U.S. Stem Cell, Inc. - Quarter Report: 2012 June (Form 10-Q)

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012

NOTE 14 — FAIR VALUE

The carrying value of cash, accounts payable and accrued expenses approximate estimated fair values because of short maturities.

The carrying value of the debt derivative liability is determined using the Binomial Lattice model or Black Scholes option pricing model as described in Note 10. Certain assumptions used in the calculation of the debt derivative liability represent level-3 unobservable inputs.

NOTE 15 – SUBSEQUENT EVENTS

 In July 2012 we issued an aggregate of 3,716,667 shares of our common stock and warrants for the purchase of our common stock at an exercise price of $0.02, for aggregate gross proceeds of $77,000.

In July 2012, the company issued an aggregate of 1,500,000 shares of our common stock in connection with the conversion of $15,000 of the convertible note issued to Greystone Capital Partners on January 3, 2012.

On August 1, 2012, Mike Tomas, President and Chief Executive Officer of Bioheart transmitted the following letter to our company shareholders:

Dear Shareholders,

Over the past several months, I have been in active negotiations with several groups interested in helping us restart our FDA-approved clinical trials.  Today, I am very pleased to announce that Bioheart, Inc. has received a non-binding term sheet and investment offer from Grupo Vitalmex in Mexico, a global leader in the healthcare sector in Latin America and Europe.  ( www.vitalmex.com.mx). Vitalmex’s operations include marketing and distributing specialized healthcare products, devices and therapies worldwide.  Established in 1976, Vitalmex has stated that they have vast experience in clinical and hospital infrastructure services such as operating rooms, specialty services, imaging and the manufacturing of high-tech medical equipment in the cardiac and hemodialysis fields. In Mexico alone, they serve a network of 300 public hospitals that provide services to 55 million lives where the number one killer is heart failure. Vitalmex, views Bioheart's cardiac regenerative medicine therapies as a viable solution to this and other patient bases.

The Vitalmex investment in the amount of $2 million, will also enable Bioheart to reinitiate its clinical trials of MyoCell®, MyoCell® SDF-1, LipiCell™ and MyoCath® at the Vitalmex labs and other US trial sites and thus putting us well on our way towards FDA-approval and commercialization of these products. The Bioheart cell therapy products, in our opinion, address an unmet need in the cardiac market by providing true regenerative medicine where the MyoCell product line may regenerate muscle in areas of scar tissue and the LipiCellproduct may help reduce inflammation and promote the growth of new blood vessels. In addition to the many clinical sites in the US including Columbia University, Minneapolis Heart, Cleveland Clinic, Mt Sinai, University of Miami, and more, Bioheart intends to initiate clinical sites in top centers in Mexico. By working with leading interventional cardiologists throughout the world, we believe our Company can quickly bring these therapies to patients by establishing the safety and efficacy data required for FDA approval. The collaboration will also enable Vitalmex to market and distribute Bioheart’s technology in Mexico, Latin America, the Caribbean and potentially other countries that may include Spain, Russia, Germany, Hungary, the Czech Republic and Bulgaria.

In as much as this provides additional capital for the Company for our clinical trials, it also affirms our strong belief in the long term viability and commercialization of our technology, identifies new markets worldwide and allows us to take the Company to the next level in a relatively short period of time.

As if that was not enough good news, at the same time we have renegotiated the terms of our Company note in the amount of $572,000 with NorthStar Biotech, LLC, a consortium of Bioheart Directors and Shareholders, led by Bioheart Director Chuck Hart.  You may recall that this consortium was formed by major shareholders and insiders to purchase and protect all of Biohearts' senior debt that was collateralized with our intellectual property and technology.  As a further gesture of support for Bioheart and to conserve the Company’s cash, NorthStar has agreed to suspend the requirement of principal payments by Bioheart and to allow payment of interest-only in restricted stock.

The specifics of this term sheet and the note renegotiation will be voted on by the Board of Directors on Monday, August 6th, 2012. Although there can be no assurances of the consummation of the transactions, I trust our new partners and our board of directors will agree the time has come for Bioheart to meet its unrealized value and move to save the lives of millions of patients in heart failure worldwide. 

