestive heart failure tissue. The MyoCath
needle has more fluoroscopic brightness than the standard nitinol needle, enabling superior visualization during the procedure. The MyoCath competes well with other biological delivery systems on
price and efficiency and allows the physician to utilize standard fluoroscopy and echo equipment found in every cath lab. The MyoCath is not currently in production. The Company is considering
several contract manufacturers.
6
Trading Market
Our common stock, par
value $0.001 per share, commenced trading on February 19, 2008, on the NASDAQ Global Market under the symbol “BHRT”. Effective June 11, 2008, we transferred the listing of our common
stock to the NASDAQ Capital Market and then, during the course of 2009 our stock was delisted from NASDAQ and commenced quotation on the Over the Counter Bulletin Board under the symbol
“BHRT.OB”.
Corporate Information
We were incorporated in
Florida in 1999 under the name Bioheart, Inc. and continue to be a Florida corporation.
Our principal executive
offices are located at 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325. Our telephone
number is (954) 835-1500.
Our website address is
www.bioheartinc.com. Our website and the information contained on our website are not incorporated into this prospectus or the
Registration Statement of which it forms a part. Further, our references to the URLs for our website are intended to be inactive textual references only.
This
Offering
This prospectus relates
to a total of up to 40,000,000
shares of Common Stock of Bioheart, Inc. offered by the Selling Stockholder. The Selling Stockholder owns 215,000 shares of the Company’s common stock as of the date hereof that are not being
included in this registration
statement. The shares being registered are those 40,000,000 shares that may be issued to the Selling Stockholder under the New SEDA (as that term is defined below).
November 2011 Standby Equity Distribution Agreement
On November 2, 2011,
the Company entered into a Standby Equity Distribution Agreement (the "SEDA") with Greystone Capital Partners, or “GCP”. Pursuant to the SEDA’s terms the Company may, at its sole
discretion and upon giving written notice to GCP, each an “Advance Notice”, periodically sell shares of its Common Stock to GCP. For each share of Common Stock purchased under the SEDA,
GCP will pay to the Company an amount, referred to as the “Purchase Price”, that is eighty percent (80%) of the lowest daily volume weighted average price of the Common Stock as quoted by
Bloomberg, LP, during the five (5) consecutive Trading Days (as such term is defined in the SEDA) immediately subsequent to the date of the relevant Advance Notice. The Company is not obligated to
sell any shares of Common Stock
to GCP but may, over the term of the SEDA and in its sole discretion, sell to GCP that number of shares of Common Stock valued at the Purchase Price from time to time in effect that equals up to
three million dollars ($3,000,000) in the aggregate. GCP's obligation to purchase shares of Common Stock under the SEDA is subject to certain conditions, including (i) the Company obtaining an
effective registration statement for the shares of Common Stock sold under the SEDA, or the “Registration Statement”, (ii) periodic sales of shares of Common Stock to GCP must be
separated by a time period equal to five Trading Days, and (iii) the amount of any individual periodic sale designated by the Company in any Advance Notice shall not exceed fifty percent (50%) of the
average weekly volume of shares of Common Stock traded during the two (2) week period immediately prior to an Advance Notice, where a “week” is five (5) consecutive Trading Days.
The 40,000,000 shares
of Common Stock included in this prospectus
represent only the 40,000,000 shares issuable under the SEDA or, the “Resale Shares” and do not include any of the shares owned by the Selling Shareholder as of the date
hereof. The SEDA automatically expires
on the first day of the month next following the 24-month anniversary of the date on which the SEC first declares effective this Registration Statement registering the Resale Shares.
7
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Common Stock outstanding
prior to the offering
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95,625,236 (1)
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Common Stock offered by
the Selling Stockholder
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Up to 40,000,000 shares
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Common Stock to be
outstanding after the offering
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Up to 135,625,236 shares
(2)
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Use of proceeds
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We will not receive any
proceeds from the resale by the Selling Stockholder of the Common Stock hereunder. See “Use of Proceeds” for a complete description.
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OTCBB symbol
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BHRT.OB
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Risk factors
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See “Risk
Factors” beginning on page 9 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.
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(1)
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Based on 95,625,236 shares outstanding
on December 31, 2011.
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(2)
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The number of shares to be outstanding
after this offering excludes the following:
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Approximately 4,796,020
shares of common stock issuable upon the conversion of
existing convertible debt. Assumes conversion price of $0.045 subject to express limitations on conversion.
32,610,075 shares of
common stock issuable upon the exercise of outstanding
warrants.
4,636,318 shares of
common stock issuable upon the exercise of outstanding stock options
Use
of proceeds
We will not receive any
of the proceeds resulting from the sale of the
shares of Common Stock held by the Selling Stockholder.
8
You should carefully
consider the risks described below as well as other information provided to you in this document, including information in the section of this document entitled “Information Regarding Forward
Looking Statements.” If any of the following risks actually cause the occurrence of adverse circumstances, the Company’s business, financial condition or results of operations could be
materially adversely affected, the value of the Company’s Common Stock could decline and you may lose all or part of your investment.
Risks
Related to Our Business
We are a development stage life sciences company with a limited operating history
and a history of net losses and negative cash flows from operations. We may never be profitable, and if we incur operating losses and generate negative cash flows from operations for longer than
expected, we may be unable to continue operations.
We are a development
stage life sciences company and have a limited operating history, limited capital, limited sources of revenue and have incurred losses since inception. Our operations to date have been limited to
organizing our company, developing and engaging in clinical trials of our MyoCell product candidate, expanding our pipeline of complementary product candidates through internal development and third
party licenses, expanding and strengthening our intellectual property position through internal programs and third party licenses and recruiting management, research and clinical personnel.
Consequently, it may be difficult to predict our future success or viability due to our lack of operating history. As of December 31, 2010, we have accumulated a deficit during our development stage
of approximately $106.3 million. Our
MyoCell product candidate has not received regulatory approval or generated any material revenues and is not expected to generate any material revenues until commercialization of MyoCell, if ever.
Since inception, we have generated substantial net losses, including net losses of approximately $5.2 million, $4.4 million, $14.2 million and $18.1 million in 2010, 2009, 2008 and 2007, respectively
and substantial negative cash flows from operations. We anticipate that we will continue to incur significant and increasing net losses and negative cash flows from operations for the foreseeable
future as we:
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establish a distribution network for
and commence distribution of certain products for which we have acquired distribution rights;
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commence full scale enrollment of the
MARVEL Trial;
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continue research and development and
undertake new clinical trials with respect to our pipeline product candidates, including clinical trials related to MyoCell SDF-1;
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seek to raise additional capital;
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apply for regulatory approvals;
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make capital expenditures to increase
our research and development and cell culturing capabilities;
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add operational, financial and
management information systems and personnel and develop and protect our intellectual property;
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make payments pursuant to license
agreements upon achievement of certain milestones; and
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establish sales and marketing
capabilities to commercialize products for which we obtain regulatory approval, if any.
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Our limited experience
in conducting and managing preclinical development activities, clinical trials and the application process necessary to obtain regulatory approvals might prevent us from successfully designing or
implementing a preclinical study or clinical trial. If we do not succeed in conducting and managing our preclinical development activities or clinical trials, or in obtaining regulatory approvals, we
might not be able to commercialize our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
None of the biologic
products that we are currently developing has been approved by the FDA or any similar regulatory authority in any foreign country. Our ability to generate revenues from any of our product candidates
will depend on a number of factors, including our ability to successfully complete clinical trials, obtain necessary regulatory approvals and implement our commercialization strategy. In addition,
even if we are successful in obtaining necessary regulatory approvals and bringing one or more product candidates to market, we will be subject to the risk that the marketplace will not accept those
products. We may, and anticipate that we will need to, transition from a company with a research and development focus to a company capable of supporting commercial activities and we may not succeed
in such a
transition.
9
Because of the numerous
risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable. Our
failure to successfully commercialize our product candidates or to become and remain profitable could impair our ability to raise capital, expand our business, diversify our product offerings and
continue our operations.
To fully develop our business plan we will need additional financing.
For the foreseeable
future, we expect to rely principally upon financing from sales of Common Stock made pursuant to the SEDA. We also have raised limited private placement funds during the past several years and may be
required to do so in the future. We cannot guarantee the success of this plan. We will have to obtain additional financing in order to conduct our business in a manner consistent with our proposed
operations. There is no guaranty that additional funds will be available when, and if, needed of, if available, on terms that will be satisfactory. If we are unable to obtain financing, or if its
terms are unacceptable, we may be forced to curtail expansion of operations until such time as alternative financing may be arranged, which could have a materially adverse impact on our operations
and our shareholders'
investment.
Even after entering into the SEDA, we lack adequate capital.
Even after our entry
into the SEDA, we lack the capital necessary to independently commercialize our products and sustain our operations. Management is actively pursuing additional financing through other equity investor
sources in order to meet its working capital needs. There can be no guaranty that additional funds will be available. If we are unable to obtain additional financing, or if its terms are
unacceptable, we may be forced to curtail expansion of operations until such time as alternative financing may be arranged which could have a materially adverse impact on our operations and our
shareholders' investment.
There are substantial risks associated with the SEDA with GCP which could
contribute to the decline of the price of our Common Stock and have a dilutive impact on our existing stockholders
In order to obtain
needed capital, we entered into the SEDA dated as of November 2, 2011 with GCP. The sale of shares of our Common Stock pursuant to the SEDA will have a dilutive impact on our stockholders.
We believe GCP intends to promptly re-sell the shares that we sell to it under the SEDA and that such re-sales could cause the market price of our Common Stock to decline significantly. Any
subsequent sales by us to GCP under the SEDA may, to the extent of any such decline, require us to issue a greater number of shares of Common Stock to GCP in exchange for each dollar of such
subsequent sale. Under these circumstances our existing stockholders would experience greater dilution. The sale of our Common Stock under the SEDA could encourage short sales by third
parties, which could contribute to the further
decline of the price of our Common Stock.
If we are unable to
secure additional financing in 2012, we may be forced to:
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curtail or abandon our existing
business plan;
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reduce our headcount;
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default on our debt obligations under
current secured indebtedness;
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file for bankruptcy;
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seek to sell some or all of our assets;
and/or
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cease our operations.
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If we are forced to
take any of these steps, any investment in our common stock may be worthless.
BlueCrest Capital has
as part of the collateral for its loan to Bioheart the intellectual property of Bioheart. In the event of a default, all interest and principal are immediately due and payable and that BlueCrest
Capital has the right to enforce its security interest in the assets securing the BlueCrest Loan. In such event, BlueCrest Capital could take possession of any or all of our assets in which they hold
a security interest, and dispose of those assets to the extent necessary to pay off our debts, which would materially harm our business.
10
Our ability to obtain
additional debt financing and/or alternative arrangements with the Guarantors may be limited by the amount of, terms and restrictions of our then current debt. For instance, we do not anticipate
repaying the BlueCrest Loan until its scheduled maturity. Accordingly, until such time, we will generally be restricted from, among other things, incurring additional indebtedness or liens, with
limited exceptions. See “We have a substantial amount of debt...” below. Additional debt financing, if available, may
involve restrictive covenants that limit or further limit our operating and financial flexibility and prohibit us from making distributions to shareholders.
If we raise additional
capital and/or secure alternative arrangements with the guarantors by issuing equity, equity-related or convertible securities, the economic, voting and other rights of our existing shareholders may
be diluted, and those newly issued securities may be issued at prices that are a significant discount to current and/or then prevailing market prices. In addition, any such newly issued
securities may have rights superior to those of our common stock. If we obtain additional capital through collaborative arrangements, we may be required to relinquish greater rights to our
technologies or product candidates than we might otherwise have or become subject to restrictive covenants that may affect our business.
Our independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern.
Our independent
registered public accounting firm issued its report dated May 10, 2011 in connection with the audit of our financial statements for the year ended December 31, 2010, included an explanatory paragraph
describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern. If we are not able to continue as a going concern, it is likely that holders of
our common stock will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Current adverse economic conditions have had a negative impact on our ability to
obtain additional financing. Our inability to obtain additional financing would have a significant adverse effect on our operations.
In early 2008, as the
United States economy began to weaken and there were increased doubts about the ability of borrowers to pay debts. Housing values began to fall and marginal loans were first to default, triggering
the sub-prime lending crisis. Financial institutions responded by tightening their lending policies with respect to counterparties determined to have sub-prime mortgage risk. This tightening of
institutional lending policies led to the failure of major financial institutions late in the third quarter of 2008. Continued failures, losses, and write-downs at major financial institutions
through 2010 intensified concerns about credit and liquidity risks and have resulted in a sharp reduction in overall market liquidity. The global credit crisis threatens the stability of the global
economy and has adversely impacted
consumer confidence and spending. We believe this global credit crisis has also had a negative impact on our ability to obtain additional financing. As discussed above, our inability to obtain
additional financing would have a significant adverse effect on our operations, results and financial condition.
We have a substantial amount of debt and may incur substantial additional debt,
which could adversely affect our ability to pursue certain business objectives, obtain financing in the future and/or react to changes in our business.
As of December 31,
2011, we had an aggregate of approximately $5,528,799 in principal amount of outstanding indebtedness, including secured indebtedness, but excluding accounts payable and accruals.
In addition to the
express limitations imposed on our operational flexibility by the secured indebtedness, the extent of our current indebtedness, and any other indebtedness incurred by us, could have significant
additional negative consequences, including, without limitation:
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requiring the dedication of a portion
of our available cash to service our indebtedness, thereby reducing the amount of our cash available for other purposes, including funding our research and development programs and other capital
expenditures;
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increasing our vulnerability to general
adverse economic and industry conditions;
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limiting our ability to obtain
additional financing;
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limiting our ability to react to
changes in technology or our business; and
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placing us at a possible competitive
disadvantage to less leveraged competitors.
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11
Risks
Related to Product Development and Commercialization
All of our biologic product candidates are in an early stage of development and we
may never succeed in developing and/or commercializing them. We depend heavily on the success of our MyoCell product candidate. If we are unable to commercialize MyoCell or any of our other product
candidates or experience significant delays in doing so, our business may fail.
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We have invested a significant portion
of our efforts and financial resources in our MyoCell product candidate and depend heavily on its success. MyoCell is currently being tested in clinical trials.
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We need to devote significant
additional research and development, financial resources and personnel to develop commercially viable products, obtain regulatory approvals and establish a sales and marketing infrastructure.
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We are likely to encounter hurdles and
unexpected issues as we proceed in the development of MyoCell and our other product candidates. There are many reasons that we may not succeed in our efforts to develop our product candidates,
including the possibility that:
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●
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our product candidates will be deemed
ineffective, unsafe or will not receive regulatory approvals;
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●
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our product candidates will be too
expensive to manufacture or market or will not achieve broad market acceptance;
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●
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others will hold proprietary rights
that will prevent us from marketing our product candidates; or
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●
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our competitors will market products
that are perceived as equivalent or superior.
|
Our success will depend in part on establishing and maintaining effective strategic
partnerships, collaborations and licensing agreements.
Our strategy for the
development, testing, culturing and commercialization of our product candidates relies on establishing and maintaining numerous collaborations with various corporate partners, consultants,
scientists, researchers, licensors, licensees and others. While we are continually in discussions with a number of companies, universities, research institutions, consultants, scientists,
researchers, licensors, licensees and others to establish additional relationships and collaborations, which are typically complex and time consuming to negotiate, document and implement, we may not
reach definitive agreements with any of them. Even if we enter into these arrangements, we may not be able to maintain these relationships or establish new ones in the future on acceptable terms.
Furthermore, any
collaboration that we enter into may not be successful. The success of our collaboration arrangements, if any, will depend heavily on the efforts and activities of our collaborators. Possible future
collaborations have risks, including the following:
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●
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our collaboration agreements are likely
to be for fixed terms and subject to termination by our collaborators in the event of a material breach or lack of scientific progress by us;
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|
●
|
our collaborators are likely to have
the first right to maintain or defend our intellectual property rights and, although we would likely seek to secure the right to assume the maintenance and defense of our intellectual property rights
if our collaborators do not, our ability to do so may be compromised by our collaborators' acts or omissions;
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●
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our collaborators may utilize our
intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability;
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●
|
our collaborators may underfund or not
commit sufficient resources to the testing, marketing, distribution or development of our product candidates; and
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|
●
|
our collaborators may develop
alternative products either on their own or in collaboration with others, or encounter conflicts of interest or changes in business strategy or other business issues, which could adversely affect
their willingness or ability to fulfill their obligations to us.
|
12
These arrangements also
may require us to grant certain rights to third parties, including exclusive marketing rights to one or more products, or may have other terms that are burdensome to us, and may involve the issuance
of our securities. If any of our partners terminates its relationship with us or fails to perform its obligations in a timely manner, the development or commercialization of our technology and
product candidates may be substantially delayed. Further, disputes may arise with our collaborators about inventorship and corresponding rights in know-how and inventions resulting from the joint
creation or use of intellectual property by us and our collaborators.
The commercial success of our products will depend on the degree of acceptance of
these products among health care payors and the medical community.
Successful sales of
health care services and products generally depends, in part, upon the availability and amounts of reimbursement from third party healthcare payor organizations, including government agencies,
private healthcare insurers and other healthcare payors, such as health maintenance organizations and self-insured employee plans. Uncertainty exists as to the availability of reimbursement for new
therapies such as stem cell-based therapies. There can be no assurance that such reimbursement will be available at all or without substantial delay or, if such reimbursement is provided,
that the approved reimbursement amounts will be sufficient to support demand for our services at a level that will be profitable.
Our products are highly regulated, and we will not be able to commercialize our
products if we cannot obtain the necessary regulatory approvals.
Our products are
subject to extensive regulation and/or acceptance by numerous governmental authorities in the United States, including the FDA, and other countries. Most of our products will require
governmental clearance before they can be commercialized, and may even require governmental approval before they can be commercialized. If we are unable to obtain regulatory clearances or
approvals for our products at all or in a timely manner, we will not be able to grow as quickly as expected, or at all, and the loss of anticipated revenues will reduce our ability to fully fund our
operations and to otherwise execute our business plan. Our failure to receive the regulatory clearances or approvals in the United States would likely cause us to cease operations and go out of
business.
As we develop
additional new products we will be required to determine what regulatory requirements, if any, we must comply with in order to market and sell our products in the United States and worldwide.
The process of obtaining regulatory clearance and approval could take years and be very costly, if clearance or approval can be obtained at all. If we fail to comply with these
requirements, we could be subjected to enforcement actions such as an injunction to stop us from marketing the product at issue or a possible seizure of our assets. We intend to work diligently
to assure compliance with all applicable regulations that impact our business. We can give no assurance, however, that we will be able to obtain regulatory clearance or approval for our
products. We also cannot assure that additional
regulations will not be enacted in the future that would be costly or difficult to satisfy. Our failure to receive regulatory approvals in the United States in a timely manner or comply
with newly enacted additional regulation could cause us to cease operations and go out of business.
The regulatory process,
which includes clinical validation of many of our products to establish their safety and effectiveness, can take many years and require the expenditure of substantial financial and other resources.
Data obtained from clinical validation activities are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in, or additions to, regulatory policies for device marketing authorization during the period of product development and regulatory review. Delays in
obtaining such clearances or approvals could adversely affect our marketing of products developed and our ability to generate commercial product revenues.
In addition, if we
desire to commercialize our products worldwide, we will be required to meet regulatory requirements in countries outside the United States, which can change rapidly with relatively short notice,
resulting in our products being banned in certain countries and an associated loss of revenues and income. Foreign regulatory agencies can also introduce test format changes which, if we
do not quickly address, can result in restrictions on sales of our products. Such changes are not uncommon due to advances in basic research.
13
Our insurance may not be adequate to cover all claims or losses.
We expect to have
insurance coverage against operating risks, including product liability claims and personal injury claims related to our products and services, to the extent deemed prudent by our management and to
the extent insurance is available, but no assurance can be given that the nature and amount of that insurance will be sufficient to fully indemnify us against liabilities arising out of pending and
future claims and litigation or available on terms acceptable to us. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. The insurance does not provide
complete protection against losses and risks, and our results of operations and financial condition could be materially and adversely affected by unexpected claims not covered by insurance.
We may not be able to obtain additional inventory of our essential MyoCath
Catheter.
Our current inventory
is limited and while the company endeavors to contract with a manufacturer for additional inventory there is no assurance that it will be successful in identifying or contracting with a manufacturer
on acceptable terms. Our inability to obtain additional MyoCath inventory would have a material adverse effect on our business, financial condition and ability to continue as a going concern.
As the Company is unable to obtain the consent of its prior auditor to include its
audit report in connection with our audited financial statements for the year ended December 31, 2009, investors are cautioned that any right of action against them, or recovery from
them with respect to this registration statement may be limited.
Our former independent
public accountants, discontinued their auditing practice. The audit report previously issued by them in connection with the filing of our annual report on Form 10-K for the year ended December 31,
2009 has not been reissued by them in connection with the filing of this registration statement. Accordingly, investors may not be able to bring an action against them pursuant to the
securities laws or otherwise with respect to this registration statement and, any recovery from them may be limited.
Risks
Related to Our Intellectual Property
We license substantially all of the intellectual property that is critical to our
business. Any events or circumstances that result in the termination or limitation of our rights to such intellectual property could have a material adverse effect on our business.
Substantially all of
the intellectual property that is critical to our business has been licensed to us by various third parties. The operative terms of some of our material license agreements are subject to risks of
dispute with our licensors. Additionally, it is possible that the patent protection for such intellectual property or the term of the license of such intellectual property to us may expire prior to
our commercialization of the products that rely on that intellectual property.
Under certain of our
patent license agreements, we are subject to development, payment, commercialization and other obligations and, if we fail to comply with any of these requirements or otherwise breach those
agreements, our licensors may have the right to terminate the license in whole or in part, terminate the exclusive nature of the license to the extent such license is exclusive or otherwise limit our
rights thereunder, which could have a material adverse effect on our business.
Any termination or
limitation of, or loss of exclusivity under, our exclusive or conditionally exclusive license agreements would have a material adverse effect on us and could delay or completely terminate our product
development efforts.
14
Risks
Related to Our Common Stock
An active, liquid and orderly trading market for our common stock may not develop
or continue.
Prior to our initial
public offering, there was no public market for our common stock. Our common stock commenced trading on the NASDAQ Global Market on February 19, 2008 and transferred to the NASDAQ Capital Market in
June 2008. On October 15, 2008, we received notification from The NASDAQ Stock Market indicating that we were not in compliance with certain of the NASDAQ Capital Market continued listing
requirements, including a minimum $35 million market value of our listed securities. We were permitted until November 14, 2008, to regain compliance with the minimum market value of listed
securities requirement. On November 17, 2008, we received a NASDAQ Staff Determination indicating that we had failed to regain compliance with the $35 million minimum market value of listed
securities requirement, and that our securities
were, therefore, subject to delisting from The NASDAQ Capital Market. We appealed the Staff Determination and requested a hearing before a NASDAQ Listing Qualifications Panel (the
“Panel”) to review the Staff Determination. This stayed the delisting of our securities pending the Panel’s decision.
On February 25, 2009,
we received notification from The NASDAQ Stock Market of its determination to discontinue our NASDAQ listing effective February 27, 2009. We filed for quotation of our common stock on the
Over-The-Counter Bulletin Board and that application was approved by FINRA on May 13, 2009. On February 23, 2011 we received notice of FINRA’s determination of our ineligibility for continued
quotation of our shares on the OTCBB due to quoting inactivity under SEC Rule 15c2-11. On March 9, 2011 we again filed for quotation of our common stock on the Over-The-Counter Bulletin Board and
that application was approved by FINRA on March 29, 2011.
We cannot offer any
assurance that an active trading market for our common stock will continue or how liquid that market may be. As a result, relatively small trades may have a disproportionate impact on the price of
our common stock, which may contribute to the price volatility of our common stock and could limit your ability to sell your shares.
The market price of our
common stock could also be subject to wide fluctuations in response to many risk factors described in this section and other matters, including:
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publications of clinical trial results
by clinical investigators or others about our products and competitors' products and/or our industry;
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changes by securities analysts in
financial estimates of our operating results and the operating results of our competitors;
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publications of research reports by
securities analysts about us, our competitors or our industry;
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fluctuations in the valuation of
companies perceived by investors to be comparable to us;
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actual or anticipated fluctuations in
our quarterly or annual operating results;
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retention and departures of key
personnel;
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our failure or the failure of our
competitors to meet analysts' projections or guidance that we or our competitors may give to the market;
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strategic decisions by us or our
competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
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the passage of legislation or other
regulatory developments affecting us or our industry;
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speculation in the press or investment
community; and
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natural disasters, terrorist acts, acts
of war or periods of widespread civil unrest.
|
Furthermore, the stock
markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, especially life sciences and
pharmaceutical companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as
general economic, political and market conditions, may negatively affect the market price of our common stock. As a result, the market price of our common stock is likely to be similarly volatile and
investors in our common stock may experience a decrease, which could be substantial, in the value of their stock. In the past, many companies that have experienced volatility in the market price of
their stock have been subject to
securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's
attention from other business concerns, which could have a material adverse effect on our business.
15
The market price of our common stock may limit its eligibility for clearing house
deposit.
We are advised that if
the market price for shares of our common stock is less than $0.10 per share, Depository Trust Company and other securities clearing firms may decline to accept our shares for deposit and refuse to
clear trades in our securities. This would materially and adversely affect the marketability and liquidity of our shares and, accordingly may materially and adversely affect the value of
an investment in our common stock.
Anti-takeover provisions of Florida law, our articles of incorporation and our
bylaws may prevent or delay an acquisition of us that shareholders may consider favorable or attempts to replace or remove our management that could be beneficial to our shareholders.
Our articles of
incorporation and bylaws contain provisions, such as the right of our directors to issue preferred stock from time to time with voting, economic and other rights superior to those of our common stock
without the consent of our shareholders, all of which could make it more difficult for a third party to acquire us without the consent of our board of directors. In addition, our bylaws impose
restrictions on the persons who may call special shareholder meetings. Furthermore, the Florida Business Corporation Act contains an “affiliated transaction” provision that prohibits a
publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an “interested shareholder” unless, among
others, (i) the transaction is approved by a
majority of disinterested directors before the person becomes an interested shareholder; (ii) the interested shareholder has owned at least 80% of the corporation's outstanding voting shares for at
least five years; or (iii) the transaction is approved by the holders of two-thirds of the corporation's voting shares other than those owned by the interested shareholder. An interested shareholder
is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation's outstanding voting shares. The Florida Business Corporation Act also prohibits
the voting of shares in a publicly-held Florida corporation that are acquired in a “control share acquisition” unless the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition or
unless the acquisition is approved
by the corporation's Board of Directors. These provisions may have the effect of delaying or preventing a change of control of our company even if this change of control would benefit our
shareholders.
We do not intend to pay cash dividends on our common stock in the foreseeable
future and, accordingly, capital appreciation of our common stock, if any, will be a shareholder's sole source of gain from an investment in our common stock.
Our policy is to retain
earnings to provide funds for the operation and expansion of our business and, accordingly, we have never declared or paid any cash dividends on our common stock or other securities and do not
currently anticipate paying any cash dividends in the foreseeable future. Consequently, shareholders will need to sell shares of our common stock to realize a return on their investments, if any and
this capital appreciation, if any, will be a shareholder's sole source of gain from an investment in the common stock. The declaration and payment of dividends by us are subject to the discretion of
our Board of Directors and the restrictions specified in our articles of incorporation and by applicable law. In addition, under the terms of the BlueCrest Loan, we are restricted from paying cash
dividends to our shareholders
while this loan is outstanding. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other
factors deemed relevant by our Board of Directors.
Our common stock may be considered a “penny stock,” and thereby be
subject to additional sale and trading regulations that may make it more difficult to sell.
Our common stock is
considered to be a “penny stock.” It does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act of
1934, as amended, or the Exchange Act. Our common stock is a “penny stock” because it meets one or more of the following conditions (i) the stock trades at a price less than $5.00 per
share; (ii) it is not traded on a “recognized” national exchange or (iii) it is not quoted on the NASDAQ Global Market, or has a price less than $5.00 per share. The principal result or
effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock are subject to the “penny stock” regulations set forth
in Rules 15-2 through 15g-9
promulgated under the Securities Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor's account. Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny
stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and
time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
16
Potential Dilution as a result of an increase to authorized common stock
Our Articles of
Incorporation authorize us to issue up to
195,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2011, there were 95,625,236 shares of our common
stock issued and outstanding and
42,042,413 shares of our common stock issuable in connection with the exercise of outstanding warrants, exercise of outstanding stock options, or conversion of our convertible debt. The shares of
common stock registered by this
registration statement represent
63% of the common stock issued and outstanding as of December 31, 2011 and 31% of the total number of shares common stock issued and issuable as of December 31, 2011.
The Selling
Stockholder may have substantial influence over our business and affairs.
As of December 31,
2011, the Selling Stockholder beneficially
owned less than 4.99% of our issued and outstanding shares of common stock. If we require the Selling Stockholder, pursuant to the SEDA, to purchase all of the shares subject to this Registration
Statement, the Selling Stockholder could
beneficially own approximately 30% of our issued and outstanding shares of common stock and will have substantial influence over the outcome of certain matters requiring shareholder approval,
including the power to, among other things:
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amend our articles of incorporation;
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elect and remove our directors and control the
appointment of our senior management; and
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prevent our ability to be acquired and complete other
significant corporate transactions.
|
Recourse against and recovery from our prior auditor may be limited.
The auditor who
prepared our consolidated financial statements at December 31, 2009 and 2008, has ceased operations and has not reissued its report in this registration statement. Accordingly,
investors are cautioned that any recourse or recovery they may have against or from such auditor arising out of our consolidated financial statements at December 31, 2009 and 2008 may be limited
(though any such limitation shall not have any affect upon our liability for such financial statements).
17
This prospectus
includes “forward-looking” statements regarding our business development plans, clinical trials, regulatory reviews, timing, strategies, expectations, anticipated expenses levels,
projected profits, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, technology spending and various other matters (including contingent
liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions, as well as
historical information. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry
results, to be materially different from anticipated
results, performance or achievements expressed or implied by such forward-looking statements. When used in this prospectus, statements that are not statements of current or historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the words “plan,” “intend,” “may,” “will,” “expect,”
“believe,” “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are
intended to identify such forward-looking statements. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those
assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve
risks and uncertainties that are difficult to
predict. Our future operating results are dependent upon many factors, and our further development is highly dependent on market acceptance, which is outside its control. Forward-looking
statements may not be realized due to a variety of factors, including, without limitation, (i) our ability to manage the business despite continuing operating losses and cash outflows; (ii) our
ability to obtain sufficient capital or a strategic business arrangement to fund its operations and expansion plans, including meeting its financial obligations under various licensing and other
strategic arrangements and the successful commercialization of the relevant technology; (iii) our ability to build the management and human resources and infrastructure necessary to support the
growth of the business; (iv) competitive factors and developments beyond our control; (v) scientific and medical developments beyond our control; (vi) limitations caused by government regulation of
the business; (vii) whether any of our
current or future patent applications result in issued patents and our ability to obtain and maintain other rights to technology required or desirable for the conduct of our business; (viii) whether
any potential strategic benefits of various licensing transactions will be realized and whether any potential benefits from the acquisition of these new licensed technologies will be realized; (ix)
our ability to maintain our eligibility for quotation on the Over-The-Counter Bulletin Board; and (x) the other factors discussed in “Risk Factors” and elsewhere in this prospectus.
All forward-looking
statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect
events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise, except to the extent required by federal securities laws.
USE
OF PROCEEDS
We will not receive
any of the proceeds resulting from the sale of the shares held by the Selling Stockholder.
SELLING STOCKHOLDER
The table below sets
forth information concerning the sale of the Resale Shares by the Selling Stockholder. We will not receive any proceeds from the sale of the Resale Shares by the Selling Stockholder.
The following table
also sets forth the name of each person who is offering the sale of Resale Shares by this prospectus, the number of shares of Common Stock beneficially owned by each such person, the number of Resale
Shares that may be sold in this offering and the number of shares of Common Stock each such person will own after this offering, assuming they sell all of the Resale Shares offered. Neither the
Selling Stockholder nor any of its affiliates have held any position or office or had any other material relationship other than the SEDA with us or any of our predecessors or affiliates
within the past three years.
18
|
Shares of Common Stock Owned
Prior to the Offering (1)
|
Percentage
of
Ownership
Before the Offering (1)
|
Number of Shares
Being
Offered
|
Shares of Common Stock Owned
After the Offering(2), (3)
|
Percentage of Ownership
After the Offering(2), (3), (4)
|
||||||||||||||||
|
Greystone Capital
Partners. (4)
|
5,011,020(4)
|
4.99%
|
40,000,000(5)
|
(6)
|
45,011,020
|
32%
|
||||||||||||||
(1) Applicable
percentage ownership is based on 95,625,236 shares of Common
Stock of the Company outstanding as of December 31, 2011 and on Common Stock owned by the Selling Stockholder including securities owned by the Selling Stockholder that are exercisable for or
convertible into shares of Common Stock within 60 days of
December 31, 2011. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock underlying securities that
are currently exercisable or convertible or exercisable or convertible within 60 days of December 31, 2011 are deemed to be beneficially owned by the person holding such securities for the purpose of
computing the percentage of ownership of such person,
but are not
treated as outstanding for the purpose of computing the percentage of ownership of any other person.
(2) Assumes all shares
offered hereby are sold.
(3) The number of shares
to be outstanding after this offering excludes
the following:
32,610,075 shares of
common stock issuable upon the exercise of outstanding
warrants.
4,636,318 shares of
common stock issuable upon the exercise of
outstanding stock options
(4) Includes approximately 4,796,020
shares of common stock issuable upon the conversion of our
convertible debt. Assumes conversion price of $0.045 and subject to express limitations on conversion.
(5) GCP is the
investor under the SEDA. GCP has informed us that it is
an “underwriter” within the meaning of the Securities Act, and to the best of our knowledge no other underwriter or person has been engaged to facilitate the sale of shares of our Common
Stock in this offering.
(6) 40,000,000 of the shares being registered are issuable
upon our sale of Common Stock to GCP pursuant to the SEDA and does not include any of the 215,000 owned by GCP.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel
named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in
connection with the registration or offering of the common stock was employed for such purpose on a contingency basis, or had, or is to receive, in connection with this offering, a substantial
interest, direct or indirect, in us or any of our parents or subsidiaries, nor was any such person connected with us or any of our parents or subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer, or employee.
19
CAPITALIZATION
The following table
summarizes our capitalization, (a) on an actual
basis as of December 31, 2011, and (b) on a pro forma as adjusted basis to reflect the proceeds we will receive from the sale of 40,000,000 shares common stock to the Selling Stockholder and
registered hereby at an assumed per share
sale price of $0.045 per share, after deducting the estimated offering expenses we will pay.
|
Shareholder name
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# of shares
|
%
Ownership
|
|
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Howard Leonhardt *
|
7,877,903
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8.2%
|
|
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Sam Ahn
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6,090,162
|
|
6.4%
|
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Mike Tomas
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44,738
|
|
0.0%
|
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Catherine Sulawske-Guck*
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39,285
|
0.0%
|
|
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Bruce Carson
|
208,501
|
0.2%
|
|
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William P. Murphy*
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8,130,734
|
8.5%
|
|
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Richard T. Spencer, III
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18,535
|
0.0%
|
|
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Charles A. Hart
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3,583,050
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3.7%
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|
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Mark P. Borman
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23,450
|
0.0%
|
|
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Others
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69,618,433
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72.8%
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|
|
* Includes shares
held individually and jointly held
|
|||
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Total Shares Outstanding
|
95,625,236
|
100.0%
|
|
|
Notes:
|
|||
|
Outstanding stock
options; weighted average
|
4,636,318
|
||
|
exercise price of $1.20 per share
|
|||
|
Outstanding
warrants; weighted average
|
32,610,075
|
||
|
exercise price of $0.86 per share
on the conversion of our convertible debt. Assumes conversion price of $0.045 subject to express limitations on conversion. |
4,796,020 | ||
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Total Potential Shares Outstanding
|
139,361,229
|
20
AND RELATED STOCKHOLDER MATTERS
Common Stock
Our common stock, par
value $0.001 per share, commenced trading on February 19, 2008, on the NASDAQ Global Market under the symbol “BHRT”. Effective June 11, 2008, we transferred the listing of our common
stock to the NASDAQ Capital Market and then, during the course of 2009 our stock was delisted from NASDAQ and commenced quotation on the Over the Counter Bulletin Board. The following table sets
forth the range of high and low sales prices as reported for the periods indicated.
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Sales
Price
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Period
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High
|
Low
|
|
|
quarter ended December
31, 2011
|
$0.07
|
$0.04
|
|
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quarter ended
September 30, 2011
|
$0.25
|
$0.07
|
|
|
quarter ended June
30, 2011
|
$0.26
|
$0.07
|
|
|
quarter ended March
31, 2011
|
$0.38
|
$0.19
|
|
|
quarter ended
December 31, 2010
|
$0.51
|
$0.20
|
|
|
quarter ended
September 30, 2010
|
$0.43
|
$0.10
|
|
|
quarter ended June
30, 2010
|
$0.94
|
$0.35
|
|
|
quarter ended March
31, 2010
|
$0.84
|
$0.51
|
|
|
quarter ended
December 31, 2009
|
$1.85
|
$0.70
|
|
|
quarter ended
September 30, 2009
|
$2.50
|
$0.30
|
|
|
quarter ended June
30, 2009
|
$0.90
|
$0.51
|
|
|
quarter ended March
31, 2009
|
$1.30
|
$0.30
|
|
On February 23, 2011 we
received notice of FINRA’s determination of our ineligibility for continued quotation of our shares on the OTCBB due to quoting inactivity under SEC Rule 15c2-11. On March 9, 2011 we again
filed for quotation of our common stock on the Over-The-Counter Bulletin Board and that application was approved by FINRA on March 29, 2011.
Holders
As of December 31, 2011
there were approximately 430 shareholders of record of our common stock and approximately 1,500 beneficial owners of our common stock.
Dividends
We have never declared
or paid any cash dividends on our common stock or other securities and do not currently anticipate paying any cash dividends in the foreseeable future. The declaration and payment of dividends by us
are subject to the discretion of our Board of Directors and the restrictions specified in our articles of incorporation and by applicable law. In addition, under the terms of the BlueCrest Loan, we
are restricted from paying cash dividends to our shareholders while this loan is outstanding. Any future determination to pay cash dividends will depend on our results of operations, financial
condition, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.
Transfer Agent
The transfer agent for
the Registrant’s Common Stock is Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004.
21
DILUTION
Purchasers of our common stock in this offering will
be diluted to the extent of the difference between the public offering price per share and the net tangible book value per share of our common stock immediately after this offering. Net tangible book
value dilution per share represents the difference
between the amount per share paid by purchasers of common stock in this offering and the pro forma, adjusted net tangible book value per share of common stock immediately after completion of this
offering.
Historical net tangible book value per share is
determined by dividing our total tangible assets less total liabilities by the actual number of shares of common stock outstanding. Before giving effect to this offering, our pro forma net tangible
book value as of September 30, 2011 was
approximately ($12,993,766), or ($0.18) per share of common stock, based on 70,464,202 shares of common stock outstanding. Pro forma net tangible book value per share is determined by dividing our
total tangible assets less total liabilities
by the pro forma number of shares of common stock outstanding at September 30, 2011 before giving effect to this offering.
After
giving effect to our sale of 40,000,000 shares
in this offering, at an assumed initial public offering price of $0.045 per unit less estimated offering expenses payable by us in the approximate aggregate amount of $300,000, our pro forma as
adjusted net tangible book value as of
September 30, 2011 would have been ($11,493,766) or ($0.10) per share. This represents an immediate increase in pro forma net tangible book value of $0.08 per share, or 55%, to existing stockholders
and an immediate
dilution of $0.145 per share, or 322%, to new investors. Dilution per share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the net tangible book value per share of our common stock immediately afterwards, after giving effect to the sale of 40,000,000 shares in this
offering at an assumed public offering price
of $0.045 per share and after deducting placement agent fees and estimated offering expenses payable by us.
The
following table illustrates this dilution, assuming
no value is attributed to the warrants issued as part of the units, on a per share basis:
|
Assumed public offering
per share
|
$ | 0.045 | ||||||
|
Net tangible book value
(deficit) per share before offering:
|
$ | (0.18 | ) | |||||
|
Impact on net tangible book value
per share of this offering:
|
$ | 0.08 | ||||||
|
Pro forma net tangible
book value per share after this offering
|
$ | (0.10 | ) | |||||
|
Dilution in net tangible
book value per share to new investors
|
$ | 0.145 | ||||||
Investors in this offering will be subject to
increased dilution upon the conversion of our convertible debt and upon the exercise of outstanding stock options and warrants. As of September 30, 2011 our convertible debt outstanding could be
converted into approximately 4,796,020 shares
(Assumes conversion price of $0.045 subject to express limitations on conversion.) of our common stock, and stock options and warrants outstanding that are exercisable represented, in the aggregate,
approximately an additional 18,819,386.
22
SELECTED FINANCIAL DATA
The following tables
summarize selected consolidated financial data regarding the business of the Company and should be read together with “Management Discussion
and Analysis of Financial Condition and Results of Operations” and the financial statements of the Company and the related notes included with those financial statements. The
summary financial information as of December 31, 2010 and 2009 and for the years ended December 31, 2010 and 2009 have been derived from our consolidated financial statements and notes thereto
audited by RBSM, LLP, our independent registered public accounting firm. The data for the nine months ended September 30, 2011 and 2010, is unaudited. All monetary amounts are expressed in
U.S. dollars unless otherwise
indicated.
|
December 31,
2010
|
December 31,
2009
|
|||||||
|
Assets
|
||||||||
|
Cash
|
$
|
3,298
|
$
|
75,031
|
||||
|
Short term investments
|
---
|
---
|
||||||
|
Other
current assets
|
189,205
|
367,922
|
||||||
|
Property, plant and
equipment-net
|
47,439
|
104,397
|
||||||
|
Other assets
|
68,854
|
68,854
|
||||||
|
Total assets
|
$
|
308,796
|
$
|
616,204
|
||||
|
Liabilities
|
||||||||
|
Accounts payable and
accrued expenses
|
$
|
5,631,606
|
$
|
5,442,139
|
||||
|
Notes payable, current
|
5,990,098
|
8,095,148
|
||||||
|
Deposits
|
465,286
|
507,281
|
||||||
|
Advances, related parties
|
238,000
|
---
|
||||||
|
Total liabilities
|
12,324,990
|
14,044,568
|
||||||
|
Preferred stock, $0.001
par value
|
---
|
---
|
||||||
|
Common stock, $0.001 par
value
|
37,545
|
20,036
|
||||||
|
Additional paid in capital
|
94,270,481
|
87,716,364
|
||||||
|
Deficit accumulated during
development stage
|
(106,324,220)
|
(101,164,764)
|
||||||
|
Total liabilities and
stockholders’ equity (deficit)
|
$
|
308,796
|
$
|
616,204
|
||||
23
|
Year ended
December 31,
2010
|
Year ended
December 31,
2009
|
|||||||
|
Revenue
|
$ |
46,383
|
$ |
359,800
|
||||
|
Cost of sales
|
19,765
|
205,014
|
||||||
|
Gross profit
|
26,618
|
154,786
|
||||||
|
Operating expenses:
|
|
|
||||||
|
Research and development
|
1,467,078
|
(508,811)
|
||||||
|
Marketing, general and
administrative
|
|
1,768,612
|
|
2,259,521
|
||||
|
Depreciation
|
56,958
|
177,398
|
||||||
|
Research and development
|
1,467,078
|
(508,811)
|
||||||
|
Non-operating income
(loss)
|
(1,893,426)
|
(2,662,434)
|
||||||
|
Net loss attributable to
common shareholders
|
$
|
(5,159,456)
|
$
|
(4,435,756)
|
||||
|
Weighted average common
shares outstanding
|
27,167,539
|
17,647,210
|
||||||
|
Loss per share-basic and
diluted
|
$
|
(0.19)
|
$
|
(0.25
|
)
|
|||
|
Nine Months ended
September 30,
2011
|
Nine Months ended
September 30,
2010
|
|||||||
|
Cash
|
$
|
2,787
|
$
|
145,296
|
||||
|
Short term investments
|
---
|
---
|
||||||
|
Other
current assets
|
163,131
|
277,989
|
||||||
|
Property, plant and
equipment-net
|
20,749
|
56,443
|
||||||
|
Other assets
|
158,059
|
1,211,367
|
||||||
|
Total assets
|
$
|
344,726
|
$
|
1,691,095
|
||||
|
Accounts payable and
accrued expenses
|
$
|
6,412,643
|
6,124,011
|
|||||
|
Notes payable, current
|
5,304,563
|
6,731,841
|
||||||
|
Deposits
|
465,286
|
507,281
|
||||||
|
Advances, related parties
|
456,000
|
---
|
||||||
|
Total liabilities
|
12,638,492
|
13,363,133
|
||||||
|
Preferred stock, $0.001
par value
|
---
|
---
|
||||||
|
Common stock, $0.001 par
value
|
70,464
|
24,418
|
||||||
|
Additional paid in capital
|
97,681,880
|
93,069,304
|
||||||
|
Deficit accumulated during
development stage
|
(110,046,110)
|
(104,765,760)
|
||||||
|
Total liabilities and
stockholders’ equity (deficit)
|
$
|
344,726
|
$
|
1,691,095
|
||||
24
|
Nine Months ended
September 30,
2011
|
Nine Months ended
September 30,
2010
|
|||||||
|
|
|
|
|
restated
|
||||
|
Revenue
|
$
|
6,990
|
$
|
42,888
|
||||
|
Cost of sales
|
|
278
|
|
19,626
|
||||
|
Gross profit
|
|
6,712
|
|
23,262
|
||||
|
Operating expenses:
|
|
|
|
|
||||
|
Research and development
|
|
370,305
|
|
1,267,420
|
||||
|
Marketing, general and
administrative
|
$
|
1,632,733
|
$
|
1,244,951
|
||||
|
Depreciation
|
26,690
|
47,955
|
||||||
|
Research and development
|
370,305
|
1,267,420
|
||||||
|
Non-operating income
(loss)
|
(1,698,874)
|
(1,063,932)
|
||||||
|
Net loss attributable to
common shareholders
|
$
|
(3,721,890)
|
$
|
(3,600,996)
|
||||
|
Weighted average common
shares outstanding
|
48,116,686
|
25,506,081
|
||||||
|
Loss per share-basic and
diluted
|
$
|
(0.08)
|
$
|
(0.14)
|
||||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding our business development plans, clinical trials,
regulatory reviews, timing, strategies, expectations, anticipated expenses levels, projected profits, business prospects and positioning with respect to market, demographic and pricing trends,
business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our
current intentions, beliefs, expectations, strategies or predictions. These forward-looking statements are based on a number of assumptions and currently available information and are
subject to a number of risks and
uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Cautionary
Note Regarding Forward-Looking Statements” and under “Risk Factors” and elsewhere in this prospectus. The following discussion should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this prospectus.
Overview
We are committed to the
discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies, devices and biologics for the treatment of chronic and acute heart damage and peripheral
vascular disease. Our goals are to cause damaged tissue to be regenerated, if possible, and to improve a patient's quality of life and reduce health care costs and hospitalizations.
Biotechnology Product Candidates
Specific to
biotechnology, we are focused on the discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies for the treatment of chronic and acute heart damage and
peripheral vascular disease. MyoCell is a clinical muscle-derived cell therapy designed to populate regions of scar tissue within a patient's heart with new living cells for the purpose of improving
cardiac function in chronic heart failure patients. Our most recent clinical trials of MyoCell include the SEISMIC Trial, a completed 40-patient, randomized, multicenter, controlled, Phase II-a study
conducted in Europe and the MYOHEART Trial, a completed 20-patient, multicenter, Phase I dose-escalation trial conducted in the United States. We were approved by the U.S. Food and Drug
Administration, or the “FDA”, to
proceed with a 330-patient, multicenter Phase II/III trial of MyoCell in North America and Europe, or the “MARVEL Trial”. We completed the MyoCell implantation procedure on the
first patient in the Marvel Trial on October 24, 2007. Thus far, 20 patients, including 6 control patients, have been treated. Initial results for the 20 patients were released at the
Heart Failure Society of American meeting in October, 2009, showing a dramatic (35%) improvement in the 6 minute walk for those patients who were treated, and no improvement for those who received a
placebo. We are planning, on the basis of these results, to ask the FDA to consider the MARVELl Trial a pivotal trial (pivotal from Phase II to Phase III) and to reduce the number of
patients in the trial to 150. The SEISMIC, MYOHEART and MARVEL Trials have been designed to test the safety and efficacy of MyoCell in treating patients with severe, chronic damage to the heart. Upon
regulatory approval of MyoCell, we
intend to generate revenue in the United States from the sale of MyoCell cell-culturing services for treatment of patients by qualified physicians. Abroad, we are identifying centers where
it is acceptable to use the Myocell treatment so that patients with this problem can have access to treatment.
25
We received approval
from the FDA in July of 2009 to conduct a Phase I safety study on 15 patients of a combined therapy (Myocell with SDF-1), the first approval of a study combining gene and cell
therapies. Work commenced on this study, called the REGEN Trial, during the first quarter of 2010. The Company suspended activity on the trial in 2010 while seeking additional funding
necessary to conduct the trial. Work on the trial was reinitiated in 2011. Based on the results of the trial, we intend to either incorporate the combined treatment into the MARVEL Trial, or continue
with the MARVEL Trial based on the use of Myocell alone.
In our pipeline, we
have multiple product candidates for the treatment of heart damage, including an autologous, adipose cell treatment for acute heart damage, chronic heart ischemia and critical limb
ischemia. We hope to demonstrate that our various product candidates are safe and effective complements to existing therapies for chronic and acute heart damage.
We conduct operations
in one business segment. We may organize our business into more discrete business units when and if we generate significant revenue from the sale of our product candidates. Our revenue since
inception has been generated inside and outside the United States, and the majority of our long-lived assets are located in the United States.
Revenues
We have not generated
any material revenues from our MyoCell product candidate. The revenues we have recognized to date are related to (i) sales of MyoCath to ACS and other parties, (ii) fees associated with our
assignment to ACS of our rights relating to the primary patent covering MyoCath, or the Primary MyoCath Patent, (iii) revenues generated from paid registry trials, (iv) revenues from the sale of the
TGI system (v) revenues generated for providing cell culturing services under exclusive supply agreements.
We did not in 2010,
have not in 2011, and before 2012 do not expect to, generate significant revenue. Our revenue may vary substantially from quarter to quarter and from year to year. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be relied upon as indicative of our future performance.
Cost of Sales
Cost of sales consists
of the costs associated with the production of MyoCath, the purchase of heart monitoring system components, and the purchase of TGI system components.
Research and Development
Our research and
development expenses consist of costs incurred in identifying, developing and testing our product candidates. These expenses consist primarily of costs related to our clinical trials, the acquisition
of intellectual property licenses and preclinical studies. We expense research and development costs as incurred.
Clinical trial expenses
include costs related to the culture and preparation of cells in connection with our clinical trials, costs of contract research, costs of clinical trial facilities, costs of delivery systems,
salaries and related expenses for clinical personnel and insurance costs. Preclinical study expenses include costs of contract research, salaries and related expenses for personnel, costs of
development biopsies, costs of delivery systems and costs of lab supplies.
We are focused on the
development of a number of autologous cell-based therapies, and related devices, for the treatment of heart damage. Accordingly, many of our costs are not attributable to a specifically identified
product candidate. We use our employee and infrastructure resources across several projects, and we do not account for internal research and development costs on a product candidate by product
candidate basis. From inception through December 31, 2010, we incurred aggregate research and development costs of approximately $63.8 million related to our product candidates. We estimate that at
least $12.6 million and $32.8 million of these expenses relate to our preclinical and clinical development of MyoCell, respectively, and at least $1.8 million and $3.4 million of these expenses
relate to our preclinical and clinical
development of MyoCath, respectively.
