BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
On March 30, 2012, the Company and Northstar agreed to
extend until May 1, 2012 the initial payment date for any and all required monthly under the Note, such that the first of the four monthly payments
required under the Note will be due and payable on May, 2012 and all subsequent payments will be due on a monthly basis thereafter commencing on June
1, 2012, and to waive any and all defaults and/or events of default under the Note with respect to such payments. As of September 30, 2012, the Company
was in default, however, subsequent to September 30, 2012, the Company renegotiated the terms of the Note, Northstar has agreed to suspend the
requirement of principal payments by the Company and allow payment of interest-only in common stock.
On September 21, 2012, the Company issued 5,000,000 common
stock purchase warrants to Northstar that was treated as additional interest expense upon issuance.
On October 1, 2012, the Company and Northstar entered into
a limited waiver and forbearance agreement providing a recapitalized new note balance comprised of all sums due Northstar with a maturity date extended
perpetually. The Company agreed to issue 5,000,000 shares of Series A Convertible Preferred Stock and 10,000,000 of common stock in exchange for
$210,000 as payment towards outstanding debt, default interest, penalties, professional fees outstanding and due Northstar. In addition, the Company
executed a security agreement granting Northstar a lien on all patents, patent applications, trademarks, service marks, copyrights and intellectual
property rights of any nature, as well as the results of all clinical trials, know-how for preparing Myoblasts, old and new clinical data, existing
approved trials, all right and title to Myoblasts, clinical trial protocols and other property rights.
In addition, the Company granted Northstar a perpetual
license on products as described for resale, relicensing and commercialization outside the United States. In connection with the granted license,
Northstar shall pay the Company a royalty of up to 8% on revenues generated.
Effective October 1, 2012, the effective interest rate was
12.85% per annum. The parties agreed, as of February 28, 2013, to reduce the interest rate to 7% per annum.
In connection with the consideration paid, Northstar
waived, from the effective date through the earlier of termination or expiration of the agreement, satisfaction of the obligations as described in the
forbearance agreement. In 2012, 5,000,000 shares of Series A Convertible Preferred Stock were approved to be issued, which was subsequently increased
to 20,000,000 shares of preferred stock as Series A Convertible Preferred Stock. In addition, the Company is obligated to issue additional preferred
stock equal in lieu of payment of cash of accrued and unpaid interest on each six month anniversary of the effective date (October 1, 2012). In lieu of
the initial two payments in preferred stock, the parties have determined to modify the voting rights of the Series A Convertible Preferred Stock from
20 votes per share on matters to be voted on by the common stock holders to 25 votes per share on matters to be voted on by the common stock holders
and all prior and subsequent payments of interest will be in common stock. The Company is required to issue additional shares of its common stock (as
amended), in lieu of cash, each six month anniversary of the effective date for any accrued and unpaid interest.
On April 2, 2014, the Company issued 274,681 shares of its
common stock in lieu of payment in cash of accrued and unpaid interest of $12,635 due April 1, 2014 per the forbearance agreement.
On September 17, 2014, limited waiver and forbearance
agreement was amended to provide that the perpetual license on products as described for resale, relicensing and commercialization outside the United
States was conditioned upon NorthStar providing certain financing, which financing the Company, in its sole discretion, could decline and retain the
license.
As of September 30, 2014 and December 31, 2013, the
principle of this note was $362,000.
17
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
Officer and Director Notes
At September 30, 2014 and December 31, 2013, the Company
has outstanding notes payable to officers and directors with interest at 8% per annum due at maturity in aggregate $240,000 and $365,000, respectively.
The remaining subordinated notes $100,000 and $140,000 were previously due on November 30, 2012 and June 4, 2011 respectively, and are unsecured. The
Company is not obligated to make payment until Northstar loan is paid off.
On September 30, 2013, the Company issued an aggregate of
15,350,876 shares of its common stock in settlement of $175,000 of these related party notes payable.
On June 20, 2014, the Company issued 4,045,796 shares of
its common stock in settlement of $125,000 of related party note payable and accrued interest of $36,832.
On August 1, 2013, the Company issued an aggregate of
$500,000 promissory notes due on demand to officers and employee in settlement of accrued compensation. The promissory notes bear interest of 5% per
annum and due at various maturity dates. During the nine months ended September 30, 2014, the Company paid off $240,821 of the outstanding promissory
notes. The principle outstanding balance of these notes as of September 30, 2014 is $189,813.
On July 1, 2014, the Company issued an aggregate of
$800,000 promissory notes to officers and employee in settlement of accrued compensation. The promissory notes bear interest of 5% per annum and due on
January 1, 2015.
As of September 30, 2014 and December 31, 2013, the Company
officers and directors have outstanding notes in aggregate of $785,458 and $1,014,477, respectively. The notes are at from 4.75% to 8% per annum and
are due upon payoff of the Northstar note payable described above.
On June 20, 2014, the Company issued 10,333,475 shares of
its common stock in settlement of $300,385 of related party note payable and accrued interest of $112,954.
NOTE 8 DERIVATIVE LIABILITIES
Reset warrants
On October 1, 2012, in connection with the forbearance
agreement with Northstar as discussed in Note 7 above, the Company issued an aggregate of 15,000,000 common stock purchase warrants to purchase the
Companys common stock with an exercise price of $0.014 per share for ten years with anti-dilutive (reset) provisions.
The Company has identified embedded derivatives related to
the issued warrants. These embedded derivatives included certain and anti-dilutive (reset) provisions. The accounting treatment of derivative financial
instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting
date.
At September 30, 2014, the fair value of the reset
provision of $365,566 was determined using the Binomial Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 153.88%;
risk free rate: 2.22%; and expected life: 8.00 years. The Company recorded a gain (loss) on change in derivative liabilities of $35,263 and $(218,711)
during the three and nine months ended September 30, 2014, respectively.
18
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
Convertible notes
In 2013 and the nine months ended September 30, 2014, the
Company issued convertible notes (see Note 6 above).
These notes are convertible into common stock, at
holders option, at a discount to the market price of the Companys common stock. The Company has identified the embedded derivatives related
to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting
treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Note and
to fair value as of each subsequent reporting date.
