Attached files
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EX-31.1 - EX-31.1 - U.S. Stem Cell, Inc. | ex_31-1.htm |
EX-23.1 - EX-23.1 - U.S. Stem Cell, Inc. | ex_23-1.htm |
EX-32.1 - EX-32.1 - U.S. Stem Cell, Inc. | ex_32-1.htm |
EX-23.2 - EX-23.2 - U.S. Stem Cell, Inc. | ex_23-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 001-33718
BIOHEART, INC.
(Exact name of registrant as specified in its charter) | ||
Florida | 65-0945967 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
13794 NW 4th Street, Suite
212, Sunrise, Florida 33325
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (954) 835-1500
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. o Yes oNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of June 30, 2010, the last day of registrant’s second fiscal quarter, the aggregate market value of the registrant’s common stock, $0.001 par value, held by non-affiliates, computed by reference to the closing sale price of the common stock reported on the OTCBB as of June 30, 2010, was approximately $8,312,699. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant’s Common Stock, $0.001 Par Value, as of May 10, 2011 was 42,600,569.
BIOHEART, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
Fiscal Year Ended December 31, 2009
Page | ||
| ||
PART I | ||
Item 1. | Business | 2 |
Item 1A. | Risk Factors | 25 |
Item 1B. | Unresolved Staff Comments | 34 |
Item 2. | Properties | 34 |
Item 3. | Legal Proceedings | 34 |
Item 4. | [Removed and Reserved] | |
PART II | ||
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 35 |
Item 6. | Selected Financial Data | 38 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 |
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 45 |
Item 8. | Financial Statements and Supplementary Data | 45 |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 45 |
Item 9A. | Controls and Procedures | 45 |
Item 9B. | Other Information | 46 |
PART III | ||
Item 10. | Directors, Executive Officers and Corporate Governance | 49 |
Item 11. | Executive Compensation | 55 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related | |
Stockholder Matters | 62 | |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 66 |
Item 14. | Principal Accounting Fees and Services | 71 |
PART IV | ||
Item 15. | Exhibits, Financial Statement Schedules | 73 |
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PART I
This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Any such forward-looking statements would be contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Item 1. Business
Overview
We are committed to maintaining our leading position within 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. Our goals are to regenerate damaged tissue, if possible, improve a patient's quality of life, reduce hospitalizations and reduce overall health care costs.
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. Food and Drug Administration (the “FDA”) to proceed with a 330-patient, multicenter Phase II/III trial of MyoCell in North America and Europe (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
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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.
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.
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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 key strategies:
· 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.
· 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.
· 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, MyoCath and MyoCath II product candidates.
· 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.
· Continue to refine our MyoCell and MyoCell SDF-1 cell culturing processes.
· Expand and enhance our intellectual property rights. We intend to continue to expand and enhance our intellectual property rights.
· 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.
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
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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.
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.
NYHA | ||||||
Class | NYHA Functional Classification(1) | Specific Activity Scale(2)(3) | Current Standard of Treatment(4) | |||
I | Symptoms only with above normal physical activity | Can perform more than 7 metabolic equivalents | ACE Inhibitor, Beta-Blocker | |||
II | Symptoms with normal physical activity | Can perform more than 5 metabolic equivalents | ACE Inhibitor, Beta-Blocker, Diuretics | |||
III | Symptoms with minimal physical activity | Can perform more than 2 metabolic equivalents | ACE Inhibitor, Beta-Blocker, Diuretics, Digoxin, Bi-ventricular pacers | |||
IV | Symptoms at rest | Cannot perform more than 2 metabolic equivalents | ACE Inhibitor, Beta-Blocker, Diuretics, Digoxin, Hemodynamic Support, Mechanical Assist Devices, Bi-ventricular pacers, Transplant |
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(1) Symptoms include fatigue, palpitations, shortness of breath and chest pain; normal activity is equivalent to walking one flight of stairs or several blocks.
(2) 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.
(3) 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.
(4) Source: American College of Cardiology/ American Heart Association 2005 Guideline Update for the Diagnosis and Management of Chronic Heart Failure in the Adult.
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.
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
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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.
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
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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 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.
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:
· the engrafted muscle tissue can contract in unison with the other muscles in the heart by stretching or by the channeling of electric currents;
· the myoblasts acquire certain characteristics of heart muscle or fuse with them; and/or
· the injected myoblasts release various proteins that indirectly result in a limit on further scar tissue formation.
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
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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:
· transport muscle tissue and cultured cells;
· disassociate muscle tissue with manual and chemical processes;
· separate myoblasts from other muscle cells;
· culture and grow myoblasts;
· identify a cell population with the propensity to engraft, proliferate and adapt to the cardiac environment, including areas of scar tissue; and
· maintain and test the cell quality and purity.
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:
· package the cultured cells in a manner that facilitates shipping and use by the physician administering MyoCell;
· methods of using MyoCath;
· the use of an injectate media that assists in the engraftment of myoblasts;
· cell injection techniques utilizing contrast media to assist in the cell injection process; and
· cell injection protocols related to the number and location of injections.
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-
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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:
Metric | Description | |
NYHA Class | The NYHA heart failure classification system is a functional and therapeutic classification system based on how much cardiac patients are limited during physical activity. | |
Six-Minute Walk Distance | 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. | |
LVEF | 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. | |
Quality of Life | Quality of Life is evaluated by patient questionnaire, which measures subjective aspects of health status in heart failure patients. | |
Number of Hospital Admissions and Mean Length of Stay |
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. | |
Total Days Hospitalized | The Total Days Hospitalized measures the aggregate number of days a patient is admitted to the hospital during a defined period. | |
End-Systolic Volume | End-Systolic Volume is a measurement of the adequacy of cardiac emptying, related to the function of the heart during contraction. | |
End-Diastolic Volume | 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. | |
LV Volume | 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. | |
Wall Motion | 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. | |
Cardiac Output | Cardiac Output is a measure of the amount of blood that is pumped by the heart per unit time, measured in liters per minute. | |
BNP Level | 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. |
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
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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.
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 | Primary Efficacy | Secondary Efficacy | Tertiary Efficacy | |||
Endpoint | Endpoints | Endpoints | Endpoints | |||
Number of serious adverse events in treatment group as compared to control group | 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 |
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 |
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 |
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.
Candidate
|
Proposed Use or Indication |
Status/Phase |
Comments | |||
TGI 1200 Adipose Tissue Processing System | Fully automated device for the rapid processing of patient derived fat tissue for use in Acute MI, Lower Limb Ischemia and Chronic Ischemia | CE mark approved | Distribution commenced in the 2009; We are not currently distributing additional devices. | |||
MyoCell SDF-1 | Autologous cell therapy treatment for severe chronic damage to the heart; cells modified to express angiogenic factors | IND application filed in May 2007. Additional animal studies complete. Phase I trial approved by FDA in July of 2009. | Trial commenced in April 1, 2010. Anticipate enrolling patients in 2011. | |||
MyoCath | Disposable endoventricular catheter used for the delivery of biologic solutions to the myocardium | Used in European Phase II clinical trials of MyoCell; used in Phase I clinical trials of MyoCell; | Currently utilizing catheters in Center of Excellence trials in Mexico. | |||
MyoCath II | Second generation disposable endoventricular catheter modified to provide multidirectional cell injection and used for the delivery of biologic solutions to the myocardium | Preclinical |
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TGI 1200 Adipose Tissue Processing System
The TGI 1200 is a patient-derived cell therapy for the treatment of acute myocardial infarction, chronic heart ischemia, and lower limb ischemia utilizing Bioheart’s TGI 1200 adipose tissue processing system. The TGI 1200 has received CE mark commercial approval for marketing.