26
During the third quarter
2009, the Company received notification that approximately $630,000 in pending projects (Indiana University, University of Florida, Northwestern University, and other sites) were completed, however,
the invoicing had not been received as of September 30, 2009. As of December 31, 2010 of the $630,000 the Company still has an accrual of $510,000 for the completed contracts.
Clinical trials and
preclinical studies are time-consuming and expensive. Our expenditures on current and future preclinical and clinical development programs are subject to many uncertainties. We generally test our
products in several preclinical studies and then conduct clinical trials for those product candidates that we determine to be the most promising. As we obtain results from clinical trials, we may
elect to discontinue or delay trials for some product candidates in order to focus our resources on more promising product candidates. Completion of clinical trials may take several years or more,
but the length of time generally varies substantially according to the type, size of trial and intended use of the product candidate.
Due to the risks
inherent in the clinical trial process, development completion dates and costs vary significantly for each product candidate, are difficult to estimate and are likely to change as clinical trials
progress.
The cost of clinical
trials may vary significantly over the life of a project as a result of a variety of factors, including the number of patients who participate in the clinical trials, the number of sites included in
the clinical trials, the length of time required to enroll trial participants, the efficacy and safety profile of our product candidates and the costs and timing of and our ability to secure
regulatory approvals.
Marketing, General and Administrative
Our marketing, general
and administrative expenses primarily consist of the costs associated with our general management and clinical marketing and trade programs, including, but not limited to, salaries and related
expenses for executive, administrative and marketing personnel, rent, insurance, legal and accounting fees, consulting fees, travel and entertainment expenses, conference costs and other clinical
marketing and trade program expenses.
Stock-Based Compensation
Stock-based
compensation reflects our recognition as an expense of the value of stock options and other equity instruments issued to our employees and non-employees over the vesting period of the options and
other equity instruments. We have granted to our employees options to purchase shares of common stock at exercise prices equal to the fair market value of the underlying shares of common stock at the
time of each grant, as determined by our Board of Directors, with input from management.
In valuing our common
stock, our Board of Directors considered a number of factors, including, but not limited to:
|
●
|
our financial position and historical
financial performance;
|
|
●
|
the illiquidity of our capital stock as
a private company prior to our IPO;
|
|
●
|
arm's length sales of our common stock;
|
|
●
|
the development status of our product
candidates;
|
|
●
|
the business risks we face;
|
|
●
|
vesting restrictions imposed upon the
equity awards;
|
|
●
|
an evaluation and benchmark of our
competitors; and
|
|
●
|
the prospects of a liquidity event,
such as our initial public offering in February 2008.
|
27
During 2010 and 2009,
we recognized stock-based compensation expense of $248,457 and $296,838, respectively. We intend to grant stock options and other stock-based compensation in the future and we may
therefore recognize additional stock-based compensation in connection with these future grants.
On January 1, 2006, we
adopted the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS No. 123R”) using the
modified prospective transition method. SFAS No. 123R requires us to measure all share-based payment awards granted after January 1, 2006, including those with employees, at fair value. Under SFAS
No. 123R, the fair value of stock options and other share-based compensation must be recognized as expense in the statements of operations over the requisite service period of each award.
The fair value of
share-based awards granted subsequent to January 1, 2006 is determined using the Black-Scholes valuation model and compensation expense is recognized on a straight-line basis over the vesting period
of the awards. Beginning January 1, 2006, we also began recognizing compensation expense under SFAS No. 123R for the unvested portions of outstanding share-based awards previously granted under our
stock option plans, over the periods these awards continue to vest. Our future share-based compensation expense will depend on the number of equity instruments granted and the estimated value of the
underlying common stock at the date of grant.
We account for certain
share-based awards, including warrants, with non-employees in accordance with SFAS No. 123R and related guidance, including EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. We estimate the fair value of such awards
using the Black-Scholes valuation model at each reporting period and expense the fair value over the vesting period of the share-based award, which is generally the period in which services are
provided.
Interest Expense
On June 1, 2007, we
entered into the BlueCrest Loan and the Bank of America Loan, both in the principal amount of $5.0 million, with current interest rates of 12.85% and 4.75%, respectively. Interest expense in 2010 and
2009 primarily consists of interest incurred on the principal amount of the BlueCrest Loan and the Bank of America Loan, accrued fees and interest payable to the Guarantors, the amortization of
related deferred loan costs and the amortization of the fair value of warrants issued in connection with the loans. The deferred loan costs and fair value of warrants issued in connection with the
loans are being amortized to interest expense over the terms of the respective loans using the effective interest method.
Financial Condition and Results of Operations
We are a development
stage company and our MyoCell product candidate has not received regulatory approval or generated any material revenues and is not expected to until 2012 if ever. We have generated substantial net
losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative cash flows from operations for the foreseeable future as we continue
clinical trials, undertake new clinical trials, apply for regulatory approvals, make capital expenditures, add information systems and personnel, make payments pursuant to our license agreements upon
our achievement of certain milestones, continue development of additional product candidates using our technology, establish sales and marketing capabilities and incur the additional cost of
operating as a public company.
Comparison of Years Ended December 31, 2010 and December 31, 2009
Revenues
We recognized revenues
of $46,383 in 2010 compared to revenues of $359,800 in 2009. Our revenue in 2010 and in 2009 was generated from the sale of MyoCath catheters, sales of the TGI system and TGI supplies, and Cardio
Devices. Decrease in revenues during 2010 was attributable to a decrease in our MyoCath catheters sales of $190,500 and a decrease in TGI systems sales of $129,600.
28
Cost of Sales
Cost of sales was
$19,765 in 2010 compared to $205,014 in 2009. The manufacturing cost per catheter sold in the twelve month period ended December 31, 2010 and 2009 were approximately the same. The decrease in cost of
sales is due primarily to the decrease in sales in 2010.
Research and Development
Research and
development expenses were $1.5 million in 2010, an increase of $2.0 million from research and development expenses of ($0.5) million in 2009. The increase was primarily attributable to a reduction in
the amount of funds allocated to our Marvel Trial, funds allocated to Sponsored Research, and funds allocated to Advanced R&D, offset by an increase in stock-based compensation expense, related
to the REGEN Trial in Jordan and gain on litigation settlement of $3.0 million in year 2009.
The timing and amount
of our planned research and development expenditures is dependent on our ability to obtain additional financing. See “- Existing
Capital Resources and Future Capital Requirements” and Item 1A. “Risk Factors - We will need to secure additional
financing …”
Marketing, General and Administrative
Marketing, general and
administrative expenses were $1.8 million in 2010, a decrease of $0.49 million from marketing, general and administrative expenses of $2.2 million in 2009. The decrease in marketing, general and
administrative expenses is attributable, in part, to a decrease in legal fees, rent, and sales & marketing expenses.
Interest Income
Interest income
consists of interest earned on our cash and cash equivalents. Interest income was $2 in 2010 compared to interest income of $21 in 2009. The decrease in interest income was primarily attributable to
lower cash balances and lower interest rates earned in 2010 compared to 2009.
Interest Expense
On June 1, 2007, we
entered into the BlueCrest Loan and the Bank of America Loan, both in the principal amount of $5.0 million, with interest rates of 12.85% and 4.75% (prime plus 1.5%), respectively, at December 31,
2008. On August 20, 2008, we borrowed $1.0 million from a third party at an interest rate of 13.5% per annum. Interest expense primarily consists of interest incurred on the principal
amount of these loans, accrued fees and interest earned by the guarantors of the Bank of America Loan, the amortization of related deferred loan costs and the amortization of the fair value of
warrants issued in connection with the BlueCrest and Bank of America Loans. The fair value of the warrants originally issued in connection with the Bank of America Loan was amortized by the end of
January 2008.
Interest expense was
$2.1 million in 2010 compared to interest expense of $2.6 million in 2009. Interest incurred on the principal amount of our outstanding loans and interest and fees earned by the guarantors totaled
approximately $900,000 in 2010 and $1.2 million in 2009. Amortization of deferred loan costs and amortization of the fair value of warrants issued in connection with the BlueCrest and Bank of America
Loans totaled approximately $0.96 million in 2010 compared to $0.97 million in 2009.
Comparison of Nine Months Ended September 30, 2011 and September 30, 2010
Revenues
We recognized revenues
of $6,990 in the nine month period ended September 30, 2011 compared to revenues of $42,888 in the nine month period ended September 30, 2010. The revenue in the nine month period ended September 30,
2011 was generated mainly from the sale of MyoCath catheters.
Cost of Sales
Cost of sales was $278
in the nine month period ended September 30, 2011 compared to $19,626 in the nine month period ended September 30, 2011.
29
Research and Development
Research and
development expenses were $370,305 in the nine month period ended in September 30, 2011, a decrease of $897,115 from research and development expenses of $1,267,420 in 2010. The decrease was
primarily attributable to a reduction in the amount of funds allocated to our clinical trials.
The timing and amount
of our planned research and development expenditures is dependent on our ability to obtain additional financing. See “- Existing Capital
Resources and Future Capital Requirements” and Item 1A. “Risk Factors - We will need to secure additional financing …
” as filed with our Form 10-K with the Securities and Exchange Commission on May 10, 2011
Marketing, General and Administrative
Marketing, general and
administrative expenses were $1,632,733 in the nine month period ended September 30, 2011, an increase of $387,782 from marketing, general and administrative expenses of $1,244,951 in 2010. The
increase in marketing, general and administrative expenses is attributable, in part, to equity based compensation of $397,084 for the nine months ended September 30, 2011 as compared to $141,894 for
the same period last year.
Gain on change in fair value of derivative liability
During the nine months
ended September 30, 2011, we had outstanding unsecured convertible notes which created a possibility of exceeding our common shares authorized when considering the number of possible shares that may
be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. With the increase in our authorized number
common shares in September, we eliminated this liability reducing it to Nil. During the nine months ended September 30, 2011, we recorded a loss on change in the fair value of the
derivative liability of $25,026.
Interest Expense
Interest expense was
$1,679,525 in the nine month period ended September 30, 2011 compared to interest expense of $1,063,934 in 2010, an increase of $615,591. During the nine months ended September 30, 2011,
we incurred a non cash interest expense of $995,779 from the write off and amortization of debt discounts associated with our issued convertible notes as compared to $274,969 for the same period last
year.
Liquidity and Capital Resources
In 2010, we continued
to finance our considerable operational cash needs with cash generated from financing activities.
Operating Activities
Net cash used in
operating activities was $1.9 million in 2010 as compared to $2.0 million of cash used in 2009 and was $1,229,795 for the nine month period ended September 30, 2011 as compared to $1,109,386 for the
comparable prior year period. Our use of cash for operations in 2010 reflected a net loss generated during the period of $5.2 million, adjusted for non-cash items such as stock-based
compensation of $248,457, amortization of the fair value of warrants granted in connection with the BlueCrest Loan and Bank of America Loan of $975,969, amortization of loan costs incurred in
connection with the BlueCrest Loan and Bank of America Loan of $72,262 and equity instruments issued in connection with an R&D agreement of $360,032, common stock issued in connection
with accounts payable of $412,660, common
stock issued to the guarantors of the Bank of America Loan of $69,159, and depreciation expense of $56,958, an increase in prepaid and other current assets of $8,592, an
increase in accounts payable of $133,038, a decrease in inventory of $46,297, a decrease in receivables of $141,013, an increase in accrued expenses and deferred rent of $799,952, and a
decrease in deferred revenues of $41,995, contributed to our use of operating cash in 2010.
Our use of cash for
operations in the nine months ended September 30, 2011 reflected a net loss generated during the period of approximately $3.7 million, adjusted for non-cash items such as stock-based compensation of
$343,884, amortization of the fair value of warrants granted in connection with the Note payable of $226,586, amortization of debt discounts incurred in connection with the BlueCrest Loan and Bank of
America and other Loans of $769,194, non cash interest paid of $158,441 and depreciation of $26,690. Partially offsetting these uses of cash was a decrease in prepaid expenses of $60,750, an increase
in accrued expenses of $470,774 and accounts payable of $268,038.
30
Investing Activities
Net cash used in
investing activities was $0 in 2010 as compared to $688 in 2009 and $0 in the nine month period ended September 30, 2011 as compared to $0 in 2010.
Financing Activities
Net cash provided by
financing activities was $1.8 million in 2010 as compared to $2.1 million in 2009 and $1,229,284 in the nine month period ended September 30, 2011 as compared to $1,179,651 in 2010.
In 2010 we sold, in a
private placement, shares of common stock and warrants for aggregate net cash proceeds of approximately $2.4 million. In the nine month period ended September 30, 2011 we sold, in a private
placement, shares of common stock for aggregate net cash proceeds of $1,067,000.
Existing Capital Resources and Future Capital Requirements
Our MyoCell product
candidate has not received regulatory approval or generated any material revenues. We do not expect to generate any material revenues or cash from sales of our MyoCell product candidate until
commercialization of MyoCell, if ever. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative
cash flows from operations for the foreseeable future. Historically, we have relied on proceeds from the sale of our common stock and our incurrence of debt to provide the funds necessary to conduct
our research and development activities and to meet our other cash needs.
At December 31, 2010 we
had cash and cash equivalents totaling $3,298 however, our working capital deficit as of such date was $11.1 million. Our independent registered public accounting firm has issued its report dated May
6, 2011 in connection with the audit of our financial statements as of December 31, 2010 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt
about our ability to continue as a going concern. At September 30, 2011 we had cash and cash equivalents totaling $2,787 however, our working capital deficit as of such date was
approximately $12.47 million.
Properties
Our headquarters are
located in Sunrise, Florida and consists of 4,860 square feet of space, which we lease at a current rent of approximately $65,124 per year. The lease is scheduled to expire in January 2013. In
addition to our corporate offices, at this location, we maintain:
|
o
|
our MyoCell cell culturing
facility for supply within the United States; and
|
|
|
o
|
a fully equipped cell
culturing laboratory where we perform experimental work in the areas of cell culturing, cell engraftment, and other advanced research projects related to our core business.
|
We believe the space
available at our headquarters will be sufficient to meet the needs of our operations for the foreseeable future.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On February 20,
2011,the Company was advised by its auditors that its audit practice was acquired by RBSM LLP (“RBSM”), an independent registered public accounting firm. As a result of the acquisition,
the auditor effectively resigned as the Company’s independent registered public accounting firm and RBSM was appointed to serve as the Company’s independent registered public accounting
firm by the Company’s Board of Directors, acting as the Company’s Audit Committee. The reports of the prior auditor on the Company’s financial statements for the years ended
December 31, 2009 and 2008 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle, except
that such reports on the
Company’s consolidated financial statements as of and for the years ended December 31, 2009 and 2008 contained an explanatory paragraph which noted that there was substantial doubt as to the
Company’s ability to continue as a going concern due to a deficit in working capital and incurring significant losses.
31
During the years ended
December 31, 2009 and 2008, and through February 20, 2011, the Company did not have any disagreements with the auditor on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved to the auditor’s satisfaction, would have caused them to make reference thereto in their reports on the
Company’s financial statements for such periods. On February 20, 2011, the Company engaged RBSM as its independent registered public accounting firm for the Company’s fiscal year ended
December 31, 2010.
Off-Balance Sheet Arrangements
We do not have any
off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are material to investors.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We do not engage in
investment or operating activities that are subject to material interest rate risk.
Credit Risk
As of December 31,
2010, one customer represented 53% of the Company’s accounts receivable. The Company’s revenues earned from sale of products and services for the year ended December 31, 2010 included 48%
and 32% of the Company’s total revenues from two customers. However, as a development stage company without significant sales, we are not otherwise subject to any material credit risk.
Inflation Risk
Inflation has not had,
and is not expected to have, a material effect on our operations.
Climate Change Risk
Neither climate change,
nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
The preparation of
financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities. A summary of the critical accounting policies and the judgments that we make in the application of those policies is
presented in Note 1 to our consolidated financial statements.
Our consolidated
financial statements are based on the selection of accounting policies and the application of accounting estimates, some of which require management to make significant assumptions. Actual results
could differ materially from the estimated amounts. The following accounting policy is critical to understanding and evaluating our reported financial results:
32
Revenue Recognition
The Company recognizes
revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination
of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
At the time of each
transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is
fixed or determinable is based upon the payment terms of the transaction. If a significant portion of a fee is due after our normal payment terms or upon implementation or client acceptance, the fee
is accounted for as not being fixed or determinable and revenue is recognized as the fees become due or after implementation or client acceptance has occurred. Collectability is assessed based on a
number of factors, including past transaction history with the client and the creditworthiness of the client.
The Company accounts
for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses
accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
Unbilled revenue is
revenue that is recognized but is not currently billable to the customer pursuant to contractual terms. In general, such amounts become billable in accordance with predetermined payment schedules,
but recognized as revenue as services are performed. Amounts included in unbilled revenue are expected to be collected within one year and are included within current assets.
Research and Development Activities
The Company accounts
for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and
development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are
expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to
both present and future products are expensed in the period incurred.
Accounting for Stock-Based Compensation
We account for our
stock options and warrants using the fair value method promulgated by Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. This statement does not change the accounting
guidance for share based payment transactions with parties other than employees.
Options Valuation and Accounting for and Classifying Warrants
The Company uses the
Black-Scholes valuation model to determine the fair value of options on the date of grant. This model derives the fair value of options based on certain assumptions related to expected stock price
volatility, expected option life, risk-free interest rates and dividend yield. The Company’s expected volatility is based on the historical volatility of other publicly traded development stage
companies in the same industry. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the term of the expected life of the options.
The Company uses the
Black-Scholes valuation model to determine the fair value of warrants on the date of issuance. The Company’s expected volatility is based on the historical volatility of other publicly traded
development stage companies in the same industry. The expected life of the warrants is based primarily on the contractual life of the warrants. The risk-free interest rate assumption is based upon
the U.S. Treasury yield curve appropriate for the term of the expected life of the warrants.
Recent Accounting Pronouncements
There were various updates
recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the
Company’s consolidated financial position, results of operations or cash flows.
33
DESCRIPTION OF BUSINESS
Overview
We are committed to the
discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies, devices and biologics for the treatment of chronic and acute heart damage and peripheral
vascular disease. The number of heart failure patients is expected to increase from 25 million worldwide today to over 50 million in five years. Our focus is on serving these patients.
We were incorporated in
the state of Florida in August 1999. Our principal executive offices are located at 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325 and our telephone number is (954) 835-1500. Information
about us is available on our corporate web site at www.bioheartinc.com. Information contained on the web site does not constitute part of, and is not incorporated by reference in, this report.
Biotechnology Product Candidates
Specific to
biotechnology, we are focused on the discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies for the treatment of chronic and acute heart damage and
peripheral vascular disease. MyoCell is a clinical muscle-derived cell therapy designed to populate regions of scar tissue within a patient's heart with new living cells for the purpose of improving
cardiac function in chronic heart failure patients. Our most recent clinical trials of MyoCell include the SEISMIC Trial, a completed 40-patient, randomized, multicenter, controlled, Phase II-a study
conducted in Europe and the MYOHEART Trial, a completed 20-patient, multicenter, Phase I dose-escalation trial conducted in the United States. We were approved by the U.S. FDA to proceed with a
330-patient, multicenter Phase II/III
trial of MyoCell in North America and Europe called the MARVEL Trial. We completed the MyoCell implantation procedure on the first patient in the MARVEL Trial on October 24, 2007. Thus
far, 20 patients, including 6 control patients, have been treated. Initial results for the 20 patients were released at the Heart Failure Society of American meeting in September, 2009, showing a
significant (35%) improvement in the 6 minute walk for those patients who were treated, and no improvement for those who received a placebo. We are planning, on the basis of these results,
to ask the FDA to consider the MARVEL Trial a pivotal trial (pivotal from Phase II to Phase III) and to reduce the number of patients in the trial to 150. The SEISMIC, MYOHEART and MARVEL
Trials have been designed to test the safety and efficacy of MyoCell in treating patients with severe, chronic damage to the heart. Upon regulatory approval of MyoCell, we intend to generate revenue
in the United States from the
sale of MyoCell cell-culturing services for treatment of patients by qualified physicians. Abroad, we are identifying centers where it is already acceptable to use the Myocell treatment so
that greater numbers of patients with this problem can have access to treatment.
We received approval
from the FDA in July of 2009 to conduct a Phase I safety study on 15 patients of a combined therapy (Myocell with SDF-1), which we believe is the first approval of a study combining gene and cell
therapies. We initially commenced work on this study, called the REGEN Trial, during the first quarter of 2010. The Company suspended activity on the trial in 2010 while seeking additional
funding necessary to conduct the trial. Work on the trial was reinitiated in 2011. Based on the results of the trial, we intend to either incorporate the combined treatment into the MARVEL Trial, or
continue with the MARVEL Trial based on the use of Myocell alone.
In our pipeline, we
have multiple product candidates for the treatment of heart damage, including autologous, adipose cell treatment for acute heart damage, chronic ischemia and critical limb ischemia.
We hope to demonstrate that our various product candidates are safe and effective complements to existing therapies for chronic
and acute heart damage as well as peripheral arterial disease.
MyoCell
MyoCell is a clinical
therapy intended to improve cardiac function for those with congestive heart failure and is designed to be utilized months or even years after a patient has suffered severe heart damage due to a
heart attack or other cause. We believe that MyoCell has the potential to become a leading treatment for severe, chronic damage to the heart due to its perceived ability to satisfy, at least in part,
what we believe to be an unmet demand for more effective and/or more affordable therapies for chronic heart damage. MyoCell uses myoblasts, cells that are precursors to muscle cells, from the
patient's own body. The myoblasts are removed from a patient's thigh muscle, isolated, grown through our proprietary cell culturing process, and injected directly in the scar tissue of a patient's
heart. A qualified physician performs
this minimally invasive procedure using an endoventricular catheter. We entered into an agreement with a Johnson & Johnson company to use its NOGA® Cardiac Navigation System along with its
MyoStar™ injection catheter for the delivery of MyoCell in the Marvel Trial.
34
When injected into scar
tissue within the heart wall, myoblasts have been shown to be capable of engrafting in the damaged tissue and differentiating into mature skeletal muscle cells. In a number of clinical and animal
studies, the engrafted skeletal muscle cells have been shown to express various proteins that are important components of contractile function. By using myoblasts obtained from a patient's own body,
we believe MyoCell is able to avoid certain challenges currently faced by other types of cell-based clinical therapies including tissue rejection and instances of the cells differentiating into cells
other than muscle. Although a number of therapies have proven to improve the cardiac function of a damaged heart, no currently available treatment has demonstrated an ability to generate new muscle
tissue within the scarred
regions of a heart.
We believe the market
for treating patients in NYHA Class II or NYHA Class III heart failure is significant. According to the AHA Statistics and the European Society of Cardiology Task Force for the Treatment of Chronic
Heart Failure, in the United States and Europe there are approximately 5.2 million and 9.6 million, respectively, patients with heart failure. The AHA Statistics further indicate that, after heart
failure is diagnosed, the one-year mortality rate is high, with one in five dying and that 80% of men and 70% of women under age 65 who have heart failure will die within eight years. We believe that
approximately 60% of heart failure patients are in either NYHA Class II or NYHA Class III heart failure based upon a 1999 study entitled “Congestive Heart Failure Due to Diastolic or Systolic
Dysfunction – Frequency
and Patient Characteristics in an Ambulatory Setting” by Diller, PM, et. al.
Business Strategy
Our principal objective
is to become a leading regenerative medicine company that discovers, develops and commercializes novel, autologous cell therapies, and related devices, for the treatment and improved care of patients
suffering from chronic and acute heart damage as well as lower limb ischemia. The number of heart failure patients is expected to increase from 25 million worldwide today to over 50
million in five years. Our focus is on serving these patients. To achieve this objective, we plan to pursue the following strategies:
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●
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Obtain initial regulatory approval of MyoCell and/or MyoCell SDF-1 by targeting patients with severe heart damage. In July 2007, we treated
the final patient in the Phase II SEISMIC Trial, which was comprised of 40 patients, including 26 treated patients. The SEISMIC study results demonstrated that 94% of MyoCell treated patients
improved or did not worsen in heart failure class while only 6% worsened, while in the control group receiving only drugs 42% worsened. 84% of MyoCell treated patients improved or did not
worsen in exercise capacity and only 16% worsened, while 69% of the control patients worsened. The average improvement in 6 minute walk was 62 meters. This compares very
favorably with the current gold standard in advanced heart failure treatment,
Bi-Ventricular pacing, where they achieved 16 to 20 meters improvement over control patients in the Phase II MIRACLE trial that led to commercial approval of this product. By targeting a class of
patients for whom existing therapies are very expensive, unavailable or not sufficiently effective, we hope to expedite regulatory approval of MyoCell and/or MyoCell SDF-1.
Obtain regulatory approval of MyoCell and/or MyoCell SDF-1 to treat patients with less severe heart damage. If we obtain initial regulatory
approval of MyoCell for the Class III Subgroup, we intend to continue to sponsor clinical trials in an effort to demonstrate that MyoCell and/or MyoCell SDF-1 should receive regulatory approval to
treat all patients in NYHA Class II, NYHA Class III and NYHA Class IV heart failure and, provided we believe we have a reasonable basis to support such an indication, we intend to seek regulatory
approval for these patients.
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●
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Continue existing studies with adipose derived stem cells and endothelial progenitor cells. We have initiated studies for the applications of
lower limb ischemia, acute myocardial infarction and chronic heart ischemia. We will begin a US clinical program called the ANGEL trial
utilizing adipose derived cells or LipiCell for congestive heart failure patients. Using the clinical data from the trial in Mexico and preclinical studies, Bioheart plans to apply to the FDA to
begin a Phase I study in the US. Bioheart has completed several preclinical studies demonstrating the safety and efficacy of this product including a study led by Keith March, MD, PhD,
Director of the Vascular and Cardiac Center for Adult Stem Cell Therapy at
the Indiana University. The adipose cells showed a tendency toward cardiomyocyte regeneration, prominent angiogenesis (growth of new blood vessels) and reduction in the infarction size.
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35
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●
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Continue to develop our pipeline of cell-based therapies and related devices for the treatment of chronic and acute heart damage. In parallel
with our efforts to secure regulatory approval of MyoCell, we intend to continue to develop and test other product candidates for the treatment of chronic and acute heart damage. These efforts are
expected to initially focus on MyoCell SDF-1, Lipicell, MyoCath and MyoCath II product candidates.
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Develop our sales and marketing capabilities. In advance of U.S. regulatory approval of our MyoCell product candidate, we intend to internally
build a sales force to cover the U.S. market and to utilize dealers in foreign markets which we anticipate will market MyoCell, MyoCell SDF-1 and our heart failure focused products primarily to
interventional cardiologists and heart failure specialists.
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Continue to refine
our MyoCell and MyoCell SDF-1 cell culturing processes.
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Expand and enhance our intellectual property rights. We intend to continue to expand and enhance our intellectual property rights.
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License, acquire and/or develop complementary products and technologies. We intend to strengthen and expand our product development efforts
through the license, acquisition and/or development of products and technologies that support our business strategy.
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Industry Background
Myocardial Infarction (Heart Attack)
Myocardial infarction,
or MI, commonly known as a heart attack, occurs when a blockage in a coronary artery severely restricts or completely stops blood flow to a portion of the heart. When blood supply is greatly reduced
or blocked for more than a short period of time, heart muscle cells die. If the healthy heart muscle cells do not replace the dead cells within approximately two months, the injured area of the heart
becomes unable to function properly. In the healing phase after a heart attack, white blood cells migrate into the affected area and remove the dead heart muscle cells. Then, fibroblasts, the
connective tissue cells of the human body, proliferate and form a collagen scar in the affected region of the heart. Following a heart attack, the heart's ability to maintain normal function will
depend on the location and amount of
damaged tissue. The remaining initially undamaged heart muscle tissue must perform more work to adequately maintain cardiac output. Because the uninjured region is then compelled to work harder than
normal, the heart can progressively deteriorate until it is unable to pump adequate blood to oxygenate the body properly leading to heart failure and ultimately death.
Congestive Heart Failure (CHF)
Congestive heart
failure, or “CHF”, is a debilitating condition that occurs as the heart becomes progressively less able to pump an adequate supply of blood throughout the body resulting in fluid
accumulation in the lungs, kidneys and other body tissues. Persons suffering from NYHA Class II or worse heart failure experience high rates of mortality, frequent hospitalization and poor quality of
life. CHF has many causes, generally beginning in patients with a life-long history of high blood pressure or after a patient has suffered a major heart attack or some other heart-damaging event. CHF
itself may lead to other complicating factors such as pulmonary hypertension, edema, pulmonary edema, liver dysfunction and kidney failure. Although medical therapy for CHF is improving, it remains a
major debilitating
condition.
Classifying Heart Failure
The NYHA heart failure
classification system provides a simple and widely recognized way of classifying the extent of heart failure. It places patients in one of four categories based on how limited they are during
physical activity. NYHA Class I heart failure patients have no limitation of activities and suffer no symptoms from ordinary activities. NYHA Class II heart failure patients have a mild limitation of
activity and are generally comfortable at rest or with mild exertion. NYHA Class III heart failure patients suffer from a marked limitation of activity and are generally comfortable only at rest.
NYHA Class IV heart failure patients generally suffer discomfort and symptoms at rest and should remain confined to a bed or chair.
36
The risk of
hospitalization and death increases as patients progress through the various stages of heart failure. The risk of hospitalization due to heart failure for patients in NYHA Class II, NYHA Class III
and NYHA Class IV is approximately 1.2, 2.3 and 3.7 times greater than for patients in NYHA Class I heart failure according to a 2006 American Heart Journal article entitled “Higher New York
Heart Association Classes and Increased Mortality and Hospitalization in Patients with Heart Failure and Preserved Left Ventricular Function”' by Ahmed, A et al. Similarly, according to this
same article, the risk of death from all causes for patients in NYHA Class II, NYHA Class III and NYHA Class IV is approximately 1.5, 2.6 and 8.5 times greater than for patients in NYHA Class I heart
failure.
The following chart
illustrates the various stages of heart failure, their NYHA classifications and the associated current standard of treatment.
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NYHA
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||||||
|
Class
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NYHA
Functional Classification(1)
|
Specific Activity Scale(2)(3)
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Current Standard of Treatment(4)
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|||
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I
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Symptoms only with above
normal physical activity
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Can perform more than 7
metabolic equivalents
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ACE Inhibitor,
Beta-Blocker
|
|||
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II
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Symptoms with normal
physical activity
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Can perform more than 5
metabolic equivalents
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ACE Inhibitor,
Beta-Blocker, Diuretics
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|||
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III
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Symptoms with minimal
physical activity
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Can perform more than 2
metabolic equivalents
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ACE Inhibitor,
Beta-Blocker, Diuretics, Digoxin, Bi-ventricular pacers
|
|||
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IV
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Symptoms at rest
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Cannot perform more than 2
metabolic equivalents
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ACE Inhibitor,
Beta-Blocker, Diuretics, Digoxin, Hemodynamic Support, Mechanical Assist Devices, Bi-ventricular pacers, Transplant
|
_____________
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(1)
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Symptoms include fatigue, palpitations,
shortness of breath and chest pain; normal activity is equivalent to walking one flight of stairs or several blocks.
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(2)
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Based upon the Goldman Activity
Classification of Heart Failure, which classifies severity of heart failure based on estimated metabolic cost of various activities; the four classes of the Goldman Activity Classification system
correlate to the NYHA Classes.
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|
(3)
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7 metabolic equivalents = shovel snow,
carry 24 lbs. up 8 stairs, recreational sports; 5 metabolic equivalents = garden, rake, dance, walk 4 mph on level ground, have intercourse; 2 metabolic equivalents = shower without stopping, strip
and make bed, dress without stopping.
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(4)
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Source: American College of Cardiology/
American Heart Association 2005 Guideline Update for the Diagnosis and Management of Chronic Heart Failure in the Adult.
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Diagnosis and Management of Heart Failure
Heart disease has been
the leading cause of death from 1950 on within the United States, according to the U.S. Department of Health and Human Services. In addition, heart failure is the single most frequent reason for
hospitalization in the elderly according to a 2007 study entitled “Long-Term Costs and Resource Use in Elderly Participants with Congestive Heart Failure” by Liao, L., et al. The American
College of Cardiology/ American Heart Association 2005 Guideline Update for the Diagnosis and Management of Chronic Heart Failure in the Adult, or the ACC/ AHA Guidelines, provides recommendations
for the treatment of chronic heart failure in adults with normal or low LVEF. The treatment escalates and becomes more invasive as the heart failure worsens. Current treatment options for severe,
chronic heart damage include, but
are not limited to, heart transplantation and other surgical procedures, bi-ventricular pacers, drug therapies, ICDs, and ventricular assist devices. Therapies utilizing drugs, ICDs and
bi-ventricular pacers are currently by far the most commonly prescribed treatments for patients suffering from NYHA Class II or NYHA Class III heart failure. Since the therapies generally
each address a particular feature of heart disease or a specific subgroup of heart failure patients, the therapies are often complementary and used in combination.
37
Drug Therapies
The ACC/AHA Guidelines
recommend that most patients with heart failure should be routinely managed with a combination of ACE inhibitors, beta-blockers and diuretics. The value of these drugs has been established by the
results of numerous large-scale clinical trials and the evidence supporting a central role for their use is, according to the ACC/AHA Guidelines, compelling and persuasive. ACE inhibitors and beta
blockers have been shown to improve a patient’s clinical status and overall sense of well-being and reduce the risk of death and hospitalization. Side effects of ACE inhibitors include
hypotension, worsening kidney function, potassium retention, cough and angioedema. Side effects of beta-blockers include fluid retention, fatigue, bradycardia and heart block and hypotension.
Bi-Ventricular Pacers
The ACC/AHA Guidelines
recommend bi-ventricular pacers for persons who, in addition to suffering from heart failure, have left and right ventricles that do not contract in sync, known as ventricular dyssynchrony and who
have a LVEF less than or equal to 35%, sinus rhythm and NYHA Class III or NYHA Class IV symptoms despite recommended optimal medical therapy. Bi-ventricular pacers are surgically implanted
electrical generators that function primarily by stimulating the un-damaged portion of the heart to beat more strongly using controlled bursts of electrical currents in synchrony. Compared with
optimal medical therapy alone, bi-ventricular pacers have been shown in a number of clinical trials to significantly decrease the risk of all-cause hospitalization and all-cause mortality as well as
to improve LVEF, NYHA Class and
Quality of Life. According to the ACC/AHA Guidelines, there are certain risks associated with the bi-ventricular pacer including risks associated with implantation and device-related problems.
Implantable Cardioverter Defibrillators
ACC/AHA Guidelines
recommend ICDs primarily for patients who have experienced a life-threatening clinical event associated with a sustained irregular heartbeat and in patients who have had a prior heart attack and a
reduced LVEF. ICDs are surgically implanted devices that continually monitor patients at high risk of sudden heart attack. When an irregular rhythm is detected, the device sends an electric shock to
the heart to restore normal rhythm. In 2001, ICDs were implanted in approximately 62,000 and 18,000 patients in the United States and Europe, respectively. Although ICDs have not demonstrated an
ability to improve cardiac function, according to the ACC/AHA Guidelines, ICDs are highly effective in preventing sudden death due to irregular heartbeats. However, according to the ACC/AHA
Guidelines, frequent shocks from an ICD can
lead to a reduced quality of life, whether triggered appropriately or inappropriately. In addition, according to the ACC/AHA Guidelines, ICDs have the potential to aggravate heart failure and have
been associated with an increase in heart failure hospitalizations.
Heart Transplantation and Other Surgical Procedures
According to the
ACC/AHA Guidelines, heart transplantation is currently the only established surgical approach for the treatment of severe heart failure that is not responsive to other therapies. Heart
transplantation is a major surgical procedure in which the diseased heart is removed from a patient and replaced with a healthy donor heart. Heart transplantation has proven to dramatically improve
cardiac function in a majority of the patients treated and most heart transplant recipients return to work, travel and normal activities within three to six months after the surgery. In addition, the
risk of hospitalization and mortality for transplant recipients is dramatically lower than the risk faced by patients in NYHA Class III or NYHA Class IV heart failure. Heart transplants are
not, for a variety of reasons, readily
available to all patients with severe heart damage. The availability of heart transplants is limited by, among other things, cost and donor availability. In addition to the significant cost involved
and the chronic shortage of donor hearts, one of the serious challenges in heart transplantation is potential rejection of the donor heart. For many heart transplant recipients, chronic rejection
significantly shortens the length of time the donated heart can function effectively and such recipients are generally administered costly anti-rejection drug regimens which can have adverse and
potentially severe side effects.
38
There are a number of
alternate surgical approaches under development for the treatment of severe heart failure, including cardiomyoplasty, a surgical procedure where the patient’s own body muscle is wrapped around
the heart to provide support for the failing heart, the Batista procedure, a surgical procedure that reduces the size of an enlarged heart muscle so that the heart can pump more efficiently and
vigorously, and the Dor procedure. According to the ACC/AHA Guidelines, both cardiomyoplasty and the Batista procedure have failed to result in clinical improvement and are associated with a high
risk of death. The Dor procedure involves surgically removing scarred, dead tissue from the heart following a heart attack and returning the left ventricle to a more normal shape. While the early
published single-center experience with
the Dor procedure demonstrated early and late improvement in NYHA Class and LVEF, according to the ACC/AHA Guidelines, this procedure’s role in the management of heart failure remains to be
defined.
Ventricular Assist Devices
Ventricular assist
devices are mechanical heart pumps that replace or assist the pumping role of the left ventricle of a damaged heart too weak to pump blood through the body. Ventricular assist devices are primarily
used as a bridge for patients on the waiting list for a heart transplant and have been shown in published studies to be effective at halting further deterioration of the patient’s condition and
decreasing the likelihood of death before transplantation. In addition, ventricular assist devices are a destination therapy for patients who are in NYHA Class IV heart failure despite optimal
medical therapy and who are not eligible for heart transplant. According to the ACC/AHA Guidelines, device related adverse events are reported to be numerous and include bleeding, infection, blood
clots and device failure. In
addition, ventricular assist devices are very expensive, with the average first-year cost estimated at approximately $225,000.
We believe the heart
failure treatment industry generally has a history of adopting therapies that have proven to be safe and effective complements to existing therapies and using them in combination with existing
therapies. It is our understanding that there is no one or two measurement criteria, either quantitative or qualitative, that define when a therapy for treating heart failure will be deemed safe and
effective by the FDA. We believe that the safety and efficacy of certain existing FDA approved therapies for heart damage were demonstrated based upon a variety of endpoints, including certain
endpoints (such as LVEF) that individually did not demonstrate large numerical differences between the treated patients and untreated patients. For instance, the use of bi-ventricular pacers with
optimal drug therapy has proven to
significantly decrease the risk of all-cause hospitalization and all-cause-mortality as well as to improve LVEF, NYHA Class and quality of life as compared to the use of optimal drug therapy alone.
In the Multicenter InSync Randomized Clinical Evaluation (MIRACLE) trial, one of the first large studies to measure the therapeutic benefits of bi-ventricular pacing, 69% of the patients in the
treatment group experienced an improvement in NYHA Class by one or more classes at six-month follow-up versus a 34% improvement in the control group. However, patients in the treatment group
experienced on average only a 2.1% improvement in LVEF as compared with a 1.7% improvement for patients in the control group. Although a number of the therapies described above have proven to improve
the cardiac function of a damaged heart, no currently available heart failure treatment has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart.
Our Proposed Solution
We believe that MyoCell
has the potential to become a leading treatment for severe chronic damage to the heart due to its perceived ability to satisfy, at least in part, what we believe to be a presently unmet demand for
more effective and/or more affordable therapies for chronic heart damage.
39
MyoCell
The human heart does
not have cells that naturally repair or replace damaged heart muscle. Accordingly, the human body cannot, without medical assistance, repopulate regions of scar tissue within the heart with
functioning muscle. MyoCell is a clinical therapy designed to improve cardiac function by populating regions of scar tissue within a patient’s heart with myoblasts derived from a biopsy of a
patient’s thigh muscle. Myoblasts are precursors to muscle cells that have the capacity to fuse with other myoblasts or with damaged muscle fibers to regenerate skeletal muscle. When injected
into scar tissue within the heart wall, myoblasts have been shown to be capable of engrafting in the damaged tissue and differentiating into mature skeletal muscle cells. In a number of clinical and
animal studies, the engrafted skeletal
muscle cells have been shown to express various proteins that are important components of contractile function. By using myoblasts obtained from a patient’s own body, we believe MyoCell is able
to avoid certain challenges currently faced by other cell-based clinical therapies intended to be used for the treatment of chronic heart damage including tissue rejection and instances of the cells
differentiating into cells other than muscle.
Our clinical research to
date suggests that MyoCell may improve the contractile function of the heart. However, we have not yet been able to demonstrate a mechanism of action. The engrafted skeletal muscle tissues are not
believed to be coupled with the surrounding heart muscle by the same chemicals that allow heart muscle cells to contract simultaneously. The theories regarding why contractile function may improve
include:
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the engrafted muscle tissue can
contract in unison with the other muscles in the heart by stretching or by the channeling of electric currents;
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the myoblasts acquire certain
characteristics of heart muscle or fuse with them; and/or
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the injected myoblasts release various
proteins that indirectly result in a limit on further scar tissue formation.
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As part of the MyoCell
therapy, a general surgeon removes approximately five to ten grams of thigh muscle tissue from the patient utilizing local anesthesia, typically on an outpatient basis. The muscle tissue is then
express-shipped to a cell culturing site. At the cell culturing site, our proprietary techniques are used to isolate and remove myoblasts from the muscle tissue. We typically produce enough cells to
treat a patient within approximately 21 days of his or her biopsy. Such production time is expected to continue to decrease as we continue to refine our cell culturing processes. After the cells
are subjected to a variety of tests, the cultured cells are packaged in injectate media and express shipped to the interventional cardiologist. Within four days of packaging, the cultured myoblasts
are injected via catheter
directly into the scar tissue of the patient’s heart. The injection process takes on average about one hour and can be performed with or without general anesthesia. Following treatment,
patients generally remain in the hospital for approximately 48-72 hours for monitoring.
The MyoCell injection
process is a minimally invasive procedure which presents less risk and considerably less trauma to a patient than conventional (open) heart surgery. Patients are able to walk immediately
following the injection process and require significantly less time in the hospital compared with surgically treated patients. In the 69 patients who have received MyoCell injections delivered via
percutaneous catheter, only two minor procedure-related events (2.9%) have been reported. In both cases, however, no complications resulted from the event, with the patients in each case remaining
asymptomatic at all times during and after the procedure.
We use a number of
proprietary processes to create therapeutic quantities of myoblasts from a patient’s thigh muscle biopsy. We have developed and/or licensed what we believe are proprietary or patented
techniques to:
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transport muscle tissue and cultured
cells;
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disassociate muscle tissue with manual
and chemical processes;
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separate myoblasts from other muscle
cells;
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culture and grow myoblasts;
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identify a cell population with the
propensity to engraft, proliferate and adapt to the cardiac environment, including areas of scar tissue; and
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maintain and test the cell quality and
purity.
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We have also developed
and/or licensed a number of proprietary and/or patented processes related to the injection of myoblasts into damaged heart muscle, including the following:
40
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package the cultured cells in a manner
that facilitates shipping and use by the physician administering MyoCell;
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methods of using MyoCath;
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the use of an injectate media that
assists in the engraftment of myoblasts;
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cell injection techniques utilizing
contrast media to assist in the cell injection process; and
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cell injection protocols related to the
number and location of injections.
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Assuming we secure
regulatory approval of MyoCell for the treatment of all NYHA Class II and NYHA Class III patients, we believe MyoCell will provide a treatment alternative for the millions of NYHA
Class II and NYHA Class III patients in the United States and Europe who either do not qualify for or do not have access to heart transplant therapy. Furthermore, we anticipate that the
time incurred and cost of identifying patients qualified to receive MyoCell as well as the cost of MyoCell, including any ICD, drug and bi-ventricular pacer therapies that are simultaneously
prescribed, if any, will be less expensive than the current cost of heart transplant therapy. Moreover, MyoCell is less invasive than a heart transplant and is not subject to the tissue rejection and
immune system suppression issues associated with
heart transplants.
We believe there is
still a large population of patients exhibiting symptoms consistent with NYHA Class II and NYHA Class III heart failure that is seeking an effective or more effective therapy for chronic
heart damage than ICDs, bi-ventricular pacers and drug therapies. We hope to demonstrate that MyoCell is complementary to various therapies using ICDs, bi-ventricular pacers and drugs. In the
MYOHEART and SEISMIC Trials, enrolled patients are required to have an ICD and to be on optimal drug therapy to be included in the study. While we do not require patients to have previously received
a bi-ventricular pacer to participate in our clinical trials, we plan to accept patients in our MARVEL Trial who have had prior placement of a bi-ventricular pacer. We are hopeful that the results of
our future clinical trials will
demonstrate that MyoCell is complementary to existing therapies for treating heart damage.
Metrics Used to Evaluate Safety and Efficacy of Heart Failure Treatments
The performance of
therapies used to treat damage to the heart is assessed using a number of metrics, which compare data collected at the time of initial treatment to data collected when a patient is re-assessed at
follow-up. The time periods for follow-up are usually three, six and twelve months. Statistical data is often accompanied by a p-value, which is the mathematical probability that the data are the
result of random chance. A result is considered statistically significant if the p-value is less than or equal to 5%. The common metrics used to evaluate the efficacy of these therapies include:
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Metric
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Description
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NYHA
Class
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The NYHA heart failure
classification system is a functional and therapeutic classification system based on how much cardiac patients are limited during physical activity.
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Six-Minute Walk Distance
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Six-Minute Walk Distance
is an objective evaluation of functional exercise capacity which measures the distance a patient can walk in six minutes. The distance walked during this test has been shown to correlate with the
severity of heart failure.
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LVEF
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LVEF is a measure of the
heart’s efficiency and can be used to estimate the function of the left ventricle, which pumps blood to the rest of the body. The LVEF is the amount of blood pumped divided by the amount of
blood the ventricle contains. A normal LVEF is more than 55% of the blood volume. Damage to the heart impairs the heart’s ability to efficiently pump and therefore reduces LVEF.
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Quality of Life
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Quality of Life is
evaluated by patient questionnaire, which measures subjective aspects of health status in heart failure patients.
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Number
of Hospital
Admissions and Mean Length of Stay
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The Number of Hospital
Admissions and Mean Length of Stay measure the aggregate number of times that a patient is admitted to the hospital during a defined period and the number of days a patient remains in the hospital
during each such admission.
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41
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Total
Days Hospitalized
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The Total Days
Hospitalized measures the aggregate number of days a patient is admitted to the hospital during a defined period.
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End-Systolic Volume
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End-Systolic Volume is a
measurement of the adequacy of cardiac emptying, related to the function of the heart during contraction.
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End-Diastolic Volume
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End-Diastolic Volume is
the amount of blood in the ventricle immediately before a cardiac contraction begins and is used as a measurement of the function of the heart at rest.
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LV
Volume
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Left Ventricular Volume,
or LV Volume, is measured in terms of left ventricular End-Diastolic Volume and left ventricular End-Systolic Volume. Both measure the reduction in volume of blood in the left ventricle of the heart
following expansion and contraction, respectively. Reduction in volume generally is reflective of positive ventricular remodeling and improvement in the heart’s ability to circulate oxygenated
blood through the arteries.
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Wall
Motion
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Wall Motion is a test
designed to show whether the heart is receiving adequate quantities of oxygen-rich blood. Wall motion is generally measured by a stress echocardiography test.
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Cardiac Output
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Cardiac Output is a
measure of the amount of blood that is pumped by the heart per unit time, measured in liters per minute.
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BNP
Level
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B-Type Natriuretic
Peptide, or BNP, is a substance secreted from the ventricles or lower chambers of the heart in response to changes in pressure that occur when heart failure develops and worsens. The level of BNP in
the blood increases when heart failure symptoms worsen and decreases when the heart failure condition is stable.
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Marvel Phase II/III Clinical Trial in the United States
The Marvel Trial is
designed to be a double-blind, randomized, placebo-controlled multicenter trial to evaluate the safety and efficacy of MyoCell. In August 2007, we received clearance from the FDA to proceed with the
trial. We completed the MyoCell implantation procedure on the first patient in the Marvel Trial on October 24, 2007. Thus far, 20 patients, including 6 control patients, have been
treated. Initial results for the 20 patients were released at the Heart Failure Society of American meeting in September, 2009, showing a dramatic (35%) improvement in the 6 minute walk
for those patients who were treated, and no improvement for those who received a placebo. We are planning, on the basis of these results, to ask the FDA to consider the Marvel Trial a
pivotal trial (pivotal from Phase II to Phase III)
and to reduce the number of patients in the trial to 150. The Seismic, Myoheart and Marvel Trials have been designed to test the safety and efficacy of MyoCell in treating patients with severe,
chronic damage to the heart. Upon regulatory approval of MyoCell, we intend to generate revenue in the United States from the sale of MyoCell cell-culturing services for treatment of patients by
qualified physicians. Abroad, we are identifying centers where it is already acceptable to use the Myocell treatment so that greater numbers of patients with this problem can have access
to treatment.
We are currently in the
process of evaluating our development timeline for MyoCell and the Marvel Trial. We received approval from the FDA in July of 2009 to conduct a Phase I safety study on 15 patients of a
combined therapy (Myocell with SDF-1), the first approval of a study combining gene and cell therapies. We initially commenced work on this study, called the Regen Trial, during the first
quarter of 2010. The Company suspended activity on the trial in 2010 while seeking additional funding necessary to conduct the trial. Work on the trial was reinitiated in 2011. Based on
the results of the trial, we intend to either incorporate the combined treatment into the Marvel Trial, or continue with the Marvel Trial based on the use of Myocell alone.
All of the patients
selected for enrollment in the Marvel Trial have (i) symptoms associated with NYHA Class II or NYHA Class III heart failure, (ii) suffered a previous heart attack at least
90 days prior to the date of treatment, (iii) a LVEF of less than or equal to 35%, (iv) been on optimal drug therapy for at least two months prior to enrollment and (v) had prior
placement of an ICD at least 60 days prior to enrollment. Patients were required to use Amiodarone, an anti-arrhythmic drug therapy, at least 24 hours prior to MyoCell
implantation. This prophylactic treatment successfully ameliorated the problem with arrhythmias in patients treated with Myocell and the placebo, which, although never lead to any
deterioration in the patients, was considered a serious adverse
event.
42
The patients were
divided into three groups. Patients in the first group underwent treatment consisting of 16 injections of an aggregate dosage of approximately 800 million myoblast cells. Patients in the second
group underwent treatment consisting of 16 injections of an aggregate dosage of approximately 400 million myoblast cells. Patients in the third group received 16 placebo injections.