The fair value of the embedded derivatives at September 30,
2014, in the amount of $359,556, was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%,
(2) expected volatility of 153.88%, (3) weighted average risk-free interest rate of 0.02 to 0.13%, (4) expected lives of 0.24 to 0.91 years, and (5)
estimated fair value of the Companys common stock of $0.0249 per share. The Company recorded a gain on change in derivative liabilities of
$204,033 and $280,050 during the three and nine months ended September 30, 2014, respectively.
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11)
the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing
approach, the Company evaluates its contracts based upon earliest issuance date.
At September 30, 2014, the aggregate derivative liabilities
was valued at $725,122. The Company believes an event under the contract that would create an obligation to settle in cash or other current assets is
remote and has classified the obligation as a long term liability.
NOTE 9 STOCKHOLDERS EQUITY
Preferred stock
On August 17, 2012, the board of directors designated
5,000,000 shares of preferred stock as Series A Convertible Preferred Stock which was increased to 20,000,000 shares of preferred stock as Series A
Convertible Preferred Stock (currently held by Northstar Biotechnology Group, LLC). Each share of preferred stock is convertible into equal number of
common shares at the option of the holder; entitled to 20 votes on all matters presented to be voted by the holders of common stock; upon event of
liquidation, entitled to amount equal to stated value plus any accrued and unpaid dividends or other fees before distribution to junior securities. In
lieu of the initial two payments due to Northstar on April 1, 2013 and October 1, 2013, the parties have determined to modify the voting rights of the
Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stock holders to 25 votes per share on matters to
be voted on by the common stock holders (see Note 7 above).
Common stock
Effective May 19, 2014, the Company amended its articles of
incorporation to increase the authorized shares of capital stock of the Company from nine hundred and fifty million (950,000,000) shares of common
stock and twenty million (20,000,000) shares of preferred stock, both $.001 par value respectively, to two billion (2,000,000,000) shares of shares of
common stock and twenty million (20,000,000) shares of preferred stock, both $.001 par value respectively.
During the nine months ended September 30, 2014, the
Company issued an aggregate of 45,232,118 shares of its common stock in settlement of outstanding accounts payable and accrued expenses. In connection
with the issuance, the Company incurred $105,737 loss in settlement of debt.
19
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
During the nine months ended September 30, 2014, the
Company issued an aggregate of 64,434,256 shares of its common stock for the conversion of $1,897,080 of notes payable and related accrued interest. In
connection with the issuance, the Company incurred $255,890 gain in settlement of debt.
During the nine months ended September 30, 2014, the
Company issued an aggregate of 3,839,832 shares of its common stock for services provided to the Company.
NOTE 10 STOCK OPTIONS AND WARRANTS
Stock Options
In December 1999, the Board of Directors and shareholders
adopted the 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.
On April 1, 2013, the Board of Directors approved, subject
to shareholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the 2013 Omnibus Plan. The 2013
Omnibus Plan reserves up to fifty million shares of common stock for issuance.
A summary of options at September 30, 2014 and activity
during the nine months then ended is presented below:
|
|
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual
Term (in years)
|
Options outstanding at January 1, 2013 |
|
|
|
|
7,853,376 |
|
|
$ |
0.67 |
|
|
|
8.2 |
|
|
|
|
|
|
17,400,000 |
|
|
$ |
0.016 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
(1,340,433 |
) |
|
$ |
1.08 |
|
|
|
|
|
Options outstanding at December 31, 2013 |
|
|
|
|
23,912,943 |
|
|
$ |
0.15 |
|
|
|
9.0 |
|
|
|
|
|
|
39,648,487 |
|
|
$ |
0.023 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,443 |
) |
|
$ |
4.8 |
|
|
|
|
|
Options outstanding at September 30, 2014 |
|
|
|
|
63,486,987 |
|
|
$ |
0.063 |
|
|
|
9.1 |
|
Options exercisable at September 30, 2014 |
|
|
|
|
24,576,000 |
|
|
$ |
0.13 |
|
|
|
8.7 |
|
Available for grant at September 30, 2014 |
|
|
|
|
42,951,513 |
|
|
|
|
|
|
|
|
|
20
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
The following information applies to options outstanding
and exercisable at September 30, 2014:
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Shares
|
|
Weighted- Average Remaining Contractual
Term
|
|
Weighted- Average Exercise Price
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
|
|
|
|
62,938,487 |
|
|
|
9.2 |
|
|
$ |
0.03 |
|
|
|
24,027,500 |
|
|
$ |
|
|
|
|
|
|
|
149,930 |
|
|
|
4.0 |
|
|
$ |
0.81 |
|
|
|
149,930 |
|
|
$ |
|
|
|
|
|
|
|
373,858 |
|
|
|
1.6 |
|
|
$ |
5.55 |
|
|
|
373,858 |
|
|
$ |
|
|
|
|
|
|
|
24,712 |
|
|
|
1.8 |
|
|
$ |
7.69 |
|
|
|
24,712 |
|
|
$ |
|
|
|
|
|
|
|
63,486,987 |
|
|
|
9.1 |
|
|
$ |
0.063 |
|
|
|
24,576,000 |
|
|
$ |
|
|
On February 24, 2014, the Company issued an aggregate
15,000,000 options to purchase the Companys common stock at $0.019 per share to officers, vesting at 25% immediately and the remainder over
approximately 42 months, exercisable over 10 years. The aggregate fair value of $282,597, determined using the Black Scholes option pricing model with
the following assumptions: Dividend yield: 0%; Volatility: 163.63% and Risk free rate: 2.75%.
On February 24, 2014, the Company issued an aggregate
4,800,000 options to purchase the Companys common stock at $0.019 per share to officers, vesting immediately and exercisable over 10 years. The
aggregate fair value of $90,431, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%;
Volatility: 163.63% and Risk free rate: 2.75%.
On May 12, 2014, the Company issued an aggregate 4,848,487
options to purchase the Companys common stock at $0.0272 per share to officers and employees, vesting over four years at anniversary and
exercisable over 10 years. The aggregate fair value of $130,135, determined using the Black Scholes option pricing model with the following
assumptions: Dividend yield: 0%; Volatility: 161.36% and Risk free rate: 2.66%.