On August 6, 2012, it was determined that NorthStar Biotechnology Group, LLC (“Northstar”), the holder by assignment of the Amended and Restated Promissory Note (Term A), dated February 6, 2012, issued by the Company to Blue Crest Venture Finance Master Fund Limited, in the principle amount of $544,267.19 (the “Note”),would indefinitely suspend principal payments and Bioheart would only pay interest payments on the current note in preferred shares.  In addition, Bioheart agreed to  payment of yearly valuation of collateral (also in shares), add intellectual property to collateral, transfer rights to old clinical data and existing approved trials, transfer IP and knowhow for preparing Myoblasts and transfer of clinical trial protocols.  Also, NorthStar will be provided with an exclusive worldwide licensing and distribution (sub licensing) agreement and a right to purchase additional shares in Bioheart at a fixed price of $.02/share with 100% warrant coverage.  In return, NorthStar will pay Bioheart an 8% gross royalty on the licensing, with a  sliding scale to be negotiated between NorthStar and Bioheart.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

        

Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” are to the Company and all subsidiaries, unless the context requires otherwise.. The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and the accompanying related notes included in this quarterly report and our audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission.

 

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.

          

Additional information concerning these and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Our Ability To Continue as a Going Concern

      

Our independent registered public accounting firm has issued its report dated April 12, 2012, in connection with the audit of our consolidated financial statements as of December 31, 2011, that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements as of June 30, 2012 have been prepared under the assumption that we will continue as a going concern. Specifically, note 3 of our unaudited financial statement for the quarter ended June 30, 2012 addresses the issue of 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.

 

 

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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 improvement for those who received a placebo. We are planning, on the basis of these results, to request 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. No assurances can be provided that this request will be approved. 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. We 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.

 

 

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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, to our knowledge, 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.

 

MyoCath

          

The MyoCath was developed by Bioheart co-founder Robert Lashinski specifically for delivering new cells to damaged tissue. It is a deflecting tip needle injection catheter that has a larger needle which is 25 gauge for better flow rates and less leakage than systems that are 27 gauge. This larger needle allows for thicker compositions to be injected which helps with cell retention in the heart. Also, the MyoCath needle has more fluoroscopic brightness than the normally used nitinol needle, enabling superior visualization during the procedure. Seeing the needle well during injections enables the physician who is operating the catheter to pinpoint targeted areas more precisely, thus improving safety. The MyoCath competes well with other biological delivery systems on price and efficiency and allows the physician to utilize standard fluoroscopy and echo equipment found in every cath lab. The MyoCath is used to inject cells into cardiac tissue in therapeutic procedures to treat chronic heart ischemic and congestive heart failure. Inventory of MyoCath is limited as it is not currently in production. Our management are considering several contract manufacturers to produce additional inventory.

 

 

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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:

 

Stock-Based Compensation

 

The Company follows Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non employees be recognized in the income statement based on their fair values.       

 

Revenue Recognition

 

               We recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

              

               At the time of each transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction. If a significant portion of a fee is due after our normal payment terms or upon implementation or client acceptance, the fee is accounted for as not being fixed or determinable and revenue is recognized as the fees become due or after implementation or client acceptance has occurred. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.

               

               We account for Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

              

Unbilled revenue is revenue that is recognized but is not currently billable to the customer pursuant to contractual terms. In general, such amounts become billable in accordance with predetermined payment schedules, but recognized as revenue as services are performed. Amounts included in unbilled revenue are expected to be collected within one year and are included within current assets.

 

 

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Research and Development Activities

  

        We account for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company has identified the embedded derivatives related to the our issued Asher Notes.  These embedded derivatives included certain conversion features and reset provision.  The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date.  

 

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 for a year or two, if ever. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative cash flows from operations for the foreseeable future as we continue clinical trials, undertake new clinical trials, apply for regulatory approvals, make capital expenditures, add information systems and personnel, make payments pursuant to our license agreements upon our achievement of certain milestones, continue development of additional product candidates using our technology, establish sales and marketing capabilities and incur the additional cost of operating as a public company.

 

Comparison of the Three Months Ended June 30, 2012 and 2011

Revenues

          We recognized revenues of $2,688 in the three month period ended June 30, 2012 compared to revenues of $3,495 in the three month period ended June 30, 2011. The revenue in the three month period ended June 30, 2012 was generated from laboratory services .