The Marvel Trial will
measure the following safety and efficacy endpoints of the MyoCell treatment:
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Primary Safety
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Primary Efficacy
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Secondary Efficacy
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Tertiary Efficacy
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Endpoint
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Endpoints
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Endpoints
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Endpoints
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Number of serious adverse
events in treatment group as compared to control group
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Change in Six-Minute Walk
Distance from baseline to six months as compared to control group, or
Quality of Life scores
assessed using Minnesota Living with Heart Failure questionnaire from baseline to six months as compared to control group
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Total Days Hospitalized in
treatment group as compared to control group
Cause-specific
hospitalizations in treatment group as compared to control group
Proportion of patients
with an improved NYHA Class from baseline to six months as compared to control group
Total days alive out of
hospital over the six-month study period
Change in LVEF from
baseline to six months as compared to control group
Change in LV Volume and
wall motion from baseline to six months as compared to control group
Change in BNP Level from
baseline to six months as compared to control group
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Total cost and healthcare
utilization within six months
Time to death or CHF
hospitalization
Change in degree of mitral
regurgitation from baseline to six months
Change in Six-Minute Walk
Distance from baseline to three months as compared to control group
Quality of Life scores
assessed using Minnesota Living with Heart Failure questionnaire from baseline to three months as compared to control group
Proportion of patients
with improved NYHA Class from baseline to three months as compared to control group
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43
Pipeline
We are committed to
delivering biologics that help treat heart failure and cardiovascular diseases. In addition to MyoCell, we have multiple cell therapies and related devices for the treatment of chronic and acute
heart damage in various stages of development. We have also acquired the rights to use certain devices for the treatment of heart damage. We intend to allocate our capital, material and personnel
resources among MyoCell and the product candidates described below, a number of which may have complementary therapeutic applications. For each product candidate, we have developed or are in the
process of developing a regulatory approval plan. Assuming such proposed plans are able to be followed, we do not anticipate that the regulatory approval of MyoCell will be necessary for our further
development of our other product
candidates.
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Candidate
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Proposed Use or Indication
|
Status/Phase
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Comments
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|||
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MyoCell SDF-1
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Autologous cell therapy
treatment for severe chronic damage to the heart; cells modified to express angiogenic factors
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IND application filed in
May 2007. Additional animal studies complete. Phase I trial approved by FDA in July of 2009.
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Trial commenced in April
1, 2010.
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Lipicell
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Adipose cell therapy
treatment for the management of progressive heart failure
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Bioheart plans to apply to
the FDA to begin a Phase I study in the US. Bioheart has completed several preclinical studies demonstrating the safety and efficacy of this product.
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MyoCath
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Disposable endoventricular
catheter used for the delivery of biologic solutions to the myocardium
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Used in European Phase II
clinical trials of MyoCell; used in Phase I clinical trials of MyoCell;
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Currently utilizing
catheters in Center of Excellence trials in Mexico.
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MyoCath II
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Second generation
disposable endoventricular catheter modified to provide multidirectional cell injection and used for the delivery of biologic solutions to the myocardium
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Preclinical
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MyoCell SDF-1
Our MyoCell SDF-1
product candidate, which has recently completed preclinical testing, is intended to be an improvement to MyoCell. In February 2006, we signed a patent licensing agreement with the Cleveland Clinic of
Cleveland, Ohio which gave us exclusive license rights to pending patent applications in connection with MyoCell SDF-1. Dr. Marc Penn, the Medical Director of the Cardiac Intensive Care Unit at
the Cleveland Clinic and a staff cardiologist in the Departments of Cardiovascular Medicine and Cell Biology, joined our Scientific Advisory Board. The license for SDF-1 was passed on to a Cleveland
Clinic affiliate, Juventas, in July of 2009. Bioheart has an understanding with Juventas pursuant to which the license with Bioheart will be reinstated upon completion of certain financial
milestones.
44
We anticipate that
MyoCell SDF-1 will be similar to MyoCell, except that the myoblast cells to be injected will be modified prior to injection by an adenovirus vector or non-viral vector so that they will release extra
quantities of the SDF-1 protein, which expresses angiogenic factors. Following injury which results in inadequate blood flow to the heart, such as a heart attack, the human body naturally increases
the level of SDF-1 protein in the heart. By modifying the myoblasts to express additional SDF-1 prior to injection, we are seeking to increase the SDF-1 protein levels present in the heart. We are
seeking to demonstrate that the presence of additional quantities of SDF-1 protein released by the myoblasts will stimulate the recruitment of the patient’s existing stem cells to the cell
transplanted area and, thereafter,
the recruited stem cells will assist in the tissue repair and blood vessel formation process. Preclinical animal studies showed a definite improvement of cardiac function when the myoblasts were
modified to express additional SDF-1 protein prior to injection as compared to when the myoblasts were injected without modification.
Our Phase I safety
study, the REGEN Trial, was approved by the FDA in July of 2009 and work commenced on the trial during the first quarter of 2010. The Company suspended activity on the trial in 2010 while seeking
additional funding necessary to conduct the trial. Work on the trial was reinitiated in 2011.
Lipicell
The LipiCell product
candidate is a proposed treatment for the management of
progressive heart failure in patients with damaged myocardial tissue resulting from prior myocardial infarction. This product candidate contains autologous adipose cells that are prepared
bedside to the patient.
By injecting LipiCell into damaged, akinetic areas of myocardium, these regions may have the ability to recruit stem cells to repair damaged regions, thereby improving heart function. It is
anticipated that LipiCell will be delivered directly into the
myocardium of the hearts of patients suffering from Congestive Heart Failure via a needle-injection catheter system.
Using the clinical data
from trial in Mexico and preclinical studies, Bioheart plans to apply to the FDA to begin a Phase I study in the US. Bioheart has completed several preclinical studies demonstrating the
safety and efficacy of this product including a study led by Keith March, MD, PhD, Director of the Vascular and Cardiac Center for Adult Stem Cell Therapy at the Indiana University. The adipose cells
showed a tendency toward cardiomyocyte regeneration, prominent angiogenesis (growth of new blood vessels) and reduction in the infarction size.
MyoCath
The MyoCath was
developed by Bioheart co-founder Robert Lashinski specifically for delivering new cells to damaged tissue. It is a deflecting tip needle injection catheter that has a larger needle which is 25
gauge for better flow rates and less leakage than systems that are 27 gauge. This larger needle allows for thicker compositions to be injected which helps with cell retention in the heart.
Also, the MyoCath needle has more fluoroscopic brightness than the normally used nitinol needle, enabling superior visualization during the procedure. Seeing the needle well during
injections enables the physician who is operating the catheter to pinpoint targeted areas more precisely, thus improving safety. The MyoCath competes well with other biological delivery systems
on price and efficiency and allows the
physician to utilize standard fluoroscopy and echo equipment found in every cath lab. The MyoCath is used to inject cells into cardiac tissue in therapeutic procedures to treat chronic heart ischemic
and congestive heart failure. Inventory of MyoCath is limited as it is not currently in production. The Company is considering several contract manufacturers to produce additional inventory.
Center of Excellence Program
On March 23, 2010, the
Company announced plans for establishing five Centers of Excellence in Latin America to provide its cell therapy procedures to patients suffering from congestive heart failure (CHF) and peripheral
arterial disease (PAD). Bioheart entered into its first agreement with a leading treatment facilitator, Regenerative Medicine Institute of Tijuana, Mexico. Therapies for CHF and PAD patients
will be made available at the Hospital Angeles Tijuana, a fully equipped state-of–the-art private specialties hospital.
On April 14, 2010, the
Company announced that treatment with stem cell therapy on two congestive heart failure (CHF) patients was performed successfully at the Hospital Angeles Tijuana, Mexico, through Bioheart's Center of
Excellence program with Regenerative Medicine Institute.
45
The center in Mexico
has completed 6 months follow up on the first 4 heart failure patients. These patients have demonstrated on average, an absolute improvement of 13 percentage points in ejection fraction and an
increase of 100 meters in their 6 minute walk distance. A total of 9 patients have been enrolled and treated in the trial.
Bioheart has also
partnered with the University Hospital Ostrava which is currently enrolling and treating end stage critical limb patients who have been listed on the amputation list. These patients are
being treated with adipose derived stem cells in the Czech Republic Center of Excellence. Recently reported follow up showed that 75% of the patients demonstrated healing and pain reduction
while only 25% of the patients required amputation.
Research
We supervise and
perform experimental work in the areas of improving cell culturing, cell engraftment, and other advanced research projects related to our product candidates from our cell culturing facility in
Sunrise, Florida. The primary focus of a substantial majority of our employees is advancing our clinical trials, preclinical studies, research and product development.
In addition, we work
with a number of third parties within and outside the United States on various research and product development projects, including:
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preclinical small and large animal
testing for product candidate enhancements and pipeline product candidate development; and
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contract research for clinical and
preclinical testing of our pipeline product candidates.
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Cell
Culturing
We have an
approximately 2,000 square foot cell culturing facility at our headquarters in Sunrise, Florida. We began culturing cells at this facility for preclinical uses in the third quarter of 2006. Upon
commencement of the MARVEL Trial in the fourth quarter of 2007, we began culturing cells at this facility for clinical uses.
Over the last three
years, we have significantly improved our ability to:
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culture in excess of 800 million
myoblast cells per biopsy; and
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produce cell cultures with a high
percentage of viable myoblast cells.
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Accordingly, we were
able to increase the maximum dosage of myoblast cells injected as part of the MyoCell therapy to approximately 800 million myoblast cells. We expect to further refine our MyoCell cell culturing
processes.
We have historically
met and, with respect to the cell culturing of our product candidates in Europe, expect to meet, our cell culturing needs internally.
Third Party Reimbursement
Government and private
insurance programs, such as Medicare, Medicaid, health maintenance organizations and private insurers, fund the cost of a significant portion of medical care in the United States. As a result,
government imposed limits on reimbursement of hospitals and other healthcare providers have significantly impacted their spending budgets and buying decisions. Under certain government insurance
programs, a healthcare provider is reimbursed a fixed sum for services rendered in treating a patient, regardless of the actual cost of such treatment incurred by the healthcare provider. Private
third party reimbursement plans are also developing increasingly sophisticated methods of controlling healthcare costs through redesign of benefits and exploration of more cost-effective methods of
delivering healthcare. In general, we
believe that these government and private measures have caused healthcare providers to be more selective in the purchase of medical products.
As of the date of this
report, CMS has agreed to reimburse some of the costs at the centers that are participating in the MARVEL Trial. Specifically, CMS will reimburse costs deemed “routine” in nature for
patients suffering from heart failure. Examples of these reimbursable costs include, but are not limited to, costs associated with physical examination of the patients, x-rays, holter monitoring,
MUGA scan and echocardiography. However, at present, CMS reimbursement does not cover the cost of MyoCell implantation.
46
Reimbursement for
healthcare costs outside the United States varies from country to country. In European countries, the pricing of prescription pharmaceutical products and services and the level of government
reimbursement are subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of marketing
approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct one or more clinical trials that compare the cost effectiveness of our product
candidates to other available therapies. Conducting one or more clinical trials would be expensive and result in delays in commercialization of our product candidates.
Research Grants
Historically, part of
our research and development efforts have been indirectly funded by research grants to various centers and/or physicians that have participated in our MyoCell and MyoCath clinical trials. As part of
our development strategy, we intend to continue to seek to develop research partnerships with centers and/or physicians. On November 1, 2010, Bioheart, Inc. received written notice of approval of a
grant in the approximate amount of $244,500 under the qualifying therapeutic discovery project under section 48D of the Internal Revenue code. On November 9, 2010 Bioheart received the $244,500 grant
funds.
Patents and Proprietary Rights
We own or hold licenses
or sublicenses to an intellectual property portfolio consisting of numerous patents and patent applications in the United States, and in foreign countries, for use in the field of heart muscle
regeneration. References in this report to “our” patents and patent applications and other similar references include the patents and patent applications that are owned by us, and
references to patents and patent applications that are “licensed” to us and other similar references refer to patents, patent applications and other intellectual property that are
licensed or sublicensed to us.
Patent life
determination depends on the date of filing of the application or the date of patent issuance and other factors as promulgated under the patent laws. Under the U.S. Drug Price Competition and
Patent Term Restoration Act of 1984, as amended, a patent which claims a product, use or method of manufacture covering drugs and certain other products, including biologic products, may be extended
for up to five years to compensate the patent holder for a portion of the time required for research and FDA review of the product. Only one patent applicable to an approved drug or biologic product
is eligible for a patent term extension. This law also establishes a period of time following approval of a drug or biologic product during which the FDA may not accept or approve applications for
certain similar or identical drugs or
biologic products from other sponsors unless those sponsors provide their own safety and efficacy data.
MyoCell is no longer
protected by patents outside, which means that competitors will be free to sell products that incorporate the same or similar technologies that are used in MyoCell without infringing our patent
rights. As a result, MyoCell, if approved for use, may be vulnerable to competition. In addition, many of the patent and patent applications that have been licensed to us that pertain to
our other product candidates do not cover certain countries within Europe.
Our commercial success
will depend to a significant degree on our ability to:
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defend and enforce our patents and/or
compel the owners of the patents licensed to us to defend and enforce such patents, to the extent such patents may be applicable to our products and material to their commercialization;
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obtain additional patent and other
proprietary protection for MyoCell and our other product candidates;
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obtain and/or maintain appropriate
licenses to patents, patent applications or other proprietary rights held by others with respect to our technology, both in the United States and other countries;
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preserve company trade secrets and
other intellectual property rights relating to our product candidates; and
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operate without infringing the patents
and proprietary rights of third parties.
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In addition to patented
intellectual property, we also rely on our own trade secrets and proprietary know-how to protect our technology and maintain our competitive position, since patent protection may not be available or
applicable to our technology. Our policy is to require each of our employees, consultants and advisors to execute a confidentiality and inventions assignment agreement before beginning
their employment, consulting or advisory relationship with us. The agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential
information developed or learned by the individual during the course of the individual’s relationship with us except in limited circumstances. These agreements generally also provide that we
shall own all inventions conceived by
the individual in the course of rendering services to us. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to
which we have rights, which may impair our ability to protect our proprietary information or obtain patent protection in the future.
We work with others in
our research and development activities and one of our strategies is to enter into collaborative agreements with third parties to develop our proposed products. Disputes may arise about inventorship
and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us and our licensors, collaborators, consultants and others. In addition,
other parties may circumvent any proprietary protection we do have. As a result, we may not be able to maintain our proprietary position.
We are not currently a
party to any litigation or other adverse proceeding related to our patents, patent licenses or intellectual property rights. However, if we become involved in litigation or any other adverse
intellectual property proceeding, for example, as a result of an alleged infringement, or a third party alleging an earlier date of invention, we may have to spend significant amounts of money and
time and, in the event of an adverse ruling, we could be subject to liability for damages, including treble damages, invalidation of our intellectual property and injunctive relief that could prevent
us from using technologies or developing products, any of which could have a significant adverse effect on our business, financial condition and results of operation. In addition, any claims relating
to the infringement of third party
proprietary rights, or earlier date of invention, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert management’s attention and resources and
require us to enter royalty or license agreements which are not advantageous, if available at all.
See Item 1A.
“Risk Factors — Risks Related to Our Intellectual Property” for a discussion of additional risks we face with respect to our intellectual property rights.
Primary MyoCath Patent
The Primary MyoCath
Patent includes device claims that we believe covers, among other things, the structure of MyoCath. The Primary MyoCath Patent expires in the United States in September 2017.
In January 2000, we
entered into a license agreement with Comedicus Incorporated pursuant to which Comedicus granted us a royalty-free, fully paid-up, non-exclusive and irrevocable license to the Primary MyoCath Patent
in exchange for a payment of $50,000. This agreement was amended in August 2000 to provide us an exclusive license to the Primary MyoCath Patent in exchange for a payment of $100,000 and our loan of
$250,000 to Comedicus. Pursuant to this amendment we also received the right, but not the obligation, with Comedicus’ consent, which consent is not to be unreasonably withheld, to defend the
Primary MyoCath Patent against third party infringers.
In June 2003, we
entered into agreements with Advanced Cardiovascular Systems, Inc., or ACS, originally a subsidiary of Guidant Corporation and now d/b/a Abbott Vascular, a division of Abbott Laboratories, pursuant
to which we assigned our rights under the license agreement with Comedicus, as amended, and committed to deliver 160 units of MyoCath and sold certain of our other catheter related intellectual
property, or, collectively, with the Primary MyoCath Patent (the Catheter IP), for aggregate consideration of $900,000. In connection with these agreements, ACS granted to us a co-exclusive,
irrevocable, fully paid-up license to the Catheter IP for the life of the patents related to the Catheter IP.
ACS has the exclusive
right, at its own expense, to file, prosecute, issue, maintain, license, and defend the Catheter IP, and the primary right to enforce the Catheter IP against third party infringers. If ACS fails to
enforce the Catheter IP against a third party infringer within a specified period of time, we have the right to do so at our expense. The party enforcing the Catheter IP is entitled to retain any
recoveries resulting from such enforcement. The asset purchase agreement only pertains to the Catheter IP developed or acquired by us prior to June 24, 2003. Our subsequent catheter related
developments and/or acquisitions, such as MyoCath II, were not sold or licensed to ACS.
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MyoCell SDF-1 Patents
To develop our MyoCell
SDF-1 product candidate, we rely primarily on patents. We had an agreement to license patents from Juventas. These patents relate to methods of repairing damaged heart tissue by
transplanting myoblasts that express SDF-1 and other therapeutic proteins capable of recruiting other stem cells within a patient’s own body to the cell transplant area. We believe we will also
need to, among other things, license some additional intellectual property to commercialize MyoCell SDF-1 in the form we believe may prove to be the most safe and/or effective.
In February 2006, we
signed a patent licensing agreement with the Cleveland Clinic which provided us with the worldwide, exclusive rights to three pending U.S. patent applications and certain corresponding foreign
filings in the following jurisdictions: Australia, Brazil, Canada, China, Europe and Japan, or, collectively, the Cleveland Clinic IP, related to methods of repairing damaged heart tissue by
transplanting myoblasts that express SDF-1 and other therapeutic proteins capable of recruiting other stem cells within a patient’s own body to the cell transplant area. The term of our
agreement with the Cleveland Clinic expired in July of 2009, when the license to the patents was turned over to a Cleveland Clinic affiliate, Juventas. We have an understanding with
Juventas to restore the license to the patents once
certain milestones have been achieved by Bioheart.
In 2007, Bioheart
signed a Letter of Intent with Ono Pharmaceutical which provided rights to conduct clinical development and testing of SDF-1 to determine the effectiveness of SDF-1 for the treatment of damaged
myocardium and tissues following acute myocardial infarction, coronary arterial diseases or heart failure. If the results of this testing is deemed successful then the parties agree to
enter into good faith negotiations in an effort to reach a definitive license agreement that will allow Bioheart to commercialize its SDF-1 product candidate in all territories of the world except
Japan.
MyoCath II Patents
In April 2006, we
entered into an agreement with Tricardia, LLC pursuant to which Tricardia granted us a sublicenseable license to certain patents and patent applications in the United States, Australia, Canada,
Europe and Japan covering the modified injection needle we intend to use as part of MyoCath II, or the MyoCath II Patents, in exchange for a one-time payment of $100,000. Our license covers
and is exclusive with respect to products developed under the MyoCath II Patents for the delivery of therapeutic compositions to the heart. Unless earlier terminated by mutual consent of the
parties, our agreement with Tricardia will terminate upon the expiration date of the last MyoCath II Patent.
Tricardia has the
obligation to take all actions necessary to file, prosecute and maintain the MyoCath II Patents. We are required to reimburse Tricardia, on a pro-rata basis with other licensees of Tricardia of
the MyoCath II Patents, for all reasonable out-of-pocket costs and expenses incurred by Tricardia in prosecuting and maintaining the MyoCath II Patents. To the extent we do not wish to incur the
cost of any undertaking or defense of any opposition, interference or similar proceeding involving the MyoCath II Patents with respect to any jurisdiction, the license granted to us pursuant to
agreement will be automatically amended to exclude such jurisdiction.
Tricardia also has the
first right, but not the obligation, to take any actions necessary to prosecute or prevent any infringement or threatened infringement of the MyoCath II Patents. To the extent Tricardia
determines not to initiate suit against any infringer, we have the right, but not the obligation, to commence litigation for such alleged infringement. Our share of any recovery will equal 50% in the
event Tricardia commences litigation and 90% in the event we commence litigation.
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Other License Agreements
In June 2000, we
entered into an agreement with William Beaumont Hospital, or WBH, pursuant to which WBH granted to us a worldwide, exclusive, non-sublicenseable license to two U.S. method patents covering the
inducement of human adult myocardial cell proliferation in vitro, or the WBH IP. The term of the agreement is for the life of the patents, which expire in 2015. We utilize the methods under these
patents in connection with our BioPace and certain other product candidates in development. We do not have rights to patents outside the United States relating to BioPace. In addition to a payment of
$55,000 we made to acquire the license, we are required to pay WBH an annual license fee of $10,000 and royalties ranging from 2% to 4% of net sales of products that are covered by the WBH IP. In
order to maintain these exclusive license
rights, our aggregate royalty payments in any calendar year must exceed a minimum threshold as established by the agreement. The minimum threshold was $50,000 for 2005, $100,000 for 2006, $200,000
for 2007 and 2008. This minimum threshold will remain $200,000 for 2009 and thereafter. To the extent that our annual net sales of products covered by the WBH IP do not exceed the minimum threshold
for such year, we have the option of paying any shortfall in cash to WBH by the end of the applicable year or having our license to the WBH IP become non-exclusive. In addition to the patents
licensed from WBH, we purchased a U.S. patent and its corresponding Japanese filing, which are directed to biological pacemakers, by assignment from Angeion Corporation on September 1,
2000.
As of the date of this
report, we have not made any payments to WBH other than the initial payment to acquire the license. Accordingly, WBH may terminate the license to the WBH IP at any time at their sole option. We are
currently in negotiations with WBH to amend the terms of the license agreement. Unless earlier terminated by WBH or by either party upon the other party’s breach of the agreement, the agreement
will terminate upon the expiration date of the last patent covered by the WBH Agreement.
Sales and Marketing
MyoCell and MyoCell SDF-1
In advance of any
expected commercial approval of our MyoCell product candidate in the United States, we intend to internally develop a direct sales and marketing force. We anticipate the team will comprise
salespeople, clinical and reimbursement specialists and product marketing managers.
We intend to market
MyoCell and/or MyoCell SDF-1 to interventional cardiologists and heart failure specialists. In the typical healthcare system the interventional cardiologist functions as a “gatekeeper”
for determining the course of appropriate medical care for our target patient population.
We anticipate our
marketing efforts will be focused on informing interventional cardiologists of the availability of a our treatment alternative through the following channels of communication: (i) articles
published in medical journals by widely recognized interventional cardiologists, including cardiologists that have participated in our clinical trials; (ii) seminars and speeches featuring
widely recognized interventional cardiologists; and (iii) advertisements in medical journals.
Collaborative Arrangements for Seeking Regulatory Approvals and Distribution of Products Outside of the United States and Europe
Korea
On February 1,
2005, we entered into a joint venture agreement with Bioheart Korea, Inc., the predecessor entity of BHK, Inc., or BHK, pursuant to which we and BHK agreed to create a joint venture company called
Bioheart Manufacturing, Inc., located in Korea to own and operate a cell culturing facility. The joint venture agreement contemplated that we would engage Bioheart Manufacturing to provide all cell
culturing processes for our products and processes sold in Asia including Korea for a period of no less than ten years. Pursuant to the joint venture agreement, we agreed to contribute
approximately $59,000 cash and Myocell manufacturing technology for an 18% equity interest in Bioheart Manufacturing, and BHK agreed to contribute approximately $9,592,032 for an
82% equity interest in Bioheart Manufacturing.
On April 1, 2006, we entered into an in-kind investment agreement with Bioheart Manufacturing pursuant to which we agreed to provide Bioheart Manufacturing with the technology to manufacture
MyoCell and MyoCath and, in exchange, received 25,890 common shares of Bioheart Manufacturing. In February 2009, our ownership interest in Bioheart Manufacturing, Inc. was reduced to approximately 6%
as a result of additional investments in Bioheart Manufacturing, Inc. by third parties. Shares in Bioheart Manufacturing, Inc, owned by
Bioheart Inc. became 258,900 shares through a stock split. In May 2009, there was a corporate reorganization and AnC Bio Inc. was given the business of Bioheart Manufacturing Inc.
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Pursuant to the joint
venture agreement, we provided Bioheart Manufacturing with standard operating procedures, tests and testing protocols, cell selection methods, cell characterization methods, and all materials
necessary to carry out the activities of the cell culturing facility in the manner required by us.
In August 2007, we
entered into a supply agreement with BHK pursuant to which we supplied MyoCell and MyoCaths to BHM for use in clinical studies of MyoCell.
According to the
agreement, upon Bioheart Manufacturing’s inability to continue its operations by reason of law, governmental order or regulation or Bioheart Manufacturing’s dissolution or liquidation for
any reason, the agreement is null and void.
Government Regulation
The research and
development, preclinical studies and clinical trials, and ultimately, the culturing, manufacturing, marketing and labeling of our product candidates are subject to extensive regulation by the FDA and
other regulatory authorities in the United States and other countries. We believe MyoCell and our medical device products are subject to regulation in the United States and Europe as a biological
product and a medical device, respectively.
Biological products are
subject to regulation under the Federal Food, Drug, and Cosmetic Act, or the FD&C Act, the Public Health Service Act, or the PHS Act and their respective regulations as well as other federal,
state, and local statutes and regulations. Medical devices are subject to regulation under the FD&C Act and the regulations promulgated hereunder as well as other federal, state, and local
statutes and regulations. The FD&C Act and the PHS Act and the regulations promulgated hereunder govern, among other things, the testing, cell culturing, manufacturing, safety, efficacy,
labeling, storage, record keeping, approval, clearance, advertising and promotion of our product candidates. Preclinical studies, clinical trials and the regulatory approval process typically take
years and require the expenditure of
substantial resources. If regulatory approval or clearance of a product is granted, the approval or clearance may include significant limitations on the indicated uses for which the product may be
marketed.
FDA Regulation — Approval of Biological Products
The steps ordinarily
required before a biological product may be marketed in the United States include:
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completion of preclinical studies
according to good laboratory practice regulations;
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the submission of an IND application to
the FDA, which must become effective before human clinical trials may commence;
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performance of adequate and
well-controlled human clinical trials according to good clinical practices to establish the safety and efficacy of the proposed biological product for its intended use;
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satisfactory completion of an FDA
pre-approval inspection of the manufacturing facility or facilities at which the product is manufactured, processes, packaged or held to assess compliance cGMP; and
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the submission to, and review and
approval by, the FDA of a biologics license application, or BLA, that includes satisfactory results of preclinical testing and clinical trials.
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Preclinical tests
include laboratory evaluation of the product candidate, its formulation and stability, as well as animal studies to assess the potential safety and efficacy of the product candidate. The FDA requires
that preclinical tests be conducted in compliance with good laboratory practice regulations. The results of preclinical testing are submitted as part of an IND application to the FDA together with
manufacturing information for the clinical supply, analytical data, the protocol for the initial clinical trials and any available clinical data or literature. A 30-day waiting period after the
filing of each IND application is required by the FDA prior to the commencement of clinical testing in humans. In addition, the FDA may, at any time during this 30-day waiting period or any time
thereafter, impose a clinical hold on
proposed or ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization.
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Clinical trials to
support BLAs involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing,
among other things, the objectives of the study, the parameters to be used in monitoring safety and the efficacy criteria to be evaluated.
Clinical trials are
typically conducted in three sequential phases, but the phases may overlap.
In Phase I
clinical trials, the initial introduction of the biological product candidate into human subjects or patients, the product candidate is tested to assess safety, dosage tolerance, absorption,
metabolism, distribution and excretion, including any side effects associated with increasing doses.
Phase II clinical
trials usually involve studies in a limited patient population to identify possible adverse effects and safety risks, preliminarily assess the efficacy of the product candidate in specific, targeted
indications; and assess dosage tolerance and optimal dosage.
If a product candidate
is found to be potentially effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken within an expanded patient population at multiple
study sites to further demonstrate clinical efficacy and safety, further evaluate dosage and establish the risk-benefit ratio of the product and an adequate basis for product labeling.
Phase IV, or
post-marketing, trials may be mandated by regulatory authorities or may be conducted voluntarily. Phase IV trials are typically initiated to monitor the safety and efficacy of a biological
product in its approved population and indication but over a longer period of time, so that rare or long-term adverse effects can be detected over a much larger patient population and time than was
possible during prior clinical trials. Alternatively, Phase IV trials may be used to test a new method of product administration, or to investigate a product’s use in other indications.
Adverse effects detected by Phase IV trials may result in the withdrawal or restriction of a drug.
If the required
Phase I, II and III clinical testing is completed successfully, the results of the required clinical trials, the results of product development, preclinical studies and clinical trials,
descriptions of the manufacturing process and other relevant information concerning the safety and effectiveness of the biological product candidate are submitted to the FDA in the form of a BLA. In
most cases, the BLA must be accompanied by a substantial user fee. The FDA may deny a BLA if all applicable regulatory criteria are not satisfied or may require additional data, including clinical,
toxicology, safety or manufacturing data. It can take several years for the FDA to approve a BLA once it is submitted, and the actual time required for any product candidate may vary substantially,
depending upon the nature, complexity and
novelty of the product candidate.
Before approving an
application, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve a BLA unless it determines that the manufacturing processes and facilities are
in compliance with cGMP requirements.
If the FDA evaluations
of the BLA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter. The approvable letter usually contains a number of conditions that must
be met to secure final FDA approval of the BLA. When, and if, those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. If the FDA’s evaluation of
the BLA or manufacturing facility is not favorable, the FDA may refuse to approve the BLA or issue a non-approvable letter that often requires additional testing or information.
FDA Regulation — Approval of Medical Devices
Medical devices are
also subject to extensive regulation by the FDA. To be commercially distributed in the United States, medical devices must receive either 510(k) clearance or pre-market approval, or PMA, from the FDA
prior to marketing. Devices deemed to pose relatively low risk are placed in either Class I or II, which requires the manufacturer to submit a pre-market notification requesting permission for
commercial distribution, or 510(k) clearance. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, devices deemed not substantially
equivalent to a previously 510(k) cleared device and certain other devices are placed in Class III which requires PMA. We anticipate that MyoCath will be classified as a Class III device.
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To obtain 510(k)
clearance, a manufacturer must submit a pre-market notification demonstrating that the proposed device is substantially equivalent in intended use and in safety and efficacy to a previously 510(k)
cleared device, a device that has received PMA or a device that was in commercial distribution before May 28, 1976. The FDA’s 510(k) clearance pathway usually takes from four to twelve
months, but it can last longer.
After a device receives
510(k) clearance, any modification that could significantly affect its safety or efficacy, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could
require PMA. The FDA requires each manufacturer to make this determination, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new
510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA. The FDA also can require the manufacturer to cease marketing and/or recall the modified device
until 510(k) clearance or PMA is obtained.
A product not eligible
for 510(k) clearance must follow the PMA pathway, which requires proof of the safety and efficacy of the device to the FDA’s satisfaction. The PMA pathway is much more costly, lengthy and
uncertain than the 510(k) approval pathway. A PMA application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding, among
other things, device design, manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with quality system regulation
requirements, which impose elaborate testing, control, documentation and other quality assurance procedures. Upon acceptance by the FDA of what it considers a completed filing, the FDA commences an
in-depth review of the PMA application,
which typically takes from one to two years, but may last longer. The review time is often significantly extended as a result of the FDA asking for more information or clarification of information
already provided.
If the FDA’s
evaluation of the PMA application is favorable, and the applicant satisfies any specific conditions (e.g., changes in labeling) and provides any specific additional information (e.g., submission of
final labeling), the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the manufacturer. The PMA can include post-approval conditions that
the FDA believes necessary to ensure the safety and efficacy of the device including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the
conditions of approval can result in an enforcement action, which could have material adverse consequences, including the loss or withdrawal of the approval.
Even after approval of
a pre-market application, a new PMA or PMA supplement is required in the event of a modification to the device, its labeling or its manufacturing process.
FDA Regulation — Post-Approval Requirements
Even if regulatory
clearances or approvals for our product candidates are obtained, our products and the facilities manufacturing our products will be subject to continued review and periodic inspections by the FDA.
For example, as a condition of approval of a new drug application, the FDA may require us to engage in post-marketing testing and surveillance and to monitor the safety and efficacy of our products.
Holders of an approved new BLA, PMA or 510(k) clearance product are subject to several post-market requirements, including the reporting of certain adverse events involving their products to the FDA,
provision of updated safety and efficacy information, and compliance with requirements concerning the advertising and promotion of their products.
In addition,
manufacturing facilities are subject to periodic inspections by the FDA to confirm the facilities comply with cGMP requirements. In complying with cGMP, manufacturers must expend money, time and
effort in the area of production and quality control to ensure full compliance. For example, manufacturers of biologic products must establish validated systems to ensure that products meet high
standards of sterility, safety, purity, potency and identity. Manufacturers must report to the FDA any deviations from cGMP or any unexpected or unforeseeable event that may affect the safety,
quality, or potency of a product. The regulations also require investigation and correction of any deviations from cGMP and impose documentation requirements.
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In addition to
regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other federal, state and local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals, biological
materials and radioactive compounds.
International Regulation
Our product candidates
are subject to regulation in every country where they will be tested or used. Whether or not we obtain FDA approval for a product candidate, we must obtain the necessary approvals from the comparable
regulatory authorities of foreign countries before we can commence testing or marketing of a product candidate in those countries. The requirements governing the conduct of clinical trials and the
approval processes vary from country to country and the time required may be longer or shorter than that associated with FDA approval.
The European Economic
Area requires that manufacturers of medical devices obtain the right to affix the CE mark to their products before selling them in member countries. The CE mark is an international symbol of
adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the right to affix the CE mark to a medical device, the medical device
in question must meet the essential requirements defined under the Medical Device Directive (93/42/ EEC) relating to safety and performance, and the manufacturer of the device must undergo
verification of regulatory compliance by a third party standards certification provider, known as a notified body.
In addition to
regulatory clearance, the conduct of clinical trials in the European Union is governed by the European Clinical Trials Directive (2001/20/ EC), which was implemented in May 2004. This directive
governs how regulatory bodies in member states may control clinical trials. No clinical trial may be started without authorization by the national competent authority and favorable ethics approval.
Manufacturing
facilities are subject to the requirements of the International Standards Organization. In complying with these requirements, manufacturers must expend money, time and effort in the area of
production and quality control to ensure full compliance.
In some cases, we plan
to submit applications with different endpoints or other elements outside the United States due to differing practices and requirements in particular jurisdictions. However, in cases where different
endpoints will be used outside the United States, we expect that such submissions will be discussed with the FDA to ensure that the FDA is comfortable with the nature of human trials being conducted
in any part of the world. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution, would apply to any product that is
approved in Europe.
Competition
Our industry is subject
to rapid and intense technological change. We face, and will continue to face, competition from pharmaceutical, biopharmaceutical, medical device and biotechnology companies developing heart failure
treatments both in the United States and abroad, as well as numerous academic and research institutions, governmental agencies and private organizations engaged in drug funding or discovery
activities both in the United States and abroad. We also face competition from entities and healthcare providers using more traditional methods, such as surgery and pharmaceutical regimens, to treat
heart failure. We believe there are a substantial number of heart failure products under development by numerous pharmaceutical, biopharmaceutical, medical device and biotechnology companies, and it
is likely that other competitors
will emerge.
Many of our existing
and potential competitors have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we do. As a result, these competitors
may succeed in developing competing therapies earlier than we do; obtain patents that block or otherwise inhibit our ability to further develop and commercialize our product candidates; obtain
approvals from the FDA or other regulatory agencies for products more rapidly than we do; or develop treatments or cures that are safer or more effective than those we propose to develop. These
competitors may also devote greater resources to marketing or selling their products and may be better able to withstand price competition. In addition, these competitors may introduce or adapt more
quickly to new technologies or
scientific advances, which could render our technologies obsolete, and may introduce products that make the continued development of our product candidates uneconomical. These competitors may also be
more successful in negotiating third party licensing or collaborative arrangements and may be able to take advantage of acquisitions or other strategic opportunities more readily than we can.
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Our ability to compete
successfully will depend on our continued ability to attract and retain skilled and experienced scientific, clinical development and executive personnel, to identify and develop viable heart failure
product candidates and to exploit these products and compounds commercially before others are able to develop competitive products.
We believe the
principal competitive factors affecting our markets include, but are not limited to:
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the safety and efficacy of our product
candidates;
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the freedom to develop and
commercialize cell-based therapies, including appropriate patent and proprietary rights protection;
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the timing and scope of regulatory
approvals;
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the cost and availability of our
products;
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the availability and scope of third
party reimbursement programs; and
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the availability of alternative
treatments.
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We are still in the
process of determining, among other things:
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if MyoCell and MyoCell SDF-1 are both
safe and effective;
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the timing and scope of regulatory
approvals; and
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the availability and scope of third
party reimbursement programs.
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Accordingly, we have a
limited ability to predict how competitive MyoCell will be relative to existing treatment alternatives and/or treatment alternatives that are under development. See “Business —
Diagnosis and Management of Heart Failure.”
If approved, MyoCell
will compete with surgical, pharmaceutical and mechanical based therapies. Surgical options include heart transplantation and left ventricular reconstructive surgery. Although not readily accessible,
heart transplantation has proven to be an effective treatment for patients with severe damage to the heart who locate a donor match and are in sufficiently good health to undergo major surgery.
Mechanical therapies such as biventricular pacing, ventricular restraint devices and mitral valve therapies have been developed by companies such as Medtronic, Inc., Acorn Cardiovascular, Inc., St.
Jude Medical, Inc., World Heart Corporation, Guidant Corporation, a part of Boston Scientific, and Edwards Lifesciences Corp. Pharmaceutical therapies include anti-thrombotics, calcium channel
blockers such as Pfizer’s
Norvasc® and ACE inhibitors such as Sanofi’s Delix®.
The field of
regenerative medicine is rapidly progressing, as many organizations are initiating or expanding their research efforts in this area. We are also aware of several competitors seeking to develop
cell-based therapies for the treatment of cardiovascular disease, including Aldagen, Inc., Angioblast Systems, Inc., Athersys, Inc., Baxter International, Inc., Cytori Therapeutics, Inc., MG
Biotherapeutics, LLC (a joint venture between Genzyme Corporation and Medtronic, Inc.), Mytogen, Inc. (a wholly-owned subsidiary of Advanced Cell Technology, Inc.), Osiris Therapeutics, Inc.,
ViaCell, Inc. (a wholly-owned subsidiary of PerkinElmer, Inc.), and potentially others.
It is our understanding
that some of our large competitors have devoted considerable resources to developing a myoblast-based cell therapy for treating severe damage to the heart.
Some organizations are
involved in research using alternative cell sources, including bone marrow, embryonic and fetal tissue, umbilical cord and peripheral blood, and adipose tissue.
Many of our existing
and potential competitors have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we do. These competitors may also
devote greater resources to marketing or selling their products and may be better able to withstand price competition. In addition, these competitors may introduce or adapt more quickly to new
technologies or scientific advances, which could render our technologies obsolete, and may introduce products that make the continued development of our product candidates uneconomical. These
competitors may also be more successful in negotiating third party licensing or collaborative arrangements and may be able to take advantage of acquisitions or other strategic opportunities more
readily than we can.
55
Set forth below is
information regarding our executive officers and directors as of December 31, 2011.
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Mike Tomas
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46
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Director, President and
Chief Executive Officer
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Howard J. Leonhardt
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50
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Director, Chief Technology
Officer
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William P. Murphy, Jr.,
M.D.
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88
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Director, Chairman of the
Board
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|
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Bruce C. Carson
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48
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Director
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Richard T. Spencer III
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75
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Director
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|
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Mark P. Borman
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56
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Director
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|
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Charles A. Hart
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51
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Director
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|
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Sam Ahn
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57
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Director
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|
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Catherine Sulawske-Guck
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43
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Chief Operating Officer
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|
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Kristin Comella
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35
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Chief Scientific Officer
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Executive Officers and Directors
Mike Tomas. Mr. Tomas was appointed President and Chief Executive Officer and a member of our Board of Directors on
June 19, 2010. Mr. Tomas has been President for the past nine years of The ASTRI Group, an early stage private equity investment company in Florida with an investment in Bioheart since 2001. In 2003,
he joined Bioheart’s board as the independent representative of The ASTRI Group. ASTRI provides capital, business development and strategic marketing support to emerging private companies. Mr.
Tomas will continue to serve as President of The ASTRI Group. Previously from 1983 to 2001, Mr. Tomas held ascending executive positions including Chief Marketing Officer at Avantel, a $1 billion
dollar joint venture with MCI. Upon
retiring from MCI and WorldCom, Tomas joined other ex-MCI executives and helped raise $40M in venture capital to form Ineto, an integrated customer communications software solution that was
successfully sold in 2001. Today Mr. Tomas sits on the boards of Perimeter Internetworking (SaaS providing secure transfer of information for medical and financial institutions), Avisena (revenue
cycle management for medical practices) and Total Home Health (Medicare-certified home care provider). Mr. Tomas is also the current chairman of the Global Entrepreneurship Center at Florida
International University and a founding coach/mentor at the University of Miami’s Launch Pad at the Toppel Center. Mr. Tomas holds a Masters of Business Administration from the University
of Miami and a Bachelors degree from Florida International University. This experience, together with his other board experience and his extensive experience in strategic development, makes him
well-qualified to serve on, and a valuable
member of, our Board of Directors.
Howard J. Leonhardt. Mr. Leonhardt is the co-founder, and Chief Technology Officer of Bioheart. He has served as our Chairman of the
Board since our incorporation in August 1999, until March 2007. He resumed his position as Chief Executive Officer in July 2008, and served until August, 2009. He has served as our Chief
Technology Officer since March 2007. Mr. Leonhardt also served as our Executive Chairman from March 2007 until March 2008. In 1986, Mr. Leonhardt founded World Medical
Manufacturing Corporation, or World Medical, and served as its Chief Executive Officer from 1986 until December 1998 when World Medical was acquired by Arterial Vascular Engineering, Inc., or AVE.
AVE was acquired by Medtronic, Inc. in January 1999.
Mr. Leonhardt was the co-inventor of World Medical’s primary product, the TALENT (Taheri-Leonhardt) stent graft system. From December 1998 until June 1999, Mr. Leonhardt served
as President of World Medical Manufacturing Corporation, a subsidiary of Medtronic. Scientific articles written by Mr. Leonhardt have been published in a number of publications including
Techniques in Vascular and Endovascular Surgery and the Journal of Cardiovascular Surgery. Mr. Leonhardt received a diploma in International Trade from the Anoka-Hennepin Technical College,
attended the University of Minnesota and Anoka-Ramsey Community College and holds an honorary Doctorate Degree in Biomedical Engineering from the University of Northern California. Mr. Leonhardt
rejoined the Board of Directors in June 2010. Mr. Leonhardt’s experience with us, and in the medical device industry, together with his other board experience; make him well-qualified to serve
on, and a valuable member of, our
management team and Board of Directors.
56
William P. Murphy, Jr., M.D. Dr. Murphy has served as a member of our Board of Directors since June 2003. Dr. Murphy founded
Small Parts, Inc., a supplier of high quality mechanical components for design engineers, in 1964 and served as its Chairman until his retirement in April 2005. Small Parts, Inc. was acquired by
Amazon.com, Inc. in March 2005. From October 1999 until October 2004, Dr. Murphy served as the Chairman and Chief Executive Officer of Hyperion, Inc., a medical diagnosis company
which had an involuntary bankruptcy filed against it in December 2003. Dr. Murphy is the founder of Cordis Corporation (now Cordis Johnson & Johnson) which he led as President, Chairman
and Chief Executive Officer at various times
during his 28 years at Cordis until his retirement in October 1985. Cordis Johnson & Johnson is a leading firm in cardiovascular instrumentation. Dr. Murphy received an M.D. in
1947 from the University of Illinois and a B.S in pre-medicine from Harvard College in 1946. He also studied physiologic instrumentation at Massachusetts Institute of Technology, or MIT. After a two
year rotating internship at St. Francis Hospital in Honolulu, he became a Research Fellow in Medicine at the Peter Bent Brigham Hospital in Boston where he was the dialysis engineer on the first
clinical dialysis team in the United States. He continued as an Instructor in Medicine and then a research associate in Medicine at Harvard Medical School. Dr. Murphy is the author of numerous
papers and owns 17 patents. He is the recipient of a number of honors, including the prestigious Lemelson-MIT Lifetime Achievement Award, the MIT Corporate Leadership Award, the Distinguished Service
Award from North American Society
of Pacing and Electrophysiology, and the Jay Malina Award from the Beacon Council of Miami, Florida. Dr. Murphy’s healthcare industry related experience, together with his experience with us,
makes him well-qualified to serve on, and a valuable member of, our Board of Directors.
Bruce C. Carson. Mr. Carson has served as a member of our Board of Directors since January 2001. From May 2001 until January 2010, Mr. Carson
served as the Vice President of Sales of FinishMaster, Inc., a privately held company specializing in the distribution of paints and products to the automotive and industrial refinishing industries.
From 1987 until May 2001, Mr. Carson was President of Badger Paint Plus, Inc., a privately held distributor of paints and products, until Badger Paint Plus’ merger with FinishMaster, Inc. Mr.
Carson was co-founder of the Southern Minnesota Express Hockey Club, a member of the North American Hockey League. Mr. Carson was also the founder and President of the Athletic Performance Academy in
Eden Prairie, Minnesota, a privately held athletic
training facility that specialized in sports specific training for elite athletes. Mr. Carson’s experience with us, together with his other board experience; make him well-qualified to serve
on, and a valuable member of, our Board of Directors.
Richard T. Spencer, III. Mr. Spencer has served as a member of our Board of Directors since December 2001. From April 1982
until July 1987, Mr. Spencer was President of the Marketing Division of Cordis Corporation (now Cordis Johnson & Johnson) and a member of its executive committee and a Vice President of
Cordis Dow Corporation, a joint venture of the Dow Chemical Company and Cordis to manufacture hollow fiber dialysers and machinery for dialysis. Mr. Spencer was Chief Operating Officer and held
other executive positions with World Medical from 1993 to January 1999. Mr. Spencer received a B.A. in Economics in 1959 from the University of Michigan. He has studied business theory, case
studies and financial management while attending
executive programs at the Stanford University School of Business, the University of Pennsylvania’s Wharton School of Business and the Clemson University School of Business. Between his
University of Michigan studies and embarking on a career in healthcare, Mr. Spencer served in Europe with the U.S. Army Counter Intelligence Corps as a military intelligence analyst with top
secret security clearance. Mr. Spencer is also the founder and a member of the board of directors of Viacor, Inc., a private company that is developing techniques for the percutaneous repair of heart
mitral valves. Mr. Spencer’s healthcare industry related experience, together with his other board experience, makes him well-qualified to serve on, and a valuable member of, our Board of
Directors.
Mark P. Borman. Mr. Borman has served as a member of the Company’s Board of Directors since May 2009. He is a seasoned financial officer
with more than 30 years of broad-based financial and investor relations experience. Mr. Borman brings small-company entrepreneurial passion and larger-company disciplines. In addition to the valuable
experience he gained working with entrepreneurs and their startups from 2009 to present, Mr. Borman has experience with global, NASDAQ- and NYSE-listed companies in various executive and financial
roles. He most recently served as Corporate Officer, Treasurer and Vice President of Investor Relations with ADC Telecommunications. During his career, Mr. Borman has held positions with General
Instrument Corporation, First Chicago Corporation, FMC
Corporation, Price Waterhouse, and KPMG. Mr. Borman received his B.A. in Accounting from Michigan State University and his M.B.A. from the University of Chicago Graduate School of Business.
He is a Certified Public Accountant and Chartered Financial Analyst and has experience as an advisor, board member, faculty, speaker, and mentor. Mr. Borman’s accounting and audit experience,
his other board experience, and his transactional and capital markets experience, make him well-qualified to serve on, and a valuable member of, our Board of Directors.
57
Charles A. Hart. Mr. Hart has served as a member of our Board of Directors since May 2009. Mr. Hart has more than 20 years of entrepreneurial
experience. Mr. Hart founded Hart Masonry, Inc. in 1986 and has served as its President since then. He is also the Founder and President of Wildridge Enterprises. Mr. Hart is a member of the Board of
Directors for Eagle Street Properties LLP. Mr. Hart’s operations experience, together with his other board experience, makes him well-qualified to serve on, and a valuable member of, our Board
of Directors.
Sam Ahn. Dr. Ahn previously served as a member of the Company's Board of Directors from January 2001 thru September 2008. Dr Ahn was one of
the early pioneers in developing the field of endovascular surgery by coordinating and leading the first endovascular training courses in the US and Europe as well as developing some of the
endovascular devices and techniques currently in clinical use today. He is a former Professor of Surgery in the Division of Vascular Surgery at UCLA, where he was also the Director of the
Endovascular Surgery Program. In 2006 Dr. Ahn founded Vascular Management Associates, Inc., a consulting and management firm that sets up outpatient endovascular centers across the US. VMA
has set up 8 such sites to date and is on track to set up two more
this year. In 2008, he co-founded Wright-Ahn Technology, LLC, to develop and commercialize endovascular devices. In 2009, he co-founded MediBank International, LLC, a global healthcare IT
Company. Dr. Ahn graduated from the University of Texas, Southwestern Medical School in Dallas, and received his general and vascular surgical residency training at UCLA. He also earned his MBA from
the UCLA Anderson School of Management in August, 2004. Dr. Ahn sits on five vascular journal editorial boards, and has published over 120 peer-reviewed manuscripts, 50 book chapters, and five
textbooks, including the first and definitive textbook on Endovascular Surgery. During the past eighteen years he has consulted for over 50 biomedical companies, both new and established, and has
authored over 15 patents. Dr. Ahn's experience as a medical professional, together with his experience with us, makes him well-qualified to serve on, and a valuable member of, the Company's Board of
Directors.
Catherine Sulawske-Guck. Ms. Catherine Sulawske-Guck was appointed Chief Operating Officer in July 2010. Ms. Sulawske-Guck has 25 years of
management and operations experience with 21 years in the medical device and biologics industries. Since 1986 Ms. Sulawske-Guck has held ascending management positions including serving from 1989 to
2001 as Director of Operations for Medtronic Peripheral Vascular (formerly World Medical Manufacturing Corporation). From 2001 to 2003 Ms. Sulawske-Guck provided operational management support for a
number of companies including Bioheart. Ms. Sulawske-Guck joined Bioheart as Director of Administration and Human Resources in January 2004 and in January 2007 was appointed Vice President of
Administration and Human Resources. Ms.
Sulawske-Guck’s Operational management experience including Customer Service, Human Resources, Information Technology, Facilities Management, Materials Management, Logistics, Investor
Relations, SEC Compliance and Corporate Governance make Ms. Sulawske-Guck well-qualified to be a part of, and a valued member of, our management team.
Kristin Comella. Ms. Comella was appointed Chief Scientific Officer in September 2010. Ms. Comella has served as our Vice President of R&D
and Corporate Development since December 2008 and has played a major role in managing our product development, manufacturing and quality systems since joining Bioheart in 2004. Ms. Comella has 12
years of industry experience with expertise in regenerative medicine, training and education, research and product development, and currently serves on multiple advisory boards in the stem cell
arena. Ms. Comella has over ten years of cell culturing experience including building and managing the stem cell laboratory at Tulane University's Center for Gene Therapy and developing stem cell
therapies for osteoarthritis at Osiris Therapeutics. Ms.
Comella holds an M.S. in Chemical Engineering from The Ohio State University and a B.S. in Chemical Engineering from the University of South Florida. Ms. Comella’ s stem cell therapy expertise
and management experience make Ms. Comella well qualified to be a part of, and valued member of, our management team.
Family Relationships
There are no family
relationships among our executive officers and directors.
58
Independence of Directors
Our Board of Directors
has determined that Mr. Borman, Mr. Hart, and Mr. Carson, are independent under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act
Audit Committee
The Board of Directors
has a standing Audit Committee. The members of our Audit Committee are Mr. Borman, who serves as Chairperson of the Audit Committee, Dr. Murphy and Mr. Hart. Our Board of Directors has
determined that Mr. Borman and Mr. Hart are independent under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act and that Mr. Borman qualifies as a “financial
expert” as that term is defined in rules of the SEC implementing requirements of the Sarbanes-Oxley Act of 2002.
The Board of Directors
intends to on a periodic basis evaluate the Audit Committee and examine the independence of each of the members of the Board and their qualifications as a financial expert for purposes of considering
their service on the Audit Committee.