On August 1, 2014, the Company issued an aggregate
15,000,000 options to purchase the Companys common stock at $0.02694 per share to officers and employees, vesting at 25% immediately and 75% over
three years at anniversary and exercisable over 10 years. The aggregate fair value of $391,798, determined using the Black Scholes option pricing model
with the following assumptions: Dividend yield: 0%; Volatility: 168.62% and Risk free rate: 2.52%.
The fair value of all options vesting during the three and
nine months ended September 30, 2014 of $164,247 and $407,616, respectively, was charged to current period operations.
Warrants
A summary of common stock purchase warrants at September
30, 2014 and activity during the three months then ended is presented below:
21
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
|
|
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual
Term (in years)
|
Outstanding at January 1, 2013 |
|
|
|
|
74,073,322 |
|
|
$ |
0.37 |
|
|
|
4.5 |
|
|
|
|
|
|
50,350,536 |
|
|
$ |
0.16 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,345,002 |
) |
|
$ |
0.38 |
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
|
|
118,078,856 |
|
|
$ |
0.22 |
|
|
|
6.3 |
|
|
|
|
|
|
36,556,846 |
|
|
$ |
0.02 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,918,181 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
(6,765,430 |
) |
|
$ |
0.11 |
|
|
|
|
|
Outstanding at September 30, 2014 |
|
|
|
|
135,952,091 |
|
|
$ |
0.19 |
|
|
|
6.1 |
|
Exercisable at September 30, 2014 |
|
|
|
|
126,143,578 |
|
|
$ |
0.11 |
|
|
|
6.2 |
|
The following information applies to common stock purchase
warrants outstanding and exercisable at September 30, 2014:
|
|
|
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
|
Shares
|
|
Weighted- Average Remaining Contractual
Term
|
|
Weighted- Average Exercise Price
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
|
|
|
|
129,702,958 |
|
|
|
6.1 |
|
|
$ |
0.02 |
|
|
|
121,438,895 |
|
|
$ |
|
|
|
|
|
|
2,699,675 |
|
|
|
4.6 |
|
|
$ |
0.58 |
|
|
|
2,699,675 |
|
|
$ |
|
|
|
|
|
|
848,176 |
|
|
|
5.3 |
|
|
$ |
0.71 |
|
|
|
848,176 |
|
|
$ |
|
|
|
|
|
|
2,701,282 |
|
|
|
8.1 |
|
|
$ |
7.55 |
|
|
|
1,156,832 |
|
|
$ |
|
|
|
|
|
|
135,952,091 |
|
|
|
6.1 |
|
|
$ |
0.19 |
|
|
|
126,143,578 |
|
|
$ |
|
In conjunction with the authorized issuance of common
stock, the Company granted 24,556,846 common stock purchase warrants during the nine months ended September 30, 2014.
During the nine months ended September 30, 2014, the
Company issued an aggregate of 8,000,000 warrants in connection with a joint venture agreement dated March 10, 2014. The warrants are exercisable at
$0.0217 for four years vesting from June 8, 2014 through March 10, 2016. During the three and nine months ended September 30, 2014, the Company charged
$15,762 and $95,018 to current period operations for the vesting portion.
During the nine months ended September 30, 2014, the
Company issued an aggregate of 4,000,000 warrants in connection with use of certain intellectual property. The warrants are exercisable at $0.0481 for
four years vesting from July 6, 2014 through April 6, 2017. During the three and nine months ended September 30, 2014, the Company charged $9,005 and
$41,819 to current period operations for the vesting portion.
22
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
NOTE 11 COMMITMENTS AND
CONTINGENCIES
Revenue Share Arrangement
On March 10, 2014, the Company entered into a revenue sharing (the Agreement) with Global Stem Cells, Group, LLC and its subsidiaries whereby both parties will participate in marketing for
obtaining patients and provide physician training for stem cell treatments under the names of Regenestem and Stem Cell
Training, respectively. In addition, each party will be responsible for selling equipment and kits to existing and previous customers. A
fee will be paid to Global Stem Cells Group based on revenue less certain costs of the accounting for patients and physician training and 30 day with sales of
equipment and kits.
As part of the consideration of Global Stem Cell Group, LLCs
participation, the Company issued an aggregate of 8,000,000 warrants to purchase the Companys common stock for four years at $0.0217 per share
with 2,000,000 warrants vesting 90 days from the effective date, 2,000,000 vesting on each anniversary date for three years. During the three and nine
months ended September 30, 2014, the Company charged $15,762 and $95,018 to current period operations for the vesting portion.
Joint Venture
We announced a joint venture in South Africa and the facilities called
South African Stem Cell Institute were successfully opened in September, 2014 with the intention to retain a 49% ownership of the new entity.
As of September 31, 2014, however, there was no formal legal entity established and no formal operating agreement for this joint venture. In additional
the Company has not yet incurred any material expenses associated with this venture. Management has concluded that as of September 31, 2014 this announcement
is not material to the Companys financial statements.
William Beaumont Hospital
In June 2000, the Company entered into an agreement with
William Beaumont Hospital, or WBH, pursuant to which WBH granted to the Company worldwide, exclusive, non-sublicenseable license to two U.S. method
patents covering the inducement of human adult myocardial cell proliferation in vitro, or the WBH IP. The term of the agreement is for the life of the
patents, which expire in 2015. The Company did not use this license in any of our technologies. The Company had not made any payments to WBH other than
the initial payment to acquire the license. The Company has received confirmation from WBH that it has no obligation under the patent license agreement
and WBH agreed to terminate the patent license agreement. (See Note 4)
Accordingly, the Company has recognized approximately
$2,122,130 in settlement of debt which represents the accumulative accrual and related interest from past years under the 2000 patent license
agreement.