Unlike MyoCell, which is intended to be used to treat severe heart damage months or even years after a heart attack, the TGI 1200 is being designed to be used for the treatment of heart muscle damage immediately following a heart attack. We hope to demonstrate that the injection of endothelial progenitor and stem cells derived from fat tissue by the TGI 1200 is a safe and effective means of limiting or reversing some of the effects of acute myocardial infarction and preventing or slowing a patient’s progression from initial heart attack to congestive heart failure. Similarly, we are working to introduce the system as a treatment for lower limb ischemia, not only to reduce pain but to regenerate tissue and prevent amputations. Fat tissue is an abundant and readily available source of endothelial progenitor and stem cells and is easily extractable from a patient using minimally invasive techniques.
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.
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.
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
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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.
The center in Mexico has recently 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.
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:
· preclinical small and large animal testing for product candidate enhancements and pipeline product candidate development; and
· contract research for clinical and preclinical testing of our pipeline product candidates.
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:
· culture in excess of 800 million myoblast cells per biopsy; and
· 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.
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. (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.
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.
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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:
· | 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; | |
· | obtain additional patent and other proprietary protection for MyoCell and our other product candidates; | |
· | 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; | |
· | preserve company trade secrets and other intellectual property rights relating to our product candidates; and | |
· | operate without infringing the patents and proprietary rights of third parties. |
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
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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.
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.
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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.
TGI 1200 Patent
On December 12, 2006, or the Effective Date, we entered into an agreement with Tissue Genesis, or the Tissue Genesis Agreement, that provides us an exclusive, worldwide right to individually use or to sell or lease to medical practitioners and related healthcare entities the following items, for the treatment of acute MI and heart failure, or the Field of Use:
· | the TGI 1200 and certain disposable products used in conjunction with the devices, or, the TGI Licensed Product Candidates; | |
· | processes that use the TGI Licensed Product Candidates, or the TGI Licensed Processes; and | |
· | the cells derived using the TGI Licensed Product Candidates and/or the TGI Licensed Processes, or the TGI Licensed Cells. |
On October 26, 2010 we received a written notice of termination of Customer Agreement and Distribution Agreement, dated as of March 15, 2007 and December 12, 2006 respectively between Tissue Genesis Incorporated and the Company. We intend to complete all scheduled trials and continue to monitor patients already treated utilizing the TGI system in the Czech Republic, Venezuela and Mexico.
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
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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
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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.
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:
· | completion of preclinical studies according to good laboratory practice regulations; | |
· | the submission of an IND application to the FDA, which must become effective before human clinical trials may commence; | |
· | 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; | |
· | 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 | |
· | 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. |
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
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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.
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.
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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.
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.
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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.
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. Provided that we enter into a long term manufacturing contract with an entity that satisfies the requirements of the International Standards Organization, we anticipate that we will file an application to obtain the right to affix the CE mark to MyoCath in 2010.
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,
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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.
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:
· | the safety and efficacy of our product candidates; | |
· | the freedom to develop and commercialize cell-based therapies, including appropriate patent and proprietary rights protection; | |
· | the timing and scope of regulatory approvals; | |
· | the cost and availability of our products; | |
· | the availability and scope of third party reimbursement programs; and | |
· | the availability of alternative treatments. |
We are still in the process of determining, among other things:
· if MyoCell and MyoCell SDF-1 are both safe and effective;
· the timing and scope of regulatory approvals; and
· the availability and scope of third party reimbursement programs.
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®.
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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.
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Item 1A. Risk Factors
The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition. If any events described in the risk factors actually occur, our business, operating results, prospects and financial condition could be materially harmed. In connection with the forward looking statements that appear elsewhere in this quarterly report, you should also carefully review the cautionary statement referred to under “Cautionary Statement Regarding Forward Looking Statements.”
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Risks Related to Our Financial Position and Need for Additional Financing
We will need to secure additional financing in 2011 in order to continue to finance our operations. If we are unable to secure additional financing on acceptable terms, we may be forced to curtail or cease our operations.
We are seeking substantial additional financing through public and/or private financing, which may include equity and/or debt financings, research grants and through other arrangements, including collaborative arrangements. As part of such efforts, we may seek loans from certain of our executive officers, directors and/or current shareholders. We may also seek to satisfy some of our obligations to the guarantors of our loan with Seaside National Bank & Trust (the “Guarantors”) through the issuance of various forms of securities or debt on negotiated terms. However, financing and/or alternative arrangements with the Guarantors may not be available when we need it, or may not be available on acceptable terms.
If we are unable to secure additional financing in 2011, we may be forced to:
· curtail or abandon our existing business plan;
· reduce our headcount;
· default on our debt obligations under the BlueCrest Loan;
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· file for bankruptcy;
· seek to sell some or all of our assets; and/or
· cease our operations.
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.
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...” 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 as of 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.
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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 $106.7 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:
· | establish a distribution network for and commence distribution of certain products for which we have acquired distribution rights; | |
· | commence full scale enrollment of the MARVEL Trial; | |
· | continue research and development and undertake new clinical trials with respect to our pipeline product candidates, including clinical trials related to MyoCell SDF-1; | |
· | seek to raise additional capital; | |
· | apply for regulatory approvals; | |
· | make capital expenditures to increase our research and development and cell culturing capabilities; | |
· | add operational, financial and management information systems and personnel and develop and protect our intellectual property; | |
· | make payments pursuant to license agreements upon achievement of certain milestones; and | |
· | establish sales and marketing capabilities to commercialize products for which we obtain regulatory approval, if any. |
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.
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
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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.
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, 2010, we had an aggregate of $6.3 million in principal amount of outstanding indebtedness, excluding accounts payable and accruals.
On May 31, 2007 we and Bank of America agreed with BlueCrest Capital that the Company will not make any payments due under the Bank of America Loan while the BlueCrest Loan is outstanding. Certain persons, including our former Chairman of the Board, two of our other directors and two of our shareholders, or, collectively, 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. As of December 31, 2009, these individuals had paid an aggregate of $3.7 million on the Bank of America Loan on our behalf, including $3.0 million of principal by our former Chairman of the Board. Upon our repayment in full of the BlueCrest Loan, we are required to reimburse these persons 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. We anticipate that the BlueCrest Loan will need to be serviced and both the BlueCrest Loan and any amounts advanced by the Guarantors will need to be repaid with existing cash or cash generated from security or loan placements, if any. If we are unable to generate cash through additional financings, we may have to delay or curtail research, development and commercialization programs.
In March of 2009, the former Chairman of the Board and his former spouse paid directly to Bank of America the $3 million that he had been guaranteeing, thus reducing Bioheart’s obligation to Bank of America to $2 million plus interest. In March 2009, these individuals repaid $3.0 million of principal and a pro rata portion of accrued interest on behalf of the Company. The Company in 2009 owed 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 was converted to common stock, the remaining $1,500,000 is outstanding as of December 31, 2010.
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 in restricted common stock and warrants. 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 plus interest.
In October of 2010, the Chairman of the Board paid directly to Bank of America the $350,000 that he had been guaranteeing, thus reducing Bioheart’s obligation to Bank of America to $980,000 plus interest. That Guarantor agreed to accept from the Company the equivalent of his payment to Bank of America in restricted common stock and warrants. With his acceptance of the restricted common stock and warrants, the former Guarantor owns approximately 9% of the Company.