Compensation Committee
The Board of Directors
has a standing Compensation Committee. The members of our Compensation Committee are: Bruce Carson, who serves as Chairperson of the Compensation Committee, Mr. Spencer, and Mr. Hart. Our
Board of Directors has determined that Mr. Carson and Mr. Hart are independent under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act.
The Compensation
Committee continues to examine whether to adopt a more formal process for discretionary annual bonuses. If adopted, the Board of Directors expects to utilize annual incentive bonuses to compensate
officers for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives will likely vary depending on the individual executive, but will
relate generally to strategic factors such as establishment and maintenance of key strategic relationships, development of our product candidates, identification and advancement of additional product
candidates, and to financial factors such as improving our results of operations and increasing the price per share of our common stock.
Governance & Nominating Committee
The Board of Directors
has a standing Governance & Nominating Committee. The members of the Committee are Richard T. Spencer III, who serves as Chairperson of the Governance and Nominating Committee, Mr. Borman and Dr.
Ahn. Our Board of Directors has determined that Mr. Borman and Dr. Ahn are independent directors under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act.
Shareholder Recommendations for Board Nominees
Our Governance &
Nominating Committee is tasked with, among other things, assisting the Board by identifying individuals qualified to become Board members and recommending to the Board the director nominees for the
next Annual Meeting of Shareholders. The Governance & Nominating Committee’s Charter provides that shareholder nominees to the Board of Directors will be evaluated using the same guidelines
and procedures used in evaluating nominees nominated by other persons. In evaluating director nominees, the Governance & Nominating Committee will consider the following factors:
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•
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the appropriate size
and the diversity of our Board;
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•
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our needs with respect
to the particular talents and experience of our directors;
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•
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the knowledge, skills
and experience of nominees, including experience in technology, business, finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and
experience already possessed by other members of the Board;
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59
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•
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familiarity with
national and international business matters;
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•
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experience in political
affairs;
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•
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experience with
accounting rules and practices;
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•
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whether such person
qualifies as an “audit committee financial expert” pursuant to the SEC Rules;
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•
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appreciation of the
relationship of our business to the changing needs of society; and
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•
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the desire to balance
the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.
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In identifying director
nominees, the Governance & Nominating Committee will first evaluate the current members of the Board of Directors willing to continue in service. Current members of the Board with skills and
experience that are relevant to our business and who are willing to continue in service shall be considered for re-nomination, balancing the value of continuity of service by existing members of the
Board with that of obtaining a new perspective. Generally, the Governance & Nominating Committee strives to assemble a Board of Directors that brings to us a variety of perspectives and skills
derived from business and professional experience. In doing so, the Governance & Nominating Committee will also consider candidates with appropriate non-business backgrounds. If any member of the
Board does not wish to continue
in service or if the Governance & Nominating Committee or the Board decides not to re-nominate a member for re-election, the Governance & Nominating Committee will identify the desired skills
and experience of a new nominee in light of the criteria above. Other than the foregoing, there are no specific, minimum qualifications that the Governance & Nominating Committee believes that a
Committee-recommended nominee to the Board of Directors must possess, although the Governance & Nominating Committee may also consider such other factors as it may deem are in our and our
shareholders’ best interests.
The Governance &
Nominating Committee and Board of Directors are polled for suggestions as to individuals meeting the criteria of the Governance & Nominating Committee. Research may also be performed to identify
qualified individuals.
Our bylaws contain
advance notice procedures with respect to shareholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof. Our bylaws also specify certain requirements as to the form and content of a shareholder’s notice. These provisions may preclude our shareholders from bringing
matters before our annual meeting of shareholders or from making nominations for directors at our annual meeting or a special meeting of shareholders.
Communications with the Board of Directors
In January 2007,
our Board of Directors adopted a Shareholder Communication Policy for shareholders wishing to communicate with various Board committees and individual members of the Board of Directors. Shareholders
wishing to communicate with the Board of Directors, the Governance & Nominating Committee and specified individual members of the Board of Directors can send communications to the Board of
Directors and, if applicable, to the Governance & Nominating Committee or to specified individual directors in writing c/o Catherine Sulawske-Guck, Bioheart, Inc., 13794 NW 4th Street,
Suite 212, Sunrise, FL 33325. We do not screen such mail and all such letters will be forwarded to the intended recipient.
Code of Ethics
As part of our system
of corporate governance, our Board of Directors has adopted a code of ethics that is specifically applicable to our Chief Executive Officer and senior financial officers. This Code of Ethics for
Senior Financial Officers, as well as our Code of Business Conduct and Ethics, applicable to all directors, officers and employees, are available on our web site at
http://www.bioheartinc.com/investorrelations.html
If we make substantive
amendments to the Code of Ethics for Senior Financial Officers or the Code of Business Conduct and Ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such
amendment or waiver on our website or in a report on Form 8-K within four days of such amendment or waiver.
60
Whistleblower Policy
In January 2007,
the Board of Directors adopted Procedures for the Submission, Receipt and Handling of Concerns and Complaints Regarding Internal Controls and Auditing Matters, or a whistleblower policy. This policy
outlines the process for the submission, receipt, retention and treatment of concerns and complaints received by us regarding our and our affiliates’ respective accounting, auditing and
internal controls practices and procedures, including the process for the confidential, anonymous submission by our directors, officers and employees of concerns regarding questionable accounting or
auditing matters.
Board Meetings; Committee Meetings; and Annual Meeting Attendance
During 2010, the Board
of Directors held four regular meetings in person and eight special telephonic meetings. Each regular meeting was attended by all of the members of the Board, except one meeting missed by
one Board Member.
During 2010, the Audit
Committee held four meetings. These meetings were attended by all members of the Audit Committee.
During 2010, the
Compensation Committee held three meetings. These meetings were attended by all members of the Compensation Committee.
During 2010, the
Governance &Nominating Committee held one meeting. The meeting was attended by all members of the Governance & Nominating Committee.
All of our directors
attend at least 75% of the regular meetings and 75% of the meetings of the Board committees upon which each served as a member. The Board does not have a policy regarding director
attendance at annual meetings. We did not have an in person annual meeting of shareholders in 2010.
Board Meetings; Committee Meetings; and Annual Meeting Attendance
During 2011, the
Board of Directors held four regular meetings in person and four special telephonic meetings. Each regular meeting was attended by all of the members of the Board, except three meetings
missed by one Board Member.
During 2011, the
Audit Committee held seven meetings. These meetings were attended by all members of the Audit Committee.
During 2011, the
Compensation Committee held four meetings. Two of these meetings were attended by all members of the Compensation Committee and two of the meetings were attended by two of the three
members.
During 2011, the
Governance &Nominating Committee held two meetings. The meetings were attended by two of the three members of the Governance & Nominating Committee.
Six of our eight
directors attended at least 75% of the regular meetings. The Board does not have a policy regarding director attendance at annual meetings. We did not have an in person annual meeting of shareholders
in 2011.
Limitation on Liability and Indemnification of Directors and Officers
Our certificate of
incorporation provides that no director or officer shall have any liability to the company if that person acted in good faith and with the same degree of care and skill as a prudent person in similar
circumstances.
Our certificate of
incorporation and bylaws provide that we will indemnify our directors and officers and may indemnify our employees or agents to the fullest extent permitted by law against liabilities and expenses
incurred in connection with litigation in which they may be involved because of their offices or positions with us. However, nothing in our certificate of incorporation or bylaws protects
or indemnifies a director, officer, employee or agent against any liability to which that person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of that person’s office or position. To the extent that a director has been successful in defending any proceeding brought against
him, the Delaware General Corporation
Law provides that the director shall be indemnified against reasonable expenses incurred by him in connection with the proceeding.
61
Section16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires our directors and executive officers, and persons who own more than ten percent (10%) of our outstanding Common Stock, to file with the SEC initial reports of ownership on
Form 3 and reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons are required by SEC regulation to furnish us with copies of all such reports they file.
Based solely on our review
of the copies of such reports furnished to us or written representations that no other reports were required, we believe that all Section 16(a) filing requirements applicable to our officers,
directors and greater than ten (10%) percent beneficial owners have been complied with during the year ended December 31, 2010 and through the date hereof except for one late Form 4 filed
by Mr. Hart, one late Form 4 filed by Mr. Leonhardt, one late Form 3 filed by Dr. Ahn. As of the date hereof, however, all late filings have been filed.
Executive Compensation
The primary goals of
our Compensation Committee with respect to executive compensation are to attract and retain the most talented and dedicated executives possible, to assure that our executives are compensated
effectively in a manner consistent with our strategy and competitive practice and to align executives’ incentives with shareholder value creation. To achieve these goals, our Compensation
Committee, with management’s input, recommends executive compensation packages to our Board of Directors that are generally based on a mix of salary, discretionary bonus and equity awards.
Although our Compensation Committee has not adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation, we believe it is important for these
executives to have equity ownership in our
company to provide them with long-term incentives to build value for our shareholders. Accordingly, we generally award our executive officers, other than Mr. Leonhardt, initial option grants
upon the commencement of their employment with us and ongoing option grants as circumstances warrant. Mr. Leonhardt beneficially owns a significant percentage of our outstanding common stock
and, accordingly, we believe his interests are strongly aligned with the interests of our shareholders. We intend to implement and maintain compensation plans that tie a substantial portion of our
executives’ overall compensation to achievement of corporate goals and value-creating milestones. We believe that performance and equity-based compensation are important components of the total
executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.
We have not retained a
compensation consultant to review our policies and procedures with respect to executive compensation. We conduct an annual review of the aggregate level of our executive compensation, as well as the
mix of elements used to compensate our executive officers. The Compensation Committee develops our compensation plans by utilizing publicly available compensation data for national and regional
companies in the biopharmaceutical industry and/or the South Florida market. We believe that the practices of this group of companies provide us with appropriate compensation benchmarks, because
these companies have similar organizational structures and tend to compete with us for executives and other employees. For benchmarking executive compensation, we typically review the compensation
data we have collected from the
complete group of companies, as well as a subset of the data from those companies that have a similar number of employees as our company.
Our Compensation
Committee may retain the services of third-party executive compensation specialists from time to time, as it sees fit, in connection with the establishment of cash and equity compensation and related
policies.
Elements of Compensation
Our Compensation
Committee evaluates individual executive performance with a goal of setting compensation at levels the Compensation Committee believes are comparable with executives in other companies of similar
size and stage of development operating in the biopharmaceutical industry and/or the South Florida market. The compensation received by our executive officers consists of the following elements:
62
Base Salary. Base salaries for our executives are established based on the scope of their responsibilities and individual experience, taking
into account competitive market compensation paid by other companies for similar positions within our industry and geographic market. Base salaries are reviewed at least annually, and adjusted from
time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. The base salaries of our named executive officers were adjusted
in 2010.
Discretionary Annual Bonus. In addition to base salaries, our Board of Directors has the authority to award discretionary annual bonuses to
our executive officers. In 2011, the Board of Directors did not award any cash bonuses. The annual incentive bonuses are intended to compensate officers for achieving corporate goals and for
achieving what the Board of Directors believes to be value-creating milestones. Our annual bonus, if any, is paid in cash in an amount reviewed and approved by our Board of Directors. Each executive
officer is eligible for a discretionary annual bonus up to an amount equal to 50% of such executive officer’s salary.
The Compensation
Committee continues to examine whether to adopt a more formal process for discretionary annual bonuses. If adopted, the Board of Directors expects to utilize annual incentive bonuses to compensate
officers for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives will likely vary depending on the individual executive, but will
relate generally to strategic factors such as establishment and maintenance of key strategic relationships, development of our product candidates, identification and advancement of additional product
candidates, and to financial factors such as improving our results of operations and increasing the price per share of our common stock.
Long-Term Incentive Program. At present, our long-term compensation consists primarily of stock options. Our option grants are designed to
align management’s performance objectives with the interests of our shareholders. Our Board of Directors grants options to key executives in order to enable them to participate in the long-term
appreciation of our shareholder value, while personally feeling the impact of any business setbacks, whether Company-specific or industry based. We have not adopted stock ownership guidelines, and,
other than for Mr. Leonhardt, our equity benefit plans have provided the principal method for our executive officers to acquire equity or equity-linked interests in our company.
Since inception, we
have granted equity awards to our executive officers through our Officers and Employees Stock Option Plan, which was adopted by our Board of Directors and shareholders to permit the grant of stock
options to our officers and employees. The initial option grant made to each executive upon joining us is primarily based on competitive conditions applicable to the executive’s specific
position. In addition, the Compensation Committee considers the number of options owned by other executives in comparable positions within our company and has established stock option targets for
specified categories of executives. We believe this strategy is consistent with the approach of other development stage companies in our industry and, in our Compensation Committee’s view, is
appropriate for aligning the interests of
our executives with those of our shareholders over the long term.
We do not have any
program, plan or obligation that requires us to grant equity compensation on specified dates and we have not made equity grants in connection with the release or withholding of material non-public
information. Authority to make equity grants to executive officers rests with our Board of Directors, although our Board of Directors does consider the recommendations of our Compensation Committee
and Chief Executive Officer for officers other than himself.
In 2011, we made stock
option grants to four of our named executive officers.
Other Compensation. We maintain broad-based benefits that are provided to full-time employees, including health insurance, life and disability
insurance, dental insurance and vision insurance
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Annual Compensation
|
Long-Term Compensation Awards
|
|||||||||||||||||||||
|
Name
and Principal
|
Salary
|
Bonus
|
Stock
Awards
|
Option Awards
|
All
Other Compensation
|
Total
|
||||||||||||||||
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
(1)
|
($)
|
($)
|
|||||||||||||||
|
Mike Tomas
(2)
|
2011
|
230,577
|
__
|
__
|
40,000
|
(3)
|
__
|
270,577
|
||||||||||||||
|
President, Chief
|
2010
|
151,666
|
—
|
—
|
110,000
|
(4)
|
—
|
261,666
|
||||||||||||||
|
Executive Officer
|
||||||||||||||||||||||
|
Howard J. Leonhardt
|
2011
|
106,838
|
__
|
__
|
7,000
|
(6)
|
__
|
113,838
|
||||||||||||||
|
(5)
|
2010
|
104,278
|
—
|
—
|
—
|
—
|
104,278
|
|||||||||||||||
|
Chief Technology
|
2009
|
129,831
|
—
|
—
|
—
|
—
|
129,831
|
|||||||||||||||
|
Officer
|
2008
|
150,000
|
—
|
—
|
—
|
—
|
150,000
|
|||||||||||||||
|
William H. Kline
(7)
|
2009
|
5,000
|
—
|
—
|
—
|
—
|
5,000
|
|||||||||||||||
|
Former Chief
|
||||||||||||||||||||||
|
Financial
|
2008
|
130,000
|
—
|
—
|
240,000
|
(8)
|
—
|
370,000
|
||||||||||||||
|
Officer
|
||||||||||||||||||||||
|
Karl E. Groth Ph.D
. (9)
|
||||||||||||||||||||||
|
2010
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
Former Chairman &
|
2009
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Chief Executive
|
2008
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Officer
|
||||||||||||||||||||||
|
Peggy A. Farley
(10)
|
2010
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Former Chief
|
2009
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Operating & Financial
|
2008
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Officer
|
||||||||||||||||||||||
|
Catherine Sulawske-
|
2011
|
108,892
|
__
|
__
|
20,000
|
(12)
|
__
|
128,892
|
||||||||||||||
|
Guck
(11)
|
2010
|
106,000
|
—
|
—
|
13,099
|
(13)
|
—
|
119,099
|
||||||||||||||
|
Chief Operating
|
||||||||||||||||||||||
|
Officer
|
||||||||||||||||||||||
|
Kristen Comella
(14)
|
2011
|
106,204
|
__
|
__
|
20,000
|
(15)
|
__
|
126,204
|
||||||||||||||
|
Chief Scientific
|
2010
|
105,000
|
—
|
—
|
—
|
—
|
105,000
|
|||||||||||||||
|
Officer
|
||||||||||||||||||||||
64
|
(1)
|
Amount reflects the
expensed fair value of stock options in 2009, 2008 and 2007, calculated in accordance with SFAS No. 123(R).
|
|
(2)
|
Mr. Tomas was appointed
Chief Executive Officer & President on June 18, 2010.
|
|
(3)
|
Represents 2011 expensed
fair value of options to purchase 500,000 shares of our common stock granted August 12, 2011, with an exercise price of $0.10 per share, vesting in four equal installments on each of July 1, 2012,
July 1, 2013, July 1, 2014 and July 1, 2015.
|
|
(4)
|
Represents 2010 expensed
fair value of options to purchase 500,000 shares of our common stock granted September 18, 2010, with an exercise price of $0.50 per share, vesting in four equal installments on each of June 18,
2011, June 18, 2012, June 18, 2013 and June 18, 2014.
|
|
(5)
|
Mr. Leonhardt also
served as our Chief Executive Officer from July 2008 through August 2009.
|
|
(6)
|
Represents 2011 expensed
fair value of options to purchase 100,000 shares of our common stock granted August 29, 2011, with an exercise price of $0.07 per share, vesting immediately.
|
|
(7)
|
Mr. Kline commenced
his employment with us in August 2006 and resigned effective January 2009.
|
|
(8)
|
Represents the 2008
expensed fair value of options to purchase 154,445 shares of our common stock granted August 7, 2006, with an exercise price of $5.67 per share, vesting in four equal installments on each of
August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010. Vested options expired 90 days subsequent to the date of termination of employment. All unvested options
expired upon the date of termination of employment.
|
|
(9)
|
Dr. Groth served as Chief
Executive Officer from August 2009 until June 2010 without compensation.
|
|
(10)
|
Ms. Farley served as Chief
Operating and Financial Officer from August 2009 until July 1, 2010 without compensation.
|
|
(11)
|
Ms. Sulawske-Guck was
appointed Chief Operating Officer on July 1, 2010.
|
|
(12)
|
Represents 2011 expensed
fair value of options to purchase 250,000 shares of our common stock granted August 12, 2011, with an exercise price of $0.10 per share, vesting in four equal installments on each of July 1, 2012,
July 1, 2013, July 1, 2014 and July 1, 2015.
|
|
(13)
|
Represents 2010 expensed
fair value of options to purchase 22,584 shares of our common stock granted February 10, 2010, with an exercise price of $0.68 per share, vesting in four equal installments on each of February 10,
2011, February 10, 2012, February 10, 2013 and February 10, 2014.
|
|
(14)
|
Ms. Comella was appointed
Chief Scientific Officer on September 24, 2010.
|
|
(15)
|
Represents 2011 expensed
fair value of options to purchase 250,000 shares of our common stock granted September 12, 2011, with an exercise price of $0.10 per share, vesting in four equal installments on each of July 1, 2012,
July 1, 2013, July 1, 2014 and July 1, 2015.
|
Our Stock Option Plans
1999 Officers and Employees Stock Option Plan and the 1999 Directors and Consultants Stock Option Plan
In December 1999, our
Board of Directors and shareholders adopted our 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan, or the Director Plan.
The Employee Plan and the Director Plan are collectively referred to herein as the Plans. The Plans are administered by the Board of Directors and the Compensation Committee. The objectives of the
Plans include attracting and retaining key personnel by encouraging stock ownership in the Company by such persons. In February 2010 the Directors & Consultants Plan was amended to extend the
termination date of the Plan to December 1, 2011.
Options Available for Issuance
There are an aggregate
of 3,088,898 shares of common stock authorized for options grants under the Plans. As of December 31, 2011, an aggregate of 566,175 shares of common stock were available for grant under the Plans.
The options to be delivered under the Plans will be made available, at the discretion of the Board of Directors, from authorized but unissued shares or outstanding options that expire or are
cancelled. If shares covered by an option cease to be issuable for any reason such number of shares will no longer count against the shares authorized under the Plans and may again be granted under
the Plans.
65
Material Terms of the Plans
The Employee Plan
provides for the grant of options to employees and officers, and the Director Plan provides for the grant of options to directors, consultants and certain other non-employees. Only the Employee Plan
permits the granting of “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or the Code, and both Plans
permit grants of “non-qualified” options (options that are not incentive stock options). As of the date of this report, all options granted to employees under the Plans are incentive
stock options and all options granted to persons other than employees are “non-qualified” options.
The Compensation
Committee recommends and the Board of Directors determines those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of
shares that may be purchased under each option and the option price, as well as other terms in their discretion. However, in no event shall an option be exercisable after the expiration of 10 years
from the date of the grant of the option. In addition, no person is entitled to be granted options to purchase more than an aggregate of 370,668 shares of our common stock pursuant to the Plans.
Unless otherwise provided in any option agreement, each outstanding option shall become fully exercisable in the event of a “change in control” (as such term is defined in the Plans). In
connection with a liquidation of the
company or any merger, reorganization or similar corporate transaction in which we are not the surviving corporation and the successor corporation does not assume our outstanding options, the
Compensation Committee or Board of Directors may cancel any options that remain unexercised effective as of the closing of such transaction.
Each option is
evidenced by an option agreement. In recommending the granting of options, the Compensation Committee takes into consideration the contribution the person has made to our success and such other
factors as the Compensation Committee shall determine. The Plans provide for circumstances under which the options shall terminate.
The option price per
share of any option shall be any price determined by the Board of Directors but shall not be less than the par value per share; provided, that in no event shall the option price per share of any
incentive stock option be less than the “Fair Market Value” (as determined under the Plans) of the shares underlying such option on the date the option is granted.
Bioheart Omnibus Equity Compensation Plan In July 2008, the Board of Directors approved, subject to shareholder approval, the
establishment of the Bioheart Omnibus Equity Compensation Plan (the “Omnibus Plan”). The establishment of the Omnibus Plan was approved by the Company’s shareholders at the Annual
Meeting of Shareholders held on July 30, 2008. Pursuant to the Omnibus Plan, the Company may grant restricted stock, incentive stock options, non-statutory stock options, stock appreciation
rights, deferred stock, stock awards, performance shares, and other stock-based awards consisting of cash, restricted stock or unrestricted stock in various combinations to the Company’s
employees, directors and consultants. 5,000,000 shares of common stock
have been reserved for issuance under the Omnibus Plan. As of December 31, 2011, options to purchase an aggregate of 4,433,825 shares of our common stock has been issued under the
Omnibus Plan.
66
Outstanding Equity Awards at Fiscal Year End
The following table
sets forth outstanding equity awards held by our Named Executive Officers as of December 31, 2011.
|
Option
|
|||||||
|
Number of Securities Underlying
|
Exercise
|
Option
|
|||||
|
Unexercised Options and Warrants
|
Price
|
Expiration
|
|||||
|
Name
|
Exercisable (#)
|
Unexercisable (#)
|
($/per share)
|
Date
|
|||
|
Howard J. Leonhardt
|
100,000
|
—
|
0.07
|
8/12/2021
|
|||
|
3,212
|
—
|
5.67
|
12/31/2015
|
||||
|
Mike Tomas
|
125,000
|
375,000
|
0.50
|
06/18/2020
|
|||
|
—
|
500,000
|
0.10
|
8/01/2021
|
||||
|
Catherine Sulawske-Guck
|
—
|
250,000
|
0.10
|
8/12/2021
|
|||
|
15,444
|
—
|
0.71
|
01/10/2014
|
||||
|
309
|
—
|
0.71
|
12/30/2015
|
||||
|
9,267
|
—
|
0.71
|
01/01/2017
|
||||
|
17,228
|
—
|
0.71
|
01/08/2019
|
||||
|
2,584
|
2,584
|
0.74
|
03/13/2019
|
||||
|
20,000
|
20,000
|
0.85
|
05/28/2019
|
||||
|
5,646
|
16,938
|
0.68
|
02/10/2020
|
||||
|
Kristin Comella
|
—
|
250,000
|
0.10
|
8/12/2021
|
|||
|
12,356
|
—
|
0.71
|
08/31/2014
|
||||
|
24,712
|
—
|
0.71
|
02/19/2005
|
||||
|
618
|
—
|
0.71
|
12/30/2015
|
||||
|
9,267
|
—
|
0.71
|
04/18/2016
|
||||
|
6,178
|
—
|
0.71
|
01/01/2017
|
||||
|
6,500
|
—
|
0.71
|
10/16/2017
|
||||
|
19,700
|
—
|
0.71
|
01/09/2019
|
||||
|
1,478
|
1,478
|
0.74
|
03/13/2019
|
||||
|
15,000
|
15,000
|
0.85
|
05/28/2019
|
||||
67
Option Exercises
In 2011, none of our
Named Executive Officers exercised any options to purchase shares of our common stock.
Pension Benefits
We do not have any plan
that provides for payments or other benefits at, following, or in connection with the retirement of any of our employees.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
We do not have any
defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Potential Payments upon Termination or Change in Control
We do not have any
contract, agreement, plan or arrangement that provides for any payment to any of our Named Executive Officers at, following, or in connection with a termination of the employment of such Named
Executive Officer, a change in control of the Company or a change in such Named Executive Officer’s responsibilities.
Director Compensation
As of December 31, 2011
we had six non-employee directors that qualified for compensation. Our non-employee directors do not receive cash compensation for their services as directors. However, it is generally our policy to
annually grant each non-employee director options to purchase shares of our common stock provided that he or she has served as a member of our Board of Directors for at least six months and one day
of the twelve month period immediately preceding the date of grant. In addition, we reimburse non-employee directors for actual out-of-pocket expenses incurred. In 2011, we granted to each
non-employee director an option to purchase 10,000 shares of common stock for each quarter served during the 2010 fiscal year. In 2011 we granted certain directors options to purchase an
aggregate of 1,310,000
additional shares of common stock for service to the company.
None of our executive
officers serves, nor served in 2011, 2010, 2009 or 2008, on the board of directors or compensation committee of another company that has any executive officer serving on our Board of Directors or
Compensation Committee.
No person who served on
our Compensation Committee in 2011 had any relationship requiring disclosure under Item 404 of Regulation S-K.
68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table
sets forth certain information as of December 31, 2011 with respect to beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our
common stock and by each of our directors and executive officers and by all of the directors and executive officers as a group. Unless otherwise indicated, the address of each of the persons below is
c/o Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325. Unless otherwise indicated in the footnotes,
shares are owned of record and beneficially by the person.
For purposes of the
following table, a person is deemed to be the beneficial owner of any shares of common stock (a) over which the person has or shares, directly or indirectly, voting or investment power, or (b) of
which the person has a right to acquire beneficial ownership at any time within 60 days after December 31, 2011. “Voting power” is the power to vote or direct the voting of shares and
“investment power” includes the power to dispose or direct the disposition of shares.
|
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of Class
|
||
|
Mike Tomas, President, CEO
and Director
|
169,738(3)
|
*
|
||
|
Howard Leonhardt, Chief
Technology Officer, Director
|
9,443,009(4)
|
9.6
|
||
|
Catherine Sulawske-Guck,
Chief Operating Officer
|
105,854(5)
|
*
|
||
|
Kristin Comella, Chief
Scientific Officer
|
95,809 (6)
|
*
|
||
|
William P. Murphy,
Director
|
13,449,236(7)
|
12.0
|
||
|
Bruce Carson, Director
|
559,413(8)
|
*
|
||
|
Richard T. Spencer, III,
Director
|
446,673(9)
|
*
|
||
|
Charles A. Hart, Director
|
4,922,160(10)
|
4.4
|
||
|
Sam Ahn, Director
|
7,415,231(11)
|
6.6
|
||
|
Mark P. Borman, Director
|
240,485(12)
|
*
|
||
|
William P. Murphy Jr. 2000
Revocable Trust
|
4,806,423 (13)
|
4.3
|
||
|
Beverly P. Murphy 2000
Revocable Trust
|
8,139,776(14)
|
7.3
|
||
|
Beverly P. Murphy
|
12,946,199(15)
|
11.5
|
||
|
Brenda Leonhardt
|
4,991,311(16)
|
4.4
|
||
|
Greg Knutson
|
8,702,745(17)
|
7.8
|
||
|
All officers and directors
as a group (10 persons)
|
26,006,803
|
35.8
|
* Less
than 1%
69
|
(1)
|
A person is deemed to
be the beneficial owner of securities that can be acquired by such person within 60 days from December 31, 2011 upon exercise of options, warrants and convertible securities. Each beneficial
owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not those held by any other person) and that are
exercisable within 60 days from December 31, 2011 have been exercised.
|
|
(2)
|
Applicable percentage
ownership is based on 95,625,236 shares of common stock outstanding (or entitled to be acquired) as of December 31, 2011.
|
|
(3)
|
Shares are held by The
Astri Group over which Mr. Tomas has shared voting and investment power. Includes 125,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.50 per
share.
|
|
(4)
|
Shares are directly and
jointly held by Mr. Leonhardt and his former spouse. Includes (i) 26,379 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share,
(ii) 100,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.07 per share, (iii) 407,738 shares issuable upon the exercise of presently
exercisable warrants at an exercise price of $7.69 per share and (iv) an aggregate of 1,030,989 shares issuable upon the exercise of presently exercisable warrants at an average exercise price
of $0.80
|
|
(5)
|
Shares are jointly
owned by Ms. Sulawske-Guck and her spouse. Includes (i) 42,248 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.71 per share (ii) 2,584 shares
issuable upon the exercise of presently exercisable stock options at an exercise price of $0.74 per share, (iii) 20,000 shares issuable upon the exercise of presently exercisable stock options
at an exercise price of $0.85 per share, (iv) 5,646 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share and (v) 5,646 shares
issuable upon the exercise of stock options exercisable as of February 10, 2012 at an exercise price of $0.68 per share.
|
|
(6)
|
Includes (i) 79,331
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.71 per share (ii) 1,478 shares issuable upon the exercise of presently exercisable stock
options at an exercise price of $0.74 per share and (iii) 15,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.85 per share.
|
|
(7)
|
Shares are directly
owned by trusts controlled by Dr. Murphy and his spouse. Includes (i) 12,356 shares issuable upon the exercise of presently exercisable stock options at an exercise price of
$5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $7.69 per share, (iii) 35,000 shares issuable upon the
exercise of presently exercisable stock options at an exercise price of $5.25 per share, (iv) 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise
price of $0.68 per share,(iv) 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.21 per share, (v) 300,000 shares issuable
upon the exercise of presently exercisable
stock options at an exercise price of $0.07 per share, (vi) 69,503 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share, (vii)
42,255 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.85 per share, (viii) 27,000 shares issuable upon the exercise of presently exercisable
warrants at an exercise price of $0.70 per share, (ix) 3,079,540 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.18 per share, and (x)
1,666,670 shares issuable upon the exercise of warrants exercisable as of January 29, 2012 at an exercise price of $0.06 per share.
|
|
(8)
|
Consists of (i) 129,734
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable
stock options at an exercise price of $7.69 per share, (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per
share and (iv) 40,000 shares issuable upon exercise of presently exercisable stock options at an exercise price of $0.68, (v) 40,000 shares issuable upon the exercise of presently exercisable
stock options at an exercise price of $0.21 per share and (vi) 100,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.07 per share.
|
|
(9)
|
Includes (i) 67,957
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable stock options
at an exercise price of $7.69 per share, (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share, (iv) 40,000 shares issuable
upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share, (v) 40,000 shares issuable upon the exercise of presently exercisable stock options at an
exercise price of $0.21 per share, (vi) 100,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.07 per share and (vii) 139,003
shares issuable upon the exercise of
presently exercisable warrants at an exercise price of $7.69 per share.
|
70
|
(10)
|
Includes (i) 20,000
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share, (ii) 50,000 shares issuable upon the exercise of presently exercisable stock options
at an exercise price of $0.92 per share, (iii) 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.21 per share, (iv)
460,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.07 per share, (v)) 183,672 shares issuable upon the exercise of presently
exercisable warrants at an exercise price of $0.59 per share, (vi) 26,316 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.68 per share, (vii) 22,059
shares issuable upon the exercise of presently
exercisable warrants at an exercise price of $0.82 per share, (viii) 108,963 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.64 per share, and (ix)
428,100 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.18 per share.
|
|
(11)
|
Includes (i) 67,956
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable stock options
at an exercise price of $7.69 per share, (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share, (iv) 10,000 shares
issuable upon the exercise of presently exercisable stock options at an exercise price of $0.21 per share and (v) 100,000 shares issuable upon the exercise of presently exercisable stock
options at an exercise price of $0.07 per share (vi) 34,752 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share , (vii) 497,373 shares
issuable upon the exercise of presently
exercisable warrants at an exercise price of $0.65 per share, (viii) 209,508 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.14 per share, and (ix)
364,302 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.15 per share.
|
|
(12)
|
Includes (i) 20,000
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share, (ii ) 40,000 shares issuable upon the exercise of presently exercisable stock
options at an exercise price of $0.21 per share, (iii) 150,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.07 per share and (iv)
7,035 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 per share.
|
|
(13)
|
Shares are held by
William P Murphy Jr. 2000 Revocable Trust over which Dr. Murphy has shared voting and investment power. Includes (i) 21,126 shares issuable upon the exercise of presently exercisable warrants at an
exercise price of $0.85 per share, (ii) 13,500 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 per share and (iii) 1,539,770 shares issuable upon the
exercise of presently exercisable warrants at an exercise price of $0.18 per share
|
|
(14)
|
Shares are held by
Beverly P Murphy 2000 Revocable Trust over which Dr. Murphy has shared voting and investment power. Includes (i) 21,129 shares issuable upon the exercise of presently exercisable warrants at an
exercise price of $0.85 per share, (ii) 13,500 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 per share, (iii) 1,539,770 shares issuable upon the
exercise of presently exercisable warrants at an exercise price of $0.18 per share, and (iv) 1,666,670 shares issuable upon the exercise of warrants exercisable as of January 29, 2012 at an exercise
price of $0.06 per share.
|
|
(15)
|
Shares are held by the
Beverly P Murphy 2000 Revocable Trust & the William P Murphy Jr. 2000 Revocable Trust over which Mrs. Murphy has shared voting and investment power. Includes (i) 42,255 shares issuable upon the
exercise of presently exercisable warrants at an exercise price of $0.85 per share, (ii) 27,000 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 per
share, (iii) 3,079,540 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.18 per share, and (iv) 1,666,670 shares issuable upon the exercise of warrants
exercisable as of January 29, 2012 at an exercise price of $0.06 per share.
|
|
(16)
|
Shares are jointly held
by Mrs. Leonhardt and her former spouse. Includes 407,738 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share.
|
|
(17)
|
Includes (i) 222,220
shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.18 per share, (ii ) 78,125 shares issuable upon the exercise of presently exercisable stock
options at an exercise price of $0.19 per share, (iii) 23,810 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.25 per share, (iv)
16,668 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.54 per share, (v) 16,980 shares issuable upon the exercise of presently exercisable stock
options at an exercise price of $0.64 per share, (vi) 11,718 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.77 per share, (vii) 28,845 shares
issuable upon the exercise of presently
exercisable stock options at an exercise price of $0.78 per share, (viii) 20,832 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.86 per share, (ix)
20,736 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $2.60 per share and (x) 1,935,490 shares issuable upon the exercise of stock options
exercisable as of January 6, 2012 at an exercise price of $0.031 per share.
|
71
PLAN
OF DISTRIBUTION
The Selling Stockholder
may, from time to time, sell any or all of its Resale Shares on the OTCBB or any other stock exchange, market or trading facility on which the shares of Common Stock are traded or in private
transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling Resale Shares:
|
●
|
ordinary brokerage transactions and
transactions in which a broker-dealer solicits purchasers;
|
|
|
●
|
block trades in which a broker-dealer
will attempt to sell Resale Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
|
●
|
purchases by a broker-dealer as
principal and resale by the broker-dealer for its account;
|
|
|
●
|
an exchange distribution in
accordance with the rules of the applicable exchange;
|
|
|
●
|
privately negotiated transactions;
|
|
|
●
|
broker-dealers may agree with the
Selling Stockholder to sell a specified number of such Resale Shares at a stipulated price per share;
|
|
|
●
|
through the writing or settlement of
options or other hedging transactions, whether through an options exchange or otherwise;
|
|
|
●
|
a combination of any such methods of
sale; or
|
|
|
●
|
any other method permitted pursuant
to applicable law.
|
|
The Selling Stockholder
may also sell Resale Shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged
by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer
acts as agent for the purchaser of Resale Shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction
not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.
In connection with the
sale of the Resale Shares or interests therein, the Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short
sales of the Common Stock in the course of hedging the positions they assume. The Selling Stockholder may also enter into option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require the delivery to such broker-dealers or other financial institutions of Resale Shares offered by this prospectus, which
Resale Shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
GCP is, and any
broker-dealer or agent that is involved in selling the Resale Shares may be deemed to be, an “underwriter” within the meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit on the sale of the Resale Shares purchased by them may be deemed to be underwriting commissions or discounts under the
Securities Act. The Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common
Stock. In no event shall any broker-dealer receive fees, commissions or markups which, in the aggregate, would exceed eight percent (8%) of the amount of the relevant sale.
The Company is required
to pay certain fees and expenses incurred by the Company incident to the registration of the Resale Shares. The Company has agreed to indemnify the Selling Stockholder against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
72
Because GCP is an
“underwriter” within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or
coordinating broker acting in connection with the proposed sale of the Resale Shares by the Selling Stockholder.
We agreed to keep this
prospectus effective until the earlier of (i) the date on which the Resale Shares may be resold by the Selling Stockholder without registration and without regard to any volume limitations by reason
of Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the Resale Shares have been resold pursuant to this prospectus or Rule 144 under the Securities Act or any
other rule of similar effect. The Resale Shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states,
the Resale Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is
complied with.
Under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution of the Resale Shares may not simultaneously engage in market making activities with respect to the Common Stock for the
applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the Selling Stockholder or any other
person. We will make copies of this prospectus available to the Selling Stockholder and have informed them of the need to deliver a copy of this prospectus to each purchaser of Resale
Shares at or prior to the time of the
sale (including by compliance with Rule 172 under the Securities Act).
The following is a
summary of the material provisions of our Common Stock, and our restated certificate of incorporation and bylaws, all as in effect as of the date of this prospectus. You should also refer to our
restated certificate of incorporation, and bylaws, which have been filed with the SEC as exhibits to the Registration Statement of which this prospectus is a part.
Our total authorized
capital stock is 200,000,000 shares of which 195,000,000 shares are Common Stock par value $0.001 per share and 5,000,000 shares are Preferred Stock par value $0.001 per share.
Common Stock
As of December 31,
2011, there were 95,625,236 shares of Common Stock issued and outstanding.
The holders of our
Common Stock are entitled to one vote per share on all matters to be voted on by our stockholders, including the election of directors. Our stockholders are not entitled to cumulative voting rights,
and, accordingly, the holders of a majority of the shares voting for the election of directors can elect the entire board of directors if they choose to do so and, in that event, the holders of the
remaining shares will not be able to elect any person to our board of directors.
The holders of the
Company’s Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors, in its discretion, from funds legally available
there for and subject to prior dividend rights of holders of any shares of our Preferred Stock which may be outstanding. Upon the Company’s liquidation, dissolution or winding up, subject to
prior liquidation rights of the holders of our Preferred Stock, if any, the holders of our Common Stock are entitled to receive on a pro rata basis our remaining assets available for distribution.
Holders of the Company’s Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares.
All outstanding shares of the
Company’s Common Stock are, and all shares being offered by this prospectus will be, fully paid and not liable to further calls or assessment by the Company.
73
The Transfer Agent for
our Common Stock is Continental Stock Transfer and
Trust Company, 17 Battery Place, New York, New York 10004.
The validity of our
Common Stock offered hereby will be passed upon by
Sichenzia Ross Friedman Ference LLP, New York, New York.
Our consolidated
financial statements as of December 31,
2010 and for the year then ended, appearing in this prospectus and registration statement have been so included in reliance on the Report of RBSM, LLP, independent registered public accounting firm,
appearing elsewhere in this prospectus, given on the authority of such firm as experts in accounting and auditing. Although an audit report was issued on the Company’s 2009 financial statements
and is included in our filings,
the auditor who prepared the report has not provided its consent to use of its report in this registration statement
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Under our Certificate
of Incorporation, our directors will not be
personally liable to us or to our shareholders for monetary damages for any breach of their fiduciary duty as a director, except liability for the following:
| ● |
Any breach of their duty of loyalty
to our Company or to our stockholders.
|
| ● |
Acts or omissions not in good faith
or which involve intentional misconduct or a
knowing violation of law.
|
| ● |
Unlawful payments of dividends or
unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law.
|
| ● |
Any transaction from which the
director derived an improper personal benefit.
|
We believe that these
limitation of liability provisions are necessary to attract and retain qualified persons as directors and officers.
The limitation of
liability provisions in our Certificate of Incorporation may discourage shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the
likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders.
Insofar as
indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
74
WHERE
YOU CAN FIND MORE INFORMATION
We are filing with the
SEC a Registration Statement on Form S-1 under the Securities Act, of which this prospectus is a part, covering the securities being offered by the Selling Stockholder. As permitted by the SEC,
this prospectus does not contain all of the information set forth in the Registration Statement or the exhibits and schedules filed therewith. For further information with respect to us and the
securities covered by this prospectus, please see the Registration Statement and the exhibits filed with the Registration Statement. A copy of the Registration Statement and the exhibits filed with
the Registration Statement may be inspected without charge at the Public Reference Room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549. Please call the
SEC at 1-800-732-0330 for more
information about the operation of the Public Reference Room. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the website is www.sec.gov.
We are subject to the
information and periodic reporting requirements of the Exchange Act, and, in accordance therewith, we file periodic reports, proxy statements and other information with the SEC. Such periodic
reports, proxy statements and other information are available for inspection and copying at the Public Reference Room and website of the SEC referred to above.
75
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Reports of Independent
Registered Public Accounting Firm
|
F-2 | |||
|
Consolidated Balance
Sheets as of December 31, 2010 and 2009
|
F-4 | |||
|
Consolidated Statements
of Operations for the years ended December 31, 2010 and 2009 and the cumulative period from August 12, 1999 (date of inception) to December 31, 2010
|
F-5 | |||
|
Consolidated Statement of
Shareholders’ (Deficit) Equity for the period from August 12, 1999 (date of inception) through December 31, 2010
|
F-6 | |||
|
Consolidated Statements
of Cash Flows for the years ended December 31, 2010 and 2009 and the cumulative period from August 12, 1999 (date of inception) to December 31, 2010
|
F-11 | |||
|
Notes to Consolidated
Financial Statements
|
F-12 | |||
|
Condensed Consolidated
Balance Sheets – September 30, 2011 (Unaudited) and December 31, 2010
|
F-44 | |||
|
Unaudited Condensed
Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2011, September 30, 2010 and the period from August 12, 1999 (date of inception) to September 30, 2011
|
F-45 | |||
|
Unaudited Condensed
Consolidated Statements of Stockholders Deficit –Nine Months Ended September 30, 2011
|
F-46 | |||
|
Unaudited Condensed
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2011, September 30, 2010 and the period from August 12, 1999 (date of inception) to September 30, 2011
|
F-47 | |||
|
Notes to Unaudited
Condensed Consolidated Financial Statements
|
F-49 |
76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Shareholders of
Bioheart, Inc.
13794 NW 4th Street,
Suite 212,
Sunrise, Florida
33325
We have audited the
accompanying consolidated balance sheet of Bioheart, Inc. and its wholly owned subsidiaries (the "Company") (a development stage company) as of December 31, 2010, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for the year ended December 31, 2010 and for the
period from August 12, 1999 (date of inception) through December 31, 2010. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company for the period from August
12, 1999 (date of inception) to December 31, 2009 were not
audited by us. Those statements were audited by other auditors who have ceased operations and whose report, dated March 31, 2010, except for Note 2, as to which the date is May 10, 2011,
expressed an unqualified opinion on those statements and included an explanatory paragraph regarding the Company's ability to continue as a going concern. The consolidated financial statements for
the period from August 12, 1999 (date of inception) to December 31, 2009 reflect a net loss after restatement of $ 101,164,765. Our opinion, insofar as it relates to the amounts included
for such prior periods as indicated in the accompanying financial statements for such periods from August 12, 1999 (date of inception) through December 31, 2009, is based solely on the report
of such other auditors.
We conducted our audit
in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). 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 is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based
on our audit, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bioheart, Inc. and its wholly owned subsidiaries (a
development stage enterprise) as of December 31, 2010, and the results of their operations and their cash flows for the year ended December 31, 2010, and for the period from August
12, 1999 (date of inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying
consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company is in the
development stage, and has incurred net losses of $ 106,324,220 since inception. In addition, as of December 31, 2010 the Company’s current liabilities exceed its current assets by $11,099,660.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RBSM LLP
New York, New York
May 10, 2011
F-2
PROVIDED BELOW IS A COPY OF THE ACCOUNTANT’S REPORT ISSUED BY JEWETT,
SCHWARTZ, WOLFE & ASSOCIATES (“JSW”), OUR FORMER INDEPENDENT PUBLIC ACCOUNTANTS, IN CONNECTION WITH THE FILING OF OUR ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009. THIS AUDIT REPORT IS A COPY OF THE PREVIOUSLY ISSUED REPORT AND HAS NOT BEEN
REISSUED BY JSW IN CONNECTION WITH THE FILING OF THIS REGISTRATION STATEMENT ON FORM S-1. JSW HAS NOT PROVIDED ITS CONSENT TO THE
USE OF ITS REPORT IN THIS REGISTRATION STATEMENT ACCORDINGLY, INVESTORS MAY NOT BE ABLE TO BRING AN ACTION AGAINST JSW PURSUANT TO
THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 WITH RESPECT TO SUCH REPORT OR WITH RESPECT TO THIS REGISTRATION
STATEMENT AND, THEREFORE, ANY RECOVERY FROM JSW MAY BE LIMITED. THE FOREGOING LIMITATIONS RESPECTING JSW IN NO WAY LIMITS INVESTORS’
RIGHT OF ACTION AGAINST OR RECOVERY FROM THE COMPANY.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Stockholders of
Bioheart, Inc.
13794 NW 4th
Street, Suite 212,
Sunrise, Florida
33325
We have audited the
accompanying consolidated balance sheet of Bioheart, Inc. and its wholly owned subsidiaries (the “Company”), a development stage company as of December 31, 2009, and the related
consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the year ended December 31, 2009 and for the period from August 12, 1999 (date of inception)
through December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We have conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). 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 is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bioheart, Inc. as of December 31, 2009, and the consolidated
results of its operations and its cash flows for the year ended December 31, 2009 and for the period August 12, 1999 (date of inception) through December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
As described in Note 2
to the financial statements, the Company restated its financial statements for the above periods primarily for correcting the application of accounting principles in the recognition of debt discounts
as a result of share based consideration given to certain debt holders.