Employment agreements
On July 28, 2014, the Companys Board of Directors
approved the 2014/2015 salary for Mike Tomas, Chief Executive Officer, at $525,000 per year, beginning July 1, 2014 with an incentive bonus ranging
from $150,000 to $500,000. In addition, the Board of Directors will grant Mr. Tomas options to be determined on or before June 30, 2015. The
Companys Board of Directors approved a bonus of $500,000 and options to acquire 10,000,000 shares of the Companys common stock for ten
years with four year vesting and a cashless exercise provision at an exercise price equal to the five day average closing price of the Companys
common stock as of August 1, 2014. The cash bonus may be paid in the form of a six month promissory note.
On July 28, 2014, the Companys Board of Directors
approved the 2014/2015 salary for Kristin Comella, Chief Scientific Officer, at $250,000 per year, beginning July 1, 2014 with an incentive bonus
ranging from $100,000 to $300,000. In addition, the Board of Directors will grant Ms. Comella options to be determined on or before June 30, 2015. The
Companys Board of Directors approved a bonus of $300,000 and options to acquire 5,000,000 shares of the Companys common stock for ten years
with four year vesting and a cashless exercise provision at an exercise price equal to the five day average closing price of the Companys common
stock as of August 1, 2014. The cash bonus may be paid in the form of a six month promissory note.
23
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
Litigation
The Company is subject to other legal proceedings that
arise in the ordinary course of business. In the opinion of management, as of September 30, 2014, the amount of ultimate liability with respect to such
matters, if any, in excess of applicable insurance coverage, is not likely to have a material impact on the Companys business, financial
position, results of operations or liquidity. However, as the outcome of litigation and other claims is difficult to predict significant changes in the
estimated exposures could exist.
Consulting agreements
On November 20, 2013, the Company entered into an
investment banking agreement with Cassel Salpeter & Co. (CSC), who will act as exclusive third party financial advisor in connection
with investment banking matters. The term of the Investment Banking Agreement shall be for a period of twenty four months unless terminated or extended
in accordance with its terms. For these services, CSC will receive a one-time $25,000 fee, $5,000 monthly fees and 5,207,630 ten year common stock
purchase warrants, exercisable at $.0113 and applicable consideration in the event the closing of a Mezzanine Financing consisting of non-convertible
subordinated debt and/or sale of equity securities. The Company will also reimburse CSC for its reasonable out-of-pocket expenses associated with the
services provided pursuant to the Investment Banking Agreement. As of September 30, 2014 and December 31, 2013, the Company accrued $49,234 and $32,424
under the agreement, respectively.
NOTE 12 FAIR VALUE MEASUREMENT
The Company adopted the provisions of Accounting Standards
Codification subtopic 825-10, Financial Instruments (ASC 825-10) on January 1, 2008. ASC 825-10 defines fair value as the price that would
be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the
principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three
levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for
identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices
such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs to the valuation
methodology that are significant to the measurement of fair value of assets or liabilities.
All items required to be recorded or measured on a
recurring basis are based upon level 3 inputs.
To the extent that valuation is based on models or inputs
that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to
measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value
hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value
measurement.
24
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
Upon adoption of ASC 825-10, there was no cumulative effect
adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Companys cash and cash
equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and
liabilities approximate fair value because of their short-term maturity.
As of September 30, 2014 or December 31, 2013, the Company
did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities as level
3 and values its derivatives using the methods discussed in notes 7 and 9. While the Company believes that its valuation methods are appropriate and
consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect
the fair values using the methods discussed in Notes 7 and 9 are that of volatility and market price of the underlying common stock of the
Company.
As of September 30, 2013 and December 31, 2013, the Company
did not have any derivative instruments that were designated as hedges.
The derivative liability as of September 30, 2014, in the
amount of $725,122 has a level 3 classification.
The following table provides a summary of changes in fair
value of the Companys Level 3 financial liabilities as of September 30, 2014:
|
|
|
|
Excess Share Derivative
|
|
Warrant Liability
|
|
Debt Derivative
|
Balance, December 31, 2012 |
|
|
|
$ |
390,048 |
|
|
|
221,179 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial fair value of debt derivative at note issuance |
|
|
|
|
|
|
|
|
|
|
|
|
673,219 |
|
Initial fair value of derivative relating to reset warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market at December 31, 2013: |
|
|
|
|
84,906 |
|
|
|
(74,324 |
) |
|
|
(39,761 |
) |
Transfers out of Level 3 upon increase in authorized shares |
|
|
|
|
(474,954 |
) |
|
|
|
|
|
|
|
|
Transfers out of Level 3 upon conversion and settlement of notes |
|
|
|
|
|
|
|
|
|
|
|
|
(376,502 |
) |
Balance, December 31, 2013 |
|
|
|
$ |
|
|
|
$ |
146,855 |
|
|
$ |
256,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial fair value of debt derivative at note issuance |
|
|
|
|
|
|
|
|
|
|
|
|
773,500 |
|
Mark-to-market at September 30, 2014: |
|
|
|
|
|
|
|
|
218,711 |
|
|
|
(280,050 |
) |
Transfers out of Level 3 upon conversion of notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
(390,850 |
) |
Balance, September 30, 2014 |
|
|
|
$ |
|
|
|
$ |
365,566 |
|
|
$ |
359,556 |
|
Net (loss) gain for the period included in earnings relating to the liabilities held at September 30, 2014 |
|
|
|
$ |
|
|
|
$ |
(218,711 |
) |
|
$ |
280,050 |
|
Fluctuations in the Companys stock price are a
primary driver for the changes in the derivative valuations during each reporting period. The Companys stock price increased approximately 149%
from December 31, 2013 to September 30, 2014. As the stock price increases for each of the related derivative instruments, the value to the holder of
the instrument generally increases, therefore increasing the liability on the Companys balance sheet. Additionally, stock price volatility is one
of the significant unobservable inputs used in the fair value measurement of each of the Companys derivative instruments.
25
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
The simulated fair value of these liabilities is sensitive
to changes in the Companys expected volatility. Increases in expected volatility would generally result in a higher fair value
measurement.
NOTE 13 SUBSEQUENT EVENTS
Subsequent financing
KBM Worldwide
On October 6, 2014, the Company entered into a Securities
Purchase Agreement with KBM Worldwide, Inc., for the sale of an 8% convertible note in the principal amount of $38,000 (the
Note).