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 used to refinance the Company’s loan with Bank of America. 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.
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In addition to the limitations imposed on our operational flexibility by the BlueCrest Loan as described above, the BlueCrest Loan, our obligations to the Guarantors, and any other indebtedness incurred by us could have significant additional negative consequences, including, without limitation:
· | 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; | |
· | increasing our vulnerability to general adverse economic and industry conditions; | |
· | limiting our ability to obtain additional financing; | |
· | limiting our ability to react to changes in technology or our business; and | |
· | placing us at a possible competitive disadvantage to less leveraged competitors. |
Risks Related to Product Development
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.
· | 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. | |
· | 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. | |
· | 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: |
· | our product candidates will be deemed ineffective, unsafe or will not receive regulatory approvals; | |
· | our product candidates will be too expensive to manufacture or market or will not achieve broad market acceptance; | |
· | others will hold proprietary rights that will prevent us from marketing our product candidates; or | |
· | our competitors will market products that are perceived as equivalent or superior. |
Risks Related to Commercialization of our Product Candidates
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.
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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:
· | 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; | |
· | 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; | |
· | 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; | |
· | our collaborators may underfund or not commit sufficient resources to the testing, marketing, distribution or development of our product candidates; and | |
· | 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. |
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.
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 affect on our business, financial condition and ability to continue as a going concern.
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
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agreements would have a material adverse effect on us and could delay or completely terminate our product development efforts.
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:
· | publications of clinical trial results by clinical investigators or others about our products and competitors' products and/or our industry; | |
· | changes by securities analysts in financial estimates of our operating results and the operating results of our competitors; | |
· | publications of research reports by securities analysts about us, our competitors or our industry; | |
· | fluctuations in the valuation of companies perceived by investors to be comparable to us; | |
· | actual or anticipated fluctuations in our quarterly or annual operating results; | |
· | retention and departures of key personnel; | |
· | our failure or the failure of our competitors to meet analysts' projections or guidance that we or our competitors may give to the market; | |
· | strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; | |
· | the passage of legislation or other regulatory developments affecting us or our industry; | |
· | speculation in the press or investment community; and | |
· | natural disasters, terrorist acts, acts of war or periods of widespread civil unrest. |
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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.
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.
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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.
Potential Dilution - 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.
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Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our headquarters are located in Sunrise, Florida and consists of 6,091 square feet of space, which we lease at a current rent of approximately $82,000 per year. The lease is scheduled to expire in January 2013. In addition to our corporate offices, at this location, we maintain:
· | our MyoCell cell culturing facility for supply within the United States; and | |
· | 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.
Item 3. Legal Proceedings
We are not presently engaged in any material litigation and are unaware of any threatened material litigation. However, the biotechnology and medical device industries have been characterized by extensive litigation regarding patents and other intellectual property rights. In addition, from time to time, we may become involved in litigation relating to claims arising from the ordinary course of our business.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our 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.
Sales Price | |||
Period | High | Low | |
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 May 4, 2011 there were approximately 410 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.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table provides certain information regarding our existing equity compensation plans as of December 31, 2010:
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Number of securities to be issued upon exercise of outstanding options | Weighted- average exercise price of outstanding options | Number of securities remaining available for issuance under equity compensation plans | ||||
Equity compensation plans approved by security holders (1) |
2,025,544 |
$2.79 |
5,059,835 | |||
Equity compensation plans not approved by security holders (2) |
13,920,729 |
$1.98 | 0 |
(1) Consists of our 1999 Officers and Employees Stock Option Plan, 1999 Directors and Consultants Stock Option Plan and Omnibus Equity Compensation Plan
(2) Includes:
· | a warrant issued to Tissue Genesis, Inc. to purchase 1,544,450 shares of our common stock at $7.69 per share, which expires in December 2026 (See Note 3 “Collaborative License and Research/Development Agreements” of the Notes to the Consolidated Financial Statements); | |
· | warrants issued to the Guarantors in connection with the Bank of America Loan to purchase an aggregate of 764,519 shares of our common stock at $7.69 per share, which expire at various dates from May 2017 through October 2017 (See Note 6 “Notes Payable – Bank of America Note Payable” of the Notes to the Consolidated Financial Statements); | |
· | a warrant issued to one of our officers to purchase 188,423 shares of our common stock at $5.67 per share, which expires in August 2016; | |
· | warrants issued to BlueCrest Capital in connection with the BlueCrest Loan to purchase an aggregate of 3,137,838 shares of our common stock at prices ranging from $7.69 to $0.53 per share, which expire at various dates April 2019 through December 2019 (See Note 6 “Notes Payable – BlueCrest Capital Finance Note Payable” of the Notes to the Consolidated Financial Statements); | |
· | a warrant issued to a strategic partner to purchase 32,515 shares of our common stock at $7.69 per share, which expires in February 2016; | |
· | warrants issued to consultants to purchase an aggregate of 154,411 shares of our common stock at prices ranging from $1.09 to $6.00 per share, which expire at various dates from April 2013 through September 2017; | |
· | warrants issued to the underwriters of our initial public offering in February 2008 to purchase an aggregate of 77,000 shares of our common stock at $6.56 per share, which expire in February 2013; and | |
· | warrants issued in connection with our private placement in October 2008 to purchase an aggregate of 1,172,845 shares of our common stock at prices ranging from $0.59 to $2.60 per share, which expire at various dates October 2011 through October 2012; | |
· | warrants issued in connection with our private placement in December 2009 to purchase an aggregate of 2,127,786 shares of our common stock at prices ranging from $0.54 to $0.95 per share, which expire at various dates December 2012 through June 2013; | |
· | warrants issued in connection with our private placement initiated in September 2010 to purchase an aggregate of 170,180 shares of our common stock at price of $0.18 per share, which expire in September 2013; | |
· | warrants issued in connection with Short Term Payables to purchase an aggregate of 475,043 shares of our common stock at prices ranging from $0.61 to $0.5321 per share, which expire at various dates April 2019 through September 2019 (See Note 6 “Notes Payable – Short-term Note Payable” of the Notes to the Consolidated Financial Statements); |
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Recent Sales of Unregistered Securities
During 2010, we issued the following unregistered securities, not previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, in transactions pursuant to Section 4(2) of the Securities Act.
· | In October 2010 we issued aggregate of 259,995 shares of our common stock and warrants for the purchase of our common stock at an exercise price of $0.18, for aggregate gross proceeds of $26,000. | |
· | In November 2010 we issued aggregate of 255,690 shares of our common stock and warrants for the purchase of our common stock at exercise price ranging from $0.20 to $0.23, for aggregate gross proceeds of $30,030. | |
· | In December 2010 we issued aggregate of 216,090 shares of our common stock and warrants for the purchase of our common stock at exercise price ranging from $0.23 to $0.25, for aggregate gross proceeds of $28,800. | |
· | On November 30, 2010, we issued an aggregate of 10,176,210 shares of our common stock and warrants for the purchase of our common stock at an exercise price of $0.18, for aggregate gross proceeds of $1,017,620. | |
· | On December 13, 2010 we issued an aggregate of 1,013,370 shares of our common stock and warrants for the purchase of our common stock at an exercise price of $0.18, for gross proceeds of $101,337. |
During 2011, we issued the following unregistered securities, not previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, in transactions pursuant to Section 4(2) of the Securities Act. ---
· | In January 2011 we issued aggregate of 632,295 shares of our common stock and warrants for the purchase of our common stock at an exercise price ranging from $0.19 to $0.22, for aggregate gross proceeds of $69,500. | |
· | In January 2011 we issued an aggregate of 538,542 shares of our common stock for aggregate gross proceeds of $87,728.82 subject to conversion of a promissory note. | |
· | In February 2011 we issued an aggregate of 421,392 shares of our common stock for aggregate gross proceeds of $52,000 subject to conversion of a promissory note. | |
· | In January 2011 we issued an aggregate of 3,750,000 shares of our common stock and warrants for the purchase of our common stock at an exercise price of $0.19, for aggregate gross proceeds of $400,000. |
Each of the listed sales was exempt from registration in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), for transactions by an issuer not involving a public offering. The offer and sale of such securities was made without general solicitation or advertising to “accredited investors” as defined in Rule 501(a) of Regulation D promulgated by the Securities Act.