The accompanying
consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the accompanying consolidated financial statements, the
Company has suffered recurring losses and is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this matter are described in Note 3. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Jewett, Schwartz,
Wolfe & Associates
Jewett, Schwartz,
Wolfe & Associates
Hollywood,
Florida
March 31, 2010,
except for Note 2 as of May 10, 2011
F-3
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND 2009
|
2010
|
(Restated)
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 3,298 | $ | 75,031 | ||||
|
Accounts receivable, net
|
1,266 | 142,279 | ||||||
|
Inventory
|
153,617 | 199,914 | ||||||
|
Prepaid and other
|
34,322 | 25,729 | ||||||
|
Total current
assets
|
192,503 | 442,953 | ||||||
|
Property and equipment,
net
|
47,439 | 104,397 | ||||||
|
Other assets
|
68,854 | 68,854 | ||||||
|
Total assets
|
$ | 308,796 | $ | 616,204 | ||||
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 2,050,161 | $ | 1,911,893 | ||||
|
Accrued expenses
|
3,581,445 | 3,530,246 | ||||||
|
Advances, related party
|
238,000 | - | ||||||
|
Deferred revenue
|
465,286 | 507,281 | ||||||
|
Subordinated debt, related
party
|
1,500,000 | - | ||||||
|
Notes payable, related
party
|
225,000 | - | ||||||
|
Notes payable, net of debt
discount
|
3,232,271 | 2,817,748 | ||||||
|
Total current
liabilities
|
11,292,163 | 8,767,168 | ||||||
|
Long term debt:
|
||||||||
|
Deferred rent
|
- | 857 | ||||||
|
Subordinated debt, related
party
|
- | 3,000,000 | ||||||
|
Note payable, long term
|
1,032,827 | 2,276,543 | ||||||
|
Total long term debt
|
1,032,827 | 5,277,400 | ||||||
|
Total liabilities
|
12,324,990 | 14,044,568 | ||||||
|
Commitments and
contingencies
|
||||||||
|
Stockholders'
deficit:
|
||||||||
|
Preferred stock, par value
$0.001; 5,000,000 shares authorized, none issued and outstanding as of December 31, 2010 and 2009
|
- | - | ||||||
|
Common stock, par value
$0.001; 75,000,000 shares authorized, 37,545,865 and 20,035,684 shares issued and outstanding as or December 31, 2010 and 2009
|
37,545 | 20,036 | ||||||
|
Additional paid in capital
|
94,274,281 | 87,775,900 | ||||||
|
Subscriptions receivable
|
(3,800 | ) | (59,536 | ) | ||||
|
Deficit accumulated during
development stage
|
(106,324,220 | ) | (101,164,764 | ) | ||||
|
Total stockholders'
deficit
|
(12,016,194 | ) | (13,428,364 | ) | ||||
|
Total liabilities and
stockholders' deficit
|
$ | 308,796 | $ | 616,204 | ||||
See the accompanying
notes to these consolidated financial statements
F-4
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Restated)
From August
12, 1999 |
||||||||||||
|
Year ended December 31,
|
(date of
|
|||||||||||
|
(Restated)
|
Inception) to
|
|||||||||||
|
2010
|
2009
|
December 31,
2010 |
||||||||||
|
Revenue
|
$
|
46,383
|
$
|
359,800
|
$
|
1,191,056
|
||||||
|
Cost of sales
|
19,765
|
205,014
|
550,140
|
|||||||||
|
Gross profit
|
26,618
|
154,786
|
640,916
|
|||||||||
|
Operating expenses:
|
||||||||||||
|
Research and development
|
1,467,078
|
(508,811
|
)
|
63,825,651
|
||||||||
|
Marketing, general and
administrative
|
1,768,612
|
2,259,521
|
32,532,937
|
|||||||||
|
Depreciation and
amortization
|
56,958
|
177,398
|
851,362
|
|||||||||
|
Total operating
expenses
|
3,292,648
|
1,928,108
|
97,209,950
|
|||||||||
|
Net loss from operations
|
(3,266,030
|
)
|
(1,773,322
|
)
|
(96,569,034
|
)
|
||||||
|
Other income (expenses):
|
||||||||||||
|
Development revenues
|
-
|
-
|
117,500
|
|||||||||
|
Interest income
|
2
|
21
|
762,277
|
|||||||||
|
Other income
|
245,554
|
-
|
245,554
|
|||||||||
|
Interest expense
|
(2,138,982
|
)
|
(2,662,455
|
)
|
(10,880,517
|
)
|
||||||
|
Total other income
(expenses)
|
(1,893,426
|
)
|
(2,662,434
|
)
|
(9,755,186
|
)
|
||||||
|
Net loss before income
taxes
|
(5,159,456
|
)
|
(4,435,756
|
)
|
(106,324,220
|
)
|
||||||
|
Income taxes (benefit)
|
-
|
-
|
-
|
|||||||||
|
NET LOSS
|
$
|
(5,159,456
|
)
|
$
|
(4,435,756
|
)
|
$
|
(106,324,220
|
)
|
|||
|
Net loss per common share,
basic and diluted
|
$
|
(0.19
|
)
|
$
|
(0.25
|
)
|
||||||
|
Weighted average number of
common shares outstanding, basic and diluted
|
27,167,539
|
17,647,210
|
||||||||||
See the accompanying
notes to these consolidated financial statements
F-5
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM
AUGUST 12, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2010
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Preferred stock
|
Common stock
|
Additional Paid in
|
Deferred
|
Subscription
|
During Development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Receivable
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balance, August 12, 1999
(date of inception)
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
|
Issuance of common stock
|
- | - | 4,324,458 | 4,324 | 395,676 | - | - | - | 400,000 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 98,000 | (98,000 | ) | - | - | - | ||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 49,000 | - | - | 49,000 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (903,290 | ) | (903,290 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 1999
|
- | - | 4,324,458 | 4,324 | 493,676 | (49,000 | ) | - | (903,290 | ) | (454,290 | ) | ||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $61,905
|
- | - | 1,493,575 | 1,494 | 9,607,201 | - | - | - | 9,608,695 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 2,559,000 | (2,559,000 | ) | - | - | - | ||||||||||||||||||||||||||
|
Fair value of warrants
issued in exchange for licenses and intellectual property
|
- | - | - | - | 5,220,000 | - | - | - | 5,220,000 | |||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 1,080,692 | - | - | 1,080,692 | |||||||||||||||||||||||||||
|
Contributed capital
|
- | - | - | - | 1,050,000 | - | - | - | 1,050,000 | |||||||||||||||||||||||||||
|
Common stock issued in
exchange for services
|
- | - | 7,964 | 8 | 51,993 | - | - | - | 52,001 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (14,113,933 | ) | (14,113,933 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2000
|
- | - | 5,825,997 | 5,826 | 18,981,870 | (1,527,308 | ) | - | (15,017,223 | ) | 2,443,165 | |||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $98,996
|
- | - | 985,667 | 986 | 6,282,018 | - | - | - | 6,283,004 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 779,000 | (779,000 | ) | - | - | - | ||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 1,523,000 | - | - | 1,523,000 | |||||||||||||||||||||||||||
|
Conversion of contributed
capital to common stock
|
- | - | 81,084 | 81 | (81 | ) | - | - | - | - | ||||||||||||||||||||||||||
|
Common stock issued in
exchange for services
|
- | - | 8,291 | 8 | 53,993 | - | - | - | 54,001 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (8,173,464 | ) | (8,173,464 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2001
|
- | $ | - | 6,901,039 | $ | 6,901 | $ | 26,096,800 | $ | (783,308 | ) | $ | - | $ | (23,190,687 | ) | $ | 2,129,706 | ||||||||||||||||||
See the accompany notes
to these consolidated financial statements
F-6
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM
AUGUST 12, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2010
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Preferred stock
|
Common stock
|
Additional Paid in
|
Deferred
|
Subscription
|
During Development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Receivable
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balance, December 31, 2001
|
- | $ | - | 6,901,039 | $ | 6,901 | $ | 26,096,800 | $ | (783,308 | ) | $ | - | $ | (23,190,687 | ) | $ | 2,129,706 | ||||||||||||||||||
|
Issuance of common stock
|
- | - | 1,092,883 | 1,093 | 7,075,105 | - | - | - | 7,076,198 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 143,521 | (143,521 | ) | - | - | - | ||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 613,083 | - | - | 613,083 | |||||||||||||||||||||||||||
|
Common stock issued in
exchange for services
|
- | - | 35,137 | 35 | 227,468 | - | - | - | 227,503 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (9,257,954 | ) | (9,257,954 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2002
|
- | - | 8,029,059 | 8,029 | 33,542,894 | (313,746 | ) | - | (32,448,641 | ) | 788,536 | |||||||||||||||||||||||||
|
Issuance of common stock
|
- | - | 561,701 | 562 | 3,181,712 | - | - | - | 3,182,274 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | (155,893 | ) | 155,893 | - | - | - | ||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 79,371 | - | - | 79,371 | |||||||||||||||||||||||||||
|
Common stock issued in
exchange for services
|
- | - | 144,300 | 144 | 823,743 | - | - | - | 823,887 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (6,037,528 | ) | (6,037,528 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2003
|
- | - | 8,735,060 | 8,735 | 37,392,456 | (78,482 | ) | - | (38,486,169 | ) | (1,163,460 | ) | ||||||||||||||||||||||||
|
Issuance of common stock
|
- | - | 808,570 | 809 | 4,580,104 | - | - | - | 4,580,913 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 637,858 | (637,858 | ) | - | - | - | ||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 148,812 | - | - | 148,812 | |||||||||||||||||||||||||||
|
Common stock issued in
exchange for services
|
- | - | 17,004 | 17 | 96,314 | - | - | - | 96,331 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (5,519,151 | ) | (5,519,151 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2004
|
- | - | 9,560,634 | 9,561 | 42,706,732 | (567,528 | ) | - | (44,005,320 | ) | (1,856,555 | ) | ||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $32,507
|
- | - | 1,994,556 | 1,994 | 11,265,560 | - | - | - | 11,267,554 | |||||||||||||||||||||||||||
|
Issuance of common stock
in lieu of cash compensation
|
- | - | 1,210 | 1 | 6,852 | - | - | - | 6,853 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 1,566,147 | (1,566,147 | ) | - | - | - | ||||||||||||||||||||||||||
|
Amortization of stock
based compensation
|
- | - | - | - | - | 1,952,350 | - | - | 1,952,350 | |||||||||||||||||||||||||||
|
Issuance of common stock
in exchange for release of accrued liabilities
|
- | - | 95,807 | 96 | 542,691 | - | - | - | 542,787 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (7,326,557 | ) | (7,326,557 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2005
|
- | $ | - | 11,652,207 | $ | 11,652 | $ | 56,087,982 | $ | (181,325 | ) | $ | - | $ | (51,331,877 | ) | $ | 4,586,432 | ||||||||||||||||||
See the accompany notes
to these consolidated financial statements
F-7
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM
AUGUST 12, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2010
|
Preferred stock
|
Common stock
|
Additional Paid in
|
Deferred
|
Subscription
|
Deficit Accumulated
During Development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Receivable
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balance, December 31, 2005
|
—
|
$
|
—
|
11,652,207
|
$
|
11,652
|
$
|
56,087,982
|
$
|
(181,325
|
)
|
$
|
—
|
$
|
(51,331,877
|
)
|
$
|
4,586,432
|
||||||||||||||||||
|
Reclassification of
deferred compensation due to adoption of SFAS No. 123 (R)
|
—
|
—
|
—
|
—
|
(181,325
|
)
|
181,325
|
—
|
—
|
—
|
||||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $100,038
|
—
|
—
|
1,069,699
|
1,069
|
8,123,623
|
—
|
—
|
—
|
8,124,692
|
|||||||||||||||||||||||||||
|
Equity instruments issued
in connection with settlement agreement
|
—
|
—
|
47,657
|
48
|
3,294,381
|
—
|
—
|
—
|
3,294,429
|
|||||||||||||||||||||||||||
|
Common stock issued in
exchange for services
|
—
|
—
|
2,903
|
3
|
16,440
|
—
|
—
|
—
|
16,443
|
|||||||||||||||||||||||||||
|
Common stock issued in
exchange for distribution rights and intellectual property
|
—
|
—
|
13,006
|
13
|
99,984
|
—
|
—
|
—
|
99,997
|
|||||||||||||||||||||||||||
|
Warrants issued in
exchange for licenses and intellectual property
|
—
|
—
|
—
|
—
|
144,867
|
—
|
—
|
—
|
144,867
|
|||||||||||||||||||||||||||
|
Stock based compensation
|
—
|
—
|
—
|
—
|
1,224,430
|
—
|
—
|
—
|
1,224,430
|
|||||||||||||||||||||||||||
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(13,180,646
|
)
|
(13,180,646
|
)
|
|||||||||||||||||||||||||
|
Balance, December 31, 2006
|
—
|
—
|
12,785,472
|
12,785
|
68,810,382
|
—
|
—
|
(64,512,523
|
)
|
4,310,644
|
||||||||||||||||||||||||||
|
Issuance of common
stock,net of issuance costs of $150,000
|
—
|
—
|
529,432
|
530
|
3,920,186
|
—
|
—
|
—
|
3,920,716
|
|||||||||||||||||||||||||||
|
Exercise of stock options
|
—
|
—
|
31,955
|
32
|
181,008
|
—
|
—
|
—
|
181,040
|
|||||||||||||||||||||||||||
|
Warrants issued in
connection with notes payable
|
—
|
—
|
—
|
—
|
3,162,488
|
—
|
—
|
—
|
3,162,488
|
|||||||||||||||||||||||||||
|
Warrants issued in
exchange for services
|
—
|
—
|
—
|
—
|
30,559
|
—
|
—
|
—
|
30,559
|
|||||||||||||||||||||||||||
|
Warrants issued in
exchange for licenses and intellectual property
|
—
|
—
|
—
|
—
|
48,289
|
—
|
—
|
—
|
48,289
|
|||||||||||||||||||||||||||
|
Shares issued in
connection with reverse stock split
|
—
|
—
|
279
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||
|
Stock based compensation
|
—
|
—
|
—
|
—
|
931,233
|
—
|
—
|
—
|
931,233
|
|||||||||||||||||||||||||||
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(18,067,084
|
)
|
(18,067,084
|
)
|
|||||||||||||||||||||||||
|
Balance, December 31, 2007
|
—
|
$
|
—
|
13,347,138
|
$
|
13,347
|
$
|
77,084,145
|
$
|
—
|
$
|
—
|
$
|
(82,579,607
|
)
|
$
|
(5,482,115
|
)
|
||||||||||||||||||
See the accompany notes to these consolidated financial statements
F-8
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM
AUGUST 12, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2010
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Preferred stock
|
Common stock
|
Additional Paid in
|
Deferred
|
Subscription
|
During Development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Receivable
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balance, December 31, 2007
|
- | $ | - | 13,347,138 | $ | 13,347 | $ | 77,084,145 | $ | - | $ | - | $ | (82,579,607 | ) | $ | (5,482,115 | ) | ||||||||||||||||||
|
Initial public offering of
common stock, net of offering costs of $4,327,171
|
- | - | 1,100,000 | 1,100 | 1,446,729 | - | - | - | 1,447,829 | |||||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $24,325
|
- | - | 1,230,280 | 1,230 | 2,117,275 | - | - | - | 2,118,505 | |||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 1,320,995 | - | - | - | 1,320,995 | |||||||||||||||||||||||||||
|
Warrants issued in
exchange for services
|
- | - | - | - | 251,850 | - | - | - | 251,850 | |||||||||||||||||||||||||||
|
Warrants issued in
exchange for notes payable
|
- | - | - | - | 168,387 | - | - | - | 168,387 | |||||||||||||||||||||||||||
|
Warrants issued in
connection with settlement agreement
|
- | - | - | - | 87,200 | - | - | - | 87,200 | |||||||||||||||||||||||||||
|
Exercise of stock options
|
- | - | 61,778 | 62 | 79,014 | - | - | - | 79,076 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (14,149,401 | ) | (14,149,401 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2008
|
- | - | 15,739,196 | 15,739 | 82,555,595 | - | - | (96,729,008 | ) | (14,157,674 | ) | |||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $13,664
|
- | - | 2,680,230 | 2,682 | 1,857,140 | - | - | - | 1,859,822 | |||||||||||||||||||||||||||
|
Subscription receivable
|
- | - | 85,090 | 85 | 59,451 | - | (59,536 | ) | - | - | ||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 296,838 | - | - | - | 296,838 | |||||||||||||||||||||||||||
|
Common stock in exchange
for services
|
- | - | 45,000 | 45 | 45,855 | - | - | - | 45,900 | |||||||||||||||||||||||||||
|
Common stock issued in
connection with the settlement of accounts payable
|
- | - | 519,460 | 519 | 456,275 | - | - | - | 456,794 | |||||||||||||||||||||||||||
|
Common stock issued in
connection with issuance of note payable
|
- | - | 320,000 | 320 | 297,681 | - | - | - | 298,001 | |||||||||||||||||||||||||||
|
Common stock issued upon
conversion of notes payable
|
- | - | 606,708 | 606 | 261,618 | - | - | - | 262,224 | |||||||||||||||||||||||||||
|
Warrants issued in
connection with notes payable
|
- | - | - | - | 1,913,487 | - | - | - | 1,913,487 | |||||||||||||||||||||||||||
|
Exercise of stock options
|
- | - | 40,000 | 40 | 31,960 | - | - | - | 32,000 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (4,435,756 | ) | (4,435,756 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2009
|
- | $ | - | 20,035,684 | $ | 20,036 | $ | 87,775,900 | $ | - | $ | (59,536 | ) | $ | (101,164,764 | ) | $ | (13,428,364 | ) | |||||||||||||||||
See the accompany notes
to these consolidated financial statements
F-9
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM
AUGUST 12, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2010
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Preferred stock
|
Common stock
|
Additional Paid in
|
Deferred
|
Subscription
|
During Development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Receivable
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
- | $ | - | 20,035,684 | $ | 20,036 | $ | 87,775,900 | $ | - | $ | (59,536 | ) | $ | (101,164,764 | ) | $ | (13,428,364 | ) | |||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $2,950
|
- | - | 11,334,705 | 11,335 | 2,328,929 | - | 59,536 | - | 2,399,800 | |||||||||||||||||||||||||||
|
Subscription receivable
|
- | - | 20,000 | 20 | 3,780 | - | (3,800 | ) | - | - | ||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 248,457 | - | - | - | 248,457 | |||||||||||||||||||||||||||
|
Common stock in exchange
for services
|
- | - | 529,520 | 529 | 359,503 | - | - | - | 360,032 | |||||||||||||||||||||||||||
|
Option exercised for
accounts payable
|
- | - | 831,526 | 831 | 411,829 | - | - | - | 412,660 | |||||||||||||||||||||||||||
|
Common stock issued in
connection with bank guarantor liabilities
|
- | - | 4,794,430 | 4,794 | 2,960,576 | - | - | - | 2,965,370 | |||||||||||||||||||||||||||
|
Warrants issued in
connection with notes payable
|
- | - | - | - | 185,307 | - | - | - | 185,307 | |||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (5,159,456 | ) | (5,159,456 | ) | |||||||||||||||||||||||||
|
Balance, December
31, 2010
|
- | $ | - | 37,545,865 | $ | 37,545 | $ | 94,274,281 | $ | - | $ | (3,800 | ) | $ | (106,324,220 | ) | $ | (12,016,194 | ) | |||||||||||||||||
See the accompany notes
to these consolidated financial statements
F-10
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
From August 12,
|
||||||||||||
|
1999 (date of
|
||||||||||||
|
Year ended December 31,
|
Inception) to
|
|||||||||||
|
2010
|
2009
|
December 31, 2010
|
||||||||||
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
(Restated)
|
(Restated)
|
||||||||||
|
Net loss
|
$ | (5,159,456 | ) | $ | (4,435,756 | ) | $ | (106,324,220 | ) | |||
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation and
amortization
|
56,958 | 177,398 | 851,362 | |||||||||
|
Bad debt expense
|
- | - | 165,000 | |||||||||
|
Discount on convertible
debt
|
- | 262,224 | 262,224 | |||||||||
|
Amortization of warrants
issued in exchange for licenses and intellectual property
|
- | - | 5,413,156 | |||||||||
|
Amortization of warrants
issued in connection with notes payable
|
975,969 | 972,348 | 5,064,100 | |||||||||
|
Amortization of loan costs
|
72,262 | 214,581 | 1,215,583 | |||||||||
|
Warrants issued in
exchange for services
|
- | - | 285,659 | |||||||||
|
Equity instruments issued
in connection with R&D agreement
|
360,032 | - | 360,032 | |||||||||
|
Equity instruments issued
in connection with settlement agreement
|
- | - | 3,381,629 | |||||||||
|
Common stock issued in
connection with accounts payable
|
412,660 | 242,722 | 655,382 | |||||||||
|
Common stock issued in
exchange for services
|
- | 45,900 | 1,322,917 | |||||||||
|
Common stock issued in
connection with amounts due to guarantors of Bank of America loan
|
69,159 | - | 69,159 | |||||||||
|
Common stock issued in
exchange for distribution rights and intellectual property
|
- | - | 99,997 | |||||||||
|
Warrants issued in
connection with accounts payable
|
- | 7,758 | 7,758 | |||||||||
|
Stock based compensation
|
248,457 | 296,838 | 9,465,014 | |||||||||
|
(Increase) decrease in:
|
||||||||||||
|
Receivables
|
141,013 | (85,020 | ) | (1,265 | ) | |||||||
|
Inventory
|
46,297 | 195,119 | (153,618 | ) | ||||||||
|
Prepaid and other current
assets
|
(8,592 | ) | 698,153 | (34,321 | ) | |||||||
|
Other assets
|
- | 40,000 | (28,854 | ) | ||||||||
|
Increase (decrease) in:
|
||||||||||||
|
Accounts payable
|
133,038 | 810,095 | 2,634,279 | |||||||||
|
Accrued expenses and
deferred rent
|
799,952 | (1,510,555 | ) | 4,648,840 | ||||||||
|
Deferred revenue
|
(41,995 | ) | 41,995 | 465,287 | ||||||||
|
Net cash used in
operating activities
|
(1,894,245 | ) | (2,026,200 | ) | (70,174,899 | ) | ||||||
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||
|
Acquisitions of property
and equipment
|
- | (688 | ) | (898,800 | ) | |||||||
|
Net cash used in
investing activities
|
- | (688 | ) | (898,800 | ) | |||||||
|
CASH FLOWS FROM FINANCING
ACTIVITES:
|
||||||||||||
|
Proceeds from issuance of
common stock, net
|
2,399,800 | 1,859,822 | 61,872,175 | |||||||||
|
Proceeds from (payments
for) initial public offering of common stock, net
|
- | - | 1,447,829 | |||||||||
|
Proceeds from subordinated
related party note
|
- | 3,000,000 | 3,000,000 | |||||||||
|
Payment of note payable
|
- | (3,000,000 | ) | (3,000,000 | ) | |||||||
|
Proceeds from note
payable, related party
|
463,000 | - | 463,000 | |||||||||
|
Proceeds from exercise of
stock options
|
- | 32,000 | 292,117 | |||||||||
|
Proceeds from notes
payable
|
- | 298,000 | 11,498,000 | |||||||||
|
Repayaments of notes
payable
|
(1,020,289 | ) | - | (3,276,857 | ) | |||||||
|
Payment of loan costs
|
(20,000 | ) | (137,994 | ) | (1,219,268 | ) | ||||||
|
Net cash provided
in financing activities
|
1,822,511 | 2,051,828 | 71,076,996 | |||||||||
|
Net (decrease)
increase in cash and cash equivalents
|
(71,733 | ) | 24,940 | 3,298 | ||||||||
|
Cash and cash equivalents,
beginning of period
|
$ | 75,031 | $ | 50,091 | $ | - | ||||||
|
Cash and cash equivalents,
end of period
|
$ | 3,298 | $ | 75,031 | $ | 3,298 | ||||||
|
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
|
||||||||||||
|
Interest paid
|
$ | 361,947 | $ | 387,540 | $ | 1,606,601 | ||||||
|
Income taxes paid
|
$ | - | $ | - | $ | - | ||||||
|
Non cash financing
activities:
|
||||||||||||
|
Common stock issued in
settlement of notes payable
|
$ | 2,172,000 | $ | - | $ | 2,172,000 | ||||||
F-11
BIOHEART, INC. AND SUBSIDIARIES
(a
development stage company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
A summary of the
significant accounting policies applied in the presentation of the accompanying consolidated financial statements follows:
Basis and business presentation
Bioheart, Inc (the
Company”) was incorporated under the laws of the State of Florida in August 1999. The Company is in the development stage, as defined by Accounting Standards Codification subtopic
915-10, Development Stage Entities ("ASC 915-10") and is the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure,
lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. To date, the Company has not generated significant sales revenues, has incurred expenses and has sustained
losses. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise. For the period from inception through December 31,
2010, the Company has accumulated
a deficit through its development stage of $106,324,220.
The consolidated
financial statements include the accounts of the Company, and
its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Estimates
The preparation of the
consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. The most significant estimates are
those used in determination of derivative liabilities and
stock compensation. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company recognizes
revenue in accordance with Accounting Standards Codification
subtopic 605-10, Revenue Recognition (ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products
delivered and the collectability of those amounts.
Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
At the time of each
transaction, management assesses whether the fee associated
with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the
transaction. If a significant portion of a fee is due after
our normal payment terms or upon implementation or client acceptance, the fee is accounted for as not being fixed or determinable and revenue is recognized as the fees become due or after
implementation or client acceptance has occurred. Collectability is
assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.
The Company accounts
for Multiple-Element Arrangements under ASC 605-10 which
incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights
to use assets.
F-12
Unbilled revenue is
revenue that is recognized but is not currently billable
to the customer pursuant to contractual terms. In general, such amounts become billable in accordance with predetermined payment schedules, but recognized as revenue as services are performed.
Amounts included in unbilled revenue are expected to be
collected within one year and are included within current assets.
Cash
The Company considers
cash to consist of cash on hand and temporary
investments having an original maturity of 90 days or less that are readily convertible into cash.
Accounts Receivable
Trade receivables are
carried at their estimated collectible amounts.
Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit
history with customers and their current financial
condition.
Allowance for Doubtful Accounts
Any changes to the
allowance for doubtful accounts on accounts receivable
are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the
adequacy of the allowance based on historical
write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of
December 31, 2010 and 2009, allowance for
doubtful accounts was $7,485 and -0-, respectively.
Property and Equipment
Property and equipment
are stated at cost. When retired or otherwise
disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
For financial statement purposes, property and
equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 15 years.
Long-Lived Assets
The Company follows
FASB ASC 360-10-15-3, Impairment or Disposal of
Long-lived Assets,” which established a primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting
for a long-lived asset to be held and used.
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying
amount of a long-lived asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
Income Taxes
The Company has adopted
Accounting Standards Codification subtopic 740-10,
Income Taxes (ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences
between taxable income reported for financial reporting purposes and income tax purposes consist primarily of derivative liability and stock compensation accounting versus tax differences.
F-13
Comprehensive Income
The Company does not
have any items of comprehensive income in any of
the periods presented.
Net Loss per
Common Share, basic and diluted
The Company has adopted
Accounting Standards Codification subtopic 260-10,
Earnings Per Share (ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the
weighted average number of common shares outstanding.
Stock options and warrants have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were
27,167,539 and 17,647,210 for the years ended December
31, 2010 and 2009, respectively.
Stock based compensation
The Company follows
Accounting Standards Codification subtopic 718-10,
Compensation (ASC 718-10”) which requires that all share-based payments to both employees and non employees be recognized in the income statement based on their fair values. (See
note 11)
As of December 31,
2010, there were outstanding stock options to purchase
2,025,544 shares of common stock, 1,538,995 shares of which were vested.
Concentrations of Credit Risk
The Company’s
financial instrument that is exposed to a
concentration of credit risk is cash and accounts receivable. Effective December 31, 2010 and extending through December 31, 2012, all non-interest-bearing transaction accounts are fully insured by
the Federal Deposit Insurance
Corporation (FDIC), regardless of the balance of the account. Generally, the Company’s cash and cash equivalents in interest-bearing accounts does not exceed FDIC insurance limits. The
financial stability of these institutions is
periodically reviewed by senior management.
As of December 31,
2010, one customer represented 53% of the
Company’s accounts receivable. As of December 31, 2009, one customer represented 65% of the Company’s accounts receivable
The Company’s
revenues earned from sale of products and services
for the year ended December 31, 2010 included 48% and 32% of the Company’s total revenues from two customers. For the year ended December 31, 2009, Company’s revenues earned from sale of
products and services included 57% and 33% of the
Company’s total revenues from two customers
Reliance on Key
Personnel and Consultants
The Company has 7
full-time employees and no part-time employees.
The Company is heavily dependent on the continued active participation of these current executive officers, employees and key consultants. The loss of any of the senior management or key consultants
could significantly and negatively impact the
business until adequate replacements can be identified and put in place.
Research and Development
The Company accounts
for research and development costs in accordance with
Accounting Standards Codification subtopic 730-10, Research and Development (ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred.
Accordingly, internal research and development costs are
expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable
agreement. Company-sponsored research
and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $1,467,078, $(508,811) and
$63,825,651 for the years ended December 31, 2010 and
2009, and from August 12, 1999
(date of inception) to December 31, 2010, respectively. During the year ended December 31, 2009, the Company reversed a previous accrual for possible litigation to research and development expenses
for $3,000,000.
F-14
Research Grants
On November 1, 2010,
Bioheart, Inc. (the Company”)
received written notice of approval of a grant in the approximate amount of $244,500 under the qualifying therapeutic discovery project under section 48D of the Internal Revenue code. This is being
shown as Other income.
Fair Value
Accounting Standards
Codification subtopic 825-10, Financial Instruments
(ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term
borrowings, as reflected in the balance sheets,
approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either
recognized or disclosed in the financial
statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets
and financial liabilities have been determined
and disclosed; otherwise only
available information pertinent to fair value has been disclosed.
The company follows
Accounting Standards Codification subtopic 820-10, Fair
Value Measurements and Disclosures (ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (ASC 825-10”), which permits entities to choose to measure
many financial instruments and certain other items at
fair value. Neither of these statements had an impact on the Company’s financial position, results of operations nor cash flows.
Reclassification
Certain
reclassifications have been made to prior periods’ data to
conform with the current year’s presentation. These reclassifications had no effect on reported income or losses.
Recent Accounting Pronouncements
There were various
other updates recently issued, most of which represented
technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of
operations or cash flows.
NOTE
2 - RESTATEMENT
The accompanying
consolidated Balance Sheet, Statement of Operations and
Statement of Cash Flows for the year ended December 31, 2009 have been restated to correct the accounting treatment of Company issuances of warrants in connection with notes payable in the from 2007
through 2009. These changes correct the allocated
fair value assigned to the issued warrants and the a change in the treatment from a recorded asset (deferred financing costs) to a debt discount shown net with the related notes payable.
F-15
Consolidated Balance
Sheet
December 31, 2009
|
As Previously
Reported
|
Adjustment
|
Reference
|
As Restated
|
|||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Total current assets
|
$ | 299,793 | $ | 143,130 | (6) | $ | 442,953 | |||||||||
|
Plant and equipment, net
|
104,397 | - | 104,397 | |||||||||||||
|
Deferred loan costs, net
|
1,250,106 | (1,250,106 | ) | (1) | - | |||||||||||
|
Other assets
|
212,014 | (143,130 | ) | (6) | 68,854 | |||||||||||
|
Total assets
|
$ | 1,866,310 | (1,250,106 | ) | $ | 616,204 | ||||||||||
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable and
accrued expenses
|
$ | 5,442,139 | - | $ | 5,442,139 | |||||||||||
|
Customer deposits
|
507,281 | - | 507,281 | |||||||||||||
|
Notes payable
|
4,051,861 | (1,234,113 | ) | (1), (2) | 2,817,748 | |||||||||||
|
Total current
liabilities
|
10,001,281 | (1,234,113 | ) | 8,767,168 | ||||||||||||
|
Long term debt
|
5,277,400 | - | 5,277,400 | |||||||||||||
|
Total liabilities
|
15,278,681 | (1,234,113 | ) | 14,044,568 | ||||||||||||
|
Shareholders' deficit
|
||||||||||||||||
|
Common stock
|
20,036 | - | 20,036 | |||||||||||||
|
Additional paid in
capital
|
87,196,374 | 579,526 | (2), (3),(4) | 87,775,900 | ||||||||||||
|
Subscription receivable
|
(59,536 | ) | (59,536 | ) | ||||||||||||
|
Deficit accumulated
during development stage
|
(100,628,781 | ) | (535,983 | ) | (2), (3) (4) | (101,164,764 | ) | |||||||||
|
Total
shareholders' deficit
|
(13,412,371 | ) | (15,993 | ) | (13,428,364 | ) | ||||||||||
|
Total liabilities and
stockholders' deficit
|
$ | 1,866,310 | $ | (1,250,106 | ) | $ | 616,204 | |||||||||
F-16
Consolidated Statement
of Operations
For the Year Ended
December 31, 2009
|
As Previously
Reported
|
Adjustment |
Reference
|
As Restated
|
|||||||||||||
|
Revenue
|
$ | 359,800 | $ | - | $ | 359,800 | ||||||||||
|
Cost of sales
|
205,014 | - | 205,014 | |||||||||||||
|
Gross profit
|
154,786 | 154,786 | ||||||||||||||
|
Operating expenses
|
4,763,879 | (2,835,771 | ) | (4),(5) | 1,928,108 | |||||||||||
|
Loss from operations
|
(4,609,093 | ) | (2,835,771 | ) | (1,773,322 | ) | ||||||||||
|
Other income (expense):
|
||||||||||||||||
|
Interest income
|
21 | - | 21 | |||||||||||||
|
Litigation accrual
reversal
|
3,000,000 | (3,000,000 | ) | (5) | - | |||||||||||
|
Interest expense
|
(2,235,177 | ) | (427,278 | ) | (2) | (2,662,455 | ) | |||||||||
|
Net loss before income
taxes
|
(3,844,249 | ) | (591,507 | ) | (4,435,756 | ) | ||||||||||
|
Income taxes (benefit)
|
- | - | - | |||||||||||||
|
NET LOSS
|
$ | (3.844.249 | ) | $ | (591,507 | ) | $ | (4,435,756 | ) | |||||||
|
Loss per common share,
basic and fully diluted
|
(0.21 | ) | (0.04 | ) | (0.25 | ) | ||||||||||
|
Weighted average number
of shares outstanding, basic and fully diluted
|
17,647,210 | 17,647,210 | ||||||||||||||
F-17
Consolidated Statement
of Cash Flows
For the Year Ended
December 31, 2009
|
As Previously
Reported
|
Adjustment
|
Reference
|
As Restated
|
|||||||||||||
|
Cash flows from operating
activities:
|
||||||||||||||||
|
Net loss
|
$ | (3,844,249 | ) | $ | (591,507 | ) | (2) | $ | (4,435,756 | ) | ||||||
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
||||||||||||||||
|
Stock based compensation
|
132,609 | 164,229 | (4) | 296,838 | ||||||||||||
|
Amortization of warrants
issued in connection with notes payable
|
545,070 | 427,278 | (2) | 972,348 | ||||||||||||
|
All other operating
activities (unchanged)
|
1,140,370 | 1,140,370 | ||||||||||||||
|
Net cash used in
operations
|
(2.026,200 | ) | - | (2,026,200 | ) | |||||||||||
|
Cash flows from investing
activities (unchanged)
|
(688 | ) | - | (688 | ) | |||||||||||
|
Cash flows from financing
activities (unchanged)
|
2,051,828 | - | 2,051,828 | |||||||||||||
|
Net increase in cash and
cash equivalents
|
24,940 | - | 24,940 | |||||||||||||
|
Cash and cash
equivalents, beginning of period
|
50,091 | - | 50,091 | |||||||||||||
|
Cash and cash
equivalents, end of period
|
$ | 75,031 | - | $ | 75,031 | |||||||||||
(1) Reclassify
determined allocated fair value of warrants from asset to debt
discount reflected net of notes payable on balance sheet
(2) Correction of the
determined fair value of warrants and related amortization
(3) Correction of
amortization of determined debt discount for current and
(Balance sheet) prior years
(4) Correction of fair
value of vested employee options
(5) Reclassify gain on
litigation accrual to operating expenses
(6) Reclassify
inventory from other to current assets
F-18
Consolidated Statement
of Operations
From August 12,
1999 (date of Inception) to December 31, 2009
|
As previously
reported |
Adjustment
|
Reference
|
As restated
|
|||||||||||||
|
Revenue
|
$ | 1,144,673 | $ | - | $ | 1,144,673 | ||||||||||
|
Cost of sales
|
530,375 | - | 530,375 | |||||||||||||
|
Gross profit
|
614,298 | 614,298 | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Research and development
|
65,358,573 | (3,000,000 | ) | 1 | 62,358,573 | |||||||||||
|
Marketing, general and
adminstrative
|
30,600,096 | 164,229 | 2 | 30,764,325 | ||||||||||||
|
Depreciation and
amortization
|
794,404 | - | 794,404 | |||||||||||||
|
Total
operating expenses
|
96,753,073 | (2,835,771 | ) | 93,917,302 | ||||||||||||
|
Net loss from operations
|
(96,138,775 | ) | (164,229 | ) | (93,303,004 | ) | ||||||||||
|
Other income (expenses):
|
||||||||||||||||
|
Development revenues
|
117,500 | - | 117,500 | |||||||||||||
|
Interest income
|
762,275 | - | 762,275 | |||||||||||||
|
Reversal of Litigation
Accrual
|
3,000,000 | (3,000,000 | ) | 1 | - | |||||||||||
|
Interest expense
|
(8,369,782 | ) | (371,754 | ) | 3 | (8,741,536 | ) | |||||||||
|
Total other
income (expenses)
|
(4,490,007 | ) | (3,371,754 | ) | (7,861,761 | ) | ||||||||||
|
Net loss before income
taxes
|
(100,628,782 | ) | (3,535,983 | ) | (101,164,765 | ) | ||||||||||
|
Income taxes (benefit)
|
- | - | ||||||||||||||
|
NET LOSS
|
$ | (100,628,782 | ) | $ | (535,983 | ) | $ | (101,164,765 | ) | |||||||
F-19
Consolidated Statement
of Cash flow
From August 12,
1999 (date of Inception) to December 31, 2009
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
As previously
reported |
Adjustment
|
Reference
|
As restated
|
||||||||||||
|
Net loss
|
$ | (100,628,781 | ) | $ | (535,982 | ) | 4 | $ | (101,164,763 | ) | ||||||
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
- | - | ||||||||||||||
|
Litigation settlement
|
(3,000,000 | ) | 3,000,000 | 1 | - | |||||||||||
|
Amortization of warrants
issued in connection with notes payable
|
3,716,378 | 371,753 | 3 | 4,088,131 | ||||||||||||
|
Stock based compensation
|
9,052,328 | 164,229 | 2 | 9,216,557 | ||||||||||||
|
All other operating
activities
|
15,730,534 | - | 15,730,534 | |||||||||||||
|
Accrued expenses and
deferred rent
|
6,848,888 | (3,000,000 | ) | 3,848,888 | ||||||||||||
|
Net cash used
in operating activities
|
(68,280,653 | ) | - | - | (68,280,653 | ) | ||||||||||
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||||||
|
Net cash used
in investing activities unchanged
|
(898,800 | ) | (898,800 | ) | ||||||||||||
|
Net cash used
in investing activities
|
(898,800 | ) | - | - | (898,800 | ) | ||||||||||
|
CASH FLOWS FROM FINANCING
ACTIVITES:
|
||||||||||||||||
|
Net cash
provided in financing activities unchanged
|
69,254,485 | 69,254,485 | ||||||||||||||
|
Net cash
provided in financing activities
|
69,254,485 | - | - | 69,254,485 | ||||||||||||
|
Net increase
in cash and cash equivalents
|
75,032 | - | - | 75,032 | ||||||||||||
|
Cash and cash equivalents,
beginning of period
|
- | |||||||||||||||
|
Cash and cash equivalents,
end of period
|
75,032 | - | - | 75,032 | ||||||||||||
(1) Reclassify gain on
litigation accrual to operating expenses
(2) Correction of fair
value of vested employee options
(3) Correction of the
determined fair value of warrants and related amortization
and out of this $55,524 income relates for year prior to 2009
(4) Correction of
amortization of determined debt discount for prior years
F-20
NOTE
3 - GOING CONCERN MATTERS
The accompanying
consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements
during year ended December 31, 2010, the Company
incurred net losses attributable to common shareholders of $5,159,456 and used $1,894,245 in cash for operating activities during year ended December 31, 2010. These factors among others may indicate
that the Company will be unable to continue
as a going concern for a reasonable period of time.
The Company’s
existence is dependent upon management’s ability
to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution
of the Company’s liquidity problems. The
accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE
4 - INVENTORY
Inventory consists of
raw materials. Costs of raw materials are determined
using the FIFO method. Inventory is stated at the lower of costs or market (estimated net realizable value).
NOTE
5 - PREPAID AND OTHER CURRENT ASSETS
Prepaid expenses and
other current assets as of December 31, 2010 and
December 31, 2009 primarily consisted of payments on corporate insurance policies.
NOTE
6 - PROPERTY AND EQUIPMENT
Property and equipment
as of December 31, 2010 and 2009 is summarized
as follows:
|
2010
|
2009
|
|||||||
|
Laboratory and medical
equipment
|
$ | 352,358 | $ | 352,358 | ||||
|
Furniture, fixtures and
equipment
|
130,916 | 130,916 | ||||||
|
Computer equipment
|
53,481 | 53,481 | ||||||
|
Leasehold improvements
|
362,046 | 362,046 | ||||||
| 898,801 | 898,801 | |||||||
|
Less accumulated
depreciation and amortization
|
(851,362 | ) | (794,404 | ) | ||||
| $ | 47,439 | $ | 104,397 | |||||
The Company incurred
depreciation and amortization expenses of $56,958,
$177,398 and $851,362 for the years ended December 31, 2010 and 2009, and from August 12, 1999 (date of inception) to December 31, 2010, respectively.
Property and equipment
are recorded on the basis of cost. For financial
statement purposes, property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.
Expenditures for repair
and maintenance which do not materially extend
the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the
respective accounts with the resulting gain or loss
reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment.
F-21
NOTE 7
- ACCRUED EXPENSES
Accrued expenses
consisted of the following as of December 31, 2010 and 2009:
|
2010
|
2009
|
|||||||
|
License and royalty fees
|
$ | 1,090,000 | $ | 880,000 | ||||
|
Amounts payable to the
Guarantors of the Company’s loan agreement
with Bank of America and Seaside Bank,, including fees and interest
|
1,102,941 | 1,745,745 | ||||||
|
Interest payable on notes
payable
|
595,342 | 248,586 | ||||||
|
Vendor accruals
|
582,403 | 655,915 | ||||||
|
Employee commissions,
compensation, etc
|
208,239 | - | ||||||
|
Other
|
2,520 | - | ||||||
| $ | 3,581,445 | $ | 3,530,246 | |||||
NOTE
9 - NOTES PAYABLE
Notes payable were
comprised of the following as of December 31, 2010 and 2009:
|
2010
|
2009
|
|||||||
|
Bank of America note
payable. Terms described below
|
$ | - | $ | 2,000,000 | ||||
|
Seaside Bank note
payable. Terms described below
|
980,000 | - | ||||||
|
BlueCrest Capital Finance
note payable. Monthly payments of principal
and interest as described below., net of unamortized debt discount of $317,709 and $1,097,126 respectively
|
1,958,834 | 1,846,305 | ||||||
|
Short-term note payable,
net of unamortized debt discount of $58,708
and $136,986 respectively. Terms described below
|
1,326,264 | 1,247,986 | ||||||
| 4,265,098 | 5,094,291 | |||||||
|
Less current portion
|
(3,232,271 | ) | (2,817,748 | ) | ||||
|
Notes payable -
long term
|
$ | 1,032,827 | $ | 2,276,543 | ||||
Notes payable at
December 31, 2010 mature as follows:
|
2011
|
$ | 3,232,271 | ||
|
2012
|
1,032,827 | |||
| $ | 4,265,098 |
F-22
Bank of America Note Payable
On June 1, 2007, the
Company entered into a loan agreement with Bank of
America, N.A. for an eight month, $5.0 million term loan, to be used for working capital purposes. The loan bears interest at the annual rate of the Bank of America prime rate plus 1.5%. As
consideration for the loan, the Company paid Bank of America
a fee of $100,000. Effective as of January 31, 2008, the maturity date of the loan was extended until June 1, 2008. As consideration for this extension of the maturity date of the loan, the Company
paid Bank of America a fee of $50,000. Effective as of
June 1, 2008, Bank of America agreed to extend the maturity date of the loan until January 5, 2009. As consideration for this extension of the maturity date of the loan, the Company paid Bank of
America a fee of $75,000. Effective January 5, 2009, Bank of
America agreed to extend the maturity date of the loan until July 6, 2009. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee of $50,000.
Effective July 6, 2009, Bank of America agreed to extend
the maturity of the loan until January 5, 2010. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee
of $25,000
and was recorded as loan discount. Effective January 5, 2010, Bank of America agreed to extend the maturity of the loan until July 6, 2010. As consideration for this extension of the maturity date of
the loan, the Company paid Bank of America a fee of
$25,000. Under the terms of the loan, Bank of America is entitled to receive a semi-annual payment of interest and all outstanding principal and accrued interest by the maturity date. The interest
rate at December 31, 2010 was 4.5% per annum.
The Company has
provided no collateral for the loan. On June 1, 2007, for the
Company’s benefit, the Company’s former Chairman of the Board, Chief Executive Officer and Chief Technology Officer and his spouse, certain other members of the Company’s Board of
Directors and one of the Company’s shareholders
(the Guarantors”) provided collateral to guarantee the loan. Except for a $1.1 million personal guaranty (backed by collateral) provided by the Company’s former Chairman of the Board,
Chief Executive Officer and Chief Technology Officer
and his spouse, these guarantees are limited to the collateral each provided to the lender.
The Company and Bank of
America agreed with BlueCrest Capital Finance,
L.P., the lender of the BlueCrest Loan (described below), that the Company will not individually make any payments due under the Bank of America loan while the BlueCrest Loan is outstanding. For the
Company’s benefit, the Guarantors agreed
to provide Bank of America in the aggregate up to $5.5 million of funds and/or securities to make these payments.
The Company agreed to
reimburse the Guarantors with interest at an annual
rate of the prime rate plus 5.0% for any and all payments made by them under the Bank of America loan as well as to pay them certain cash fees in connection with their provision of collateral to
guarantee the loan. Upon entering into the loan agreement
in 2007, the Company issued to each Guarantor warrants to purchase 3,250 shares of common stock at an exercise price of $7.69 per share for each $100,000 of principal amount of the loan guaranteed by
such Guarantor. The warrants have a ten-year term and
became exercisable one year following the date the warrants were issued. Warrants to purchase an aggregate of 216,095 shares of common stock were issued to the Guarantors in 2007. These warrants had
an aggregate fair value of $1,437,638, which amount was
accounted
for as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense over the initial term of the loan using the effective interest method. As
discussed below, certain of these Guarantors were replaced
in September 2007. The unamortized fair value of the warrants issued to the Guarantors that were replaced, which was previously reflected as a component of deferred loan costs, was recorded as
interest expense in September 2007.
In September 2007, a
member of the Company’s Board of Directors and
two of the Company’s shareholders agreed to provide collateral valued at $750,000, $600,000 and $500,000, respectively, to secure the loan. The collateral provided by these new Guarantors fully
replaced the collateral originally provided by one
of the members of the Company’s Board of Directors and partially replaced the collateral originally provided by another member of the Company’s Board of Directors whose collateral now
secures $400,000 of the loan. In consideration for
providing the collateral, the Company issued to the new Guarantors warrants to purchase 3,250 shares of common stock at an exercise price of $7.69 per share for each $100,000 of principal amount of
the loan guaranteed by such new Guarantor. The
warrants have a ten-year term
and became exercisable one year following the date the warrants were issued. Warrants to purchase an aggregate of 60,118 shares of the Company’s common stock were issued to the new Guarantors.
These warrants had an aggregate fair value of
$380,482, which was accounted for as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense ratably over the initial term of the loan.
In accordance with the
provisions of the warrants issued to the
Guarantors, the aggregate number of shares of common stock underlying such warrants increased on September 30, 2007 as the Bank of America loan remained outstanding at that date. The additional
38,861 warrant shares had an aggregate fair
value of $244,463. The portion of this amount attributed to the Guarantors that were replaced in September 2007 was accounted for as additional paid in capital and immediately recorded as interest
expense with the remainder accounted for
as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense ratably over the initial term of the loan.
F-23
In October 2007, the
Company's former Chairman, Chief Executive Officer
and Chief Technology Officer and his spouse agreed to provide an additional $2.2 million limited personal guarantee of the loan and pledged securities accounts to backup this limited personal
guarantee. The additional collateral provided
by the former Company's Chairman, Chief Executive Officer and Chief Technology Officer and his spouse fully replaced the collateral provided by one of the original Guarantors. The Company's former
Chairman, Chief Executive Officer and Chief Technology
Officer and his spouse have now personally guaranteed an aggregate of $3.3 million of the loan. The Company's agreement with the Company's former Chairman, Chief Executive Officer and Chief
Technology Officer and his spouse with respect to the additional
collateral is
substantially similar to the Company's agreement with them in connection with the $1.1 million personal guarantee they originally provided in June 2007. In consideration for providing the collateral,
the Company issued to the Company's former Chairman,
Chief Executive Officer and Chief Technology Officer and his spouse, a warrant to purchase 81,547 shares of the Company's common stock at an exercise price of $7.69 per share. The warrant has a
ten-year term and became exercisable one year following
the date the warrant was issued. The warrant had a fair value of $516,193, which was accounted for as additional paid in capital and reflected as a component of deferred loan costs and amortized as
interest expense ratibly over the initial term of
the loan.
As a result of this
replacement of the collateral originally provided by
one of the original Guarantors in October 2007, the unamortized fair value of the warrant to purchase 81,548 shares of the Company's common stock at an exercise price of $7.69 per share issued to
that Guarantor was recorded as interest expense in
October 2007. In October 2007, the Company cancelled the warrant previously issued to such original Guarantor, which warrant included the adjustment provisions discussed above, and, in exchange,
issued to them a warrant to purchase 101,934 shares
of the Company's common stock at an exercise price of $7.69 per share, which new warrant does not contain the adjustment provisions discussed above. The additional 20,386 warrant shares had an
aggregate fair value of $128,228, which was accounted
for as additional paid in
capital and immediately recorded as interest expense.
In accordance with the
provisions of the warrants issued to the Guarantors,
the aggregate number of shares of common stock underlying such warrants increased on June 1, 2008 as the Bank of America loan remained outstanding at that date. The additional 78,773 warrant shares
had an aggregate fair value of $168,387. The portion
of this amount attributed to the Guarantors that were replaced in September 2007 was accounted for as additional paid in capital and immediately recorded as interest expense with the remainder
accounted for as additional paid in capital and reflected
as a component of deferred loan costs to be amortized as interest expense ratably over the term of the loan. In the event that as of the second anniversary and third anniversary of the closing date
of the loan, the Company has not reimbursed the
Guarantors in full for
payments made by them in connection with the loan, the number of shares subject to the warrants will further increase.
The amount of interest
expense on the principal amount of the loan for the
years ended December 31, 2010 and 2009 totaled approximately $93,000 and $127,000, respectively. Fees and interest earned by the Guarantors, which are recorded as interest expense, for the years
ended December 31, 2010 and 2009 totaled approximately
$262,000 and $524,000, respectively. Interest due on the principal amount of the loan has been paid by the Guarantors. As of December 31, 2010 and 2009, that amount totaled approximately $744,000 and
$692,000, respectively, and was included in accrued
expenses at those dates.
In March 2009, the
Company’s former Chairman and his former spouse
repaid $3.0 million of principal and a pro rata portion of accrued interest on behalf of the Company. The Company now owes this $3.0 million to the Company's former Chairman and his former spouse.
This liability is reflected on the Company’s
consolidated balance sheet on a separate line titled Subordinated related party loan.” This amount will also accrue interest at an annual rate of the prime rate plus 5.0%.
During the year ended
December 31, 2010, $1,500,000, along with
accrued expenses, was converted to 3,136,520 shares of restricted common stock and 940,956 warrants. The remaining $1,500,000 is outstanding as of December 31, 2010. The issued shares have been
included under common stock issued under bank
guarantor obligation liabilities in the stockholders’ equity statement.
F-24
In March of 2010, one
of the Guarantors paid directly to Bank of America
the $672,000 of the loan that he had been guaranteeing, and a pro rata portion of accrued interest on behalf of the Company. That Guarantor agreed to accept from the Company the equivalent of his
payment to Bank of America as 1,657,910 shares of
restricted common stock and 497,373 warrants along with his accrued expenses. The issued shares have been included under common stock issued under bank guarantor obligation liabilities in the
stockholders’ equity statement. With his acceptance
of the restricted common stock and warrants, the former Guarantor owns 8% of the Company. Thus, the outstanding obligation to Bank of America was reduced to $1.3 million plus interest.
The outstanding
obligation to Bank of America of $1.3 million
plus interest was repaid in October 2010. On October 25, 2010 we entered into a Loan Agreement with Seaside National Bank and Trust for a $980,000 loan at 4.25% per annum interest that was be used to
refinance the Company’s loan with
Bank of America. The obligation was guaranteed by shareholders of the Company. In addition, a member of the Company’s Board of Directors whom was also one of the guarantors of the Bank of
America loan paid down the remaining debt of $367,244.
In connection with the
Loan Agreement with Seaside Bank and Trust Company,
the Company made and delivered a promissory note in the principal amount of the loan that matures in one year. In connection with the loan transaction with Seaside Bank and Trust Company, the Company
entered into an Amended and Restated Loan and
Security Agreement with BlueCrest Venture Finance Master Fund Limited.
BlueCrest Capital Finance Note Payable
On June 1, 2007, the
Company closed on a $5.0 million senior loan from
BlueCrest Capital Finance, L.P. with a term of 36 months which bears interest at an annual rate of 12.85% (the BlueCrest Loan”). The first three months required payment of interest only
with equal principal and interest payments over the
remaining 33 months. As consideration for the loan, the Company issued to BlueCrest Capital Finance, L.P. a warrant to purchase 65,030 shares of common stock at an exercise price of $7.69 per share.
The warrant, which became exercisable one year
following the date the warrant was issued, has a ten year term. This warrant had a fair value of $455,483, which was accounted for as additional paid in capital and reflected as a component of debt
discount and is being amortized as interest expense
ratably over
the term of the loan. The Company also paid the lender a fee of $100,000 to cover diligence and other costs and expenses incurred in connection with the loan. On August 31, 2007, BlueCrest Capital
Finance, L.P. assigned its rights, liabilities, duties
and obligations under the BlueCrest Loan and warrant to BlueCrest Venture Finance Master Fund Limited (BlueCrest”).
The loan may be prepaid
in whole but not in part. However, the Company is
subject to a prepayment penalty equal to 3% of the outstanding principal if the BlueCrest Loan is prepaid during the first year of the loan, 2% of the outstanding principal if prepaid during the
second year of the loan and 1% of the outstanding
principal if prepaid during the third year of the loan. As collateral to secure its repayment obligations under the loan, the Company granted BlueCrest a first priority security interest in all of
the Company’s assets, excluding intellectual
property but including the proceeds from any sale of any of the Company’s intellectual property. The loan has certain restrictive terms and covenants including among others, restrictions on the
Company’s ability to incur additional senior
or pari-passu indebtedness
or make interest or principal payments on other subordinate loans.
In the event of an
uncured event of default under the loan, all
amounts owed to BlueCrest are immediately due and payable and BlueCrest has the right to enforce its security interest in the assets securing the loan. During the continuance of an event of default,
all outstanding amounts under the loan
will bear interest (payable on demand) at an annual rate of the 14.85%. In addition, any unpaid amounts are subject, until paid, to a service charge in an amount equal to two percent (2%) of the
unpaid amount. Events of default include,
among others, the Company’s failure to timely make payments of principal when due, the Company’s uncured failure to timely pay any other amounts owing to BlueCrest under the loan, the
Company’s material breach of the
representations and warranties contained in the loan agreement and the
Company’s default in the payment of any debt to any of its other lenders in excess of $100,000 or any other default or breach under any agreement relating to such debt, which gives the holders
of such debt the right to accelerate the debt.
The amount of interest
expense on the principal amount of the BlueCrest
Loan for the years ended December 31, 2010 and 2009 totaled approximately $353,000 and $378,000, respectively.