The Note bears interest at the rate of 8% per annum. All
interest and principal must be repaid on July 8, 2015,. The Note is convertible into common stock, at holders option, at a 45% discount to the
lowest daily trading price of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full,
the Company is required to pay off all principal and accrued interest at 150%, and any other amounts.
Daniel James Management
On October 3, 2014, the Company entered into a Securities
Purchase Agreement with Daniel James Management, Inc., for the sale of a 9.5% convertible note in the principal amount of $25,000 (the
Note).
The Note bears interest at the rate of 9.5% per annum. All
interest and principal must be repaid on October 2, 2015. The Note is convertible into common stock, at holders option, at a 47% discount
to the lowest daily trading price of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note
in full, the Company is required to pay off all principal and accrued interest at 150%, and any other amounts.
Magna Equities, LLC
On October 7, 2014, the Company entered into a
securities purchase agreement (the Purchase Agreement) with Magna Equities II, LLC, a New York limited liability company
(Magna). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, Magna shall purchase
from the Company, a senior convertible note with an initial principal amount of $307,500 (the Convertible Note) for a purchase price
of $205,000 (an approximately 33.33% original issue discount). Pursuant to the Purchase Agreement, the Company issued the Convertible Note to Magna.
The Convertible Note matures on August 7, 2015 and, in addition to the approximately 33.33% original issue discount, accrues interest at the rate of
12% per annum.
The Convertible Note is convertible at any time, in whole
or in part, at Magnas option into shares of the Companys common stock, par value $0.01 per share (the Common Stock), at
a fixed conversion price of $0.01035 per share. $40,000 of the outstanding principal amount of the Convertible Note (together with any accrued and
unpaid interest with respect to such portion of the principal amount) shall be automatically extinguished (without any cash payment by the Company)
under certain conditions described in the Purchase Agreement. In connection with the execution of the Purchase Agreement, the Company and Magna also
entered into a registration rights agreement (the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the
Company has agreed to file an initial registration statement with the SEC to register the resale of the Common Stock into which the Convertible Note
may be converted,
On October 23, 2014, the Company entered into a
common stock purchase agreement (the Purchase Agreement) with Magna Equities II, LLC, (the
Investor). The Purchase Agreement provides that, upon the terms and subject to certain conditions, the Investor is
committed to purchase up to $3,000,000 (the Total Commitment) worth of the Companys common stock, $0.001 par value (the
Shares), over the 24-month term of the Purchase Agreement. In connection with the execution of the Purchase Agreement, on the
Closing Date, the Company and the Investor also entered into a registration rights agreement. (see above)
26
BIOHEART, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2014
The Company paid to the Investor a commitment fee for
entering into the Purchase Agreement equal to $150,000 (or 5.0% of the Total Commitment under the Purchase Agreement) in the form of 9,109,128
restricted shares of the Companys common stock, calculated using a per share price of $0.016467.
Subsequent issuances
On October 3, 2014, the Company issued 514,886 shares of
its common stock as payment of $70,521 interest on its Northstar (related party) debt.
In October 2014, the Company issued 1,818,182 shares of its
common stock in settlement of $20,000 of convertible debt.
In October 2014, the Company issued 1,293,103 shares of its
common stock in settlement of $15,000 of convertible debt.
In October 2014, the Company issued 2,260,764 shares of its
common stock in settlement of $18,000 of convertible debt and accrued interest of $2,120.
In October 2014, the Company issued 552,846 shares of its
common stock in settlement of $5,500 of convertible debt and accrued interest of $1,300.
In October 2014, the Company issued an aggregate 2,773,549
shares of common stock for consulting services.
In October 2014, the Company issued 538,875 shares of
common stock in settlement of accounts payable.
27
Item 2. Managements 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, 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 interim financial statements and the accompanying related notes included in this quarterly report and our audited financial statements and
related notes and Managements 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, 2013 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 managements beliefs and assumptions and on
information currently available to our management. Any such forward-looking statements would be contained principally in Managements
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 managements 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, 2013.
Our Ability to Continue as a Going
Concern
Our independent registered public accounting firm has
issued its report dated March 24, 2014, in connection with the audit of our financial statements as of December 31, 2013, that included an explanatory
paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern and Note 2 to the
unaudited financial statements for the period ended September 30, 2014 also describes the existence of conditions that raise substantial doubt about
our ability to continue as a going concern.
28
Overview
We are a biotechnology company
focused on the discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies for the treatment of chronic
and acute heart damage. Our lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a
patients heart with autologous muscle cells, or cells from a patients body, for the purpose of improving cardiac function in chronic heart
failure patients.
Biotechnology Product
Candidates
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. In
our pipeline, we have multiple product candidates for the treatment of heart damage, including MyoCell, Myocell SDF-1 and AdipoCell. MyoCell and
MyoCell SDF-1 are clinical muscle-derived cell therapies designed to populate regions of scar tissue within a patients heart with new living
cells for the purpose of improving cardiac function in chronic heart failure patients.
MyoCell SDF-1 is intended to be
an improvement to MyoCell. MyoCell SDF-1 is similar to MyoCell except that the myoblast cells to be injected for use in MyoCell SDF-1 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. AdipoCell is a patient-derived cell therapy proposed for the treatment of acute myocardial infarction, chronic heart ischemia, and
lower limb ischemia. We hope to demonstrate that these product candidates are safe and effective complements to existing therapies for chronic and
acute heart damage.
Our most recent completed
clinical trials of MyoCell are the SEISMIC Trial, a 40-patient, randomized, multicenter, controlled, Phase II-a study conducted in Europe and the
MYOHEART Trial, a 20-patient, multicenter, Phase I dose-escalation trial conducted in the United States. We were approved by the FDA, to proceed with a
330-patient, multicenter Phase II/III trial of MyoCell in North America and Europe, or the MARVEL Trial. We completed the MyoCell implantation
procedure on the first patient in the MARVEL Trial on October 24, 2007. Thus far, 20 patients, including 6 control patients, have been treated. Initial
results for the 20 patients were released at the Heart Failure Society of American meeting in 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. On the basis of these results, we have
applied for and received approval from the FDA to reduce the number of additional patients in the trial to 134, for a total of 154 patients. 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.