Issuer Purchases of Equity Securities
None.
Use of Proceeds
During 2010, we raised $2,399,800 of cash proceeds from the sales of unregistered securities as listed above, all of
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which was used for working capital and general corporate purposes, including $1,018,764 for the payment of fees, principal and interest on the BlueCrest Loan.
During the first quarter of 2011, we raised $554,500, of cash proceeds from the sales of unregistered securities.
Item 6. Selected Financial Data
Not applicable
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in this Annual Report on Form 10-K.
Cautionary Statement Regarding Forward-Looking Statements
This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Any such forward-looking statements would be contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Our Ability To Continue as a Going Concern
Our independent registered public accounting firm has issued its report dated, May 10, 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. Our consolidated financial statements as of December 31, 2010 have been prepared under the assumption that we will 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.
Overview
We are committed to maintaining our leading position within the cardiovascular sector of the cell technology industry, delivering cell therapies, intelligent devices and biologics that help address congestive heart failure, lower
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limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. 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 (the “FDA”) to proceed with a 330-patient, multicenter Phase II/III trial of MyoCell in North America and Europe (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 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 acceptable to use the Myocell treatment so that 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), 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.
Results of Operations Overview
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.
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We did not in 2010, and in 2011 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.
Cost of sales was $19,765 in the twelve-month period ended December 31, 2010 compared to $205,014 in the twelve-months ended December 31, 2009. The cost per catheter sold in the twelve-month periods ended December 31, 2010 and 2009 were approximately the same.
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.
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.
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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.
During 2010 and 2009, we recognized stock-based compensation expense of $248,457 and $296,838, respectively. The increase in stock based compensation from 2009 to 2010 was primarily due to stock options granted to Ascent Medical to oversee the conduct of the REGEN Clinical Trial in Jordan. 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 ASC 718 Compensation-Stock Compensation, Share-Based Payment (“ASC 718”) using the modified prospective transition method. ASC 718 requires us to measure all share-based payment awards granted after January 1, 2006, including those with employees, at fair value. Under ASC 718, 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 ASC 718 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 ASC 718 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
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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.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our critical accounting policies are described in Note 1 to our consolidated financial statements appearing elsewhere in this report, we believe the following policies are important to understanding and evaluating our reported financial results:
Revenue Recognition
Since inception, we have not generated any material revenues from our MyoCell product candidate. In accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, our revenue policy is to recognize revenues from product sales and service transactions generally when persuasive evidence of an arrangement exists, the price is fixed or determined, collection is reasonably assured and delivery of product or service has occurred.
We initially recorded payments received by us pursuant to our agreements with ACS as deferred revenue. Revenues are recognized on a pro rata basis as the catheters are delivered pursuant to those agreements.
Research and Development Activities
Research and development expenditures, including payments to collaborative research partners, are charged to expense as incurred. We expense amounts paid to obtain patents or acquire licenses as the ultimate recoverability of the amounts paid is uncertain.
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.
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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.
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 Clinical 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
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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.
Inflation
Our opinion is that inflation has not had, and is not expected to have, a material effect on our operations.
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
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.
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.
Investing Activities
Net cash used in investing activities was $0 in 2010 as compared to $688 in 2009. All of the cash utilized in investing activities in 2009 was related to our acquisition of property and equipment.
Financing Activities
Net cash provided by financing activities was $1.8 million in 2010 as compared to $2.1 million in 2009.
In 2010 we sold, in a private placement, shares of common stock and warrants for aggregate net cash proceeds of approximately $2.4 million.
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.
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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.
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.
Recent Accounting Pronouncements
Refer to Note 1. Organization and Summary of Significant Accounting Policies in the notes to our consolidated financial statements for a discussion of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Our Financial Statements begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended December 31, 2010 we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on this evaluation, because of the Companys limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of December 31, 2010.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Companys internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
With the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our evaluation and the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2010 based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Companys accounting staff. The small size of the Companys accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.
In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended December 31, 2010 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the year ended December 31, 2010 are fairly stated, in all material respects, in accordance with US GAAP.
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This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Controls
During the fiscal quarter ended December 31, 2010, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting
Item 9B. Other Information
Magna Group, LLC Financing
On January 7, 2011, BlueCrest Venture Finance Master Fund Limited agreed with the Company and Magna Group, LLC to split the Blue Crest note evidencing its outstanding loan with the Company into two notes aggregating the outstanding principal balance of $2,276,543, with the new note being in the principal amount of $139,729 . The New Note was assigned to Magna in consideration for a payment by them to BlueCrest of $139,729, and modified. Additionally, Magna purchased a $25,000 convertible note from the Company.
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.
The offer and sale of the securities was made only to accredited investors and, accordingly, is exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Act”). The Company will have no
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obligation to file any registration statement with respect to the shares, except that Magna has customary “piggyback” registration rights.
As of February 16, 2011 Magna had delivered to the Company, notices electing to convert $139,728 of the New Note into shares of the Company’s common stock. The price per share for each of the conversion ranged from $0.12 to $0.177. This required the issuance to the Magna of 959,934 unregistered shares of the Company’s common stock.
Korea Group Financing
On January 23, 2011, 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).
Funding of the investment was to 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 expected to satisfy within 90 days. The first installment of $400,000 was received upon execution of the agreement. On March 11th the Company announced that was engaged in discussions with ANC and BF 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 ANC or BF. Accordingly, on April 18, 2011 the Company delivered a written notice of default and termination to each of ANC and BF, in respect of the subscription agreements. The notice states that it is being given as a result of the breach by each of ANC and BF of their respective payment obligations under the Agreements. As a result of these breaches, we have decided to immediately cause the removal of Mr. Quiros from our Board of Directors and take such other action as may be necessary to enforce our rights and remedies under the subscription agreements, including the termination of all rights of AnC Bio and BHFL under the subscription agreements.
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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.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
Set forth below is information regarding our executive officers and directors as of May 4 2011
Mike Tomas | 45 | Director, President and Chief Executive Officer |
Howard J. Leonhardt | 49 | Director, Chief Technology Officer |
William P. Murphy, Jr., M.D. | 87 | Director, Chairman of the Board |
Bruce C. Carson | 48 | Director |
Richard T. Spencer III | 75 | Director |
Mark P. Borman | 56 | Director |
Charles A. Hart | 50 | Director |
Sam Ahn | 57 | Director |
Ariel Quiros | 54 | Director |
Catherine Sulawske-Guck | 42 | Chief Operating Officer |
Kristin Comella | 34 | Chief Scientific Officer |
Executive Officers and Directors
Mike Tomas. Mr. Mike Tomas was appointed President and Chief Executive Officer and a member of our Board of Directors on June 19, 2010. Mike Tomas was appointed as the Company’s President and Chief Executive Officer, and as a director 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
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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.