F-25
On January 2, 2009, the
Company failed to make the monthly payment of
principal and interest of approximately $181,000 due on such date. On January 28, 2009, the Company received from BlueCrest notice of this event of default (the Default Notice”) under the
BlueCrest Loan. By reason of the stated event, BlueCrest
demanded payment of a 2% late fee of approximately $3,600, together with the principal and interest payment of approximately $181,000. On February 2, 2009, the Company received from BlueCrest notice
of acceleration of the outstanding principal amount
of the BlueCrest Loan and demanded repayment in full of all outstanding principal and accrued interest on the loan, including late fees, in the aggregate amount of $2,947,045. (The acceleration
notice, together with the Default Notice, are referred to
as the
Notices”).
The Company and
BlueCrest entered into an amendment to the BlueCrest Loan as
of April 2, 2009 (the BlueCrest Loan Amendment”), that, among other things, includes BlueCrest’s agreement to forbear from exercising any of its rights or remedies regarding the defaults
described in Notices (the Forbearance”)
as long as there are no new defaults under the BlueCrest Loan, as amended.
The BlueCrest Loan
Amendment, (a) increases the amount of permitted unsecured
indebtedness of the Company, (b) amended the amortization schedule for the Loan to provide for interest-only payments until July 1, 2009, at which time monthly principal and interest payments of
$262,692 will commence, and (c) prohibits the Company from
granting any lien against its intellectual property and grants to BlueCrest a lien against the Company’s intellectual property that will become effective in the event of a default. In addition,
the Company issued BlueCrest a warrant to purchase
1,315,542 shares of the Company’s common stock at $0.53 per share. The fair value of the issued warrants of $539,676 was determined using the Black Scholes Option Pricing Model and was recorded
as a debt discount and amortized ratably over the term of the
loan. In connection with the BlueCrest Loan Amendment the Company paid BlueCrest accrued interest in the aggregate amount of $126,077. The Company also paid BlueCrest a fee of $15,000. Effective July
1, 2009, the Company and BlueCrest agreed to enter
into an amendment to the BlueCrest Loan to amend the amortization schedule for the Loan to provide for interest-only payments until January 1, 2010, at which time monthly principal and interest
payments of $139,728 will commence. In connection with that
Amendment the Company issued BlueCrest a warrant to purchase $600,000 of the Company’s common shares and paid a fee of $29,435. The fair value of the issued warrants of $575,529 was determined
using the Black Scholes Option Pricing Model and was
recorded as a debt discount and amortized ratably over the term of the loan.
Effective December 31,
2009, the Company and BlueCrest entered into an
amendment to the BlueCrest Loan to amend the amortization schedule for the Loan to provide for interest-only payments until July 1, 2010, at which time monthly principal and interest payments of
$139,728.82 will commence. In connection with that
Amendment, the Company issued BlueCrest a warrant to purchase $600,000 of the Company’s common shares and paid a fee of $20,000. The Company also provided BlueCrest with a lien on its
Intellectual Property. The fair value of the issued warrants
of $507,606 was determined using the Black Scholes Option Pricing Model and was recorded as a debt discount and amortized ratably over the term of the loan.
Short-term Note Payable
On August 20, 2008, the
Company borrowed $1.0 million from a third party
pursuant to the terms of an unsecured Promissory Note and Agreement. Outstanding principal and interest on the loan, which accrues at the rate of 13.5% per annum, is payable in one balloon payment
upon the Company’s repayment of the BlueCrest
Loan, which is scheduled to mature in May 2010, however the Company is not obligated to make payments until BlueCrest Loan is paid off. In the event the Company completes a private placement of its
common stock and/or securities exercisable for or
convertible into its common stock which generates at least $19.0 million of gross proceeds, the Company may prepay, without penalty, all outstanding principal and interest due under the loan using
the same type of securities issued in the subject
private placement. Because
repayment of the loan could occur within 12 months from the date of the balance sheet, the Company has classified this loan as short term. Subject to certain conditions, at the end of each calendar
quarter during the time the loan is outstanding,
the Company may, but is not required to, pay all or any portion of the interest accrued but unpaid as of such date with shares of its common stock. In April 2009, as consideration for the
authorization to amend certain documents related to the Note,
the Company issued to the Noteholder a warrant to purchase 451,053 shares of common stock at an exercise price of $0.5321 per share. The warrant, which became exercisable immediately upon issuance,
has a ten year term. This warrant had a fair value
of $195,694, which was accounted for as additional paid in capital and reflected as a component of debt discount and is being amortized as interest expense ratably over the term of the loan.
F-26
The amount of interest
expense on the principal amount of the loan for the
year ended December 31, 2009 was approximately $187,000. The Company has not paid any of the interest accrued to date under the Promissory Note and Agreement.
In July 2009, Bruce
Meyers and Dana Smith (jointly, the Lenders”) funded
a total $120,000 loan to the Company. The Loan was in the nature of convertible debt and was evidenced by an unsecured promissory note (the Note”), that was convertible into common stock of the
Company at a price that was 22.5% less than the average
of the closing bid prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise their conversion right under the Note. The Note was to bear interest at
the rate of 10% per annum, with interest payable due at
maturity. The terms sheet provides that all unpaid interest (and principal) will be due and payable on the date that is the earlier to occur of the first anniversary of the closing date of the Loan
or the closing of a financing in an amount that is equal
to or greater than $3.0 million that will satisfy the Company’s obligation under its loan with BlueCrest. However, during the year ended December 31, 2009, the Lenders elected to convert the
entire amount of the Loan to shares of the Company’s
common stock. Accordingly, the aggregate number of unregistered and restricted shares of the Company’s common stock issued in connection with, and as a result of the conversion of, the Loan was
355,294 shares. The Company will have no obligation to
file any registration statement with respect to the shares, except that the Lenders will have customary piggyback” registration rights.
In February 2009, Bruce
Meyers and Robert Seguso (jointly, the Lenders”)
funded the remaining $100,000 of a total $200,000 loan to the Company. The funds were delivered, net of original issue discount in the amount of $10,000, pursuant to a terms sheet provided by Bruce
Meyers, for a convertible debt financing to be provided
to the Company (the Loan”). Although the terms sheet provided that the Lenders would be provided a complete set of loan documentation, the Lenders delivered to the Company the entire net
proceeds of the Loan, in the amount of $190,000, in advance
of receiving any documentation. The initial funding of $100,000 was made to the Company on January 21, 2009. However, the Company determined that it would not proceed with the Loan unless and until
the Lenders funded the balance of the net proceeds which was
completed on February 3, 2009 and provided that the Board of Directors of the Company approved the Loan, which approval was obtained on February 11, 2009.
The above Loan was in
the nature of convertible debt and was evidenced by an
unsecured promissory note (the Note”), that was convertible into common stock of the Company at a price that was 22.5% less than the average of the closing bid prices for the Company’s
shares for the five (5) days prior to the Lenders’
election to exercise their conversion right under the Note. The Note was to bear interest at the rate of 10% per annum, with interest payable due at maturity. The terms sheet provides that all unpaid
interest (and principal) will be due and payable on
the date that is the earlier to occur of the first anniversary of the closing date of the Loan or the closing of a financing in an amount that is equal to or greater than $3 million that will satisfy
the Company’s obligation under its loan with BlueCrest.
However, during the year ended December 31, 2009, the Lenders elected to convert the entire amount of the Loan to shares of the Company’s common stock.
In addition to the
Note, the Company issued to the Lenders 200,000 unregistered
and restricted shares of the Company’s common stock. We believe that the offer and sale of the securities is made only to accredited investors and, accordingly, is exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended.
The fair value of the issued shares were recorded as a debt discount and amortized ratably over the term of the loan.
Prior to funding the
balance of the Loan, the Lenders delivered to the
Company, on January 26, 2009, a notice electing to convert $100,000 of the Loan into shares of the Company’s common stock. The price per share for such election was $0.50995. This required the
issuance to the Lenders of 196,098 unregistered
and restricted shares of the Company’s common stock.
F-27
On February 3, 2009,
contemporaneously with the funding of the
remainder of the Loan, the Lenders delivered to the Company notice of their election to convert the remainder of the Loan into shares of the Company’s common stock at a price per share of
$0.5704. This required the issuance to the
Lenders of 175,316 unregistered and restricted shares of the Company’s common stock.
Accordingly, the
aggregate number of unregistered and restricted
shares of the Company’s common stock issued in connection with, and as a result of the conversion of, the Loan was 571,414 shares. The Company will have no obligation to file any registration
statement with respect to the shares, except
that the Lenders will have customary piggyback” registration rights.
At December 31, 2010,
the Company has outstanding two notes payable with
interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822 are payable in one balloon payment upon the date the Noteholder provides written demand, however the Company is not
obligated to make payments until the BlueCrest Loan is
paid off.
Notes payable, related party
At December 31, 2010,
the Company has outstanding two related party notes
payable with interest at 8% per annum due at maturity. The two notes, $125,000 and $100,000 are due on October 22, 2012 and November 30, 2012, respectively, and are unsecured.
NOTE
10 -STOCKHOLDERS' EQUITY
On August 6, 2008, the
Company amended its Articles of Incorporation to
increase the number of authorized shares of its common stock from 50 million to 75 million shares. This amendment was approved by the Company’s shareholders at the Annual Meeting of
Shareholders held on July 30, 2008.
In September 2007, by
way of a written consent, the Company’s
shareholders holding a majority of its outstanding shares of common stock, the Company’s shareholders approved an amendment to Bioheart’s Articles of Incorporation, increasing the number
of authorized shares of capital stock so that,
following the reverse stock split that was effectuated on September 27, 2007, the Company had 50 million shares of common stock authorized with a par value of $0.001 per share and five million shares
of preferred stock authorized with a par value
of $0.001 per share.
On February 22, 2008
the Company completed its initial public offering
("IPO") pursuant to which it sold 1,100,000 shares of common stock at a price per share of $5.25 for net proceeds of approximately $1.45 million after deducting underwriter discounts of approximately
$400,000 and offering costs of approximately
$3.92 million. The Consolidated Statement of Cash Flows for the year ended December 31, 2008 reflects the Company’s receipt of approximately $4.24 million of Proceeds from (payments for)
initial public offering of common stock, net”.
The $4.24 million cash proceeds figure is approximately $2.79 million higher than the $1.45 million net proceeds figure identified above due to payment of $2.79 million of various offering expenses
prior to January 1, 2008.
In 2010, the Company
also sold, in a private placement initiated in
2009, an aggregate of 1,512,890 shares of its common stock and warrants (the “Warrants”) to purchase 453,867 shares of its common stock for aggregate gross cash proceeds of approximately
$852,964. The Warrants are (i) exercisable
solely for cash at a weighted average exercise price of $0.68 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time
to time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
F-28
In 2010, the Company
issued, in connection with the conversion of
$1,121,195 of debt an aggregate of 7,459,720 shares of its common stock and warrants (the “Warrants”) to purchase 3,729,860 shares of its common stock. The Warrants are (i) exercisable
solely for cash at an exercise price of $0.15
per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six
months and one day following the date of issuance
and ending on the third year anniversary of the date of issuance. The shares were issued under the same terms as the above mentioned private placement and therefore are included in issuance of common
stock in the consolidated statement of shareholders
deficit.
In 2010, the Company
also sold, in a private placement, an aggregate of 1,553,885
shares of its common stock for aggregate gross cash proceeds of approximately $234,020.
In 2010, the Company
also sold, in a private placement, an aggregate of 808,210
shares of its common stock and warrants (the “Warrants”) to purchase 404,105 shares of its common stock for aggregate gross cash proceeds of approximately $135,885. The Warrants are (i)
exercisable solely for cash at a weighted average
exercise price of $0.20 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing
on the date that is six months and one day following the
date of issuance and ending on the third year anniversary of the date of issuance.
As of December 31, 2010
the Company recorded a Subscription Receivable, under
the above mentioned private placement, of 20,000 shares of its common stock and warrants (the “Warrants”) to purchase 10,000 shares of its common stock for aggregate gross cash proceeds
of approximately $3,800. The Warrants are (i) exercisable
solely for cash at a weighted average exercise price of $0.23 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time
to time during the period commencing on the date that is
six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In 2010, the Company
issued, in connection with services, an aggregate of
529,520 shares of its common stock and warrants (the “Warrants”) to purchase 158,856 shares of its common stock. The Warrants are (i) exercisable solely for cash at a weighted average
exercise price of $0.78 per share, (ii) non-transferable
for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the
date of issuance and ending on the third year anniversary
of the date of issuance.
In 2010, the Company
issued, in connection with the exercise of Stock Options,
issued for Accounts Payables, an aggregate of 831,526 shares of its common stock.
In 2010, the Company
issued, in connection with the Bank of America
guarantor’s liability of $2,172,000 principal along with accrued expenses, an aggregate of 4,794,430 shares of its common stock and warrants (the “Warrants”) to purchase 1,438,329
shares of its common stock. The Warrants are
(i) exercisable solely for cash at an weighted average exercise price of $0.74 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any
time and from time to time during the period
commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In December 2009, the
Company also sold, in a private placement an aggregate
of 255,830 shares of its common stock and warrants (the Warrants”) to purchase 76,749 shares of its common stock for aggregate gross cash proceeds of approximately $188,996. The Warrants are
(i) exercisable solely for cash at a weighted average
exercise price of $0.89 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing
on the date that is six months and one day
following the date of issuance and ending on the third year anniversary of the date of issuance.
F-29
In 2009, the Company
also sold, in a private placement initiated in 2008, an
aggregate of 2,509,480 shares of its common stock and warrants (the Warrants”) to purchase 752,844 shares of its common stock for aggregate gross cash proceeds of approximately $1.74 million.
The Warrants are (i) exercisable solely for cash at a
weighted average exercise price of $0.83 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the
period commencing on the date that is six months and one
day following the date of issuance and ending on the third year anniversary of the date of issuance. In connection with the private placement, the Company paid to a finder who introduced certain
investors to the Company aggregate cash fees of $17,856 and warrants
to purchase 26,592 shares of common stock at a weighted average exercise price of $0.89 per share. The warrants issued to the finder have the same terms and conditions as the Warrants issued in the
private placement. The 2008 private placment was closed on
October 31, 2009, with total capital raised of $3,887,032.
In 2008, the Company
also sold, in a private placement, an aggregate of
1,230,280 shares of its common stock and warrants (the Warrants”) to purchase 369,084 shares of its common stock for aggregate gross cash proceeds of approximately $2.14 million. The Warrants
are (i) exercisable solely for cash at a weighted
average exercise price of $2.09 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period
commencing on the date that is six months and one day
following the date of issuance and ending on the third year anniversary of the date of issuance. In connection with the private placement, the Company paid to a finder who introduced certain
investors to the Company aggregate cash fees of $24,325 and
warrants to purchase
24,325 shares of common stock at a weighted average exercise price of $1.95 per share. The warrants issued to the finder have the same terms and conditions as the Warrants issued in the private
placement.
In 2007, the Company
sold 529,432 shares of common stock at a price
of $7.69 per share to various investors for net proceeds of approximately $3.9 million.
In 2006, the Company
sold 1,069,699 shares of common stock at a price of
$7.69 per share to various investors. The Company also issued 63,566 shares in exchange for services at a price ranging from $5.67 to $7.69 per share.
In 2005, the Company
sold 1,994,556 shares of common stock at a price of
$5.67 per share to various investors. The Company also issued 1,210 shares in exchange for services and issued 95,807 shares in exchange for debt at a price of $5.67 per share.
In 2004, the Company
sold 808,570 shares of common stock at a price of
$5.67 per share to various investors. The Company also issued 1,854 shares to various vendors in exchange for services valued at $10,500. The Company also issued 15,150 shares to the Company's
Chairman of the Board as compensation for services
valued at $85,830.
In March 2003, the
Company effected a recapitalization. The
recapitalization provided two shares of common stock for every one share issued as of that date. The Company's former Chairman of the Board and founding shareholder, who owned 4,405,541 shares of
common stock, did not participate in the
recapitalization. The number of shares and prices per share in the accompanying financial statements has been retroactively adjusted to reflect the effect of the recapitalization.
After the 2003
recapitalization, the Company sold 561,701 shares of
common stock at a price of $5.67 per share to various investors. The Company issued 72,980 shares valued at $416,383 to employees as compensation for services related to the closing of various
locations. The Company also issued 4,248 shares to
various vendors in exchange for services valued at $24,066 and issued 67,073 shares to the Company's former Chairman of the Board as compensation for services provided to the Company during 2003 and
2002. The shares were valued based on the underlying
market price of the common stock and did not differ materially from the fair value of the common stock issued.
In 2002, the Company
sold 1,092,883 shares of common stock at a price of
$6.47 per share to various investors. The Company also issued 35,137 shares to various vendors in exchange for services valued at $227,503.
In 2001, the Company
sold 985,668 shares of common stock at a price of
$6.47 per share to various investors. The Company also issued 8,291 shares to various vendors in exchange for services valued at $54,001 and issued 81,084 shares to the Company's Chairman of the
Board as compensation for services provided to the
Company during 2001.
F-30
In 2000, the Company
sold 1,493,575 shares of common stock at a price of $6.47 per share to various investors. Of the 1,493,575 shares sold in 2000, payment on 77,222 of these shares was not received until January 2001.
The Company also issued 7,964 shares to various vendors in exchange for services valued at $52,001.
In 1999, the Company's
former Chairman of the Board and founding shareholder contributed $400,000 to the Company in exchange for 4,324,458 shares of common stock.
Former Chairman of the Board Paid in and Contributed Capital
In 2006, the Company's
former Chairman of the Board was issued 2,903 shares of the Company's common stock at a price of $5.67 per share in exchange for $16,443 of services provided during the year.
In 2005, the Company's
former Chairman of the Board was issued 95,807 shares of the Company's common stock at a price of $5.67 per share in exchange for $542,787 of debt due to travel and other related expenses advanced by
the Company's Chairman of the Board during the previous three years.
The Company's former
Chairman of the Board elected not to receive salary payments of $85,830, $130,000 and $250,000 for services provided to the Company during 2004, 2003 and 2002, respectively. Such amounts were
converted into 15,150, 22,946 and 44,127 shares of the Company's common stock at a price of $5.67 per share on December 31, 2004 and 2003, respectively, where the 2003 and 2002 shares were both
issued in 2003. The shares were valued based on the underlying market price of the common stock and did not differ materially from the fair value of the common stock issued.
In 2001, the Company's
former Chairman of the Board also elected not to receive a salary payment or a stock conversion of $250,000 for services provided during 2001.
In 2000, the Company's
former Chairman of the Board contributed $800,000 to the Company and elected not to receive payment for $250,000 of salary related to services provided to the Company during 2000. Such amounts were
recorded as contributed capital during 2000. On June 28, 2001, the Company's Board of Directors approved the conversion of this contributed capital and salary deferral into 81,084 shares of the
Company's common stock at a price of $12.94 per share.
NOTE
11 - STOCK OPTIONS AND WARRANTS
Stock Options
In July 2008, the Board
of Directors approved, subject to shareholder approval, the establishment of the Bioheart Omnibus Equity Compensation Plan (the Omnibus Plan”). The establishment of the Omnibus Plan was
approved by the Company’s shareholders at the Annual Meeting of Shareholders held on July 30, 2008. Pursuant to the Omnibus Plan, the Company may grant restricted stock, incentive stock
options, non-statutory stock options, stock appreciation rights, deferred stock, stock awards, performance shares, and other stock-based awards consisting of cash, restricted stock or unrestricted
stock in various combinations to the Company’s employees, directors and consultants. 5,000,000 shares of common stock have been reserved for issuance under the Omnibus Plan. As of December 31,
2010, 4,500,000 shares remain available
for issuance under the Omnibus Plan.
F-31
In December 1999, the
Company adopted two stock option plans; an employee stock option plan and a directors and consultants stock option plan (collectively referred to as the Stock Option Plans”), under which a
total of 1,235,559 shares of common stock were reserved for issuance upon exercise of options granted by the Company. In 2001, the Company amended the Stock Option Plans to increase the
total shares of common stock reserved for issuance to 1,698,894. In 2003, the Company approved an increase of 308,890 shares, making the total 2,007,784 shares available for issuance under the Stock
Option Plans. In 2006, the Company approved an increase of 1,081,114 shares, making the total 3,088,898 shares available for issuance under the Stock Option Plans. The Stock Option Plans provide for
the granting of incentive and
non-qualified options. The terms of stock options granted under the Stock Option Plans are determined by the Compensation Committee of the Board of Directors at the time of grant, including the
exercise price, vesting provisions and contractual term of such options. The exercise price of incentive stock options must equal at least the fair value of the common stock on the date of grant, and
the exercise price of non-qualified stock options may be no less than the per share par value. The options have terms of up to ten years after the date of grant and become exercisable as determined
upon grant, typically over either three or four year periods from the date of grant. Certain outstanding options vested over a one-year period and some vested immediately. On February 24, 2010, by
way of a written consent, the Company’s Board of Directors amended the Directors and Consultants 1999 Stock Option Plan to extend the termination date of the Plan to December 1, 2011. As of
December 31, 2010, 559,835 shares
remain available for issuance under the Stock Option Plans.
A summary of options
at December 31, 2010 and activity during the year then ended is presented below:
|
Shares
|
Weighted-Average Exercise Price
|
Weighted-Average Remaining
Contractual Term (in years) |
Aggregate
Intrinsic Value (1) |
|||||||||||||
|
Options outstanding at
January 1, 2010
|
2,119,431 | $ | 3.28 | 5.4 | ||||||||||||
|
Granted
|
1,764,940 | $ | 0.32 | |||||||||||||
|
Exercised
|
(831,526 | ) | $ | 0.001 | ||||||||||||
|
Forfeited/Expired
|
(1,027,301 | ) | $ | 2.62 | ||||||||||||
|
Options outstanding at
December 31, 2010
|
2,025,544 | $ | 2.79 | 6.8 | 0 | |||||||||||
|
Options exercisable at
December 31, 2010
|
1,538,995 | $ | 3.48 | 5.9 | 0 | |||||||||||
|
Available for grant at
December 31, 2010
|
5,059,835 | |||||||||||||||
|
(1)
|
The aggregate intrinsic value represents the amount by which the fair market value of the
Company’s common stock exceeds the exercise price of options at December 31, 2010.
|
The weighted average
fair value of options granted in 2010 and 2009 was $0.46 and $0.66 per share, respectively. The total intrinsic value of options exercised in 2010 and 2009 was $502,865 and $5,845, respectively.
For the twelve month
period ended December 31, 2010, the Company recognized a net $248,457 in expense. This amount consisted of $123,377 in stock-based compensation that was included in research and development expenses,
and $125,080 that was included in marketing, general and administrative expenses. For the year ended December 31, 2009, the Company recognized $296,838 in stock-based compensation costs which was
offset by a net reversal of $21,079 of previously recognized stock-based compensation that was included in marketing, general and administrative expenses. No tax benefits were attributed to the
stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets. The Company elected to adopt the alternative method of calculating the historical pool
of windfall tax benefits as
permitted by ASC Topic 718, formerly FSP No. SFAS 123R-c, Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards. This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of
operations and cash flow reporting for awards that were outstanding as of the adoption of ASC Topic 718, formerly SFAS No. 123R. At December 31, 2010, the Company had approximately $270,272 of
unrecognized compensation costs related to non-vested options that is expected to be recognized over the next three years.
F-32
The following
information applies to options outstanding and exercisable at December 31, 2010:
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
|
Shares
|
Weighted-Average
Remaining Contractual Term |
Weighted-
Average Exercise Price |
Shares
|
Weighted-Average
Exercise Price |
|||||||||||||||||
| $ 0.00 - $0.70 | 775,227 | 9.3 | $ | 0.56 | 327,190 | $ | 0.64 | ||||||||||||||
| $ 0.71 - $1.28 | 389,943 | 7.1 | $ | 0.76 | 355,283 | $ | 0.76 | ||||||||||||||
| $ 5.25 - $5.67 | 820,184 | 4.2 | $ | 5.60 | 816,332 | $ | 5.60 | ||||||||||||||
| $ 7.69 | 39,572 | 5.7 | $ | 7.69 | 39,572 | $ | 7.69 | ||||||||||||||
| $ 8.47 | 618 | 2.6 | $ | 8.47 | 618 | $ | 8.47 | ||||||||||||||
| 2,025,544 | 6.8 | $ | 2.79 | 1,538,995 | $ | 3.85 | |||||||||||||||
The Company uses the
Black-Scholes valuation model to determine the fair value of options on the date of grant. This model derives the fair value of options based on certain assumptions related to expected stock price
volatility, expected option life, risk-free interest rates and dividend yield. The Company’s expected volatility is based on the historical volatility of other publicly traded development stage
companies in the same industry. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the term of the expected life of the options.
For the years ended
December 31, 2010 and 2009, the fair value of each option grant was estimated on the date of grant using the following weighted-average assumptions.
| For the year ended December 31, | ||||||||
| 2010 |
2009
|
|||||||
|
Expected dividend yield
|
0.0
|
%
|
0.0
|
%
|
||||
|
Expected price volatility
|
128–148
|
%
|
129–131
|
%
|
||||
|
Risk free interest rate
|
2.00
|
%
|
2.00
|
%
|
||||
|
Expected life of options
in years
|
5.0
|
5.0
|
||||||
In its meeting of
August 12, 2009, the Board of Directors approved the repricing of current employees’ stock options (other than Executive Officers). In accordance with regulations concerning such a repricing
and in conformance with generally accepted procedures, all options granted before August 12, 2008, were repriced on the basis of the 5-day average closing price of BHRT, during the period of August
11 through August 17, 2009.
The following
information applies to the repricing which occurred as of October 8, 2009.
|
Original Exercise Price
|
New Exercise
Price |
Number of
shares underlying Options |
|||
|
$1.28
|
$
|
0.71
|
61,778
|
||
|
$4.11
|
$
|
0.71
|
10,000
|
||
|
$5.67
|
$
|
0.71
|
409,144
|
||
|
$7.69
|
$
|
0.71
|
12,851
|
||
|
$8.47
|
$
|
0.71
|
38,163
|
||
|
531,936
|
Of those options
listed above, 400,472 expired as of December 31, 2010 without having been exercised.
F-33
Warrants
The Company does not
have a formal plan in place for the issuance of stock warrants. However, at times, the Company will issue warrants to non-employees or in connection with financing transactions. The exercise price,
vesting period, and term of these warrants is determined by the Company’s Board of Directors at the time of issuance. A summary of warrants at December 31, 2010 and activity during the year
then ended is presented below:
|
Shares
|
Weighted-Average
Exercise Price |
Weighted-Average
Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value |
||||||||
|
Outstanding at January 1,
2010
|
7,355,057
|
$
|
3.06
|
9.4
|
|||||||
|
Issued
|
6,693,712
|
$
|
0.78
|
||||||||
|
Exercised
|
0
|
$
|
0.00
|
||||||||
|
Forfeited
|
128,040
|
$
|
0.74
|
||||||||
|
Outstanding at December
31, 2010
|
13,920,729
|
$
|
1.98
|
5.8
|
$
|
614,602
|
|||||
|
Exercisable at December
31, 2010
|
8,232,314
|
$
|
1.82
|
5.4
|
$
|
0.00
|
|||||
In 2010, the Company
issued warrants in a private placement to purchase an aggregate of 6,323,039 shares of its common stock. Excluding the aforementioned warrants, the weighted average fair value of warrants recognized
in 2010 was $7.69 per share. The weighted average fair value of warrants issued in 2009 was $0.60 per share.
The Company uses the
Black-Scholes valuation model to determine the fair value of warrants on the date of issuance. The Company’s expected volatility is based on the historical volatility of other publicly traded
development stage companies in the same industry. The expected life of the warrants is based primarily on the contractual life of the warrants. The risk-free interest rate assumption is based upon
the U.S. Treasury yield curve appropriate for the term of the expected life of the warrants.
For the years ended
December 31, 2010 and 2009, the fair value of warrants issued in transaction was $185,307 and $1,913,487, respectively which, was estimated on the date of issuance using the following
weighted-average assumptions.
|
For the year ended December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Expected dividend yield
|
0.0
|
%
|
00.0
|
%
|
||||
|
Expected price volatility
|
104%–152
|
%
|
1.0
|
%
|
||||
|
Risk free interest rate
|
1.91%–2.43
|
%
|
2.8
|
%
|
||||
|
Expected life of options
in years
|
7–8
|
10.0
|
||||||
The following
information applies to warrants outstanding and exercisable at December 31, 2010:
F-34
|
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||
|
Shares
|
Weighted-Average
Remaining Contractual Term
|
Weighted-Average
Exercise Price
|
Shares
|
Weighted-Average
Exercise Price
|
|||||||||||||||||
| $ 0.01 - $0.50 | 4,143,965 | 2.9 | $ | 0.18 | - | - | |||||||||||||||
| $ 0.52 - $0.68 | 3,776,909 | 6.5 | $ | 0.59 | 3,776,909 | $ | 0.59 | ||||||||||||||
| $ 0.70 - $1.62 | 2,649,454 | 4.3 | $ | 0.79 | 2,649,454 | $ | 0.79 | ||||||||||||||
| $ 1.81 - $2.61 | 427,119 | 0.9 | $ | 2.07 | 427,119 | $ | 2.07 | ||||||||||||||
| $ 3.60 - $4.93 | 105,000 | 2.7 | $ | 4.87 | 105,000 | $ | 4.87 | ||||||||||||||
| $ 5.67 - $7.69 | 2,818,282 | 11.5 | $ | 7.50 | 1,273,832 | $ | 7.26 | ||||||||||||||
| 13,920,729 | 5.8 | $ | 1.98 | 8,232,314 | $ | 1.82 | |||||||||||||||
NOTE
12-RELATED PARTY TRANSACTIONS
Lease Guarantee
The Company’s
former Chairman of the Board, Chief Executive Officer and Chief Technology Officer has personally guaranteed the Company’s obligations under its lease for its facilities in Sunrise, Florida and
has provided a personal guarantee for the Company credit card, which is for his own use only.
Cousin of former Chairman of the Board
A cousin of the
Company’s former Chairman of the Board, Chief Executive Officer and Chief Technology Officer was an officer of the Company from August 12, 1999 until December 11, 2009. The amounts paid to this
individual as salary and bonus in 2009, 2008, 2007 and for the period from August 12, 1999 (date of inception) to December 31, 2008 was $11,000, $130,000, $130,000 and $1,007,752, respectively. In
addition, the Company utilized a printing entity controlled by this individual and paid this entity $23,335, $18,230, $10,769 and $457,967, respectively, in 2009, 2008, 2007 and for the period from
August 12, 1999 (date of inception) to December 31, 2009. The position occupied by this individual was terminated.
On August 24, 2006,
the Company entered into an agreement, or the Settlement Agreement, with the same officer of the Company that is the cousin of the Company’s former Chairman of the Board, Chief Executive
Officer and Chief Technology Officer. Prior to entering into the Settlement Agreement, certain disputes had arisen between the officer and the Company as to the number of stock options awarded to the
officer and the amount of unpaid salary and other compensation owed to the officer since he commenced his employment with the Company in December 1999. The shares, options and warrants granted to the
officer pursuant to the Settlement Agreement were issued to settle the disputed items and in consideration for the officer’s release of any claims he may have against the Company related to or
arising from his employment or
any compensation owed to him.
F-35
Pursuant to the
Settlement Agreement:
|
●
|
The Company issued to the
officer 47,658 shares of its common stock and agreed to pay the officer’s income taxes related to the receipt of the shares of common stock, estimated to be approximately $153,000. The fair
value of the shares of common stock was determined to be $7.69 per share, which was based on a current valuation of the Company. The aggregate fair value of the shares of common stock issued and the
$153,000 in cash was approximately $500,000, which was recorded as compensation expense in August 2006.
|
|
|
●
|
The Company issued to the
officer a warrant to purchase 188,423 shares of the Company’s common stock at an exercise price of $5.67 per share. This warrant is exercisable immediately and expires 10 years from the date of
issuance. The approximate fair value of this warrant of $1,200,000 was recorded as compensation expense in August 2006.
|
|
●
|
The Company issued to the
officer stock options to purchase up to 282,635 shares of the Company’s common stock at an exercise price of $5.67 per share. These stock options are exercisable immediately and expire 10 years
from the date of grant. The fair value of these stock options of approximately $1,800,000 was recorded as compensation expense in August 2006.
|
|
|
●
|
As consideration for
continued employment as an officer of the Company, the officer was eligible to receive an annual salary of $130,000 per year while employed by the Company.
|
As indicated above,
the Company recognized various expenses upon the execution of the Settlement Agreement when the expense amounts were first known and quantifiable.
The fair value of the
warrant and the stock options was estimated at the date of grant by using the Black-Scholes valuation model with the following assumptions: risk-free rate of 6%; volatility of 100%; and an expected
holding period of 5 years.
Upon termination of
his position, the officer requested and received permission to sell the 47,658 shares of the company’s stock that had been awarded to him. On December 8, 2009, the company was informed by the
officer that all of these shares had been sold. In addition, the officer elected not to exercise certain of his options that expired on December 24, 2009. The officer, in accordance with Company
policy, was required to exercise his remaining options within 90 days of the termination of his position on December 11, 2009. The officer did not exercise his remaining options by March 11, 2010 the
90 th day.
Sister-in-Law of former Chairman of the Board
The former
sister-in-law of the Company’s former Chairman is an officer of the Company. The amount paid to this individual as salary and bonus in 2010, 2009, 2008, 2007 and for the period from August 12,
1999 (date of inception) to December 31, 2010 was $106,000, $77,165, $86,209, $87,664 and $537,380, respectively.
Research Agreement
In 2007, the Company
entered into a research agreement with an affiliate of two members of the Company’s Board of Directors., pursuant to which the Company agreed to pay an aggregate fee of $150,000 for the
research services contracted for. The Company paid $75,000 of this fee in 2007, $10,000 of this fee in 2008, and the balance was paid with options in 2009. In 2010, the Company entered into
another research agreement with this affiliate, with funding for the project emanating from venture capital funds controlled by the same two board members. In connection with its funding of the REGEN
trial, Ascent Medical Technology Fund II, LP, the Ascent Medical Technology Fund, LP, and Ascent Medical Product Development Centre Inc. were to be issued a total of 1,044, 451 shares of the
Company’s common stock, and
warrants to purchase 90,861 shares at exercise prices 20% above the price at which the related common will be issued. As of December 31, 2010 a total of 837,212 shares of the Company’s common
stock and warrants to purchase 158,856 were issued. Approvals for the REGEN Trial were not provided to the Company by Ascent and patient enrollment in the REGEN Trial never began. The Company has
suspended, indefinitely, all activity with Ascent Medical respective to the REGEN trial. On December 16, 2010, the Company received a written notice from Ascent terminating the Master Services
Agreement. The Company disputes that Ascent has grounds for terminating the Master Services Agreement or is entitled to further compensation thereunder. However, as the REGEN Trial approvals were not
provided to the Company and all activity with Ascent Medical respective to the trial has been suspended indefinitely, the termination of the Master Services Agreement is not material to the Company
F-36
In April and May 2009,
the Company sold to two members of the Board of Directors, in a private placement, an aggregate of 965,570 shares of the Company’s common stock and warrants to purchase 289,671 shares of the
Company’s common stock for aggregate gross cash proceeds of $535,000.
In July 2009, the
Company sold to a member of the Board of Directors, in a private placement 140,850 shares of the Company’s common stock and warrants to purchase 42,255 shares of the Company’s common
stock for gross cash proceeds of $100,000 or $2.36 per share.
NOTE
13-COMMITMENTS AND CONTINGENCIES
Leases
The Company entered
into several operating lease agreements for facilities and equipment. Terms of certain lease arrangements include renewal options, escalation clauses, payment of executory costs such as real estate
taxes, insurance and common area maintenance.
In November 2006, the
Company amended its facility lease to include additional space through 2010. The amendment for the additional space contains terms similar to the terms of the existing facility lease, including
escalation clauses.
In November 2009, the
Company amended its facility lease to eliminate excess space. The amendment for the additional space contains terms similar to the terms of the existing facility lease, including escalation clauses.
In February 2010, the
Company amended its facility lease to extend the term of the lease until January 2013.
Approximate annual
future minimum lease obligations under noncancelable operating lease agreements as of December 31, 2010 are as follows:
|
Year
ending December 31,
|
||||
|
2011
|
$ | 81,416 | ||
|
2012
|
83,853 | |||
|
2013
|
7,005 | |||
|
Total
|
$ | 172,274 | ||
Rent expense was
$139,160 and $178,487 for the years ended December 31, 2010 and 2009, respectively and $1,762,510 for the cumulative period from August 12, 1999 (date of inception) to December 31,
2010.
During 2005, the
Company was provided with a tenant improvement allowance of $60,150 towards its improvements. The Company has recorded the tenant-funded improvements and the related deferred rent in its consolidated
balance sheets. The deferred rent is being amortized as a reduction to rent expense over the remaining life of the original lease.
Royalty Payments
The Company is
obligated to pay royalties on commercial sales of certain products that may be developed and sold under various licenses and agreements that have been obtained by the Company.
The Company has
entered into various licensing agreements, which include the potential for royalty payments, as follows:
William Beaumont Hospital
F-37
In June 2000, the
Company entered into an exclusive license agreement to use certain patents for the life of the patents in future projects. The patents expire in 2015. In addition to a payment of $55,000 the Company
made to acquire the license, the Company is required to pay an annual license fee of $10,000 and royalties ranging from 2% to 4% of net sales of products that are covered by the patents. In order to
maintain the exclusive license rights, the agreement also calls for a minimum annual royalty threshold. The minimum royalty threshold was $200,000 for 2010 and $200,000 for 2009. This minimum royalty
threshold will remain $200,000 for 2011 and thereafter. As of December 31, 2010, the Company has not made any payments other than the initial payment to acquire the license. At December 31, 2010
and 2009, the Company’s
liability under this agreement was $1,090,000 and $880,000, respectively, which is reflected as a component of accrued expenses on the consolidated balance sheets. In 2010, 2009 and for the
cumulative period from August 12, 1999 (date of inception) to December 31, 2010, the Company incurred expenses of $210,000, $210,000 and $1,090,000, respectively. The Company has accrued
interest for the past due commitment at 2% over the prime rate per the terms of the agreement. The Company has included $175,875 in accrued expenses as of December 31, 2010.
Approximate annual
future minimum obligations under this agreement as of December 31, 2010 are as follows:
|
Year Ending December 31,
|
|||||
|
2011
|
$ | 210,000 | |||
|
2012
|
210,000 | ||||
|
2013
|
210,000 | ||||
| 2014 - 2015 | 420,000 | ||||
|
Total
|
$ | 1,050,000 | |||
Contingency for Registration of the Company's common stock
The Company believes
that it may have issued options to purchase common stock to certain of its employees, directors and consultants in California in violation of the registration or qualification provisions of
applicable California securities laws. As a result, the Company intends to make a rescission offer to these persons. The Company will make this offer to all persons who have a continuing right to
rescission, which it believes to include two persons. In the rescission offer, in accordance with California law, the Company will offer to repurchase all unexercised options issued to these persons
at 77% of the option exercise price multiplied by the number of option shares, plus interest at the rate of 7% from the date the options were granted. Based upon the number of options that were
subject to rescission as of December 31,
2009, assuming that all such options are tendered in the rescission offer, the Company estimated that its total rescission liability would be up to approximately $371,000. However, as the Company
believes there is only a remote likelihood the rescission offer will be accepted by any of these persons in an amount that would result in a material expenditure by the Company, no liability was
recorded as of December 31, 2010 or 2009.
Litigation
On March 13, 2009,
Judge Bernice Bouie Donald of the United States District Court for the Western District of Tennessee issued a Memorandum Opinion and Order in litigation brought against the Company by Dr. Peter K.
Law and Cell Transplants Asia Limited (CTAL”) (collectively, the Plaintiffs”), captioned Peter K. Law, et al. v. Bioheart, Inc., No. 2:07-cv-2177 (the Action”). The Action, which
has been the subject of previous disclosures by the Company, was commenced on March 9, 2007, and asserted claims against the Company and Howard J. Leonhardt, individually, with respect to a license
agreement entered into between Bioheart, Inc. and Cell Transplants International, LLC (CTI”) on February 7, 2000 (the Original License Agreement”). Pursuant to the License Agreement,
among other things, CTI granted the
Company a license to certain patents related to heart muscle regeneration and angiogenesis for the life of the patents.” In July 2000, Bioheart and CTI, together with Dr. Law, executed an
addendum to the License Agreement, which amended or superseded a number of the terms of the License Agreement (the License Addendum”).
F-38
In their amended
complaint, Dr. Law and CTAL asserted 14 breach of contract and related claims pertaining to the Original License Agreement and License Addendum, including, among others, claims that the Company had
breached obligations to provide shares of Bioheart common stock to Dr. Law, pay royalties on gross sales” of MyoCell, pay a $3 million milestone payment due upon Bioheart’s commencement
of a bona fide Phase II human clinical trial study that utilizes technology claimed under U.S. Patent No. 5,130,141 with F.D.A. approval in the United States,” and to refrain from sublicensing
Plaintiffs’ patents. Plaintiffs also sought a declaratory judgment that the License Addendum was unenforceable due to a lack of consideration and/or economic duress. At the outset of the
Action, the individual claim against Mr.
Leonhardt was dismissed along with Plaintiffs’ claim for civil conspiracy, leaving 12 claims to be adjudicated.
The Company denied the
material allegations of the amended complaint, denied it had any liability to Plaintiffs, and asserted a number of defenses to Plaintiffs’ claims, as well as counterclaims seeking a declaration
that the License Addendum was a legally valid and binding agreement and asserting that Dr. Law and/or CTI had breached various obligations in the parties’ agreements.
Following the
completion of discovery, the Action was tried to the Court, without a jury, from September 22-25, 2008.
On March 13, 2009, the
Court rendered its decision in the Action, dismissing the amended complaint after finding that Plaintiffs had failed to establish any of their 12 remaining claims. With respect to Plaintiffs’
claim for the $3 million milestone payment, the Court found that the payment was payable only to CTI,” not the Plaintiffs, and that CTI, a dissolved Tennessee limited liability company, had
never been made a party to the Action and therefore was not properly before the Court.” The Court also found that, even assuming Plaintiffs could assert a claim for the milestone payment on
behalf of CTI, the payment was not due because Bioheart’s MyoCell process does not utilize technology claimed under the ‘141 patent.” In addition, the Court found that Bioheart owed
no royalties because it has not
yet made any gross sales” of MyoCell.
The Court found in
Bioheart’s favor on its counterclaim seeking a declaration that the License Addendum was a valid and enforceable agreement and its counterclaim that Dr. Law breached his obligation under the
License Addendum to provide Bioheart with all pertinent and critical information” related to Bioheart’s filing of an IND application with the FDA. The Court awarded Bioheart nominal
damages of $1.00 on the latter counterclaim, and dismissed Bioheart’s other counterclaims. Judgment upon the Memorandum Opinion and Order was entered on March 18, 2009.
Subsequent to the
Court rendering its decision in the Action, the Plaintiffs filed a motion with the Court seeking reconsideration of its decision. The Company’s response was filed on April 20, 2009, and the
Court’s response was received on October 15, 2009. The Plaintiffs’ motion to alter or amend was granted in part to clarify that Plaintiff failed to prove that the MyoCath catheter reads
upon the claims of a patent other than the Schmidt catheter patent. Plaintiffs’ motion was otherwise denied.
A notice of appeal was
to have been filed by November 16, 2009, by Dr. Law. The appeal was not filed. The accrual made prior to November 16, 2009, to accommodate a judgment in favor of Dr. Law has been reversed.
The Company is subject
to other legal proceedings that arise in the ordinary course of business. In the opinion of management, as of December 31, 2010, the amount of ultimate liability with respect to such matters, if any,
in excess of applicable insurance coverage, is not likely to have a material impact on the Company's business, financial position, consolidated results of operations or liquidity. However, as the
outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.
F-39
NOTE
14 -INCOME TAXES
The Company follows
Accounting Standards Codification subtopic 740-10, Income Taxes (ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for
financial reporting purposes and income tax purposes include, but not limited to, accounting for intangibles, debt discounts associated with convertible debt, equity based compensation and
depreciation and amortization.
At December 31, 2010,
the Company has available for federal income tax purposes a net operating loss carryforward of approximately $93,295,351 which expires in the year 2030, that may be used to offset future taxable
income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it
is more likely than not that the benefits will not be realized. Based upon the change in ownership rules under section 382 of the Internal Revenue Code of 1986, if in the future the Company issues
common stock or additional equity instruments convertible in common shares which result in an ownership change exceeding the 50% limitation threshold imposed by that section, all of the
Company’s net operating losses
carryforwards may be significantly limited as to the amount of use in a particular years. Components of deferred tax assets as of December 31, 2010 are as follows. All or portion of the remaining
valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
At December 31,
2010, the significant components of the deferred tax assets (liabilities) are summarized below:
|
Net operating loss carry
forwards expiring through 2030
|
$ | 93,295,351 | ||
|
Tax Asset
|
39,888,456 | |||
|
Less valuation allowance
|
(39,888,456 | ) | ||
|
Balance
|
$ | - |
The Company recognizes
interest and penalties related to uncertain tax positions in general and administrative expenses. As of December 31, 2010 and 2009, the Company has no unrecognized tax benefit from uncertain tax
positions, including interest and penalties.
The difference between
income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Statutory federal income
tax rate
|
35.0 | % | 35.0 | % | ||||
|
State income taxes and
other
|
0.0 | % | 0.0 | % | ||||
|
Effective tax rate
|
35.0 | % | 35.0 | % | ||||
Deferred income taxes
result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing
deferred tax asset and liabilities result principally from the following:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Deferred Tax Asset: (Liability)
|
||||||||
|
Net operating loss carry
forward
|
$ | 35,107,040 | $ | 5,518,516 | ||||
|
Stock based compensation
and others
|
4,781,416 | 32,303,632 | ||||||
|
Subtotal
|
39,888,456 | 37,822,148 | ||||||
|
Valuation allowance
|
39,888,456 | 37,822,148 | ||||||
|
Net Deferred Tax Asset
(Liability)
|
$ | - | $ | - | ||||
Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Company’s net deferred income taxes are as follows:
F-40
NOTE
15- SUPPLEMENTAL DISCLOSURES OF CASH FLOW STATEMENTS
During the years ended
December 31, 2010 and 2009, the Company issued warrants in connection with notes payable with an aggregate fair value of $185,306 and $1,913,487, respectively.
NOTE
16 -SUBSEQUENT EVENTS
Loan agreement amendment
On December 31, 2009,
the Company and BlueCrest Venture Finance Master Fund Limited (BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the Company
originated as of May 31, 2007 (the Loan”). The outstanding principal amount of the Loan as of December 31, 2010 was $2,276,543.03. On January 7, 2011, BlueCrest agreed with the Company and
Magna Group, LLC (Magna”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $139,729.82 (the
New Note”). The New Note was assigned to Magna in consideration for a payment by them to BlueCrest of $139,729.82, and modified. Additionally, Magna purchased a $25,000 convertible note from
the Company (the Convertible
Note”).
The loans evidenced by
the New Note and Convertible Note are in the nature of convertible debt evidenced by two unsecured convertible promissory notes, each bearing interest at the rate of 8% per annum, payable at maturity
and each convertible into common stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the
Lenders’ election to exercise its conversion right.
|
.
|
In January 2011, we issued an aggregate
of 538,542 shares of our common stock in connection with the conversion of $87,729 of the convertible note.
|
|
.
|
In February 2011, we issued an
aggregate of 421,392 shares of our common stock in connection with the conversion of the remaining balance of $52,000 of the convertible note.
|
Private Placement - Common Stock and Warrants
In January 2011, the
Company sold, in a private placement, an aggregate of 102,780 shares of the Company’s common stock and warrants to purchase 51,390 shares of the Company’s common stock for aggregate gross
cash proceeds of $18,500. The warrants are (i) exercisable solely for cash at an exercise price of $0.22 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in
whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In January 2011, the
Company sold an aggregate of 318,750 shares of the Company’s common stock and warrants to purchase 159,375 shares of the Company’s common stock for aggregate gross cash proceeds of
$51,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.19 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part,
at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
F-41
In March 2011, the
Company sold an aggregate of 577,670 shares of the Company’s common stock and warrants to purchase 491,020 shares of the Company’s common stock for aggregate gross cash proceeds of
$85,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.14 to $0.15 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or
in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In April 2011, the
Company sold an aggregate of 97,400 shares of the Company’s common stock and warrants to purchase 82,790 shares of the Company’s common stock for aggregate gross cash proceeds of $15,000.
The warrants are (i) exercisable solely for cash at an exercise price of $0.15 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any
time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
Subscription agreement
On January 23, 2011,
Bioheart, Inc. (the Company”) announced that it has entered into a subscription agreement with Anc Bio Holdings, Inc., a South Korean biomedical company, and a subscription agreement with one
of its U.S. agents, Bioheart Florida, LLC for a $4 million equity investment, in the aggregate. Funding of the investment will be made ratably by them in installments with 10% immediately, followed
by 40% within 45 days and the remaining 50% subject to certain conditions which the Company expects to satisfy in the next 90 days.
The aggregate number
of shares of common stock anticipated to be issued in connection with the investment is 25,000,000 shares. The Company will also issue to the purchasers of common stock, warrants to purchase, in the
aggregate, up to 12,500,000 shares of common stock. In connection with the common stock issuance, the subscribers received piggyback” registration rights exercisable under certain circumstances
more particularly set forth in the Registration Rights Agreement entered into with each investor.
Under the terms of the
subscription agreements, the Company has agreed, among other things, that:
(a) Until April 20,
2011, the Company shall not initiate or support any action to increase the number of directors serving on the Company’s Board of Directors and, subject to unforeseen circumstances outside of
the Company’s control (i.e., the death or disability of a board member), the Company will not initiate or support any change to the composition of the Board of Directors’ Committees
without the investors’ prior consent;
(b) The Company will
provide the Investors with an estimated use of proceeds prior to the first installment payment date and the Company will utilize not less than sixty percent (60%) of such proceeds for research and
development costs and clinical trial costs;
(c) The proceeds may
be used to attract and hire a new Company Chief Financial Officer and the Investors, or their designee(s) will have the right to participate in the interviewing of, and the selection of, that new
Chief Financial Officer; and
(d) Until April 20,
2011, the Company shall not issue more than Two Hundred, Fifty Thousand (250,000) shares of the Company’s Common Stock in connection with any single transaction (other than shares that may be
issued in connection with the conversion of the existing convertible promissory note into such shares of common stock by Magna Group, LLC).
(e) the Company has
agreed that, following its receipt of the first installment payment, the Company will cause a vacancy on the Company’s Board of Directors to be filled by one person designated by ABH.
Additionally, the Company agreed with ABH that it shall not call a meeting nor schedule a meeting of its shareholders to be held prior to April 20, 2011.
F-42
On January 23, 2011
the Company issued an aggregate of 2,500,000 shares of the Company’s common stock and warrants to purchase 1,250,000 shares of the Company’s common stock for aggregate gross cash proceeds
of $400,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.19 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in
part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
Following receipt of
the initial 10% the Company engaged in discussions with the investors to determine new timing for the funding of the remaining installments. As of April 18, 2011, the second installment had not been
received from either ABH or BF.
Accordingly, on April
18, 2011 the Company delivered a written notice of default and termination to each of ABH and BF, in respect of the Agreements. The notice stated that it was being given as a result of the breach by
each of ABH and BF of their respective payment obligations under the Agreements. A copy of the notice of default was filed with the Company’s Current Report on Form 8-K filed with the SEC on
April 22, 2011.
Increase to Authorized Common Stock
As of December 31,
2010, our Articles of Incorporation authorized us to issue up to 75,000,000 shares of common stock, par value $0.001 per share. The Board of Directors proposed, and on January 13, 2011 (the Record
Date”) the holders of a majority of the Company’s issued and outstanding voting common shares as of the Record Date approved, an increase in the number of authorized shares of the common
stock from 75,000,000 shares to 195,000,000 shares. On January 21, 2011 the Company filed a 14C Information Statement with the Securities and Exchange Commission. Following approval by the Securities
and Exchange Commission and upon the filing of the Certificate of Amendment to the Articles of Incorporation, the Company’s will be authorized to issue a total of 195,000,000 shares of common
stock, par value of $0.001 per
share, and 5,000,000 shares of preferred stock, par value $0.001 per share.