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 was 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.
We are seeking to secure
sufficient funds to reinitiate enrollment in the MARVEL and REGEN trials. If we successfully secure such funds, we intend to re-engage a contract
research organization, or CRO, investigators and certain suppliers to advance such trials. We have initiated and enrolled our first patient in the
MIRROR trial in 2013. The trial is very similar to the MARVEL trial but focusses on sites outside the US. We will continue enrollment in the MIRROR
trial once we have secured sufficient funds.
We have completed the Phase 1
Angel Trial for AdipoCell (adipose derived stem cells). Five patients were enrolled and treated in the second quarter of 2013. At the twelve (12) month
time point, patients demonstrated a statistically significant average improvement in ejection fraction (EF) by echocardiogram.
29
At the three (3) month time
point, 100% of the patients demonstrated either improvement or stayed the same. After three (3) months, patients showed an average absolute improvement
of 3 percentage points in EF. The patients continued to improve from 3 months to 6 months with a statistically significant average absolute improvement
of 10 percentage points (p=0.01) and at the 12 month follow up patients showed this same level of improvement (p=0.01).
We have also initiated several
Institutional Review Board studies in 2013 using adipose derived stem cells for various indications including dry macular degeneration, degenerative
disc disease, erectile dysfunction and chronic obstructive pulmonary disease.
In the second quarter of 2014, we
announced the treatment of a patient in Honduras with congestive heart failure using AdipoCell and MyoCell. This was the first patient treated in the
world using a combination of stem cells.
We have begun two clinical trials
in India. The first cardiac patient has successfully been enrolled and treated in India using AdipoCell or adipose derived stem cells. The second trial
will involve the combination of AdipoCellTM and MyoCell® or muscle derived stem cells for congestive heart failure patients. These trials are active
and ongoing
MyoCath Product Candidate
The MyoCath is a deflecting tip
needle injection catheter that has a larger (25 gauge) needle to allow 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. The MyoCath is used to inject cells into
cardiac tissue in therapeutic procedures to treat chronic heart ischemia and congestive heart failure. Investigators in our MARVEL Trial may use either
our MyoCath catheters or Biosense Websters (a Johnson & Johnson company) NOGA® Cardiac Navigation System along with the MyoStarTM
injection catheter for the delivery of MyoCell to patients enrolled in the trial. We are currently producing Myocath catheters with a contract
manufacturer on an as needed basis.
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.
30
SUBSEQUENT EVENTS
On October 7, 2014, the we
entered into a securities purchase agreement (the Purchase Agreement) with Magna Equities II, LLC, a New York limited liability
company (Magna). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, Magna shall
purchase from us, a senior convertible note with an initial principal amount of $307,500 (the Convertible Note) for a purchase price
of $205,000 (an approximately 33.33% original issue discount). Pursuant to the Purchase Agreement, we issued the Convertible Note to Magna. The
Convertible Note matures on August 7, 2015 and, in addition to the approximately 33.33% original issue discount, accrues interest at the rate of 12%
per annum. The Convertible Note is convertible at any time, in whole or in part, at Magnas option into shares of the Companys common stock,
par value $0.01 per share (the Common Stock), at a fixed conversion price of $0.01035 per share. $40,000 of the outstanding
principal amount of the Convertible Note (together with any accrued and unpaid interest with respect to such portion of the principal amount) shall be
automatically extinguished (without any cash payment by us) under certain conditions described in the Purchase Agreement. In connection with the
execution of the Purchase Agreement, our company and Magna also entered into a registration rights agreement (the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, we agreed to file an initial registration statement with the SEC to register the
resale of the Common Stock into which the Convertible Note may be converted,
On October 23, 2014, we entered
into a common stock purchase agreement (the Purchase Agreement) with Magna Equities II, LLC, a New York limited liability company
(the Investor). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, the Investor
is committed to purchase up to $3,000,000 (the Total Commitment) worth of our common stock, $0.001 par value (the
Shares), over the 24-month term of the Purchase Agreement. In connection with the execution of the Purchase Agreement, on the
Closing Date, our company and the Investor also entered into a registration rights agreement. We paid to the Investor a commitment fee for entering
into the Purchase Agreement equal to $150,000 (or 5.0% of the Total Commitment under the Purchase Agreement) in the form of 9,109,128 restricted shares
of our common stock, calculated using a per share price of $0.016467.
Results of Operations Overview
Three and Nine Months Ended September 30, 2014 as compared to
the Three and Nine Months Ended September 30, 2014
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, (iii) revenues
generated from patient paid studies, (iv) revenues from the sale of our AdipoCell system and related supplies and (v) revenues generated for providing
cell culturing and banking services. We did not generate significant revenues in 2013. Our revenue may vary substantially from quarter to quarter and
from year to year. We expect to have steady growth of revenue as the above programs grow and expand.
We recognized revenues of
$579,536 and $1,563,864 for the three and nine months ended September 30, 2014, respectively, compared to revenues of $31,659 and $55,980 for the three
and nine months ended September 30, 2013, respectively. Our revenue in 2014 was generated from the sale of MyoCath catheters, AdipoCell, physician
training, patient studies and laboratory services. Our revenues for 2013 were generated from the sale of MyoCath Catheters and laboratory
services.
Cost of Sales
Cost of sales consists of the
costs associated with the production of MyoCath, laboratory supplies necessary for laboratory services, production of AdipoCell systems and materials,
physician course materials and clinic supplies required for patient studies.
31
Cost of sales was $523,222 and
$889,509 in the three and nine month periods ended September 30, 2014, respectively, compared to $-0- in the three and nine months periods ended
September 30, 2013.
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.
During the third quarter 2009, we
received notification that approximately $630,000 in pending projects (Indiana University, University of Florida, Northwestern University, and other
sites) was completed. As of September 30, 2014 and December 31, 2013, of the $630,000, we still have an accrual of $219,000 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.