 

Cost of Sales

  

        Cost of sales was $0 in the three month period ended June 30, 2012 compared to $139 in the three month period ended June 30, 2011.

 

Research and Development

          

Research and development expenses were $93,917 in the three month period ended in June 30, 2012, a decrease of $13,652 from research and development expenses of $107,569 in the three month period ended in June 30, 2011. The decrease was primarily attributable to a decease in the amount of funds allocated to our clinical trials.

 

          The timing and amount of our planned research and development expenditures is dependent on our ability to obtain additional financing. See “- Existing Capital Resources and Future Capital Requirements” and Item 1A. “Risk Factors - We will need to secure additional financing …” as filed with our Form 10-K with the Securities and Exchange Commission on April 12, 2012.

 

 

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Marketing, General and Administrative

 

          Marketing, general and administrative expenses were approximately $325,000 in the three month period ended June 30, 2012, a decrease of $232,000 from marketing, general and administrative expenses of approximately $557,000 in the three month period ended in June 30, 2011. The decrease in marketing, general and administrative expenses is attributable, in part, to reduction in the value of stock based compensation issued to officers, directors and key employees.

 

 Interest Expense

 

Interest expense was $252,472 in the three month period ended June 30, 2012 compared to interest expense of $492,480 in the three month period ended in June 30, 2011, a decrease of $240,008.  During the three months ended June 30, 2012, we incurred a non cash interest expense of $115,421 from the write off and amortization of debt discounts associated with our issued convertible notes as compared to $316,456 for the same period last year.

   Comparison of the Six Months Ended June 30, 2012 and 2011

Revenues

          We recognized revenues of $43,173 in the six month period ended June 30, 2012 compared to revenues of $3,495 in the six month period ended June 30, 2011. The revenue in the three month period ended June 30, 2012 was generated from laboratory services.

 

Cost of Sales

  

        Cost of sales was $417 in the six month period ended June 30, 2012 compared to $139 in the six month period ended June 30, 2011.

 

Research and Development

          

Research and development expenses were $190,646 in the six month period ended in June 30, 2012, a decrease of $87,034 from research and development expenses of $277,680 in the six month period ended in June 30, 2011. The decrease was primarily attributable to a decrease in the amount of funds allocated to our clinical trials.

 

          The timing and amount of our planned research and development expenditures is dependent on our ability to obtain additional financing. See “- Existing Capital Resources and Future Capital Requirements” and Item 1A. “Risk Factors - We will need to secure additional financing …” as filed with our Form 10-K with the Securities and Exchange Commission on April 12, 2012.

 

Marketing, General and Administrative

 

          Marketing, general and administrative expenses were approximately $893,000 in the six month period ended June 30, 2012, a decrease of $154,000 from marketing, general and administrative expenses of approximately $1,047,000 in the six month period ended in June 30, 2011. The decrease in marketing, general and administrative expenses is attributable, in part, to reduction in the value of stock based compensation issued to officers, directors and key employees along with headcount reductions.

 

Interest Expense

 

Interest expense was $681,632 in the six month period ended June 30, 2012 compared to interest expense of $902,200 in the six month period ended in June 30, 2011, a decrease of $220,568.  During the six months ended June 30, 2012, we incurred a non cash interest expense of 415,886 from the write off and amortization of debt discounts associated with our issued convertible notes as compared to $411,669 for the same period last year.

 

 

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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.

 

Concentrations of Credit Risk

 

As of June 30, 2012 and December 31, 2011, one (1) and three (3) customers represented 100% and 98% of the Company’s accounts receivable, respectively.

 

Liquidity and Capital Resources

 

          In the six month period ended June 30, 2012, we continued to finance our considerable operational cash needs with cash generated from financing activities.

 

Operating Activities

 

          Net cash used in operating activities was $553,520 in the six month period ended June 30, 2012 as compared to $704,152 of cash used in the six month period ended in June 30, 2011.

 

          Our use of cash for operations in the six months ended June 30, 2012 reflected a net loss generated during the period of approximately $1.7 million, adjusted for non-cash items such as stock-based compensation of $35,611, amortization of the fair value of warrants granted in connection with the Note payable of $95,291, amortization of debt discounts incurred in connection with the BlueCrest Loan and Bank of America and other Loans of $304,586, non cash interest paid of $36,251 and depreciation of $8,193. In addtion we had a net decrease in operating assets of $41,834 and an increase in accrued expenses of $404,783 and accounts payable of $222,642.