Issuance of Options and Warrants
Between January 1,
2011 and May 4, 2011, the Company issued options to purchase an aggregate of 372,167 shares of its common stock at a weighted average exercise price of $0.001 per share. These options consisted of
the following:
|
●
|
stock options to purchase
an aggregate of 372,167 shares of common stock at an exercise price of $0.001 per share. The options vested immediately upon issuance and will expire on the tenth anniversary of the issuance date. As
of May 4, 2011 an aggregate of 372,167 shares of common stock have been issued upon the exercise of the aforementioned options.
|
Between January 1,
2011 and May 4, 2011, the Company issued warrants to purchase an aggregate of 3,314,575 shares of its common stock at a weighted average exercise price of $0.18 per share. These warrants consisted of
the following:
|
●
|
Warrants to purchase
210,765 shares of common stock at an exercise price of $0.19 to $0.22. These warrants were issued in connection with private placement discussed above. The warrant vests six months following
issuance and expires on the third year anniversary of the date of issuance.
|
|
|
●
|
Warrants to purchase
1,250,000 shares of common stock at an exercise price of $0.19. These warrants were issued in connection with Subscription agreement discussed above. The warrant vests six months following
issuance and expires on the third year anniversary of the date of issuance.
|
|
|
●
|
Warrants to purchase
280,000 shares of common stock at an exercise price of $0.19 issued to Consultants. The warrant vests six months following issuance and expires on the fifth year anniversary of the date of
issuance.
|
|
|
●
|
Warrants to purchase
573,810 shares of common stock at an exercise price of $0.14 to $0.15. These warrants were issued in connection with Subscription agreement discussed above. The warrant vests six months
following issuance and expires on the third year anniversary of the date of issuance.
|
Approval of Option Issuance
In February 2011, the
Board of Directors approved the issuance of stock options to purchase an aggregate of 210,000 shares of common stock at an exercise price of $0.21 per share issued to certain members of the
Company’s Board of Directors. The options will vest immediately upon issuance and will expire on the tenth anniversary of the issuance date.
F-43
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
|
September 30,
|
December 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
(unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 2,787 | $ | 3,298 | ||||
|
Accounts receivable, net
|
- | 1,266 | ||||||
|
Inventory
|
64,119 | 64,612 | ||||||
|
Prepaid and other
|
99,012 | 34,322 | ||||||
|
Total current assets
|
165,918 | 103,498 | ||||||
|
Property and equipment,
net
|
20,749 | 47,439 | ||||||
|
Other assets
|
158,059 | 157,859 | ||||||
|
Total assets
|
$ | 344,726 | $ | 308,796 | ||||
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 2,407,405 | $ | 2,050,161 | ||||
|
Accrued expenses
|
4,005,238 | 3,581,445 | ||||||
|
Advances, related party
|
456,000 | 238,000 | ||||||
|
Deposits
|
465,286 | 465,286 | ||||||
|
Subordinated debt, related
party
|
1,500,000 | 1,500,000 | ||||||
|
Notes payable, related
party
|
365,000 | 225,000 | ||||||
|
Notes payable, net of debt
discount
|
3,439,563 | 3,232,271 | ||||||
|
Total current liabilities
|
12,638,492 | 11,292,163 | ||||||
|
Long term debt:
|
||||||||
|
Note payable, long term
|
- | 1,032,827 | ||||||
|
Total long term debt
|
- | 1,032,827 | ||||||
|
Total liabilities
|
12,638,492 | 12,324,990 | ||||||
|
Commitments and
contingencies
|
- | - | ||||||
|
Stockholders'
deficit:
|
||||||||
|
Preferred stock, par value
$0.001; 5,000,000 shares authorized, none issued and outstanding as of September 30, 2011 and December 31, 2010
|
- | - | ||||||
|
Common stock, par value
$0.001; 195,000,000 and 75,000,000 shares authorized as of September 30, 2011 and December 31, 2010, respectively, 70,464,202 and 37,545,865 shares issued and outstanding as of September 30, 2011 and
December 31, 2010 , respectively
|
70,464 | 37,545 | ||||||
|
Additional paid in capital
|
97,621,880 | 94,274,281 | ||||||
|
Common stock subscribed
|
60,000 | - | ||||||
|
Subscriptions receivable
|
- | (3,800 | ) | |||||
|
Deficit accumulated during
development stage
|
(110,046,110 | ) | (106,324,220 | ) | ||||
|
Total stockholders' deficit
|
(12,293,766 | ) | (12,016,194 | ) | ||||
|
Total liabilities and
stockholders' deficit
|
$ | 344,726 | $ | 308,796 | ||||
See the accompanying notes
to these unaudited condensed consolidated financial statements
F-44
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
From August
12, 1999 |
||||||||||||||||||||
|
Three months ended
|
Nine months ended
|
(date of
|
||||||||||||||||||
|
September 30,
|
September 30,
|
Inception) to
|
||||||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
September 30,
2011 |
||||||||||||||||
|
(restated)
|
(restated)
|
|||||||||||||||||||
|
Revenue
|
$ | 3,495 | $ | 6,422 | $ | 6,990 | $ | 42,888 | $ | 1,198,046 | ||||||||||
|
Cost of sales
|
139 | 2,827 | 278 | 19,626 | 550,418 | |||||||||||||||
|
Gross profit
|
3,356 | 3,595 | 6,712 | 23,262 | 647,628 | |||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Research and development
|
92,625 | 173,797 | 370,305 | 1,267,420 | 64,195,956 | |||||||||||||||
|
Marketing, general and
administrative
|
585,719 | 430,930 | 1,632,733 | 1,244,951 | 34,165,670 | |||||||||||||||
|
Depreciation and
amortization
|
7,705 | 11,257 | 26,690 | 47,955 | 878,052 | |||||||||||||||
|
Total
operating expenses
|
686,049 | 615,984 | 2,029,728 | 2,560,326 | 99,239,678 | |||||||||||||||
|
Net loss from operations
|
(682,693 | ) | (612,389 | ) | (2,023,016 | ) | (2,537,064 | ) | (98,592,050 | ) | ||||||||||
|
Other income (expenses):
|
||||||||||||||||||||
|
Development revenues
|
- | - | - | - | 117,500 | |||||||||||||||
|
Loss on change of fair
value of derivative liability
|
(117,027 | ) | - | (25,026 | ) | (25,026 | ) | |||||||||||||
|
Interest income
|
- | - | - | 2 | 762,277 | |||||||||||||||
|
Other income
|
1,813 | - | 5,677 | - | 251,231 | |||||||||||||||
|
Interest expense
|
(777,325 | ) | (266,862 | ) | (1,679,525 | ) | (1,063,934 | ) | (12,560,042 | ) | ||||||||||
|
Total other
income (expenses)
|
(892,539 | ) | (266,862 | ) | (1,698,874 | ) | (1,063,932 | ) | (11,454,060 | ) | ||||||||||
|
Net loss before income
taxes
|
(1,575,232 | ) | (879,251 | ) | (3,721,890 | ) | (3,600,996 | ) | (110,046,110 | ) | ||||||||||
|
Income taxes (benefit)
|
- | - | - | - | - | |||||||||||||||
|
NET LOSS
|
$ | (1,575,232 | ) | $ | (879,251 | ) | $ | (3,721,890 | ) | $ | (3,600,996 | ) | $ | (110,046,110 | ) | |||||
|
Net loss per common share,
basic and diluted
|
$ | (0.03 | ) | $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.14 | ) | ||||||||
|
Weighted average number of
common shares outstanding, basic and diluted
|
60,408,824 | 28,544,853 | 48,116,686 | 25,506,081 | ||||||||||||||||
See the accompanying
notes to these unaudited condensed consolidated financial statements
F-45
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 2011
(unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||||||
|
Additional
|
Common
|
During
|
||||||||||||||||||||||||||||||||||||||
|
Preferred stock
|
Common stock
|
Paid in
|
Deferred
|
Subscription
|
Stock
|
Development
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Receivable
|
Subscription
|
Stage
|
Total
|
|||||||||||||||||||||||||||||||
|
Balance, December 31, 2010
|
- | $ | - | 37,545,865 | $ | 37,545 | $ | 94,274,281 | $ | - | $ | (3,800 | ) | $ | - | $ | (106,324,220 | ) | $ | (12,016,194 | ) | |||||||||||||||||||
|
Cancellation of previously
issued shares
|
- | - | (3,450 | ) | (3 | ) | 3 | - | - | - | - | - | ||||||||||||||||||||||||||||
|
Proceeds from common stock
subscription
|
- | - | - | - | - | - | 3,800 | - | - | 3,800 | ||||||||||||||||||||||||||||||
|
Common stock issued in
exchanged of options exercised
|
- | - | 1,281,928 | 1,282 | - | - | - | - | - | 1,282 | ||||||||||||||||||||||||||||||
|
Common stock in exchange
for services
|
- | - | 1,000,000 | 1,000 | 114,035 | - | - | - | - | 115,035 | ||||||||||||||||||||||||||||||
|
Common stock issued upon
conversion of notes payable
|
- | - | 20,539,169 | 20,540 | 1,340,205 | - | - | - | - | 1,360,745 | ||||||||||||||||||||||||||||||
|
Issuance of common stock,
net of issuance costs of $40,000
|
- | - | 10,100,690 | 10,100 | 993,100 | - | - | - | - | 1,003,200 | ||||||||||||||||||||||||||||||
|
Stock based compensation
|
- | - | - | - | 343,884 | - | - | - | - | 343,884 | ||||||||||||||||||||||||||||||
|
Fair value of warrants
issued for services
|
- | - | - | - | 53,200 | - | - | - | - | 53,200 | ||||||||||||||||||||||||||||||
|
Common stock subscription
|
- | - | - | - | - | - | - | 60,000 | - | 60,000 | ||||||||||||||||||||||||||||||
|
Beneficial conversion
feature connection with issuance of convertible note
|
- | - | - | - | 503,172 | - | - | - | - | 503,172 | ||||||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | - | (3,721,890 | ) | (3,721,890 | ) | ||||||||||||||||||||||||||||
|
Balance, September 30, 2011
|
- | $ | - | 70,464,202 | $ | 70,464 | $ | 97,621,880 | $ | - | $ | - | $ | 60,000 | $ | (110,046,110 | ) | $ | (12,293,766 | ) | ||||||||||||||||||||
See the accompanying
notes to these unaudited condensed consolidated financial statements
F-46
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
|
From August
12, 1999 |
||||||||||||
|
Nine months ended |
(date of
|
|||||||||||
|
September 30,
|
Inception) to
|
|||||||||||
|
2011
|
2010
|
September 30,
2011 |
||||||||||
|
(restated)
|
||||||||||||
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
||||||||||||
|
Net loss
|
$
|
(3,721,890
|
)
|
$
|
(3,600,996
|
)
|
$
|
(110,046,110
|
)
|
|||
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation and
amortization
|
26,690
|
47,955
|
878,052
|
|||||||||
|
Bad debt expense
|
1,266
|
-
|
166,266
|
|||||||||
|
Amortization of discount
on convertible debt
|
769,194
|
-
|
1,031,418
|
|||||||||
|
Loss on change in fair
value of derivative liability
|
25,026
|
-
|
25,026
|
|||||||||
|
Non cash payment of
interest
|
158,441
|
-
|
158,441
|
|||||||||
|
Amortization of warrants
issued in exchange for licenses and intellectual property
|
-
|
-
|
5,413,156
|
|||||||||
|
Amortization of warrants
issued in connection with notes payable
|
226,586
|
274,969
|
5,290,686
|
|||||||||
|
Amortization of loan costs
|
9,153
|
69,208
|
1,224,736
|
|||||||||
|
Warrants issued in
exchange for services
|
-
|
-
|
285,659
|
|||||||||
|
Equity instruments issued
in connection with R&D agreement
|
-
|
-
|
360,032
|
|||||||||
|
Equity instruments issued
in connection with settlement agreement
|
-
|
567,820
|
3,381,629
|
|||||||||
|
Common stock issued in
connection with accounts payable
|
-
|
133,594
|
655,382
|
|||||||||
|
Common stock issued in
exchange for services
|
79,093
|
-
|
1,402,010
|
|||||||||
|
Common stock issued in
connection with amounts due to guarantors of Bank of America loan
|
-
|
69,159
|
69,159
|
|||||||||
|
Common stock issued in
exchange for distribution rights and intellectual property
|
-
|
-
|
99,997
|
|||||||||
|
Warrants issued on
connection with services rendered
|
53,200
|
-
|
53,200
|
|||||||||
|
Warrants issued in
connection with accounts payable
|
-
|
7,758
|
||||||||||
|
Stock based compensation
|
343,884
|
141,894
|
9,808,898
|
|||||||||
|
(Increase) decrease in:
|
||||||||||||
|
Receivables
|
-
|
(472
|
)
|
(1,265
|
)
|
|||||||
|
Inventory
|
-
|
122,364
|
(153,618
|
)
|
||||||||
|
Prepaid and other current
assets
|
60,750
|
(31,959
|
)
|
26,429
|
||||||||
|
Other assets
|
-
|
(200
|
)
|
(28,854
|
)
|
|||||||
|
Increase (decrease) in:
|
||||||||||||
|
Accounts payable
|
268,038
|
135,063
|
2,902,317
|
|||||||||
|
Accrued expenses
|
470,774
|
962,215
|
5,119,616
|
|||||||||
|
Deferred revenue
|
-
|
-
|
465,287
|
|||||||||
|
Net cash used in operating activities
|
(1,229,795
|
)
|
(1,109,386
|
)
|
(71,404,693
|
)
|
||||||
F-47
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
|
From August
12, 1999 |
||||||||||||
|
Nine months ended
|
(date of
|
|||||||||||
|
September 30,
|
Inception) to
|
|||||||||||
|
2011
|
2010
|
September 30, 2011
|
||||||||||
|
(restated)
|
||||||||||||
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||
|
Acquisitions of property
and equipment
|
- | - | (898,800 | ) | ||||||||
|
Net cash used by investing activities
|
- | - | (898,800 | ) | ||||||||
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||||||
|
Proceeds from issuance of
common stock, net
|
1,067,000 | 1,199,651 | 62,939,175 | |||||||||
|
Proceeds from (payments
for) initial public offering of common stock, net
|
- | - | 1,447,829 | |||||||||
|
Proceeds from subordinated
related party note
|
- | - | 3,000,000 | |||||||||
|
Payment of note payable
|
- | - | (3,000,000 | ) | ||||||||
|
Proceeds from notes
payable, related party
|
140,000 | - | 365,000 | |||||||||
|
Proceeds from related
party advances
|
218,000 | - | 456,000 | |||||||||
|
Proceeds from exercise of
stock options
|
1,282 | - | 293,399 | |||||||||
|
Proceeds from notes
payable
|
59,750 | - | 11,557,750 | |||||||||
|
Repayments of notes
payable
|
(256,748 | ) | - | (3,533,605 | ) | |||||||
|
Payment of loan costs
|
- | (20,000 | ) | (1,219,268 | ) | |||||||
|
Net cash provided in financing activities
|
1,229,284 | 1,179,651 | 72,306,280 | |||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(511 | ) | 70,265 | 2,787 | ||||||||
|
Cash and cash equivalents,
beginning of period
|
3,298 | 75,031 | - | |||||||||
|
Cash and cash equivalents,
end of period
|
$ | 2,787 | $ | 145,296 | $ | 2,787 | ||||||
|
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
|
||||||||||||
|
Interest paid
|
$ | 173,863 | $ | 282,960 | $ | 1,736,155 | ||||||
|
Income taxes paid
|
$ | - | $ | - | $ | - | ||||||
|
Non cash financing
activities:
|
||||||||||||
|
Common stock issued in
settlement of notes payable
|
$ | 1,360,745 | $ | - | $ | 3,532,745 | ||||||
See the accompanying
notes to these unaudited condensed consolidated financial statements
F-48
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
NOTE 1
– SIGNIFICANT ACCOUNTING POLICIES
A summary of the
significant accounting policies applied in the presentation of the accompanying unaudited condensed consolidated financial statements follows:
General
The accompanying
unaudited condensed consolidated financial statements of Bioheart, Inc., (the “Company”), have been prepared in accordance with the rules and regulations (S-X) of the Securities and
Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results from operations for the nine month period ended
September 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. The unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated December 31, 2010 financial statements and footnotes thereto included in the Company’s SEC Form 10-K.
Basis and business presentation
Bioheart, Inc (the
“Company”) was incorporated under the laws of the State of Florida in August 1999. The Company is in the development stage, as defined by Accounting Standards Codification subtopic
915-10, Development Stage Entities (“ASC 915-10”) and is the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive
heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. To date, the Company has not generated significant sales revenues, has incurred expenses and
has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise. For the period from inception through September 30, 2011,
the Company has accumulated a deficit
through its development stage of $110,046,110.
The unaudited condensed
consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Estimates
The preparation of the
unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. The most significant estimates are those used in determination of derivative liabilities and stock compensation. Accordingly, actual results could differ from those
estimates.
F-49
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Revenue Recognition
The Company recognizes
revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination
of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
At the time of each
transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is
fixed or determinable is based upon the payment terms of the transaction. If a significant portion of a fee is due after our normal payment terms or upon implementation or client acceptance, the fee
is accounted for as not being fixed or determinable and revenue is recognized as the fees become due or after implementation or client acceptance has occurred. Collectability is assessed based on a
number of factors, including past transaction history with the client and the creditworthiness of the client.
The Company accounts
for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses
accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
Unbilled revenue is
revenue that is recognized but is not currently billable to the customer pursuant to contractual terms. In general, such amounts become billable in accordance with predetermined payment schedules,
but recognized as revenue as services are performed. Amounts included in unbilled revenue are expected to be collected within one year and are included within current assets.
Cash
The Company considers
cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.
Accounts Receivable
Trade receivables are
carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically
evaluated for collectability based on past credit history with customers and their current financial condition.
Allowance for Doubtful Accounts
Any changes to the
allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate
to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are
charged off against the allowance when collectability is determined to be permanently impaired. As of September 30, 2011 and December 31, 2010, allowance for doubtful accounts was $8,751 and $7,485,
respectively.
F-50
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Property and Equipment
Property and equipment
are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount
realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated
useful lives of 3 to 15 years.
Long-Lived Assets
The Company follows
FASB ASC 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of
assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Income Taxes
The Company has adopted
Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between
financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes consist primarily of differences in carrying value of certain debt liability and stock compensation accounting versus tax
basis.
Comprehensive Income
The Company does not
have any items of comprehensive income in any of the periods presented.
Net Loss per Common Share, basic and diluted
The Company has adopted
Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share
information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in
the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were 61,323,298 and 30,844,166 for the three months ended September 30, 2011 and
2010, respectively and 49,383,290 and 27,805,394 for the nine months ended September 30, 2011 and 2010, respectively.
Stock based compensation
The Company follows
Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non employees be recognized in the income
statement based on their fair values. (See note 10)
F-51
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
As of September 30,
2011, there were outstanding stock options to purchase 4,661,512 shares of common stock, 2,981,169 shares of which were vested.
Concentrations of Credit Risk
The Company’s
financial instrument that is exposed to a concentration of credit risk is cash and accounts receivable. Effective December 31, 2010 and extending through December 31, 2012, all non-interest-bearing
transaction accounts are fully insured by the Federal Deposit Insurance Corporation (FDIC), regardless of the balance of the account. Generally, the Company’s cash and cash equivalents in
interest-bearing accounts does not exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
As of September 30,
2011, one customer represented 100% of the Company’s accounts receivable. As of December 31, 2010, one customer represented 53% of the Company’s accounts receivable
For the three and nine
month periods ended September 30, 2011, the Company's revenues earned from the sale of products and services were $6,990, from one customer. For the three and nine month periods ended September 30,
2010, the Company’s revenues earned from sale of products and services were $6,422 from one customer and $42,888, (44% and 37% of the revenues) were from two customers, respectively.
Reliance on Key Personnel and Consultants
The Company has 7
full-time employees and no part-time employees. The Company is heavily dependent on the continued active participation of these current executive officers, employees and key consultants. The loss of
any of the senior management or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place.
Research and Development
The Company accounts
for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and
development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when
the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present
and future products are expensed in the period incurred. The Company incurred research and development expenses of $92,625 and $173,797 for the three months ended September 30, 2011 and 2010,
respectively; $370,305 and $1,267,420 for
the nine months ended September 30, 2011 and 2010, respectively and $64,195,956 from August 12, 1999 (date of inception) to September 30, 2011.
F-52
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Fair Value
Accounting Standards
Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents,
accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other
significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for
making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and
disclosed; otherwise only available
information pertinent to fair value has been disclosed.
The company follows
Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments
(“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the
Company’s financial position, results of operations nor cash flows.
Reclassification
Certain
reclassifications have been made to prior periods’ data to conform with the current year’s presentation. These reclassifications had no effect on reported income or losses.
Recent Accounting Pronouncements
There were various
updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the
Company’s unaudited condensed consolidated financial position, results of operations or cash flows.
NOTE 2
– RESTATEMENT
The accompanying
unaudited condensed consolidated Statement of Operations and Statement of Cash Flows for the three and nine months ended September 30, 2010 and from August 12, 1999 to September 30, 2010 have been
restated to correct the errors in the accounting of Company issuances of warrants in connection with notes payable from 2007 through 2009. These changes correct the allocated fair value assigned to
the issued warrants and a change in the treatment from a recorded asset (deferred financing costs) to a debt discount shown net with the related notes payable.
F-53
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Unaudited Condensed
Consolidated Statement of Operations
For the Three
Months Ended September 30, 2010
|
As Previously
Reported
|
Adjustment
|
Reference
|
As Restated
|
||||||||||||
|
Revenue
|
$ | 6,422 | $ | $ | 6,422 | ||||||||||
|
Cost of sales
|
2,827 | 2,827 | |||||||||||||
|
Gross profit
|
3,595 | 3,595 | |||||||||||||
|
Operating expenses
|
615,984 | 615,984 | |||||||||||||
|
Loss from operations
|
(612,389 | ) | (612,389 | ) | |||||||||||
|
Other income (expense):
|
|||||||||||||||
|
Interest income
|
- | ||||||||||||||
|
Interest expense
|
(567,348 | ) | 300,486 | (1 | ) | (266,862 | ) | ||||||||
|
Net loss before income
taxes
|
(1,179,737 | ) | 300,486 | (879,251 | ) | ||||||||||
|
Income taxes (benefit)
|
- | - | - | ||||||||||||
|
NET LOSS
|
$ | (1,179,737 | ) | $ | 300,486 | $ | (879,251 | ) | |||||||
|
Loss per common share,
basic and fully diluted
|
$ | (0.04 | ) | $ | 0.01 | $ | (0.03 | ) | |||||||
|
Weighted average number of
shares outstanding, basic and fully diluted
|
28,544,853 | 28,544,853 | |||||||||||||
(1): Correction of
the determined fair value of warrants and related amortization
F-54
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Unaudited Condensed
Consolidated Statement of Operations
For the Nine
Months Ended September 30, 2010
|
As Previously
Reported
|
Adjustment
|
Reference
|
As Restated
|
|||||||||||
|
Revenue
|
$ | 42,888 | $ | $ | 42,888 | |||||||||
|
Cost of sales
|
19,626 | 19,626 | ||||||||||||
|
Gross profit
|
23,262 | 23,262 | ||||||||||||
|
Operating expenses
|
2,560,326 | 2,560,326 | ||||||||||||
|
Loss from operations
|
(2,537,064 | ) | (2,537,064 | ) | ||||||||||
|
Other income (expense):
|
||||||||||||||
|
Interest income
|
2 | 2 | ||||||||||||
|
Interest
expense
|
(1,705,762 | ) | 641,828 | (1 | ) | (1,063,934 | ) | |||||||
|
Net loss before income
taxes
|
(4,242,824 | ) | 641,828 | (3,600,996 | ) | |||||||||
|
Income taxes (benefit)
|
- | - | - | |||||||||||
|
NET LOSS
|
$ | (4,242,824 | ) | $ | 402,390 | $ | (3,600,996 | ) | ||||||
|
Loss per common share,
basic and fully diluted
|
$ | (0.17 | ) | $ | 0.03 | $ | (0.14 | ) | ||||||
|
Weighted average number of
shares outstanding, basic and fully diluted
|
25,506,081 | 25,506,081 | ||||||||||||
(1): Correction of
the determined fair value of warrants and related amortization
F-55
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Unaudited Condensed
Consolidated Statement of Operations
From August 12,
1999 (date of Inception) to September 30, 2010
|
As previously
reported
|
Adjustment
|
Reference
|
As restated
|
||||||||||
|
Revenue
|
$
|
1,187,561
|
$
|
-
|
$
|
1,187,561
|
|||||||
|
Cost of sales
|
550,001
|
-
|
550,001
|
||||||||||
|
Gross profit
|
637,560
|
637,560
|
|||||||||||
|
Operating expenses:
|
|||||||||||||
|
Research and development
|
66,625,993
|
(3,000,000
|
)
|
(1
|
)
|
63,625,993
|
|||||||
|
Marketing, general and
administrative
|
31,845,047
|
164.229
|
(2
|
)
|
32,009,276
|
||||||||
|
Depreciation and
amortization
|
842,359
|
-
|
842,359
|
||||||||||
|
Total operating expenses
|
99,313,399
|
(2,835,771
|
)
|
96,477,628
|
|||||||||
|
Net loss from operations
|
(98,675,839
|
)
|
(2,835,771
|
)
|
(95,840,068
|
)
|
|||||||
|
Other income (expenses):
|
|||||||||||||
|
Development revenues
|
117,500
|
-
|
117,500
|
||||||||||
|
Interest income
|
762,277
|
-
|
762,277
|
||||||||||
|
Reversal of Litigation
Accrual
|
3,000,000
|
3,000,000
|
(1
|
)
|
-
|
||||||||
|
Interest expense
|
(10,075,544
|
)
|
(1,349,908
|
)
|
(3
|
)
|
(8,725,636
|
)
|
|||||
|
Total other income (expenses)
|
(6,195,767
|
)
|
(1,650,092
|
)
|
(7,845,859
|
)
|
|||||||
|
Net loss before income
taxes
|
(104,871,606
|
)
|
1,185,679
|
(103,685,927
|
)
|
||||||||
|
Income taxes (benefit)
|
-
|
-
|
-
|
||||||||||
|
NET LOSS
|
$
|
(104,871,606
|
)
|
$
|
1,185,679
|
$
|
(103,685,927
|
)
|
|||||
(1) Reclassify gain on
litigation accrual to operating expenses
(2) Correction of fair
value of vested employee options
(3) Correction of the
determined fair value of warrants and related amortization
F-56
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Unaudited Condensed
Consolidated Statement of Cash Flows
For the Nine
Months Ended September 30, 2010
|
As Previously
Reported
|
Adjustment
|
Reference
|
As Restated
|
||||||||||
|
Cash flows from operating
activities:
|
|||||||||||||
|
Net loss
|
$
|
(4,242,824
|
)
|
$
|
641,828
|
(1
|
)
|
$
|
(3,600,996
|
)
|
|||
|
Adjustments to reconcile
net loss to net cash
used in operating activities:
|
|||||||||||||
|
Stock based compensation
|
141,894
|
-
|
141,894
|
||||||||||
|
Amortization of warrants
issued in connection
with notes payable
|
916,797
|
(641,828
|
)
|
(1
|
)
|
274,969
|
|||||||
|
All other operating
activities (unchanged)
|
2,074,747
|
-
|
2,074,747
|
||||||||||
|
Net cash used
in operations
|
(1,109,386
|
)
|
-
|
(1,109,386
|
)
|
||||||||
|
Cash flows from investing
activities (unchanged)
|
-
|
-
|
-
|
||||||||||
|
Cash flows from financing
activities (unchanged)
|
1,179,651
|
-
|
1,179,651
|
||||||||||
|
Net increase in cash and
cash equivalents
|
70,265
|
-
|
70,265
|
||||||||||
|
Cash and cash equivalents,
beginning of period
|
75,031
|
-
|
75,031
|
||||||||||
|
Cash and cash equivalents,
end of period
|
$
|
145,296
|
$
|
-
|
$
|
145,296
|
|||||||
F-57
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Unaudited Condensed
Consolidated Statement of Cash flow
From August 12,
1999 (date of Inception) to September 30, 2010
|
As Previously
Reported
|
Adjustment
|
Reference
|
As Restated
|
|||||||||||||
|
Cash flows from operating
activities:
|
||||||||||||||||
|
Net loss
|
$ | (104,871,606 | ) | $ | 1,185,679 | (1), (2 | ) | $ | (103,685,927 | ) | ||||||
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
||||||||||||||||
|
Stock based compensation
|
9,194,222 | 164,229 | (2 | ) | 9,358,451 | |||||||||||
|
Amortization of warrants
issued in connection with notes payable
|
4,633,175 | (1,349,908 | ) | (1 | ) | 3,283,267 | ||||||||||
|
All other operating
activities (unchanged)
|
21,754,169 | - | 21,754,169 | |||||||||||||
|
Net cash used in operations
|
(69,390,040 | ) | - | (69,390,040 | ) | |||||||||||
|
Cash flows from investing
activities (unchanged)
|
(898,800 | ) | - | (898,800 | ) | |||||||||||
|
Cash flows from financing
activities (unchanged)
|
70,434,136 | - | 70,434,136 | |||||||||||||
|
Net increase in cash and
cash equivalents
|
145,296 | - | 145,296 | |||||||||||||
|
Cash and cash equivalents,
beginning of period
|
- | - | - | |||||||||||||
|
Cash and cash equivalents,
end of period
|
$ | 145,296 | $ | - | $ | 145,296 | ||||||||||
(1) Correction of the
determined fair value of warrants and related amortization
(2) Correction of fair
value of vested employee options
F-58
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
NOTE
3 – GOING CONCERN MATTERS
The accompanying
unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. As shown in the accompanying unaudited condensed consolidated financial statements during nine months ended September 30, 2011, the Company incurred net losses attributable to
common shareholders of $3,721,890 and used $1,229,795 in cash for operating activities. These factors among others may indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.
The Company’s
existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts
will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be
unable to continue as a going concern.
NOTE
4 – INVENTORY
Inventory consists of
raw materials. Costs of raw materials are determined using the FIFO method. Inventory is stated at the lower of costs or market (estimated net realizable value).
NOTE 5
– PROPERTY AND EQUIPMENT
Property and equipment as
of September 30, 2011 and December 31, 2010 is summarized as follows:
|
September
30, 2011
(unaudited)
|
December
31, 2010
|
|||||||
|
Laboratory and medical
equipment
|
$ | 352,358 | $ | 352,358 | ||||
|
Furniture, fixtures and
equipment
|
130,916 | 130,916 | ||||||
|
Computer equipment
|
53,481 | 53,481 | ||||||
|
Leasehold improvements
|
362,046 | 362,046 | ||||||
| 898,801 | 898,801 | |||||||
|
Less accumulated
depreciation and amortization
|
(878,052 | ) | (851,362 | ) | ||||
| $ | 20,749 | $ | 47,439 | |||||
Property and equipment
are recorded on the basis of cost. For financial statement purposes, property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.
F-59
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Expenditures for repair
and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and
equipment for impairment.
NOTE 6
– ACCRUED EXPENSES
Accrued expenses consisted
of the following as of September 30, 2011 and December 31, 2010:
|
September
30, 2011
(unaudited)
|
December
31, 2010
|
|||||||
|
License and royalty fees
|
$ | 1,470,002 | $ | 1,090,000 | ||||
|
Amounts payable to the
Guarantors of the Company’s loan agreement with Bank of America and Seaside Bank, including fees and interest
|
1,143,196 | 1,102,941 | ||||||
|
Interest payable on notes
payable
|
659,598 | 595,342 | ||||||
|
Vendor accruals and other
|
497,641 | 582,403 | ||||||
|
Employee commissions,
compensation, etc
|
234,801 | 208,239 | ||||||
|
Other
|
2,520 | |||||||
| $ | 4,005,238 | $ | 3,581,445 | |||||
NOTE 7
– NOTES PAYABLE
Notes payable were
comprised of the following as of September 30, 2011 and December 31, 2010:
|
September 30,
2011
|
December 31,
2010
|
|||||||
|
(unaudited)
|
||||||||
|
Seaside Bank note payable.
Terms described below
|
$ | 980,000 | $ | 980,000 | ||||
|
BlueCrest Capital Finance
note payable. Monthly payments of principal and interest as described below., net of unamortized debt discount of $150,899 and $317,709 respectively
|
1,041,890 | 1,958,834 | ||||||
|
Short-term note payable,
net of unamortized debt discount of $-0- and $58,708 respectively. Terms described below
|
1,384,972 | 1,326,264 | ||||||
|
Short-term note payable,
net of unamortized debt discount of $21,707. Terms described below
|
13,043 | - | ||||||
|
Short-term note payable,
net of unamortized debt discount of $15,342. Terms described below
|
19,658 | - | ||||||
| 3,439,563 | 4,265,098 | |||||||
|
Less current portion
|
(3,439,563 | ) | (3,232,271 | ) | ||||
|
Notes payable - long term
|
$ | - | $ | 1,032,827 | ||||
F-60
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
BlueCrest Capital Finance Note Payable
On June 1, 2007, the
Company closed on a $5.0 million senior loan from BlueCrest Capital Finance, L.P. with a term of 36 months which bears interest at an annual rate of 12.85% (the “BlueCrest Loan”). The
first three months required payment of interest only with equal principal and interest payments over the remaining 33 months. As consideration for the loan, the Company issued to BlueCrest Capital
Finance, L.P. a warrant to purchase 65,030 shares of common stock at an exercise price of $7.69 per share. The warrant, which became exercisable one year following the date the warrant was issued,
has a ten year term. This warrant had a fair value of $455,483, which was accounted for as additional paid in capital and reflected as a component of debt discount and is being amortized as interest
expense ratably over the term of the
loan. The Company also paid the lender a fee of $100,000 to cover diligence and other costs and expenses incurred in connection with the loan. On August 31, 2007, BlueCrest Capital Finance, L.P.
assigned its rights, liabilities, duties and obligations under the BlueCrest Loan and warrant to BlueCrest Venture Finance Master Fund Limited (“BlueCrest”).
The loan may be prepaid
in whole but not in part. However, the Company is subject to a prepayment penalty equal to 3% of the outstanding principal if the BlueCrest Loan is prepaid during the first year of the loan, 2% of
the outstanding principal if prepaid during the second year of the loan and 1% of the outstanding principal if prepaid during the third year of the loan. As collateral to secure its repayment
obligations under the loan, the Company granted BlueCrest a first priority security interest in all of the Company’s assets, excluding intellectual property but including the proceeds from any
sale of any of the Company’s intellectual property. The loan has certain restrictive terms and covenants including among others, restrictions on the Company’s ability to incur additional
senior or pari-passu indebtedness
or make interest or principal payments on other subordinate loans.
In the event of an
uncured event of default under the loan, all amounts owed to BlueCrest are immediately due and payable and BlueCrest has the right to enforce its security interest in the assets securing the loan.
During the continuance of an event of default, all outstanding amounts under the loan will bear interest (payable on demand) at an annual rate of the 14.85%. In addition, any unpaid amounts are
subject, until paid, to a service charge in an amount equal to two percent (2%) of the unpaid amount. Events of default include, among others, the Company’s failure to timely make payments of
principal when due, the Company’s uncured failure to timely pay any other amounts owing to BlueCrest under the loan, the Company’s material breach of the representations and warranties
contained in the loan agreement and the
Company’s default in the payment of any debt to any of its other lenders in excess of $100,000 or any other default or breach under any agreement relating to such debt, which gives the holders
of such debt the right to accelerate the debt.
On January 2, 2009, the
Company failed to make the monthly payment of principal and interest of approximately $181,000 due on such date. On January 28, 2009, the Company received from BlueCrest notice of this event of
default (the “Default Notice”) under the BlueCrest Loan. By reason of the stated event, BlueCrest demanded payment of a 2% late fee of approximately $3,600, together with the principal
and interest payment of approximately $181,000. On February 2, 2009, the Company received from BlueCrest notice of acceleration of the outstanding principal amount of the BlueCrest Loan and demanded
repayment in full of all outstanding principal and accrued interest on the loan, including late fees, in the aggregate amount of $2,947,045. (The acceleration notice, together with the Default
Notice, are referred to as the
“Notices”).
The Company and
BlueCrest entered into an amendment to the BlueCrest Loan as of April 2, 2009 (the “ BlueCrest Loan Amendment”), that, among other things, includes BlueCrest’s agreement to forbear
from exercising any of its rights or remedies regarding the defaults described in Notices (the “Forbearance”) as long as there are no new defaults under the BlueCrest Loan, as amended.
F-61
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
The BlueCrest Loan
Amendment, (a) increases the amount of permitted unsecured indebtedness of the Company, (b) amended the amortization schedule for the Loan to provide for interest-only payments until July 1, 2009, at
which time monthly principal and interest payments of $262,692 will commence, and (c) prohibits the Company from granting any lien against its intellectual property and grants to BlueCrest a lien
against the Company’s intellectual property that will become effective in the event of a default. In addition, the Company issued BlueCrest a warrant to purchase 1,315,542 shares of the
Company’s common stock at $0.53 per share. The fair value of the issued warrants of $539,676 was determined using the Black Scholes Option Pricing Model and was recorded as a debt discount and
amortized ratably over the term of the
loan. In connection with the BlueCrest Loan Amendment the Company paid BlueCrest accrued interest in the aggregate amount of $126,077. The Company also paid BlueCrest a fee of $15,000. Effective July
1, 2009, the Company and BlueCrest agreed to enter into an amendment to the BlueCrest Loan to amend the amortization schedule for the Loan to provide for interest-only payments until January 1, 2010,
at which time monthly principal and interest payments of $139,728 were to commence. In connection with that Amendment the Company issued BlueCrest a warrant to purchase $600,000 of the
Company’s common shares and paid a fee of $29,435. The fair value of the issued warrants of $575,529 was determined using the Black Scholes Option Pricing Model and was recorded as a debt
discount and amortized ratably over the term of the loan.
Effective December 31,
2009, the Company and BlueCrest entered into an amendment to the BlueCrest Loan to amend the amortization schedule for the Loan to provide for interest-only payments until July 1, 2010, at which time
monthly principal and interest payments of $139,728.82 were to commence. In connection with that Amendment, the Company issued BlueCrest a warrant to purchase $600,000 of the Company’s common
shares and paid a fee of $20,000. The Company also provided BlueCrest with a lien on its Intellectual Property. The fair value of the issued warrants of $507,606 was determined using the Black
Scholes Option Pricing Model and was recorded as a debt discount and amortized ratably over the term of the loan.
Loan agreement amendment
On December 31, 2009,
the Company and BlueCrest Venture Finance Master Fund Limited (“BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the
Company originated as of May 31, 2007 (the “Loan”). The outstanding principal amount of the Loan as of December 31, 2010 was $2,276,543.03. On January 7, 2011, BlueCrest agreed with the
Company and Magna Group, LLC (“Magna”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount
of $139,729.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The Company exchanged the BlueCrest note for a convertible note with Magna in consideration
for a payment by Magna to
BlueCrest of $139,729.82. Additionally, Magna purchased a $25,000 convertible note from the Company (the “Convertible Note”). On July 18, 2011, the Company issued 625,000 shares of
its common stock in settlement of the convertible note and related accrued interest.
The loans evidenced by
the New Magna Convertible Note are in the nature of convertible debt evidenced by two unsecured convertible promissory notes, each bearing interest at the rate of 8% per annum, payable at maturity
and each convertible into common stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the
Lenders’ election to exercise its conversion right.
|
•
|
In January 2011, we issued
an aggregate of 538,542 shares of our common stock in connection with the conversion of $87,729 of the convertible note.
|
|
•
|
In February 2011, we
issued an aggregate of 421,392 shares of our common stock in connection with the conversion of the remaining balance of $52,000 of the convertible note.
|
F-62
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
On May 16, 2011,
BlueCrest agreed with the Company and Magna Group, LLC (“Magna”) to again split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new
note being in the principal amount of $139,729.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Magna in consideration for a
payment by them to BlueCrest of $139,729.82, and thereafter exchanged for a new Convertible Note. Additionally, Magna purchased a $34,750 convertible note from the Company (the “Convertible
Note”).
The loans evidenced by
the New Note and Convertible Note are in the nature of convertible debt evidenced by two unsecured convertible promissory notes, each bearing interest at the rate of 8% per annum, payable at maturity
and each convertible into common stock of the Company at a price that is 45% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the
Lenders’ election to exercise its conversion right.
|
•
|
In June 2011, we issued an
aggregate of 338,834 shares of our common stock in connection with the conversion of $29,728.82 of the convertible note.
|
|
•
|
In July 2011, we issued an
aggregate of 2,227,151 shares of our common stock in connection with the conversion of $110,000 of the convertible note.
|
On June 15, 2011,
BlueCrest agreed with the Company and Lotus Funding Group, LLC (“Lotus”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new
note being in the principal amount of $139,729.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Lotus in consideration for a
payment by them to BlueCrest of $139,729.82, and thereafter exchanged for a new Convertible Note.
The loan evidenced by
the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common
stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its
conversion right.
|
•
|
In June 2011, we issued an
aggregate of 836,775 shares of our common stock in connection with the conversion of $40,000 of the convertible note.
|
|
•
|
In July 2011, we issued an
aggregate of 2,594,458 shares of our common stock in connection with the conversion of $99,728.82 of the convertible note.
|
On July 8, 2011,
BlueCrest agreed with the Company and Greystone Capital (“Greystone”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the
new note being in the principal amount of $140,380.21, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Greystone in
consideration for a payment by them to BlueCrest of $140,380.21, and thereafter exchanged for a new Convertible Note.
The loan evidenced by
the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common
stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its
conversion right.
|
•
|
In July 2011, we issued an
aggregate of 3,829,001 shares of our common stock in connection with the conversion of the $140,380.21 convertible note.
|
On August 1, 2011,
BlueCrest agreed with the Company and Greystone Capital (“Greystone”) to again split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with
the new note being in the principal amount of $139,728.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Greystone in
consideration for a payment by them to BlueCrest of $139,728.82, and thereafter exchanged for a new Convertible Note.
F-63
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
The loan evidenced by
the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common
stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its
conversion right.
|
•
|
In August 2011, we issued
an aggregate of 3,358,866 shares of our common stock in connection with the conversion of the $139,728.82 convertible note.
|
On September 1, 2011,
BlueCrest agreed with the Company and Greystone Capital (“Greystone”) to again split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with
the new note being in the principal amount of $139,728.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Greystone in
consideration for a payment by them to BlueCrest of $139,728.82, and thereafter exchanged for a new Convertible Note.
The loan evidenced by
the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common
stock of the Company at a price that is 65% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its
conversion right.
|
•
|
In September 2011, we
issued an aggregate of 5,769,150 shares of our common stock in connection with the conversion of the $139,728.82 convertible note.
|
For the nine month
period ending September 30, 2011 the Company paid $1,083,754 in principal and $174,454 in interest. As of September 30, 2011 the balance due under the Loan is $1,192,789.
Short-term Notes Payable
On August 20, 2008, the
Company borrowed $1.0 million from a third party pursuant to the terms of an unsecured Promissory Note and Agreement. Outstanding principal and interest on the loan, which accrues at the rate of
13.5% per annum, is payable in one balloon payment upon the Company’s repayment of the BlueCrest Loan, which is scheduled to mature in May 2010, however the Company is not obligated to make
payments until BlueCrest Loan is paid off. In the event the Company completes a private placement of its common stock and/or securities exercisable for or convertible into its common stock which
generates at least $19.0 million of gross proceeds, the Company may prepay, without penalty, all outstanding principal and interest due under the loan using the same type of securities issued in the
subject private placement. Because
repayment of the loan could occur within 12 months from the date of the balance sheet, the Company has classified this loan as short term. Subject to certain conditions, at the end of each calendar
quarter during the time the loan is outstanding, the Company may, but is not required to, pay all or any portion of the interest accrued but unpaid as of such date with shares of its common stock. In
April 2009, as consideration for the authorization to amend certain documents related to the Note, the Company issued to the Noteholder a warrant to purchase 451,053 shares of common stock at an
exercise price of $0.5321 per share. The warrant, which became exercisable immediately upon issuance, has a ten year term. This warrant had a fair value of $195,694, which was accounted for as
additional paid in capital and reflected as a component of debt discount and is being amortized as interest expense ratably over the term of the loan. The Company amortized $58,708 to current period
operations for the nine months ended
September 30, 2011 and 2010.
The amount of interest
expense on the principal amount of the loan for the year ended December 31, 2009 was approximately $187,000. The Company has not paid any of the interest accrued to date under the Promissory Note and
Agreement. The Company recorded interest expense of $34,500 and $102,375 for the three and nine months ended September 30, 2011, respectively.
F-64
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
In July 2009, Bruce
Meyers and Dana Smith (jointly, the “Lenders”) funded a total $120,000 loan to the Company. The Loan was in the nature of convertible debt and was evidenced by an unsecured promissory
note (the “Note”), that was convertible into common stock of the Company at a price that was 22.5% less than the average of the closing bid prices for the Company’s shares for the
five (5) days prior to the Lenders’ election to exercise their conversion right under the Note. The Note was to bear interest at the rate of 10% per annum, with interest payable due at
maturity. The terms sheet provides that all unpaid interest (and principal) will be due and payable on the date that is the earlier to occur of the first anniversary of the closing date of the Loan
or the closing of a financing in an amount
that is equal to or greater than $3.0 million that will satisfy the Company’s obligation under its loan with BlueCrest. However, during the year ended December 31, 2009, the Lenders elected to
convert the entire amount of the Loan to shares of the Company’s common stock. Accordingly, the aggregate number of unregistered and restricted shares of the Company’s common stock issued
in connection with, and as a result of the conversion of, the Loan was 355,294 shares. The Company will have no obligation to file any registration statement with respect to the shares, except that
the Lenders will have customary “piggyback” registration rights.
In February 2009, Bruce
Meyers and Robert Seguso (jointly, the “Lenders”) funded the remaining $100,000 of a total $200,000 loan to the Company. The funds were delivered, net of original issue discount in the
amount of $10,000, pursuant to a terms sheet provided by Bruce Meyers, for a convertible debt financing to be provided to the Company (the “Loan”). Although the terms sheet provided that
the Lenders would be provided a complete set of loan documentation, the Lenders delivered to the Company the entire net proceeds of the Loan, in the amount of $190,000, in advance of receiving any
documentation. The initial funding of $100,000 was made to the Company on January 21, 2009.
The above Loan was in
the nature of convertible debt and was evidenced by an unsecured promissory note (the “Note”), that was convertible into common stock of the Company at a price that was 22.5% less than
the average of the closing bid prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise their conversion right under the Note. The Note was to bear
interest at the rate of 10% per annum, with interest payable due at maturity. The terms sheet provides that all unpaid interest (and principal) will be due and payable on the date that is the earlier
to occur of the first anniversary of the closing date of the Loan or the closing of a financing in an amount that is equal to or greater than $3 million that will satisfy the Company’s
obligation under its loan with
BlueCrest. However, during the year ended December 31, 2009, the Lenders elected to convert the entire amount of the Loan to shares of the Company’s common stock.
In addition to the
Note, the Company issued to the Lenders 200,000 unregistered and restricted shares of the Company’s common stock. The fair value of the issued shares were recorded as a debt discount and
amortized ratably over the term of the loan.
Prior to funding the
balance of the Loan, the Lenders delivered to the Company, on January 26, 2009, a notice electing to convert $100,000 of the Loan into shares of the Company’s common stock. The price per share
for such election was $0.50995. This required the issuance to the Lenders of 196,098 unregistered and restricted shares of the Company’s common stock.
On February 3, 2009,
contemporaneously with the funding of the remainder of the Loan, the Lenders delivered to the Company notice of their election to convert the remainder of the Loan into shares of the Company’s
common stock at a price per share of $0.5704 resulting in the issuance to the Lenders of 175,316 unregistered and restricted shares of the Company’s common stock.
F-65
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Accordingly, the
aggregate number of unregistered and restricted shares of the Company’s common stock issued in connection with, and as a result of the conversion of, the Loan was 571,414 shares. The Company
will have no obligation to file any registration statement with respect to the shares, except that the Lenders will have customary “piggyback” registration rights.
At September 30, 2011
and December 31, 2010, the Company has outstanding two notes payable with interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822 are payable in one balloon payment upon the
date the Noteholder provides written demand, however the Company is not obligated to make payments until the BlueCrest Loan is paid off.
On January 3, 2011, the
Company issued a $139,729 Unsecured Convertible Note that matures in June 1, 2012 in exchange for Bluecrest Capital Finance note payable. Note bears interest at a rate of 8% per annum and is
convertible into shares of the Company’s common stock, at a conversion rate of 50% of the five lowest closing prices for the common stock during the five trading day period prior to date of
conversion.
The Company’s
identified embedded derivatives related to the Convertible Promissory Note entered into on January 3, 2011. These embedded derivatives included certain conversion features. The accounting treatment
of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent
balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value $146,013 of the embedded derivative. The fair value of the embedded derivative was
determined using the Binomial Lattice Pricing Model based on the following assumptions:
|
Dividend yield:
|
-0- | % | ||
|
Volatility
|
169.48 | % | ||
|
Risk free rate:
|
0.19 | % | ||
The initial fair value
of the embedded debt derivative of $146,013 was allocated as a debt discount up to the proceeds of the note ($139,729) with the remainder ($6,284) charged to current period operations as interest
expense.
During the nine months
ended September 30, 2011, the Company issued an aggregate of 959,934 shares of common stock valued at $276,017, in settlement of the Convertible Promissory Note of $139,729 and balance $136,288
charged to operation for current quarter.
On January 3, 2011, the
Company issued a $25,000 Unsecured Convertible Note that matures in January 2012. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at
a conversion rate of 50% of the three lowest closing prices for the common stock during the ten trading day period prior to date of conversion, minimum conversion rate of $0.0025 per share.
F-66
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
In conjunction with the
issuance of the Unsecured Convertible Note on May 16, 2011, the Company determined that there were insufficient authorized shares to meet possible conversion demands after considering prior issued
and outstanding common shares and other common stock equivalents, therefore the Company bifurcated the embedded conversion option in connection to the note The accounting treatment of derivative
financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet
date. At May 16, 2011, the Company determined a fair value $51,130 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model based
on the following
assumptions:
|
Dividend yield:
|
-0- | % | ||
|
Volatility
|
181.64 | % | ||
|
Risk free rate:
|
0.18 | % | ||
The initial fair value
of the embedded debt derivative of $51,130 was allocated as a reclassification from equity of a previously recorded beneficial conversion feature ($25,000) with the remainder ($26,130) charged to
current period operations as interest expense.
In accordance with ASC
470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital and a discount against the Convertible Note.
The total debt discount
attributed to the beneficial conversion feature and common stock issued in the amount of $25,000 is charged operations ratably over the note term as interest expense.
For the nine months
ended September 30, 2011, the Company amortized $25,000 of debt discount to current period operations as interest expense.
During the nine months
ended September 30, 2011, the Company issued an aggregate of 625,000 shares of common stock valued at $59,375, in settlement of the Convertible Promissory Note of $25,000 and balance $34,375 charged
to derivative liability.
On May 16, 2011, the
Company issued a $139,729 Unsecured Convertible Note that matures in May 16, 2012 in exchange for Bluecrest Capital Finance note payable. Note bears interest at a rate of 8% per annum and is
convertible into shares of the Company’s common stock, at a conversion rate of 55% of the five lowest closing prices for the common stock during the five trading day period prior to date of
conversion, minimum conversion rate of $0.001 per share.