Research and development expenses
were $8,581 in the three month period ended in September 30, 2014, a decrease of $149,800 from the research and development expenses of $158,381 in the
three month period ended in September 30, 2013. The decrease was primarily attributable to a decrease in the amount of funds allocated to our clinical
trials.
32
Research and development expenses
were $33,916 in the nine month period ended in September 30, 2014, a decrease of $460,846 from the research and development expenses of $494,762 in the
nine month period ended in September 30, 2013. 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.
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.
The Company follows Accounting
Standards Codification subtopic 718-10. Compensation (ASC 718-10) which requires that all share-based payments to both employee and
non-employees be recognized in the income statement based on their fair values.
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; |
|
|
arms 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;
and |
|
|
an evaluation and benchmark of our competitors; and |
|
|
prospects of a liquidity event. |
In April 1, 2013, the Board of
Directors approved, subject to shareholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the 2013 Omnibus
Plan. The 2013 Omnibus Plan reserves up to fifty million shares of common stock for issuance.
Marketing, general and
administrative expenses were approximately $1,512,706 in the three month period ended September 30, 2014, an increase of $572,352 from marketing,
general and administrative expenses of approximately $940,354 in the three month period ended in September 30, 2013. The increase in marketing, general
and administrative expenses is attributable, in part, to stock based compensation paid in the current period of $164,247 for services and increase in
employee compensation and service providers.
33
Marketing, general and
administrative expenses were approximately $3,182,397 in the nine month period ended September 30, 2014, an increase of $1,432,121 from marketing,
general and administrative expenses of approximately $1,750,276 in the nine month period ended in September 30, 2013. The increase in marketing,
general and administrative expenses is attributable, in part, to stock based compensation paid in the current period of $293,342 for services and
increase in employee compensation and service providers.
Interest Expense
Interest expense during the three
and nine months ended September 30, 2014 and 2013 primarily consists of interest incurred on the principal amount of the Northstar loan, our former
Bank of America loan, the Seaside National Bank loan, accrued fees and interest payable to the Guarantors, the amortization of debt discounts and
non-cash incurred relating to our issued convertible notes payable. The debt discounts 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 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 financial statements appearing elsewhere in this
report, we believe the following policies are important to understanding and evaluating our reported financial results:
Revenue Recognition
At the time of each transaction,
we assess 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.
Revenues for test kits and
equipment sold are not recorded until test kits are delivered. The Company has revenue sharing arrangements for the sale of goods whereby the Company
is the primary obligor, sets pricing with the customers and bears all associated credit risks with the customers. Sales under revenue share
arrangements are recorded as gross sales and any portion shared with third parties under such arrangements are recorded as cost of sales. Revenues from
trainings are not recorded until the completion of the training. Any cash received as a deposit for trainings are recorded by the company as a
liability.
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.
34
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 Entitys own Equity (ASC 815-40) became effective for the Company on October 1,
2009. The Company has identified the embedded derivatives related to the issued Notes and anti-dilutive warrants. These embedded derivatives included
in our debt contain 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.
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 September 30, 2014, two
customers represented 24% and 18% of the Companys accounts receivable.
As of December 31, 2013, three
customers represented 20%, 20% and 36% (total 76%) of the Companys accounts receivable.
Liquidity and Capital Resources
In the three months ended
September 30, 2014, we continued to finance our considerable operational cash needs with cash generated from financing activities.
Operating Activities
Net cash used in operating
activities was $747,184 in the nine month period ended September 30, 2014 as compared to $1,568,727 of cash used in the nine month period ended in
September 30, 2013.
35
Our use of cash for operations in
the nine months ended September 30, 2014 reflected a net loss generated during the period of $1,247,199, adjusted for non-cash items such as
stock-based compensation of $407,616, fair value of warrants issued of $136,837, depreciation of $3,745, amortization of debt discounts of $343,592,
related party notes payable issued for services of $800,000 and non-cash interest paid of $385,501, loss on change in fair value of derivative
liabilities of $61,339, net gain on settlement of debt of $2,272,283. In addition we had a net increase in operating assets of $186,306 and an increase
in accrued expenses of $246,486 and in accounts payable of $628,684.
Our use of cash for operations in
the nine months ended September 30, 2013 reflected a net loss generated during the period of approximately $2.4 million, adjusted for non-cash items
such as stock-based compensation of $102,674, depreciation of $1,328, amortization of debt discounts of $295,750 and non-cash interest paid of
$168,350, net with gain on settlement of debt of $1,004,224 and gain on change in fair value of derivative liabilities of $39,885. In addition we had a
net decrease in operating assets of $96,933 and an increase in accrued expenses of $485,518 and a decrease in accounts payable of
$76,240.
Investing Activities
Net cash used in investing
activities was $8,121 for the nine months ended September 30, 2014 were to acquire office equipment as compared to nil cash used for the same period of
2013.
Financing Activities
Net cash provided by financing
activities was an aggregate of $755,670 in the nine month period ended September 30, 2014 as compared to $1,575,411 in the nine month period ended in
September 30, 2013. In the nine month period ended September 30, 2014 we sold, in private placements, shares of common stock and common stock purchase
warrants for aggregate net cash proceeds of $428,251, received proceeds from issuance of note payable of $388,000, and proceeds from warrant exercise
of $136,000, net related party advances of $26,759, net with repayments of related party notes payable of $223,340.
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 September 30, 2014, we had
cash and cash equivalents totaling $46,592. However our working capital deficit as of such date was approximately $10 million. Our independent
registered public accounting firm has issued its report dated March 24, 2014 in connection with the audit of our financial statements as of December
31, 2013 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a
going concern and Note 2 of our unaudited financial statement for the quarter ended September 30, 2014 addresses the issue of 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.
36
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
Commissions 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 Companys 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
Companys internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are
reasonably likely to materially affect the Companys internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Our Company is not involved in
any material litigation pursuant to Item 103 of Regulation S-K. 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
During the nine months ended
September 30, 2014, the Company sold an aggregate of 24,556,846 shares of the Companys common stock and common stock purchase warrants to
purchase 24,556,846 shares of the Companys common stock for aggregate gross cash proceeds of $371,000. The warrants are (i) exercisable solely
for cash at an exercise price of $0.011 to $0.0275 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 tenth
year anniversary of the date of issuance.