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.
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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.
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.
Ariel Quiros. Mr. Quiros has served as a member of the Company’s Board of Directors since February 2011. Mr. Quiros is the President of US operations of AnC Bio Holdings, Inc, a publicly listed company on the Korea Stock Exchange (KS039670) founded in 1999. AnC Bio owns a state of the art cGMP cell culturing facility for stem cell therapies including research, development, and manufacturing of biomedical devices and therapies. Mr. Quiros is also a director and principal of GSI Group, a raw materials procurement company for the South Korean manufacturing community with offices in Seoul, Beijing, Sydney, Hong Kong and Miami. Mr. Quiros’ was appointed to the Board in connection with the recent financing with AnC Bio. On April 18, 2011 the Company delivered a notice of default to AnC Bio arising out of its failure to satisfy its funding obligations in connection with the financing and advising AnC Bio that it would seek removal of Mr. Quiros from the Board of Directors.
Catherine Sulawske-Guck. Ms. Catherine Sulawske-Guck was appointed Chief Operating Officer in July 2010. From January 2007 to June 2010, Ms. Sulawske-Guck served as our Vice President of Administration and Human Resources. Ms. Sulawske-Guck joined Bioheart in the full-time capacity as Director of Administration and Human Resources in January 2004 after having served us in a consulting capacity since December 2001. Prior to joining Bioheart, from May 1989 until November 2001, Ms. Sulawske-Guck served as Director of Operations and Customer Service for World Medical Manufacturing Corporation, a subsidiary of Medtronic. Ms. Sulawske-Guck’s operations experience in the biotechnology and medical device industry make Ms. Sulawske-Guck well-qualified to be a part of, and a valued member of, our management team.
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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, except that Mr. Leonhardt is the former brother-in-law of Catherine Sulawske-Guck.
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. Directors currently serving on our Governance & Nominating Committee are: Richard T. Spencer III, whom serves as Chairperson of the Governance and Nominating Committee, Mr. Borman and Dr. Ahn. Our Board of Directors has determined that Mr. Borman is an independent director under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act.
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:
· | the appropriate size and the diversity of our Board; | ||
· | our needs with respect to the particular talents and experience of our directors; | ||
· | 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; | ||
· | familiarity with national and international business matters; | ||
· | experience in political affairs; | ||
· | experience with accounting rules and practices; | ||
· | whether such person qualifies as an “audit committee financial expert” pursuant to the SEC Rules; | ||
· | appreciation of the relationship of our business to the changing needs of society; and | ||
· | 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.
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. Mr. Quiros is the director nominated by the investors in the financing transaction completed in January 2011, pursuant to a director nomination right afforded the investors.
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, Mr. Hart and Mr. Quiros. 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
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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.
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.
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 4 regular meetings in person and 8 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 4 meetings. These meetings were attended by all members of the Audit Committee.
During 2010, the Compensation Committee held 3 meetings. These meetings were attended by all members of the Compensation Committee.
During 2010, the Nominating Committee held 4 meeting. The meeting was attended by all members of the 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.
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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.
Section 16(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.
Item 11. Executive Compensation
Compensation Discussion and Analysis
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
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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:
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 2009.
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 2010, 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.
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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 2010, we made stock option grants to two of our named executive officers. In 2009, we did not make any stock option grants to 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
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis set forth above with management and, based upon such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this report.
Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31, 2010, December 31, 2009, and 2008, the aggregate compensation awarded to, earned by or paid to our Chief Executive Officer, our Chief Financial Officer, and the Named Executive Officers.
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Annual Compensation | Long-Term Compensation Awards | |||||||||||||||||||||||
Name and Principal Position |
Year | Salary ($) |
Bonus | Stock
Awards |
Option
Awards ($)(1) |
All Other
Compensation | Total ($) | |||||||||||||||||
Mike Tomas (2) President, Chief Executive Officer |
2010 | 151,666 |
—
|
—
|
110,000(3) |
—
|
261,666 | |||||||||||||||||
Howard J. Leonhardt (4) Chief Technology Officer |
2010 2009 2008 |
104,278 129,831 150,000 |
— — — |
— — — |
— — — |
— — — |
104,278 129,831 150,000 | |||||||||||||||||
William H. Kline (5) | 2009 | 5,000 | — | — | — | — | 5,000 | |||||||||||||||||
Former Chief Financial | 2008 | 130,000 | — | — | 240,000(6) | — | 370,000 | |||||||||||||||||
Officer | ||||||||||||||||||||||||
Karl E. Groth Ph.D. (7) | 2010 | — | — | — | — | — | — | |||||||||||||||||
Former Chairman & Chief Executive Officer |
2009 2008 |
— —
|
— —
|
— —
|
— —
|
— —
|
— —
| |||||||||||||||||
Peggy A. Farley (8) | 2010 | — | — | — | — | — | — | |||||||||||||||||
Former Chief Operating & Financial Officer |
2009 2008 |
— — |
— — |
— — |
— — |
— — |
— — | |||||||||||||||||
Catherine Sulawske-Guck (9) Chief Operating Officer |
2010 | 106,000 |
—
|
—
|
13,099(10) |
—
|
119,099 | |||||||||||||||||
Kristen Comella (11) Chief Scientific Officer |
2010 | 105,000 |
—
|
—
|
—
|
—
|
105,000 | |||||||||||||||||
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(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 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. |
(4) | Mr. Leonhardt also served as our Chief Executive Officer from July 2008 through August 2009. |
(5) | Mr. Kline commenced his employment with us in August 2006 and resigned effective January 2009. |
(6) | 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. |
(7) | Dr. Groth served as Chief Executive Officer from August 2009 until June 2010 without compensation. |
(8) | Ms. Farley served as Chief Operating and Financial Officer from August 2009 until July 1, 2010 without compensation. |
(9) | Ms. Sulawske-Guck was appointed Chief Operating Officer on July 1, 2010. |
(10) | 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. |
(11) | Ms. Comella was appointed Chief Scientific Officer on September 24, 2010. |
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, 2010, an aggregate of 559,835 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.
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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, 2010, an option to purchase 500,000 shares of our common stock has been issued under the Omnibus Plan.
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, 2010.
|
|||||||
Number of Securities Underlying | Option | ||||||
Unexercised Options and Warrants |
Exercise Price | Option Expiration | |||||
Name | Exercisable (#) | Unexercisable (#) | ($/per share) | Date | |||
Howard J. Leonhardt | 23,167 | — | 5.67 | 12/31/2011 | |||
3,212 | — | 5.67 | 12/31/2015 | ||||
Mike Tomas | — | 500,000 | 0.50 | 06/18/2020 | |||
Catherine Sulawske-Guck | 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 | ||||
1,292 | 3,876 | 0.74 | 03/13/2019 | ||||
10,000 | 30,000 | 0.85 | 05/28/2019 | ||||
5,646 | 16,938 | 0.68 | 02/10/2020 | ||||
Kristin Comella | 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 | ||||
4,875 | 1,625 | 0.71 | 10/16/2017 | ||||
19,700 | — | 0.71 | 01/09/2019 | ||||
739 | 2,216 | 0.74 | 03/13/2019 | ||||
7,500 | 22,500 | 0.85 | 05/28/2019 |
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Option Exercises
In March 2009, one of our Named Executive Officers exercised an option to purchase 40,000 shares of our common stock at an exercise price of $0.80.