The Company determined
that there were insufficient authorized shares to meet possible conversion demands after considering prior issued and outstand common shares and other common stock equivalents, therefore the Company
bifurcated the embedded conversion option in connection to the note The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of
the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair
value $261,387 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model based on the following assumptions:
F-67
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
|
Dividend yield:
|
-0- | % | ||
|
Volatility
|
181.64 | % | ||
|
Risk free rate:
|
0.18 | % | ||
The initial fair value
of the embedded debt derivative of $261,387 was allocated as a debt discount up to the proceeds of the note ($139,729) with the remainder ($121,658) charged to current period operations as interest
expense.
The total debt discount
attributed to the beneficial conversion feature and common stock issued in the amount of $139,729 is charged operations ratably over the note term as interest expense.
During the nine months
ended September 30, 2011, the Company issued an aggregate of 2,565,985 shares of common stock in settlement of $139,729 towards the convertible note.
For the nine months
ended September 30, 2011, the Company amortized $139,729 of debt discount to current period operations as interest expense.
On May 16, 2011, the
Company issued a $34,750 Unsecured Convertible Note that matures in January 2012. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at
a conversion rate of 50% of the three lowest closing prices for the common stock during the ten trading day period prior to date of conversion, minimum conversion rate of $0.001 per share.
The Company determined
that there were insufficient authorized shares to meet possible conversion demands for a portion of the Unsecured Convertible Note ($12,236) after considering prior issued and outstand common shares
and other common stock equivalents, therefore the Company bifurcated the embedded conversion option in connection to the note The accounting treatment of derivative financial instruments requires
that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the
Convertible Promissory Note, the Company determined a fair value $22,889 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model
based on the following
assumptions:
|
Dividend yield:
|
-0- | % | ||
|
Volatility
|
181.64 | % | ||
|
Risk free rate:
|
0.18 | % |
The initial fair value
of the embedded debt derivative of $22,889 was allocated as a debt discount up to the proceeds of the note ($12,236) with the remainder ($10,653) charged to current period operations as interest
expense.
In accordance with ASC
470-20, the Company recognized an imbedded beneficial conversion feature present in the remainder of the Convertible Note ($22,514). The Company allocated a portion of the proceeds equal to the
intrinsic value of that feature to additional paid-in capital and a discount against the Convertible Note.
The total debt discount
attributed to the beneficial conversion feature and common stock issued in the amount of $34,750 is charged operations ratably over the note term as interest expense.
F-68
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
For the nine months ended
September 30, 2011, the Company amortized $13,043 of debt discount to current period operations as interest expense.
On June 15, 2011, the
Company issued a $139,729 Unsecured Convertible Note that matures in June 15, 2012 in exchange for Bluecrest Capital Finance note payable. Note bears interest at a rate of 8% per annum and is
convertible into shares of the Company’s common stock, at a conversion rate of 50% of the three lowest closing prices for the common stock during the ten trading day period prior to date of
conversion, minimum and maximum conversion rate of $0.01 and $0.13 per share, respectively.
In accordance with ASC
470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital and a discount against the Convertible Note.
The total debt discount
attributed to the beneficial conversion feature and common stock issued in the amount of $107,484 is charged operations ratably over the note term as interest expense. During the nine months ended
September 30, 2011, the Company issued an aggregate of 3,431,233 shares of common stock in settlement of $139,729 towards the convertible note.
For the nine months
ended September 30, 2011, the Company amortized and wrote off $107,484 to current period operations as interest expense.
On September 28, 2011,
the Company issued a $35,000 Unsecured Convertible Note that matures in September 2012. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common
stock, at a conversion rate of the lower of $0.13 per share or 65% of the three lowest closing prices for the common stock during the ten trading day period prior to date of conversion, minimum
conversion rate of $0.01 per share.
In accordance with ASC
470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital and a discount against the Convertible Note.
The total debt discount
attributed to the beneficial conversion feature and common stock issued in the amount of $15,342 is charged operations ratably over the note term as interest expense.
During the three
months ended September 30, 2011, the Company issued an aggregate of $419,838 Unsecured Convertible Note that matures one year from the date of issuance in exchange for Bluecrest Capital
Finance note payable. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at a conversion rate of 50% to 65% of the three lowest closing
prices for the common stock during the ten trading day period prior to date of conversion, minimum and maximum conversion rate of $0.01 and $0.13 per share, respectively.
In accordance with ASC
470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital and a discount against the Convertible Note.
The total debt discount
attributed to the beneficial conversion feature and common stock issued in the amount of $357,833 is charged operations ratably over the note term as interest expense.
For the nine months
ended September 30, 2011, the Company amortized and wrote off $357,833 to current period operations as interest expense.
F-69
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Notes payable, related party
At September 30, 2011,
the Company has outstanding three related party notes payable with interest at 8% per annum due at maturity. The three subordinated notes, $125,000, $100,000 and $140,000 are due on October 22, 2012,
November 30, 2012 and June 4, 2011 respectively, and are unsecured. The company is not obligated to make payment until BlueCrest loan is paid off.
NOTE 8 – DERIVATIVE LIABILITY
During 2011, in
connection with the issuance of convertible notes, the Company had the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to
satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. The accounting treatment of derivative financial instruments
required that the Company reclassify the derivative from equity to a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of each
subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives was higher at the
subsequent balance sheet date, the Company
recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.
On September 19, 2011,
in conjunction with the increase in authorized number of shares to 195,000,000, the Company determined it had adequate authorized shares to settle all agreements. As such, the Company adjusted the
fair value of the remaining derivative liability after note conversions to equity.
NOTE 9
– STOCKHOLDERS’ EQUITY
Common stock
On September 19, 2011,
the Company amended its Articles of Incorporation to increase the number of authorized shares to 200,000,000, consisting of 5,000,000 $0.001 par value preferred stock and 195,000,000 $0.001 common
stock.
During the nine months
ended September 30, 2011, the Company issued an aggregate of 1,149,025 shares of its common stock on exercise of options.
During the nine months
ended September 30, 2011, the Company issued an aggregate of 20,539,169 shares of its common stock in exchange for outstanding notes payable.
During the nine months
ended September 30, 2011, the Company issued an aggregate of 1,000,000 shares of its common stock in exchange for services rendered.
NOTE 10
– STOCK OPTIONS AND WARRANTS
Stock Options
A summary of options at
September 30, 2011 and activity during the year then ended is presented below:
F-70
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
|
Shares
|
Weighted-
Average Exercise Price |
Weighted- Average Remaining
Contractual Term (in years) |
||||||||||
|
Options outstanding at
January 1, 2010
|
2,119,431 | $ | 3.28 | 5.4 | ||||||||
|
Granted
|
1,764,940 | $ | 0.32 | |||||||||
|
Exercised
|
(831,526 | ) | $ | 0.001 | ||||||||
|
Forfeited/Expired
|
(1,027,301 | ) | $ | 2.62 | ||||||||
|
Options outstanding at
December 31, 2010
|
2,025,544 | $ | 2.79 | 6.8 | ||||||||
|
Granted
|
3,919,025 | $ | 0.067 | |||||||||
|
Exercised
|
(1,149,025 | ) | $ | 0.001 | ||||||||
|
Expired
|
(134,032 | ) | $ | 1.40 | ||||||||
|
Options outstanding at
September 30, 2011
|
4,661,512 | $ | 1.23 | 8.3 | ||||||||
|
Options exercisable at
September 30, 2011
|
2,981,169 | $ | 1.78 | 7.6 | ||||||||
|
Available for grant at
September 30, 2011
|
1,274,842 | |||||||||||
The following information
applies to options outstanding and exercisable at September 30, 2011:
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
|
Shares
|
Weighted-
Average Remaining Contractual Term |
Weighted-
Average Exercise Price |
Shares
|
Weighted-
Average Exercise Price |
|||||||||||||||||
| $ 0.00 – $0.70 | 3,494,360 | 9.6 | $ | 0.13 | 1,846,161 | $ | 0.18 | ||||||||||||||
| $ 0.71 – $1.28 | 324,780 | 6.6 | $ | 0.77 | 304,261 | $ | 0.76 | ||||||||||||||
| $ 5.25 – $5.67 | 796,004 | 3.6 | $ | 5.58 | 784,379 | $ | 5.59 | ||||||||||||||
| $ 7.69 | 39,572 | 4.9 | $ | 7.69 | 39,572 | $ | 7.69 | ||||||||||||||
| $ 8.47 | 6,796 | 5.5 | $ | 8.47 | 6,796 | $ | 8.47 | ||||||||||||||
| 4,661,512 | 8.3 | $ | 1.26 | 2,981,169 | $ | 1.78 | |||||||||||||||
During the nine months
ended September 30, 2011, the Company granted an aggregate of 1,149,025 non employee stock options in connection services rendered at the exercise price of $0.001 per share.
The fair values of the
vesting non employee options for the nine months ended September 30, 2011 were determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility:
143.99% to 164.52%; and Risk free rate: 1.94% to 3.48%.
F-71
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
During the nine months
ended September 30, 2011, the Company granted an aggregate of 2,770,000 employee stock options in connection services rendered at the exercise prices from of $0.07 to $0.21 per share vesting
immediate to four years from the date of issuance.
The fair values of the
employee options for the nine months ended September 30, 2011 were determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 164.73% to
165.36%; and Risk free rate: 2.24% to 2.28%.
The fair value of all
options vesting during the nine months ended September 30, 2011 and 2010 of $343,884 and $141,894, respectively, was charged to current period operations.
Warrants
A summary of warrants at
September 30, 2011 and activity during the year then ended is presented below:
|
Shares
|
Weighted-Average Exercise Price
|
Weighted- Average Remaining
Contractual Term (in years) |
||||||||||
|
Outstanding at January 1,
2010
|
7,355,057 | $ | 3.06 | 9.4 | ||||||||
|
Issued
|
6,693,712 | $ | 0.78 | |||||||||
|
Exercised
|
— | $ | 0.00 | |||||||||
|
Forfeited
|
128,040 | $ | 0.74 | |||||||||
|
Outstanding at December
31, 2010
|
13,920,729 | $ | 1.98 | 5.8 | ||||||||
|
Issued
|
10,412,219 | $ | 0.15 | |||||||||
|
Exercised
|
— | $ | ||||||||||
|
Forfeited
|
(1,734,279 | ) | $ | 0.38 | ||||||||
|
Outstanding at September
30, 2011
|
22,598,669 | $ | 1.26 | 4.4 | ||||||||
|
Exercisable at September
30, 2011
|
14,432,859 | $ | 1.11 | 3.6 | ||||||||
During the nine months
ended September 30, 2011, the Company issued an aggregate of 10,032,219 warrants to purchase the Company’s common stock from $0.06 to $0.65 per share expiring three years from the date of
issuance in connection with the sale of the Company’s common stock.
In addition, during the
nine months ended September 30, 2011, the Company issued an aggregate of 280,000 warrants to purchase the Company’s common stock from $0.19 per share expiring in February 2016 in connection
with the sale of the Company’s common stock.. The fair value of the warrants of $53,200 was determined by using the Black Scholes Option Pricing Model with the following assumptions: dividends:
0%; volatility: 146.37%, risk free rate: 2.3% , were charged to current period operations
The following information
applies to warrants outstanding and exercisable at September 30, 2011:
F-72
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
|
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||
|
Shares
|
Weighted-
Average Remaining Contractual Term |
Weighted-
Average Exercise Price |
Shares
|
Weighted-
Average Exercise Price |
|||||||||||||||||
| 0.01 - $0.50 | 12,821,905 | 3.0 | $ | 0.13 | 6,200,545 | 0.18 | |||||||||||||||
| 0.52 - $0.68 | 3,800,078 | 5.8 | $ | 0.59 | 3,800,078 | $ | 0.59 | ||||||||||||||
| 0.70 - $1.62 | 2,626,285 | 3.6 | $ | 0.79 | 2,626,285 | $ | 0.79 | ||||||||||||||
| 1.81 – $2.61 | 427,119 | 0.1 | $ | 2.07 | 427,119 | $ | 2.07 | ||||||||||||||
| 3.60 – $4.93 | 105,000 | 1.9 | $ | 4.87 | 105,000 | $ | 4.87 | ||||||||||||||
| 5.67 – $7.69 | 2,818,282 | 10.7 | $ | 7.50 | 1,273,832 | $ | 7.26 | ||||||||||||||
| 22,598,669 | 4.4 | $ | 1.26 | 14,432,859 | $ | 1.11 | |||||||||||||||
NOTE 11
– RELATED PARTY TRANSACTIONS
Lease Guarantee
The Company’s
former Chairman of the Board, Chief Executive Officer and Chief Technology Officer has personally guaranteed the Company’s obligations under its lease for its facilities in Sunrise, Florida and
has provided a personal guarantee for the Company credit card, which is for his own use only.
NOTE 12
– COMMITMENTS AND CONTINGENCIES
Royalty Payments
The Company is
obligated to pay royalties on commercial sales of certain products that may be developed and sold under various licenses and agreements that have been obtained by the Company.
The Company has entered
into various licensing agreements, which include the potential for royalty payments, as follows:
William Beaumont Hospital
In June 2000, the
Company entered into an exclusive license agreement to use certain patents for the life of the patents in future projects. The patents expire in 2015. In addition to a payment of $55,000 the Company
made to acquire the license, the Company is required to pay an annual license fee of $10,000 and royalties ranging from 2% to 4% of net sales of products that are covered by the patents. In order to
maintain the exclusive license rights, the agreement also calls for a minimum annual royalty threshold. The minimum royalty threshold was $200,000 for 2010 and $200,000 for 2009. This minimum royalty
threshold will remain $200,000 for 2011 and thereafter. As of September 30, 2011, the Company has not made any payments other than the initial payment to acquire the license. At September 30, 2011
and December 31, 2010, the
Company’s liability under this agreement was $1,470,002 and $1,090,000, respectively, which is reflected as a component of accrued expenses on the consolidated balance sheets. In the three
months ended September 30, 2011 and 2010, the Company incurred expenses of $52,500, for the nine months ended September 30, 2011 and 2010 $157,500 and $1,470,002 from August 12, 1999 (date of
inception) to September 30, 2011. The Company has accrued interest for the past due commitment at 2% over the prime rate per the terms of the agreement. The Company has included $222,502 in accrued
expenses as of September 30, 2011.
F-73
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Approximate annual
future minimum obligations under this agreement as of September 30, 2011 are as follows:
| Year Ending December 31, | ||||
|
2011
|
$ | 57,500 | ||
|
2012
|
210,000 | |||
|
2013
|
210,000 | |||
| 2014 — 2015 | 420,000 | |||
|
Total
|
$ | 897,500 |
Contingency for Registration of the Company’s common stock
The Company believes
that it may have issued options to purchase common stock to certain of its employees, directors and consultants in California in violation of the registration or qualification provisions of
applicable California securities laws. As a result, the Company intends to make a rescission offer to these persons. The Company will make this offer to all persons who have a continuing right to
rescission, which it believes to include two persons. In the rescission offer, in accordance with California law, the Company will offer to repurchase all unexercised options issued to these persons
at 77% of the option exercise price multiplied by the number of option shares, plus interest at the rate of 7% from the date the options were granted. Based upon the number of options that were
subject to rescission as of December 31, 2009,
assuming that all such options are tendered in the rescission offer, the Company estimated that its total rescission liability would be up to approximately $371,000. However, as the Company believes
there is only a remote likelihood the rescission offer will be accepted by any of these persons in an amount that would result in a material expenditure by the Company, no liability was recorded as
of September 30, 2011 or December 31, 2010.
Litigation
On March 13, 2009,
Judge Bernice Bouie Donald of the United States District Court for the Western District of Tennessee issued a Memorandum Opinion and Order in litigation brought against the Company by Dr. Peter K.
Law and Cell Transplants Asia Limited (“CTAL”) (collectively, the “Plaintiffs”), captioned Peter K. Law, et al. v. Bioheart, Inc., No. 2:07-cv-2177 (the “Action”).
The Action, which has been the subject of previous disclosures by the Company, was commenced on March 9, 2007, and asserted claims against the Company and Howard J. Leonhardt, individually, with
respect to a license agreement entered into between Bioheart, Inc. and Cell Transplants International, LLC (“CTI”) on February 7, 2000 (the “Original License Agreement”).
Pursuant to the License Agreement, among
other things, CTI granted the Company a license to certain patents “related to heart muscle regeneration and angiogenesis for the life of the patents.” In July 2000, Bioheart and CTI,
together with Dr. Law, executed an addendum to the License Agreement, which amended or superseded a number of the terms of the License Agreement (the “License Addendum”).
In their amended
complaint, Dr. Law and CTAL asserted 14 breach of contract and related claims pertaining to the Original License Agreement and License Addendum, Plaintiffs also sought a declaratory judgment that the
License Addendum was unenforceable due to a lack of consideration and/or economic duress. At the outset of the Action, the individual claim against Mr. Leonhardt was dismissed along with
Plaintiffs’ claim for civil conspiracy, leaving 12 claims to be adjudicated.
The Company denied the
material allegations of the amended complaint, denied it had any liability to Plaintiffs, and asserted a number of defenses to Plaintiffs’ claims, as well as counterclaims seeking a declaration
that the License Addendum was a legally valid and binding agreement and asserting that Dr. Law and/or CTI had breached various obligations in the parties’ agreements.
F-74
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
On March 13, 2009, the
Court rendered its decision in the Action, dismissing the amended complaint after finding that Plaintiffs had failed to establish any of their 12 remaining claims. With respect to Plaintiffs’
claim for the $3 million milestone payment, the Court found that the payment was “payable only to CTI,” not the Plaintiffs, and that CTI, a dissolved Tennessee limited liability company,
had never been made a party to the Action and therefore was “not properly before the Court.” The Court also found that, even assuming Plaintiffs could assert a claim for the milestone
payment on behalf of CTI, the payment was not due because “Bioheart’s MyoCell process does not utilize technology claimed under the ‘141 patent.” In addition, the Court found
that Bioheart owed no royalties
because it has not yet made any “gross sales” of MyoCell.
The Court found in
Bioheart’s favor on its counterclaim seeking a declaration that the License Addendum was a valid and enforceable agreement and its counterclaim that Dr. Law breached his obligation under the
License Addendum to provide Bioheart with “all pertinent and critical information” related to Bioheart’s filing of an IND application with the FDA. The Court awarded Bioheart
nominal damages of $1.00 on the latter counterclaim, and dismissed Bioheart’s other counterclaims. Judgment upon the Memorandum Opinion and Order was entered on March 18, 2009.
Subsequent to the Court
rendering its decision in the Action, the Plaintiffs filed a motion with the Court seeking reconsideration of its decision. The Company’s response was filed on April 20, 2009, and the
Court’s response was received on October 15, 2009. The Plaintiffs’ motion to alter or amend was granted in part to clarify that Plaintiff failed to prove that the MyoCath catheter reads
upon the claims of a patent other than the Schmidt catheter patent. Plaintiffs’ motion was otherwise denied.
A notice of appeal was
to have been filed by November 16, 2009, by Dr. Law. The appeal was not filed. The accrual made prior to November 16, 2009, to accommodate a judgment in favor of Dr. Law has been reversed.
The Company is subject
to other legal proceedings that arise in the ordinary course of business. In the opinion of management, as of September 30, 2011, the amount of ultimate liability with respect to such matters, if
any, in excess of applicable insurance coverage, is not likely to have a material impact on the Company’s business, financial position, consolidated results of operations or liquidity. However,
as the outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.
NOTE 13
– FAIR VALUE MEASUREMENT
The Company adopted the
provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received
from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market
participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an
entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices
in active markets for identical assets or liabilities.
Level 2 - Observable
inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or
model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or
liabilities.
F-75
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
Level 3 - Unobservable
inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that
valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure
fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is
disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC
825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.
The carrying value of
the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (Including convertible notes payable), and other current assets and liabilities approximate
fair value because of their short-term maturity.
As of September 30,
2011, the Company did not have any items required to be recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements.
The following table
provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2011:
|
|
Derivative
Liability
|
|||
|
Balance, December 31, 2010
|
$ | - | ||
|
Total (gains) losses
|
||||
|
Initial fair value of debt
derivative at note issuance
|
335,406 | |||
|
Mark-to-market at
September 30, 2011:
|
||||
|
Embedded debt
derivative
|
25,026 | |||
|
Transfers out of Level 3
upon conversion and settlement of notes
|
(360,432 | ) | ||
|
Balance, September 30,
2011
|
$ | - | ||
|
Net Loss for the period
included in earnings relating to the liabilities held at September 30, 2011
|
$ | (25,026 | ) | |
F-76
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
NOTE 14
– SUBSEQUENT EVENTS
Loan Agreement Amendment
On October 1, 2011, the
Company and BlueCrest Venture Finance Master Fund Limited (“BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the Company
originated as of May 31, 2007 (the “Loan”). The outstanding principal amount of the Loan as of October 1, 2011 was $1,192,788.63. On October 1, 2011, BlueCrest agreed with the
Company and Greystone Capital Partners (“Greystone”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the
principal amount of $139,728.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Greystone in consideration for a payment by
them to BlueCrest of
$139,828.82, and thereafter exchanged for a new Convertible Note.
The New Note is a
subordinated convertible note bearing interest at the rate of 8% per annum, payable at maturity. The New Note is convertible into common stock of the Company at a price that is 65% less than the
average of the three (3) lowest closing prices for the Company’s common stock for the ten (10) trading days prior to the Lenders’ election to exercise its conversion right; provided,
however, that if the Company engages in a financing transaction that provides for a pricing discount that is greater than 65%, then the discount allowed to Greyston will be increased to such greater
discount percentage.
In October 2011, the
Company issued an aggregate of 4,997,487 shares of our common stock in connection with the conversion of $115,144.15 of the October 1, 2011 convertible note.
On November 1, 2011,
the Company and BlueCrest Venture Finance Master Fund Limited (“BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the
Company originated as of May 31, 2007 (the “Loan”). The outstanding principal amount of the Loan as of November 1, 2011 was $1,065,832.59. On November 1, 2011, BlueCrest agreed with
the Company and Greystone Capital Partners (“Greystone”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the
principal amount of $139,728.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Greystone in consideration for a payment by
them to BlueCrest of $139,728.82,
and thereafter exchanged for a new Convertible Note.
The New Note is a
subordinated convertible note bearing interest at the rate of 8% per annum, payable at maturity. The New Note is convertible into common stock of the Company at a price that is 65% less than the
average of the three (3) lowest closing prices for the Company’s common stock for the ten (10) trading days prior to the Lenders’ election to exercise its conversion right; provided,
however, that if the Company engages in a financing transaction that provides for a pricing discount that is greater than 65%, then the discount allowed to Greystone will be increased to such greater
discount percentage.
Subscription Agreements
In October 2011, the
Company sold an aggregate of 6,158,220 shares of the Company’s common stock and warrants to purchase 4,046,855 shares of the Company’s common stock for aggregate gross cash proceeds of
$318,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.03 to $0.13 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in
whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
F-77
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
As of November 9, 2011,
the Company sold an aggregate of 2,690,000 shares of the Company’s common stock and warrants to purchase 1,345,000 shares of the Company’s common stock for aggregate gross cash proceeds
of $107,600. The warrants are (i) exercisable solely for cash at an exercise price of $0.05 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or
in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
Issuance of Options and Warrants
Between October 1, 2011
and November 3, 2011, the Company issued options to purchase an aggregate of 342,858 shares of its common stock at a weighted average exercise price of $0.001 per share. The options vested
immediately upon issuance and will expire on the tenth anniversary of the issuance date. As of November 3, 2011 an aggregate of 342,858 shares of common stock have been issued upon the exercise of
the aforementioned options.
F-78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
Item
13.
|
Other
Expenses of Issuance and Distribution
|
The following table
sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:
|
Nature of Expense:
|
Amount
|
|||
|
SEC Registration Fee
|
$
|
309
|
||
|
Accounting fees and
expenses
|
$
|
5,000*
|
||
|
Legal fees and expenses
|
$
|
75,000*
|
||
|
Miscellaneous
|
$
|
0*
|
||
|
Total
|
80,309.42*
|
|||
*Estimated
|
Item 14.
|
Indemnification of Directors and Officers
|
We are incorporated under the laws of the State of Florida. Our articles of incorporation require us to indemnify and limit the
liability of directors to the fullest extent permitted by the Florida Business Corporation Act, or the “FBCA”, as it currently exists or as it may be amended in the future.
Pursuant to the FBCA, a
Florida corporation may indemnify any person who may be a party to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another entity, against liability incurred in connection with such proceeding
(including any appeal thereof) if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In addition, in
accordance with the FBCA, a Florida corporation is permitted to indemnify any person who may be a party to a derivative action if such person acted in any of the capacities set forth in the preceding
paragraph, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expenses of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such proceeding (including appeals), provided that the person acted under the standards set forth in the preceding paragraph.
However, no indemnification shall be made for any claim, issue, or matter for which such person is found to be liable unless, and only to the extent that, the court determines that, despite the
adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.
Any indemnification
made under the above provisions, unless pursuant to a court’s determination, may be made only after a determination that the person to be indemnified has met the standard of conduct described
above. This determination is to be made by a majority vote of a quorum consisting of the disinterested directors of the board of directors, by duly selected independent legal counsel, or by a
majority vote of the disinterested shareholders. The board of directors also may designate a special committee of disinterested directors to make this determination. Notwithstanding the foregoing, a
Florida corporation must indemnify any director, officer, employee or agent of a corporation who has been successful in the defense of any proceeding referred to above.
77
Generally, pursuant to
the FBCA, a director of a Florida corporation is not personally liable for monetary damages to our company or any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, unless: (a) the director breached or failed to perform his duties as a director; and (b) the director’s breach of, or failure to perform, those duties
constitutes (i) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful,
(ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) an approval of an unlawful distribution, (iv) with respect to a
proceeding by or in the right of the company to
procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the company, or willful misconduct, or (v) with respect to a proceeding by or
in the right of someone other than the company or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and
willful disregard of human rights, safety, or property. The term “recklessness,” as used above, means the action, or omission to act, in conscious disregard of a risk: (a) known, or
so obvious that it should have been known, to the directors; and (b) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm
would follow from such action or omission.
Furthermore, under the
FBCA, a Florida corporation is authorized to make any other further indemnification or advancement of expenses of any of its directors, officers, employees or agents under any bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, both for actions taken in an official capacity and for actions taken in other capacities while holding such office. However, a corporation
cannot indemnify or advance expenses if a judgment or other final adjudication establishes that the actions of the director, officer, employee, or agent were material to the adjudicated cause of
action and the director, officer, employee, or agent (a) violated criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his or her conduct was unlawful,
(b) derived an improper personal
benefit from a transaction, (c) was or is a director in a circumstance where the liability for unlawful distributions applies, or (d) engaged in willful misconduct or conscious disregard
for the best interests of the corporation in a proceeding by or in right of the corporation to procure a judgment in its favor.
At present, there is no
pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
We maintain a liability
insurance policy, pursuant to which our directors and officers may be insured against liability they incur for serving in their capacities as directors and officers of our company, including
liabilities arising under the Securities Act or otherwise.
Item
15. Recent Sales of Unregistered Securities
In October 2008, the
Company sold 1,230,280 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Securities Act of 1933, as amended or, the
“Act”, pursuant to which the Company also issued warrants to purchase 369,084 shares of the Company’s common stock, for aggregate gross cash proceeds of $2,142,830. The warrants are
(i) exercisable solely for cash at an average exercise price of $2.17 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during
the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the second quarter
of 2009, the Company sold 1,073,600 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 322,080 shares of the Company’s common stock, for aggregate gross cash proceeds of $613,000. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.79 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the third quarter of
2009, the Company sold 1,211,110 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 363,333 shares of the Company’s common stock, for aggregate gross cash proceeds of $826,082. The warrants are (i) exercisable solely for cash at an
average exercise price of $1.20 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
78
In the fourth quarter
of 2009, the Company sold 480,600 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 144,180 shares of the Company’s common stock, for aggregate gross cash proceeds of $494,116. The warrants are (i) exercisable solely for cash at an
average exercise price of $1.14 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the first quarter of
2010, the Company sold 791,000 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the Company
also issued warrants to purchase 237,300 shares of the Company’s common stock, for aggregate gross cash proceeds of $452,691. The warrants are (i) exercisable solely for cash at an average
exercise price of $0.68 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six
months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the second quarter
of 2010, the Company sold 721,890 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 216,567 shares of the Company’s common stock, for aggregate gross cash proceeds of $405,300. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.71 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the third quarter of
2010, the Company sold 1,894,245 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 568,274 shares of the Company’s common stock, for aggregate gross cash proceeds of $285,074.50. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.18 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the fourth quarter
of 2010, the Company sold 487,850 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 146,355 shares of the Company’s common stock, for aggregate gross cash proceeds of $84,830. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.21 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the first quarter of
2011, the Company sold 3,499,200 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 1,549,760 shares of the Company’s common stock, for aggregate gross cash proceeds of $554,500. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.19 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the second quarter
of 2011, the Company sold 1,909,910 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 1,841,730 shares of the Company’s common stock, for aggregate gross cash proceeds of $160,000. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.09 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
79
In the third quarter of
2011, the Company sold 4,691,580 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 4,550,855 shares of the Company’s common stock, for aggregate gross cash proceeds of $328,700. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.07 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the fourth quarter
of 2011, the Company sold 14,440,780 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Regulation D of the Act, pursuant to which the
Company also issued warrants to purchase 10,404,815 shares of the Company’s common stock, for aggregate gross cash proceeds of $615,810. The warrants are (i) exercisable solely for cash at an
average exercise price of $0.05 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date
that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the first quarter of
2010, the Company issued 4,794,430 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Section 4(2) of the Act, in consideration for the
conversion of debt held by such investors in the aggregate amount of $2,965,370.72, and in connection with such debt conversion also issued warrants to purchase 1,438,329 shares of the
Company’s common stock. The warrants are (i) exercisable solely for cash at an average exercise price of $0.72 per share, (ii) non-transferable for six months following issuance and (iii)
exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the
date of issuance.
In the second quarter
of 2010, the Company issued 529,520 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Section 4(2) of the Act, in settlement of
compensation due and claims alleged by such investors in the aggregate amount of $241,704.20, and in connection therewith also issued warrants to purchase 158,856 shares of the Company’s common
stock. The warrants are (i) exercisable solely for cash at an average exercise price of $0.73 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in
part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.
In the fourth quarter
of 2010, the Company issued 7,459,720 shares of restricted common stock to accredited investors in reliance upon the exemption from registration under Section 4(2) of the Act, in consideration for
the conversion of debt held by such investors in the aggregate amount of $1,118,957.23, and in connection with such debt conversion also issued warrants to purchase 2,237,916 shares of the
Company’s common stock. The warrants are (i) exercisable solely for cash at an average exercise price of $0.18 per share, (ii) non-transferable for six months following issuance and (iii)
exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the
date of issuance.
In connection with a financing provided to the Company by an accredited investor in January 2009and July 2009 the Company issued a
convertible note in the amount of $120,000 upon Section 4(2) of the Act. In connection with the debt the Company issued 120,000 shares of restricted stock and
issued 235,294 shares of restricted stock in connection with the conversion of debt upon reliance upon Section 4(2) of the Act.
In connection with the making and conversion of a $200,000 financing by an accredited investor in February 2009 the Company issued 571,414
shares of restricted stock upon reliance upon Section 4(2) of the Act.
In connection with a financing provided to the Company by an accredited investor in
January 2011, the Company issued 959,934 shares of restricted common stock in reliance upon Section 3(a)(9) and Section 4(2) of the Act, in consideration
for the conversion of debt in the aggregate amount of $139,728.82.
In connection with a financing provided to the Company by an accredited investor in
January 2011, the Company issued 625,000 shares of restricted common stock in reliance upon Section 3(a)(9) and Section 4(2) of the Act, in consideration
for the conversion of debt in the aggregate amount of $25,000.
In connection with a financing provided to the Company by an accredited investor in May
2011, the Company issued 2,565,985shares of restricted common stock in reliance upon Section 3(a)(9) and Section 4(2) of the Act, in consideration for the
conversion of debt in the aggregate amount of $139,728.82.
In connection with a financing provided to the Company by an accredited investor in May 2011, the Company issued a convertible note in the
amount of $34,750 in reliance upon Section 3(a)(9) and Section 4(2) of the Act.
In connection with a financing provided to the Company by an accredited investor in June
2011, the Company issued 3,428,209 shares of restricted common stock in reliance upon Section 3(a)(9) and Section 4(2) of the Act, in consideration for the
conversion of debt in the aggregate amount of $139,728.82.
In connection with a
financing provided to the Company by an accredited investor in July 2011, the Company issued 3,829,001 shares of restricted common stock in reliance upon Section 3(a)(9) and
Section 4(2) of the Act, in consideration for the conversion of debt in the aggregate amount of $140,380.21.
In connection with a
financing provided to the Company by an accredited investor in August 2011, the Company issued 3,358,866 shares of restricted common stock in reliance upon Section 3(a)(9) and Section 4(2)
of the Act, in consideration for the conversion of debt in the aggregate amount of $139,728.82.
In connection with a
financing provided to the Company by an accredited investor in September 2011, the Company issued 5,769,150 shares of restricted common stock in reliance upon Section 3(a)(9) and Section
4(2) of the Act, in consideration for the conversion of debt in the aggregate amount of $139,728.82.
In connection with a financing provided to the Company by an accredited investor on September 28, 2011 the Company issued a convertible
note in the amount of $35,000 to an accredited investor in reliance upon Section 4(2) of the Act.
80
In connection with a
financing provided to the Company by an accredited investor in October 2011, the Company issued 4,997,487 shares of restricted common stock in reliance upon Section 3(a)(9) and Section
4(2) of the Act, in consideration for the conversion of debt in the aggregate amount of $115,144.15.
In connection with a
financing provided to the Company by an accredited investor in November 2011, the Company issued 500,000 shares of restricted common stock in reliance upon Section 3(a)(9) and Section 4(2)
of the Act, in consideration for the conversion of debt in the aggregate amount of $12,101.
In connection with a financing provided to the Company by an accredited investor in December 2011 the Company issued a convertible note in
the amount of $139,728.82 in reliance upon Section 3(a)(9) and Section 4(2) of the Act.
In connection with a financing provided to the Company by an accredited investor in January 2012 the Company issued a convertible note in
the amount of $139,728.82 in reliance upon Section 3(a)(9) and Section 4(2) of the Act.
The following exhibits are
included as part of this Form S-1. References to “the Company” in this Exhibit List mean Bioheart, Inc., a Florida corporation.
|
Exhibit
Numbers
|
Description | |
|
3.1(6)
|
Amended and Restated
Articles of Incorporation of the registrant, as amended
|
|
|
3.2(9)
|
Articles of Amendment
to the Articles of Incorporation of the registrant
|
|
|
3.3(8)
|
Amended and Restated
Bylaws
|
|
|
4.1(5)
|
Loan and Security
Agreement, dated as of May 31, 2007 by and between BlueCrest Capital Finance, L.P. and the registrant
|
|
|
4.2(12)
|
Notice of Event of
Default, from BlueCrest Venture Finance Master Fund Limited to the Company, dated January 28, 2009
|
|
|
4.3(12)
|
Notice of
Acceleration, from BlueCrest Venture Finance Master Fund Limited to the Company, dated February 2, 2009
|
|
|
4.4(13)
|
Amendment to Loan and
Security Agreement, between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009
|
|
|
4.5(13)
|
Grant of Security
Interest (Patents), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009
|
|
|
4.6(13)
|
Security Agreement
(Intellectual Property), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009
|
|
|
4.7(13)
|
Subordination
Agreement, by Hunton & Williams, LLP in favor of BlueCrest Venture Finance Master Fund Limited, entered into and effective April 2, 2009
|
|
|
4.8(13)
|
Amended and Restated
Promissory Note, dated April 2, 2009, by the Company to BlueCrest Venture Finance Master Fund Limited
|
|
|
4.9(13)
|
Warrant to purchase
1,315,542 shares of the registrant’s common stock, dated April 2, 2009, issued to BlueCrest Venture Finance Master Fund Limited
|
|
|
4.10(14)
|
Warrant to purchase
451,043 shares of the registrant’s common stock, dated April 2, 2009, issued to Rogers Telecommunications Limited
|
81
|
4.11(14)
|
Warrant to purchase
173,638 shares of the registrant’s common stock, dated April 2, 2009, issued to Hunton & Williams, LLP
|
|
|
4.12(19)
|
10% Convertible
Promissory Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith
|
|
|
4.13(19)
|
10% Convertible
Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers
|
|
|
4.14(19)
|
Registration Rights
Agreement, dated July 23, 2009
|
|
|
4.15(19)
|
Subordination
Agreement, dated July 23, 2009
|
|
|
4.16(19)
|
Note Purchase
Agreement, dated July 23, 2009
|
|
|
4.17(19)
|
Closing Confirmation of
Conversion Election, dated July 23, 2009
|
|
|
5.1*
|
Consent of Sichenzia
Ross Friedman Ference LLP
|
|
|
10.1**(1)
|
1999 Officers and
Employees Stock Option Plan
|
|
|
10.2**(1)
|
1999 Directors and
Consultants Stock Option Plan
|
|
|
10.3(1)
|
Form of Option
Agreement under 1999 Officers and Employees Stock Option Plan
|
|
|
10.4(3)
|
Form of Option
Agreement under 1999 Directors and Consultants Stock Option Plan
|
|
|
10.5**(4)
|
Employment Letter
Agreement between the registrant and Scott Bromley, dated August 24, 2006.
|
|
|
10.6(1)
|
Lease Agreement
between the registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006.
|
|
|
10.7(1)
|
Asset Purchase
Agreement between the registrant and Advanced Cardiovascular Systems, Inc., dated June 24, 2003.
|
|
|
10.8(4)
|
Conditionally
Exclusive License Agreement between the registrant, Dr. Peter Law and Cell Transplants International, LLC, dated February 7, 2000, as amended.
|
|
|
10.9(4)
|
Loan Guarantee,
Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant, Howard J. Leonhardt and Brenda Leonhardt
|
|
|
10.10(4)
|
Loan Guarantee,
Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant and William P. Murphy Jr., M.D.
|
|
|
10.11(4)
|
Loan Agreement, dated
as of June 1, 2007, by and between the registrant and Bank of America, N.A.
|
|
|
10.12(4)
|
Warrant to purchase
shares of the registrant's common stock issued to Howard J. Leonhardt and Brenda Leonhardt
|
|
|
10.13(4)
|
Warrant to purchase
shares of the registrant's common stock issued to Howard J. Leonhardt and Brenda Leonhardt
|
82
|
10.14(4)
|
Warrant to purchase
shares of the registrant's common stock issued to William P. Murphy, Jr., M.D.
|
|
|
10.15(4)
|
Warrant to purchase
shares of the registrant's common stock issued to the R&A Spencer Family Limited Partnership
|
|
|
10.16(4)
|
Material Supply
Agreement, dated May 10, 2007, by and between the registrant and Biosense Webster
|
|
|
10.17(5)
|
Warrant to purchase
shares of the registrant's common stock issued to BlueCrest Capital Finance, L.P.
|
|
|
10.18(6)
|
Loan Guarantee,
Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Samuel S. Ahn, M.D.
|
|
|
10.19(6)
|
Loan Guarantee,
Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Dan Marino
|
|
|
10.20(6)
|
Warrant to purchase
shares of the registrant's common stock issued to Samuel S. Ahn, M.D.
|
|
|
10.21(6)
|
Loan Guarantee,
Payment and Security Agreement, dated as of September 19, 2007, by and between the registrant and Jason Taylor
|
|
|
10.22(7)
|
Loan Guarantee,
Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and Howard and Brenda Leonhardt
|
|
|
10.23(7)
|
Warrant to purchase
shares of the registrant's common stock issued to Howard and Brenda Leonhardt
|
|
|
10.24(7)
|
Second Amendment to
Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and Howard and Brenda Leonhardt
|
|
|
10.25(7)
|
Second Amendment to
Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and William P. Murphy, Jr., M.D.
|
|
|
10.26**(10)
|
Bioheart, Inc. Omnibus
Equity Compensation Plan
|
|
|
10.27(11)
|
Form of Warrant Agreement
for October 2008 Private Placement
|
|
|
10.28(11)
10.29 (19)
10.29(19)
|
Form of Registration
Rights Agreement for October 2008 Private Placement
Master Services Agreement
with Ascent Medical Product Development Centre Inc.
10% Convertible Promissory
Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith
|
|
|
10.30(19)
|
10% Convertible
Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers
|
|
|
10.31(19)
|
Registration Rights
Agreement, dated July 23, 2009
|
|
|
10.32(19)
|
Subordination
Agreement, dated July 23, 2009
|
83
|
10.33(19)
|
Note Purchase
Agreement, dated July 23, 2009
|
|
|
10.34(19)
10.35**(20)
|
Closing Confirmation of
Conversion Election, dated July 23, 2009
Amended and Restated
1999 Directors and Consultants Stock Option Plan
|
|
|
10.36(21)
|
Letter of Intent with
Seaside National Bank and Trust, dated September 30, 2010.
|
|
|
10.37(22)
|
Loan Agreement with
Seaside National Bank and Trust, dated October 25, 2010.
|
|
|
10.38(22)
|
Promissory Note with
Seaside National Bank and Trust, dated October 25, 2010.
|
|
|
10.39(22)
|
Amended and Restated
Loan and Security Agreement with BlueCrest Venture Finance Master Fund Limited, dated October 25, 2010.
|
|
|
10.40(23)
|
Form of Subscription
Agreement, executed November 30, 2010.
|
|
|
10.41(23)
|
Form of Common Stock
Purchase Warrant, issued November 30, 2010.
|
|
|
10.42(23)
|
Form of Registration
Rights Agreement, dated November 30, 2010.
|
|
|
10.43(24)
|
Unsecured Convertible
Promissory Note for $25,000, with Magna Group, LLC, dated January 3, 2011.
|
|
|
10.44(24)
|
Promissory Note for
$139,728.82 with Magna Group, LLC, dated January 3, 2011.
|
|
|
10.45(24)
|
Securities Purchase
Agreement with Magna Group, LLC, dated January 3, 2011.
|
|
|
10.46(24)
|
Subordination
Agreement, dated January 3, 2011.
|
|
|
10.47(24)
|
Notice of Conversion
Election, dated January 3, 2011.
|
|
|
10.48(25)
|
Unsecured Convertible
Promissory Note for $34,750, with Magna Group, LLC, dated May 16, 2011.
|
|
|
10.49(25)
|
Promissory Note for
$139,728.82 with Magna Group, LLC, dated May 16, 2011.
|
|
|
10.50(25)
|
Securities Purchase
Agreement with Magna Group, LLC, dated May 16, 2011.
|
|
|
10.51(25)
|
Subordination Agreement,
dated May 16, 2011.
|
|
|
10.52(26)
|
Promissory Note for
$139,728.82 with Lotus Funding Group, LLC, dated June 15, 2011.
|
|
|
10.53(26)
|
Partial Assignment and
Modification Agreement, dated June 15, 2011.
|
|
|
10.54(26)
|
Subordination Agreement,
dated June 15, 2011.
|
|
|
10.55(27)
|
Promissory Note for
$140,380.21 with Greystone Capital Partners, dated July 8, 2011.
|
|
|
10.56(27)
|
Partial Assignment and
Modification Agreement, dated July 8, 2011.
|
|
|
10.57(27)
|
Subordination Agreement,
dated July 8, 2011.
|
84
|
10.58(27)
|
Promissory Note for
$139,728.82 with Greystone Capital Partners, dated August 1, 2011.
|
|
|
10.59(27)
|
Partial Assignment and
Modification Agreement, dated August 1, 2011.
|
|
|
10.60(27)
|
Subordination Agreement,
dated August 1, 2011.
|
|
|
10.61(27)
|
Promissory Note for
$139,728.82 with Greystone Capital Partners, dated September 1, 2011.
|
|
|
10.62(27)
|
Partial Assignment and
Modification Agreement, dated September 1, 2011.
|
|
|
10.63(27)
|
Subordination Agreement,
dated September 1, 2011.
|
|
|
10.64(27)
|
Promissory Note for
$139,728.82 with Greystone Capital Partners, dated October 1, 2011.
|
|
|
10.65(27)
|
Partial Assignment and
Modification Agreement, dated October 1, 2011.
|
|
|
10.66(27)
|
Subordination Agreement,
dated October 1, 2011.
|
|
|
10.67(27)
|
Right of First Refusal
with Greystone Capital Partners dated September 28, 2011
|
|
|
10.68(27)
|
Promissory Note for
$35,000 with Thalia Woods Management, Inc. dated September 28, 2011.
|
|
|
10.69(27)
|
Subordination Agreement,
dated September 28, 2011
|
|
|
10.70(27)
|
Promissory Note for
$139,728.82 with Greystone Capital Partners, dated November 1, 2011.
|
|
|
10.71(27)
|
Partial Assignment and
Modification Agreement, dated November 1, 2011.
|
|
|
10.72(27)
|
Subordination Agreement,
dated November 1, 2011.
|
|
|
10.73(28)
|
Form of Promissory Note
for $139,728.82 with Greystone Capital Partners.
|
|
|
10.74(28)
|
Form of Partial
Assignment and Modification Agreement.
|
|
|
10.75(28)
|
Form of Subordination
Agreement.
|
|
|
14.1(2)
|
Code of Ethics for
Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions
|
|
|
14.2(2)
|
Code of Business Conduct
and Ethics
|
|
|
23.1*
|
Consent of RBSM LLP
|
|
|
23.2*
|
Consent of Sichenzia
Ross Friedman Ference LLP (contained in Exhibit 5.1)
|
* Filed herewith
+ To be filed by amendment
** Indicates management contract or compensatory plan.
85
|
(1)
|
Incorporated by reference
to the Company’s Form S-1 filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2007
|
|
(2)
|
Incorporated by reference
to Amendment No. 1 to the Company’s Form S-1 filed with the SEC on June 5, 2007
|
|
(3)
|
Incorporated by reference
to Amendment No. 2 to the Company’s Form S-1 filed with the SEC on July 12, 2007
|
|
(4)
|
Incorporated by reference
to Amendment No. 3 to the Company’s Form S-1 filed with the SEC on August 9, 2007
|
|
(5)
|
Incorporated by reference
to Amendment No. 4 to the Company’s Form S-1 filed with the SEC on September 6, 2007
|
|
(6)
|
Incorporated by reference
to Amendment No. 5 to the Company’s Form S-1 filed with the SEC on October 1, 2007
|
|
(7)
|
Incorporated by reference
to Post-effective Amendment No. 1 to the Company’s Form S-1 filed with the SEC on October 11, 2007
|
|
(8)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2008
|
|
(9)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2008
|
|
(10)
|
Incorporated by reference
to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2008
|
|
(11)
|
Incorporated by reference
to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2008
|
|
(12)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on February 3, 2009
|
|
(13)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on April 8, 2009
|
|
(14)
|
Incorporated by reference
to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2009
|
|
(15)
|
Incorporated by reference
to the Company’s Annual Report on Form 10-K/A filed with the SEC on April 30, 2009
|
|
(16)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2009
|
|
(17)
|
Incorporated by reference
to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 20, 2009
|
|
(18)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on July 9, 2009
|
|
(19)
|
Incorporated by reference
to the Company’s Current Report on Form 8-K filed with the SEC on August 3, 2009
|
|
(20)
|
Incorporated by reference
to Exhibit 4.6 to the Company’s Post Effective Amendment to Registration Statement on Form S-8/A, filed with the SEC on June 2, 2010.
|
|
(21)
|
Incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2010.
|
|
(22)
|
Incorporated by referent
to the Company’s Current Report on Form 8-K filed with the SEC on October 26, 2010.
|
|
(23)
|
Incorporated by referent
to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2010.
|
|
(24)
|
Incorporated by referent
to the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2011.
|
|
(25)
|
Incorporated by referent
to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2011.
|
|
(26)
|
Incorporated by referent
to the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2011.
|
|
(27)
|
Incorporated by referent
to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2011.
|
|
(28)
|
Incorporated by referent to the Company’s Current Report on Form 8-K filed with the SEC on January 13, 2012.
|
Item 17. Undertakings
The undersigned
Registrant hereby undertakes to:
|
(1)
|
File, during any period in which offers or sales are being made, a post-effective amendment to this
Registration Statement to:
|
|
(i)
|
Include any prospectus required by
Section 10(a)(3) of the Securities Act;
|
|
(ii)
|
Reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the information in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
|
86
|
(iii)
|
Include any additional or changed
material information on the plan of distribution.
|
|
(2)
|
For determining liability under the Securities Act, treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
|
|
(3)
|
File a post-effective amendment to remove from registration any of the securities that remain unsold
at the end of the offering.
|
|
(4)
|
For purposes of determining any liability under the Securities Act, treat the information omitted
from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the time it was declared effective.
|
|
(5)
|
For the purpose of determining liability of the Registrant under the Securities Act to any purchaser
in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this Registration Statement,
regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the
undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
(i)
|
Any preliminary prospectus or
prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to the Rule 424;
|
|
(ii)
|
Any free writing prospectus relating to
the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
|
|
(iii)
|
The portion of any other free writing
prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
|
|
(iv)
|
Any other communication that is an
offer in the offering made by the undersigned Registrant to the purchaser.
|
|
(6)
|
For determining any liability under the Securities Act, treat each post-effective amendment that
contains a form of prospectus as a new registration statement for the securities offered in the Registration Statement, and that offering of the securities at that time as the initial bona fide
offering of those securities.
|
|
(7)
|
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such
issue.
|
|
(8)
|
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an
offering shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or prospectus that is part of
the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the Registration Statement or prospectus
that was part of the registration statement or made in any document immediately prior to such date of first use.
|
87
Pursuant to the
requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized on January 19, 2012.
|
BIOHEART, INC.
|
|||
|
|
By:
|
/s/ Mike Tomas | |
| Mike Tomas | |||
|
Chief Executive Officer & President
|
|||
POWER
OF ATTORNEY
Each person whose
signature appears below constitutes and appoints Mike Tomas his true and lawful attorney-in-fact and agent, acting alone, with full powers of substitution and re-substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, any Amendments thereto and any Registration
Statement of the same offering which is effective upon filing pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent, acting alone, full powers and authority to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming said attorney-in-fact and agent, acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with the
requirements of the Securities Act, this Registration Statement has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.
|
Signature
|
Title | Date | |||||||||||||
|
/s/ William P. Murphy,
Jr., M.D.
|
Chairman of the Board
|
January 19,
2012
|
|||||||||||||
|
William P. Murphy, Jr.,
M.D.
|
|||||||||||||||
|
/s/ Mike Tomas
|
Chief Executive Officer
& Director
|
January 19,
2012
|
|||||||||||||
|
Mike Tomas
|
|||||||||||||||
|
/s/ Mark P. Borman
|
Director
|
January 19,
2012
|
|||||||||||||
|
Mark Borman
|
|||||||||||||||
|
/s/ Bruce C. Carson
|
Director
|
January 19,
2012
|
|||||||||||||
|
Bruce C. Carson
|
|||||||||||||||
|
/s/Howard Leonhardt
|
Director
|
January 19,
2012
|
|||||||||||||
|
Howard Leonhardt
|
|||||||||||||||
|
/s/ Richard T. Spencer III
|
Director
|
January 19,
2012
|
|||||||||||||
|
Richard T. Spencer III
|
|||||||||||||||
|
/s/ Charles A. Hart
|
Director
|
January 19,
2012
|
|||||||||||||
|
Charles A. Hart
|
|||||||||||||||
|
/
s/ Samuel S. Ahn, MD, MBA
|
Director
|
January 19,
2012
|
|||||||||||||
|
Samuel S. Ahn, MD, MBA
|
|||||||||||||||
88