        

Our use of cash for operations in the six months ended June 30, 2011 reflected a net loss generated during the period of $2.1 million, adjusted for non-cash items such as stock-based compensation of $180,429 amortization of the fair value of warrants granted in connection with the BlueCrest Loan and Bank of America loan of $159,372, amortization of loan costs incurred in connection with the BlueCrest Loan and Bank of America Loan and other loans of $224,080 and depreciation of $18,985 and an increase in prepaid and other current assets of $21,284. Partially offsetting these uses of cash were increases in accrued expenses of $323,851 and accounts payable of $369,714.

 

Investing Activities

 

          Net cash used in investing activities was $933 in the six month period ended June 30, 2012 from acquisition of equipment as compared $0 for the same period last year.

 

Financing Activities

 

          Net cash provided by financing activities was an aggregate of $552,800 in the six month period ended June 30, 2012 as compared to $735,039 in the six month period ended in June 30, 2011.In the six month period ended June 30, 2012 we sold, in private placements, shares of common stock and warrants for aggregate net cash proceeds of $378,800.

 

 

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Existing Capital Resources and Future Capital Requirements

 

          Our MyoCell product candidate has not received regulatory approval or generated any material revenues. We do not expect to generate any material revenues or cash from sales of our MyoCell product candidate until commercialization of MyoCell, if ever. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative cash flows from operations for the foreseeable future. Historically, we have relied on proceeds from the sale of our common stock and our incurrence of debt to provide the funds necessary to conduct our research and development activities and to meet our other cash needs.

 

     At June 30, 2012 we had cash and cash equivalents totaling $35,175 however, our working capital deficit as of such date was approximately $12.6 million. Our independent registered public accounting firm has issued its report dated April 12, 2012 in connection with the audit of our consolidated financial statements as of December 31, 2011 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required under Regulation S-K for “smaller reporting companies.”

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

          We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

          Under the supervision and with the participation of our management, including our CEO and Principal Financial and Accounting Officer, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our CEO and Principal Financial and Accounting Officer, concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to the Company’s limited resources and limited number of employees. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and outsourced accounting professionals. As we grow, we expect to increase our number of employees, which, we believe, will enable us to implement adequate segregation of duties within the internal control framework.

 

Changes In Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

      

    Our company is not involved in any material litigation and we 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.

 

Item 1A. Risk Factors

 

Not required under Regulation S-K for “smaller reporting companies.”

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Subscription Agreements  – Common Stock and Warrants

 

          In January 2012, the Company sold an aggregate of 5,750,000 shares of the Company’s common stock and warrants to purchase 5,750,000 shares of the Company’s common stock for aggregate gross cash proceeds of $117,500. The warrants are (i) exercisable solely for cash at an exercise prices of $0.02 to $0.03 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

 

                   In February 2012, the Company sold an aggregate of 3,571,430 shares of the Company’s common stock and warrants to purchase 3,571,430 shares of the Company’s common stock for aggregate gross cash proceeds of $50,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.014 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

 

                   In April 2012, the Company sold an aggregate of 3,216,667 shares of the Company’s common stock and warrants to purchase 2,933,334 shares of the Company’s common stock for aggregate gross cash proceeds of $98,300. The warrants are (i) exercisable solely for cash at an exercise price of $0.03 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

 

In May 2012, the Company sold an aggregate of 4,114,286 shares of the Company’s common stock and warrants to purchase 3,899,999 shares of the Company’s common stock for aggregate gross cash proceeds of $90,000. The warrants are (i) exercisable solely for cash at an exercise price from $0.02 to $0.03 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

 

In June 2012, the Company sold an aggregate of 3,650,000 shares of the Company’s common stock and warrants to purchase 3,075,000 shares of the Company’s common stock for aggregate gross cash proceeds of $73,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.02 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

 

 

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The offer and sale of such shares of our common stock and warrants were effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933 (the “Securities Act”) and in Section 4(2) of the Securities Act, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and (e) a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

 

 Loan agreement amendment

 

      On January 3, 2012, BlueCrest agreed with the Company and Greystone Capital (“Greystone”) to again split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $139,728.82, the amount of the monthly payment due on the BlueCrest loan (the “New Note”). The New Note was assigned to Greystone in consideration for a payment by them to BlueCrest of $139,728.82, and thereafter exchanged for a new Convertible Note.