In 2010, 2008 and 2007, 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, 2010 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
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immediately preceding the date of grant. In addition, we reimburse non-employee directors for actual out-of-pocket expenses incurred. In consideration of the extraordinary time and effort dedicated to the Company by the members of the Board of Directors throughout the IPO process and in consideration of the lack of stock option grants to directors in the fiscal year ended December 31, 2007 (notwithstanding the Company’s policy of providing grants each September), the Company, effective as of the close of business immediately after the Company’s Form S-8 Registration Statement became effective in 2008, granted to each director an option to purchase 35,000 shares of common stock. We did not grant any stock options to our non-employee directors in 2009. Accordingly, in the fiscal year ended December 31, 2009, no compensation was awarded to our non-employee directors. In 2010, we granted to each non-employee director an option to purchase 10,000 shares of common stock for each quarter served during the 2009 fiscal year.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, nor served in 2010, 2009 or 2008, on the board of directors or compensation committee of a company with an executive officer serving on our Board of Directors or Compensation Committee.
In August 2007, we entered into a research agreement with an affiliate of Ms. Farley and Dr. Groth, both former directors of the Company, pursuant to which we agreed to pay an aggregate fee of $150,000 for the research services contracted for. We paid $75,000 of this fee in 2007, $10,000 in 2008, and the balance was paid in 2009.
On February 2, 2010, Bioheart, Inc. (the “Company”) and the Ascent Medical Product Development Centre Inc. (“Ascent”) entered into an agreement whereby Ascent would oversee the conduct of a Phase I Clinical Trial for the Company, namely the REGEN Trial. Ascent is owned by the Ascent Medical Technology Fund II, LP, (the “Fund”). The Fund’s General Partner is Ascent Private Equity II, LLC, which is controlled by Karl E. Groth, Ph.D. and Peggy A. Farley, who were, respectively, the then current Chief Executive Officer and the Chief Operating Officer of the Company. 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 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.
No person who served on our Compensation Committee in 2010 had any relationship requiring disclosure under Item 404 of Regulation S-K.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table sets forth the beneficial ownership(1) of our common stock as of March 15, 2011, for each of our greater than 5% shareholders, directors, named executive officers that continue to serve as executive officers of Bioheart and by all of our directors and named executive officers as a group. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325.
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Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||
Mike Tomas, President, CEO and Director | 44,738(3) | * | ||
Howard Leonhardt, Chief Technology Officer, Director | 9,343,009(4) | 13.2 | ||
Catherine Sulawske-Guck, Chief Operating Officer | 99,763 (5) | * | ||
Kristin Comella, Chief Scientific Officer | 86,684 (6) | * | ||
William P. Murphy, Director | 6,696,356(7) | 9.5 | ||
Bruce Carson, Director | 419,413(8) | * | ||
Richard T. Spencer, III, Director | 306,673(9) | * | ||
Charles A. Hart, Director | 1,811,340(10) | 2.6 | ||
Sam Ahn, Director | 2,468,701(11) | 3.5 | ||
Mark P. Borman, Director | 50,485(12) | * | ||
BlueCrest Venture Finance Master Fund Ltd. | 3,137,838(13) | 4.4 | ||
William P. Murphy Jr. 2000 Revocable Trust | 3,266,653 (14) | 4.6 | ||
Beverly P. Murphy 2000 Revocable Trust | 3,266,666(15) | 4.6 | ||
Beverly P. Murphy | 6,533,319(16) | 9.2 | ||
Brenda Leonhardt | 4,991,311(17) | 7.0 | ||
Ariel Quiros, Director | 25,200,917(18) | 35.6 | ||
AncBio Holdings, Inc. | 13,333,330(19) | 18.8 | ||
Bioheart Florida, LLC | 11,853,337(20) | 16.7 | ||
All officers and directors as a group (10 persons) | 43,087,885 | 65.7 |
* Less than 1%
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(1) | A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from March 1, 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 March 1, 2011 have been exercised. |
(2) | Applicable percentage ownership is based on 64,239,496 shares of common stock outstanding (or entitled to be acquired) as of March 1, 2011. |
(3) | Shares are held by The Astri Group over which Mr. Tomas has shared voting and investment power. |
(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) 407,738 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share and (iii) an aggregate of 1,030,989 shares issuable upon the exercise of presently exercisable warrants at an average exercise price of $0.85. |
(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) 1,292 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.74 per share, (iii) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.85 per share (iv) 5,646 shares issuable within 60 days upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share and (v) 1,292 shares issuable within 60 days upon the exercise of presently exercisable stock options at an exercise price of $0.74 per share. |
(6) | Includes (i) 77,706 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.71 per share (ii) 739 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.74 per share (iii) 7,500 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.85 per share and (iv) 739 shares issuable within 60 days upon the exercise of presently exercisable stock options at an exercise price of $0.74 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 and (iv) 69,503 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share, (v) 42,255 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.85 per share, and (vi) 27,000 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 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. |
(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 and (v) 139,003 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share. |
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(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) 17,280 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $2.60 per share, (iv) 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, and (ix) 108,963 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.64 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) 34,752 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share and (v) 497,373 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.65 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 and (ii) 7,035 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 per share. |
(13) | Consists of (i) 65,030 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share, (ii) 1,315,542 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.53 per share, (iii) 909,090 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.66 per share and (iv) 848,176 shares issuable upon exercise of presently exercisable warrants at an exercise price of $0.7074. The natural persons who have voting or investment control over the shares is actually held by BlueCrest Capital Management Guernsey LP, as sub-advisor to BlueCrest Capital Management LLP, which is investment manager of BlueCrest Venture Finance Master Fund Limited. |
(14) | 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. |
(15) | 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. |
(16) | 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. |
(17) | 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. |
(18) | Shares are held or entitled to be acquired by AnCBio Holdings, Inc. and Bioheart Florida, LLC over which Mr. Quiros has shared voting or investment power. |
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(19) | Shares are held or entitled to be acquired by AnCBio Holdings, Inc. over which Mr. Quiros has shared voting or investment power. |
(20) | Shares are held or entitled to be acquired by Bioheart Florida, LLC over which Mr. Quiros has shared voting or investment power. |
Item 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Party Transactions
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 prime rate plus 1.5%. The prime rate was 3.25% and 7.25% at December 31, 2008 and 2007, respectively. 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. 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 Company has provided no collateral for the loan. On June 1, 2007, for the Company’s benefit, the Company’s Chief Science and Technology Officer and his former 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 Chief Science and Technology Officer and his former spouse, these guarantees are limited to the collateral each provided to the lender.
The Company and Bank of America have agreed with BlueCrest Capital Finance, L.P., the lender of the BlueCrest Loan (defined 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 has 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, 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. 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.
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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 over the initial term of the loan using the effective interest method.
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 over the initial term of the loan using the effective interest method.
In October 2007, the Company's Chief Science and Technology Officer and his former 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 Company's Chief Science and Technology Officer and his former spouse fully replaced the collateral provided by one of the original Guarantors. The Company's Chief Science and Technology Officer and his former spouse by then had personally guaranteed an aggregate of $3.3 million of the loan. The Company's agreement with the Company's Chief Science and Technology Officer and his former 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 Chief Science and Technology Officer and his former 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 over the initial term of the loan using the effective interest method.
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 over the term of the loan using the effective interest method. 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.