 

The loan evidenced by the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common stock of the Company at a price that is 65% less than the average of the closing prices for the Company’s shares for the ten (10) days prior to the Lenders’ election to exercise its conversion right.

 

On February 6, 2012, BlueCrest agreed with the Company and Greg Knutson to again split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $95,000.00, the amount of the monthly payment due on the BlueCrest loan (the “New Note”) after combined with payment of $50,000 by a common stock subscription. The New Note was assigned to Greystone in consideration for a payment by them to BlueCrest of $95,000.00, and thereafter exchanged for a new Convertible Note.

 

The loan evidenced by the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common stock of the Company at a price that is 65% less than the average of the closing prices for the Company’s shares for the ten (10) days prior to the Lenders’ election to exercise its conversion right.

 

For the six months ended June 30, 2012 the Company paid $263,560 in principal and $11,641 in interest. As of June 30, 2012 the balance due under the Loan is $544,267.

 

Item 3. Defaults Upon Senior Securities

 

There were no defaults upon senior securities during the period ended June 30, 2012.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

 

There is no information with respect to which information is not otherwise called for by this form.

 

 

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Item 6.

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(4)		Warrant to purchase shares of the registrant's common stock issued to Howard J. Leonhardt and Brenda Leonhardt
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(4)		Warrant to purchase shares of the registrant's common stock issued to the R&A Spencer Family Limited Partnership

 

 

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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
4.20(6)			Warrant to purchase shares of the registrant's common stock issued to Samuel S. Ahn, M.D.
4.23(7)			Warrant to purchase shares of the registrant's common stock issued to Howard and Brenda Leonhardt
4.27(11)			Form of Warrant Agreement for October 2008 Private Placement
4.30(19)			10% Convertible Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers
10.1**(1)			1999 Officers and Employees Stock Option Plan
10.2**(1)			1999 Directors and Consultants Stock Option Plan
10.3(1)			Form of Option Agreement under 1999 Officers and Employees Stock Option Plan
10.4(3)			Form of Option Agreement under 1999 Directors and Consultants Stock Option Plan
10.5**(4)			Employment Letter Agreement between the registrant and Scott Bromley, dated August 24, 2006.
10.6(1)			Lease Agreement between the registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006.
10.7(1)			Asset Purchase Agreement between the registrant and Advanced Cardiovascular Systems, Inc., dated June 24, 2003.
10.8(4)			Conditionally Exclusive License Agreement between the registrant, Dr. Peter Law and Cell Transplants International, LLC, dated February 7, 2000, as amended.
10.9(4)			Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant, Howard J. Leonhardt and Brenda Leonhardt
10.10(4)			Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant and William P. Murphy Jr., M.D.
10.11(4)			Loan Agreement, dated as of June 1, 2007, by and between the registrant and Bank of America, N.A.
10.13(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.
10.16(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
10.21(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
10.24(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
10.28(11)			Form of Registration Rights Agreement for October 2008 Private Placement
10.29(19)			10% Convertible Promissory Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith
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)			Closing Confirmation of Conversion Election, dated July 23, 2009

 

 