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The amount of interest expense on the principal amount of the loan for the three months ended March 31, 2010 and 2008 totaled approximately $23,700 and $68,000, respectively. Fees and interest earned by the Guarantors, which are recorded as interest expense, for the three months ended March 31, 2010 and 2008 totaled approximately $140,000 and $88,000, respectively. Interest due on the principal amount of the loan has been paid by the Guarantors. As of March 31, 2010 and December 31, 2009, that amount totaled approximately $445,000 and $692,000, respectively, and was included in accrued expenses at those dates.
In March 2009, the Company’s Chief Science and Technology Officer 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 in 2009 owed this $3.0 million to the Company's Chief Science and Technology Officer and his former spouse. This liability was reflected on the Company’s consolidated balance sheet on a separate line titled “Subordinated related party loan.” This amount continued to accrue interest at an annual rate of the prime rate plus 5.0%. During the year ended December 31, 2010, $1,500,000 was converted to common stock, the remaining $1,500,000 is outstanding as of December 31, 2010.
In February 2010 the Company’s Chief Science and Technology Officer and his spouse filed divorce papers. Pursuant to the divorce, their jointly owned shares and their ownership of the loan to Bioheart which they hold as a result of their payment of $3 million of principal and related interest to Bank of America on behalf of Bioheart, would be divided equally between them. As a result, the Chief Science and Technology Officer’s common shares were then reduced to 2,513,840 and his percentage shareholding of the Company to 13.8%, with his former spouse assuming ownership of the same number of common shares and percentage shareholding of the Company. Their commonly owned loan and related interest, as of March 29, 2010, $4,140,201, was been equally split. The Chief Science and Technology Officer on March 29, 2010, elected to convert his portion of the loan and related interest to restricted common stock and warrants. As a result, Howard Leonhardt, the Company’s Chief Science and Technology Officer, as of March 31, 2010, owns approximately 22 % of the Company.
In March of 2010, one of the Guarantors paid directly to Bank of America the $666,600 of principal 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 in restricted common stock and warrants. With his acceptance of the restricted common stock and warrants, the former Guarantor owned, at March 31, 2010, approximately 8% of the Company. Thus, the outstanding obligation to Bank of America was reduced to $1.3 million plus interest.
On July 16, 2010, the Company received a written notice of an event of default under the Bank of America Loan, by reason of the Company’s failure to pay the loan in full at maturity on July 5, 2010 and failure to pay the extension fee of $30,000 by June 28, 2010, as required by the loan documents, as amended. The Company is engaged in discussions with the 3rd parties who have provided the loan collateral regarding a restructuring of the indebtedness in the event Bank of America seeks recourse against the collateral and those 3rd parties, by reason of such action, become the successors to Bank of Americas rights and interests under the Bank of America Loan.
As of September 30, 2010, the outstanding obligation to Bank of America was approximately $1.3 million plus interest. On October 25, 2010 the Company entered into a Loan Agreement with Seaside National Bank and Trust for a $980,000 loan at 4.25% that was used to refinance the Company’s loan with Bank of America. 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.
Other
In 2010, the Company entered into a research agreement with an entity controlled by Ms. Farley and Dr. Groth, both former directors of the Company, with funding for the project emanating from venture capital funds controlled by the same two people. 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
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20% above the price at which the related common was to 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 REGEN Trial has been suspended indefinitely, the termination of the Master Services Agreement is not material to the Company.
In February 2010, the Company sold to four members of the Board of Directors, in a private placement, an aggregate of 121,450 shares of the Company’s common stock and warrants to purchase 36,435 shares of the Company’s common stock for aggregate gross cash proceeds of $70,441.
In February 2010 the Company’s Chief Technology Officer and his spouse filed for divorce. Pursuant to the divorce, their jointly owned shares and their ownership of the loan to Bioheart which they hold as a result of their payment of $3 million of principal and related interest to Bank of America on behalf of Bioheart, would be divided equally between them. As a result, the Chief Technology Officer’s common shares were then reduced to 2,513,840 and his percentage shareholding of the Company to 13.8%, with his former spouse assuming ownership of the same number of common shares and percentage shareholding of the Company. Their commonly owned loan and related interest, as of March 29, 2010, $4,140,201, has been equally split. The Chief Technology Officer on March 29, 2010, elected to convert his portion of the loan and related interest to restricted common stock and warrants. As a result, Howard Leonhardt, the Company’s Chief Technology Officer, beneficially owns approximately 13% of the Company as of March 15, 2011.
During the twelve month period through December 2010 three Board Members and two shareholders advanced the Company an aggregate of $1,541,957. As of December 31, 2010 the Company has converted an aggregate of $1,118,957 to the Company’s common stock. The Company has executed promissory notes for the remaining $423,000.
Guarantees Provided By Mr. Leonhardt
In addition to the guarantee arrangement described above, from time to time, Mr. Leonhardt has, without compensation, personally guaranteed certain of our financial obligations. As of the date of this report, he is the guarantor of our obligations under the lease for our facilities in Sunrise, Florida. He is also the guarantor of our obligations under corporate credit cards issued by Bank of America. Mr. Leonhardt does not receive any compensation for providing these guarantee services.
Mr. Leonhardt has guaranteed Dr. Murphy, a director, the repayment of his initial $200,000 investment in the Company.
Placement Fee
None.
Research Fee
In August 2007, we also entered into a research agreement with Ascent Medical Product Development Centre, Inc., an affiliate of Ms. Farley and Dr. Groth, pursuant to which we agreed to pay an aggregate fee of $150,000 for the research services contracted for. We paid $75,000 of this fee in 2007, $10,000 in 2008, and the balance was paid in 2009. {credit for $10k in expenses & balance of $65k was credited for issuance of shares}.
On February 2, 2010, Bioheart, Inc. (the “Company”) and the Ascent Medical Product Development Centre Inc. (“Ascent”) entered into an agreement whereby Ascent would oversee the conduct of a Phase I Clinical Trial for the
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Company, namely the REGEN trial. Ascent is owned by the Ascent Medical Technology Fund II, LP, (the “Fund”). The Fund’s General Partner is Ascent Private Equity II, LLC, which is controlled by Karl E. Groth, Ph.D. and Peggy A. Farley, who were, respectively, the Chief Executive Officer and the Chief Operating Officer of the Company. Dr. Groth and Ms. Farley have since resigned as Officers and Directors of the Company. 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 REGEN Trial has been suspended indefinitely, the termination of the Master Services Agreement is not material to the Company.
Review of Related Party Transactions
The Board of Directors has delegated to the Audit Committee the responsibility to review and approve all transactions or series of transactions in which we or a subsidiary is a participant, the amount involved exceeds $120,000 and a “Related Person” (as defined in Item 404 of Regulation S-K”) has a direct or indirect material interest. Transactions that fall within this definition will be referred to the Audit Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Audit Committee will decide whether or not to approve such transaction and will approve only those transactions that are in the best interests of the Company.
Board Committee Independence
Our Board of Directors has three committees: the Audit Committee, the Compensation Committee and the Governance & Nominating Committee.
Audit Committee
The members of our Audit Committee from January 1, 2010 through February 20, 2010 included Ms. Farley, who served as Chairperson of the Audit Committee, Dr. Groth and Mr. Borman. On February 10, 2010 Mr. Borman replaced Ms. Farley Chairperson of the Committee. Dr. Murphy and Ms. Jones were both appointed to the Audit Committee to replace Dr. Groth and Ms. Farley. On June 18, 2010 Ms. Jones resigned from the Board of Directors and the Audit Committee. On November 16, 2010 Mr. Hart was appointed to the Committee. As of December 31, 2010 our Audit Committee consists of Mr. Borman as Chairperson of the Audit Committee, Dr. Murphy and Mr. Hart. The Board of Directors has determined that Mr. Borman and Mr. Hart are independent pursuant to the NASDAQ Rules and Rule 10A-3 under the Exchange Act.
Compensation Committee
The members of our Compensation Committee from January 1, 2010 through February 10, 2010 included Bruce Carson who served as Chairperson of the Compensation Committee, Dr. Groth and Mr. Hart. On February 10, 2010 Ms. Farley replaced Dr. Groth. On August 13, 2010 Ms. Farley resigned from the Board of Directors and the Compensation Committee. .On November 16, 2010 Mr. Spencer was appointed to the Compensation Committee. As of December 31, 2010 the members of our Compensation Committee include Mr. Carson, who serves as Chairperson
of the Compensation Committee, Mr. Spencer, and Mr. Hart. The Board of Directors has determined that Mr. Carson and Mr. Hart are independent pursuant to the NASDAQ Rules and Rule 10A-3 under the Exchange Act.
Governance & Nominating Committee
The members of our Governance & Nominating Committee from January 1, 2010 through February 10, 2010 included Dr. Groth who served as Chairperson, Mr. Carson and Ms. Farley.. On February 10, 2010 Ms. Jones replaced Dr. Groth as Chairperson of the Governance & Nominating Committee and Mr. Spencer and Mr. Borman replaced Mr. Carson and Ms. Farley. On June 18, 2010 Ms. Jones resigned from th Board of Directors and the Audit
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Committee. On November 16, 2010 Mr. Spencer was appointed as Chairperson of the Governance & Nominating Committee and Dr. Ahn was appointed to the Committee. As of December 31, 2010 the members of our Governance and Nominating Committee include Mr. Spencer, Mr. Borman and Dr. Ahn. The Board of Directors has determined that Mr. Borman is independent pursuant to the NASDAQ Marketplace Rules.
Item 14. Principal Accounting Fees and Services
Independent Registered Public Accounting Firm Fees
On January 13, 2009, the Chairman of the Audit Committee received a letter from Grant Thornton LLP (“Grant Thornton”) notifying the Company of Grant Thornton’s resignation as the Company’s independent registered public accounting firm. On February 12, 2009, the Company engaged Jewett Schwartz Wolfe & Associates to serve as the Company’s independent registered public accounting firm. Aggregate fees billed to us for the fiscal years ended December 31, 2010 and 2009 by our independent registered public accounting firms are as follows:
Types of Fees | 2010 | 2009 | ||||||
Audit Fees (1) | $ | 73,000 | $ | 96,900 | ||||
Audit Related Fees | — | — | ||||||
Tax Fees | — | — | ||||||
All Other Fees | — | — |
(1) | This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit of the annual consolidated financial statements or the reviews of the interim financial statements. | |
See Item 9 “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC on April 15, 2009, for further discussion.
Audit Committee Pre-Approval Policy
Consistent with policies of the SEC regarding auditor independence, the Audit Committee has responsibility for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Audit Committee has adopted, and our Board has ratified, an Audit and Non-Audit Services Pre-Approval Policy pursuant to which the Audit Committee is required to pre-approve the audit and non-audit services performed by our independent registered public accounting firm in order to assure that these services do not impair the auditor’s independence from us.
Prior to engagement of the independent auditor for the next year’s audit, the independent auditor and the Audit Committee will review a list of services and related fees expected to be rendered during that year within each of four categories of services to the Audit Committee for approval:
(i) Audit Services: Audit services include the annual financial statement audit (including required quarterly reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on our consolidated financial statements. Audit Services also include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review as well as the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.
(ii) Audit-Related Services: Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence related to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit Services,” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities, financial audits of employee benefit plans, agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or
71
comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.
(iii) Tax Services: Tax services include services such as tax compliance, tax planning and tax advice; however, the Audit Committee will not permit the retention of the independent registered public accounting firm in connection with a transaction initially recommended by the independent registered public accounting firm, the sole business purpose of which may be tax avoidance and treatment which may not be supported in the Internal Revenue Code and related regulations.
(iv) All Other Services: All other services are those permissible non-audit services that the Audit Committee believes are routine and recurring and would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
Prior to engagement, the Audit Committee pre-approves the services and fees of the independent auditor within each of the above categories. During the year, it may become necessary to engage the independent auditor for additional services not previously contemplated as part of the engagement. In those instances, the Audit and Non-Audit Services Pre-Approval Policy requires that the Audit Committee specifically approve the services prior to the independent auditor’s commencement of those additional services. Under the Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee may delegate the ability to pre-approve audit and non-audit services to one or more of its members provided the delegate reports any pre-approval decision to the Audit Committee at its next scheduled meeting. As of the date hereof, the Audit Committee has not delegated its ability to pre-approve audit services.
All of the 2010 and 2009 fees paid to Jewett Schwartz Wolfe & Associates described above were pre-approved by the Audit Committee in accordance with the Audit and Non-Audit Services Pre-Approval Policy.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
See Item 8. “Financial Statements and Supplementary Data” for Financial Statements included with this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All schedules have been omitted because the required information is not applicable or the information is included in the consolidated financial statements or the notes thereto.
(a)(3) Exhibits
Exhibit No. | Exhibit 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 | |
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 | |
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 |
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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 | |
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 | |
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. |
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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. | |
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 | |
31.1* | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* Filed herewith
** Indicates management contract or compensatory plan.
(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
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(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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOHEART, INC. | ||
By: | /s/ Mike Tomas | |
Mike Tomas
| ||
Dated: May 10, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Each person whose signature appears below, hereby authorizes Catherine Sulawske-Guck and Mike Tomas, or either of them, as attorneys in fact to sign on his or her behalf, individually, in each capacity stated below, and to file all amendments or supplements to this annual report on Form 10-K.
SIGNATURE | TITLE | DATE | ||
/s/ William P. Murphy, Jr., M.D. | Chairman of the Board | May 10, 2011 | ||
William P. Murphy, Jr., M.D. | ||||
/s/ Mike Tomas | Chief Executive Officer & Director | May 10, 2011 | ||
Mike Tomas | ||||
/s/ Mark P. Borman | Director | May 10, 2011 | ||
Mark Borman | ||||
/s/ Bruce C. Carson | Director | May 10, 2011 | ||
Bruce C. Carson | ||||
/s/Howard Leonhardt | Director | May 10, 2011 | ||
Howard Leonhardt | ||||
/s/ Richard T. Spencer III | Director | May 10, 2011 | ||
Richard T. Spencer III | ||||
/s/ Charles A. Hart | Director | May 10, 2011 | ||
Charles A. Hart | ||||
/s/ Samuel S. Ahn, MD, MBA | Director | May 10, 2011 | ||
Samuel S. Ahn, MD, MBA | ||||
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FORM 10-K -- ITEM 8
BIOHEART, INC. AND SUBSIDIARIES
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-3 |
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-4 |
Consolidated Statement of Shareholders’ (Deficit) Equity for the period from August 12, 1999 (date of inception) through December 31, 2010 | F-5 |
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-10 |
Notes to Consolidated Financial Statements | F-11 |
F-1
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 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 Companys 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 Companys 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
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 Companys 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 Companys 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-2
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-3
BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Restated) From August 12, | ||||||||||||
Year ended December 31, | 1999 (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-4
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-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, 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-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, 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