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10.35**(20)		Amended and Restated 1999 Directors and Consultants Stock Option Plan
10.36(21)		Preliminary Commitment Letter with Seaside National Bank and Trust, dated September 30, 2010.
10.37(22)		Loan Agreement with Seaside National Bank and Trust, dated October 25, 2010.
10.38(22)		Promissory Note with Seaside National Bank and Trust, dated October 25, 2010.
10.39(22)		Amended and Restated Loan and Security Agreement with BlueCrest Venture Finance Master Fund Limited, dated October 25, 2010.
10.40(23)		Form of Subscription Agreement, executed November 30, 2010.
10.41(23)		Form of Common Stock Purchase Warrant, issued November 30, 2010.
10.42(23)		Form of Registration Rights Agreement, dated November 30, 2010.
10.43(24)		Unsecured Convertible Promissory Note for $25,000, with Magna Group, LLC, dated January 3, 2011.
10.44(24)		Promissory Note for $139,728.82 with Magna Group, LLC, dated January 3, 2011.
10.45(24)		Securities Purchase Agreement with Magna Group, LLC, dated January 3, 2011.
10.46(24)		Subordination Agreement, dated January 3, 2011.
10.47(24)		Notice of Conversion Election, dated January 3, 2011.
10.48(25)		Unsecured Convertible Promissory Note for $34,750, with Magna Group, LLC, dated May 16, 2011.
10.49(25)		Promissory Note for $139,728.82 with Magna Group, LLC, dated May 16, 2011.
10.50(25)		Securities Purchase Agreement with Magna Group, LLC, dated May 16, 2011.
10.51(25)		Subordination Agreement, dated May 16, 2011.
10.52(26)		Promissory Note for $139,728.82 with Lotus Funding Group, LLC, dated June 15, 2011.
10.53(26)		Partial Assignment and Modification Agreement, dated June 15, 2011.
10.54(26)		Subordination Agreement, dated June 15, 2011.
10.55(27)		Promissory Note for $140,380.21 with Greystone Capital Partners, dated July 8, 2011.
10.56(27)		Partial Assignment and Modification Agreement, dated July 8, 2011.
10.57(27)		Subordination Agreement, dated July 8, 2011.
10.58(28)		Promissory Note for $139,728.82 with Greystone Capital Partners, dated August 1, 2011.
10.59(28)		Partial Assignment and Modification Agreement, dated August 1, 2011.
10.60(28)		Subordination Agreement, dated August 1, 2011.
10.61(29)		Promissory Note for $139,728.82 with Greystone Capital Partners, dated September 1, 2011.
10.62(29)		Partial Assignment and Modification Agreement, dated September 1, 2011.
10.63(29)		Subordination Agreement, dated September 1, 2011.
10.64(30)		Promissory Note for $139,728.82 with Greystone Capital Partners, dated October 1, 2011.
10.65(30)		Partial Assignment and Modification Agreement, dated October 1, 2011.
10.66(30)		Subordination Agreement, dated October 1, 2011.
10.67(29)		Right of First Refusal with Greystone Capital Partners dated September 28, 2011
10.68(29)		Promissory Note for $35,000 with Thalia Woods Management, Inc. dated September 28, 2011.
10.69(29)		Subordination Agreement, dated September 28, 2011
10.70(31)		Promissory Note for $139,728.82 with Greystone Capital Partners, dated November 1, 2011.
10.71(31)		Partial Assignment and Modification Agreement, dated November 1, 2011.
10.72(31)		Subordination Agreement, dated November 1, 2011.
10.73(32)		Promissory Note for $139,728.82 with Greystone Capital Partners, dated December 1, 2011
10.74(32)		Form of Partial Assignment and Modification Agreement.

 

 

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10.75(32)		Form of Subordination Agreement.
10.76(31)		Standby Equity Distribution Agreement dated as of November 2, 2011.
10.74(33)		Promissory Note for $139,728.82 with Greystone Capital Partners, dated January 3, 2012
10.75(34)		Promissory Note for $139,728.82 with Mr. Charles Hart and Mr. Greg Knutson dated February 6, 2012.
10.76(36)		Unsecured Convertible Promissory Note for $63,000, with Asher Enterprises, Inc., dated April 2, 2012
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
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.
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 reference to the Company’s Current Report on Form 8-K filed with the SEC on October 29, 2010.
(23)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2010.
(24)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2011.
(25)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on May 25, 2011
(26)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on June 21,2011
(27)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 15. 2011
(28)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2011
(29)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on January 13, 2012
(30)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on January 30, 2012
(31)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on March 23, 2012
(32)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on March 30, 2012
(33)		Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on April 2, 2012
(34)		Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on April 12, 2012.
(35)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filer with the SEC on May 14, 2012
(36)		Incorporated by reference to the Company’s Current Report on Form 8-K with the SEC on June 26, 2012
(37)		Incorporated by reference to the Company’s Current Report on Form 8-K with the SEC on August 1, 2012

 

 

 

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SIGNATURES

 

          Pursuant to the requirements 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.
Date: August, XX, 2012	By:	/s/Mike Tomas
		Mike Tomas
		Chief Executive Officer & President and Principal Fianancial and  Accounting Officer

 

 

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