37
The issuance of such shares of
our common stock was 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, as mended (the Securities Act) and in Section 4(2) of the Securities Act, based on the
following: 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.
Item 3. Defaults Upon Senior Securities
There were no defaults upon
senior securities during the period ended September 30, 2014.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Effective May 19, 2014, the
Company increased the authorized shares of capital stock of the Company from nine hundred and fifty million (950,000,000) shares of common stock and
twenty million (20,000,000) shares of preferred stock, both $.001 par value respectively, to two billion (2,000,000,000) shares of shares of common
stock and twenty million (20,000,000) shares of preferred stock, both $.001 par value respectively.
Item 6. Exhibits
Exhibit No.
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Exhibit Description
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Amended and Restated Articles of Incorporation of the registrant, as amended |
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Articles of Amendment to the Articles of Incorporation of the registrant |
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Articles of Amendment to the Articles of Incorporation of the registrant |
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Amended and Restated Bylaws |
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Loan and Security Agreement, dated as of May 31, 2007 by and between BlueCrest Capital Finance, L.P. and the
registrant |
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Notice of Event of Default, from BlueCrest Venture Finance Master Fund Limited to the Company, dated January 28,
2009 |
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Notice of Acceleration, from BlueCrest Venture Finance Master Fund Limited to the Company, dated February 2,
2009 |
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Amendment to Loan and Security Agreement, between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2,
2009 |
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Grant of Security Interest (Patents), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2,
2009 |
38
Exhibit No.
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Exhibit Description
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Security Agreement (Intellectual Property), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April
2, 2009 |
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Subordination Agreement, by Hunton & Williams, LLP in favor of BlueCrest Venture Finance Master Fund Limited, entered into and
effective April 2, 2009 |
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Amended and Restated Promissory Note, dated April 2, 2009, by the Company to BlueCrest Venture Finance Master Fund
Limited |
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Warrant to purchase 1,315,542 shares of the registrants common stock, dated April 2, 2009, issued to BlueCrest Venture Finance
Master Fund Limited |
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Warrant to purchase 451,043 shares of the registrants common stock, dated April 2, 2009, issued to Rogers Telecommunications
Limited |
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Warrant to purchase 173,638 shares of the registrants common stock, dated April 2, 2009, issued to Hunton & Williams,
LLP |
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Warrant to purchase shares of the registrants common stock issued to Howard J. Leonhardt and Brenda
Leonhardt |
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10% Convertible Promissory Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith |
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10% Convertible Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers |
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Registration Rights Agreement, dated July 23, 2009 |
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Warrant to purchase shares of the registrants common stock issued to the R&A Spencer Family Limited
Partnership |
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Subordination Agreement, dated July 23, 2009 |
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Note Purchase Agreement, dated July 23, 2009 |
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Closing Confirmation of Conversion Election, dated July 23, 2009 |
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Warrant to purchase shares of the registrants common stock issued to Samuel S. Ahn, M.D. |
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Warrant to purchase shares of the registrants common stock issued to Howard and Brenda Leonhardt |
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Form of Warrant Agreement for October 2008 Private Placement |
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10% Convertible Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers |
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Series A Convertible Preferred Stock |
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Amendment to the Series A Convertible Preferred Stock |
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Senior Convertible Note dated October 7, 2014. |
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1999 Officers and Employees Stock Option Plan |
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1999 Directors and Consultants Stock Option Plan |
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Form of Option Agreement under 1999 Officers and Employees Stock Option Plan |
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Form of Option Agreement under 1999 Directors and Consultants Stock Option Plan |
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Employment Letter Agreement between the registrant and Scott Bromley, dated August 24, 2006. |
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Lease Agreement between the registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006. |
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Asset Purchase Agreement between the registrant and Advanced Cardiovascular Systems, Inc., dated June 24,
2003. |
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Conditionally Exclusive License Agreement between the registrant, Dr. Peter Law and Cell Transplants International, LLC, dated
February 7, 2000, as amended. |
39
Exhibit No.
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Exhibit Description
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Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant, Howard J. Leonhardt and
Brenda Leonhardt |
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Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant and William P. Murphy Jr.,
M.D. |
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Loan Agreement, dated as of June 1, 2007, by and between the registrant and Bank of America, N.A. |
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Warrant to purchase shares of the registrants common stock issued to Howard J. Leonhardt and Brenda
Leonhardt |
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Warrant to purchase shares of the registrants common stock issued to William P. Murphy, Jr., M.D. |
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Material Supply Agreement, dated May 10, 2007, by and between the registrant and Biosense Webster |
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Warrant to purchase shares of the registrants common stock issued to BlueCrest Capital Finance, L.P. |
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Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Samuel S. Ahn,
M.D. |
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Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Dan
Marino |
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Loan Guarantee, Payment and Security Agreement, dated as of September 19, 2007, by and between the registrant and Jason
Taylor |
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Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and Howard and Brenda
Leonhardt |
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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 |
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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. |
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Bioheart, Inc. Omnibus Equity Compensation Plan |
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Form of Registration Rights Agreement for October 2008 Private Placement |
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10% Convertible Promissory Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith |
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Registration Rights Agreement, dated July 23, 2009 |
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Subordination Agreement, dated July 23, 2009 |
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Note Purchase Agreement, dated July 23, 2009 |
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Closing Confirmation of Conversion Election, dated July 23, 2009 |
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Amended and Restated 1999 Directors and Consultants Stock Option Plan |
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Preliminary Commitment Letter with Seaside National Bank and Trust, dated September 30, 2010. |
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Loan Agreement with Seaside National Bank and Trust, dated October 25, 2010. |
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Promissory Note with Seaside National Bank and Trust, dated October 25, 2010. |
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Amended and Restated Loan and Security Agreement with BlueCrest Venture Finance Master Fund Limited, dated October 25,
2010. |
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Form of Subscription Agreement, executed November 30, 2010. |
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Form of Common Stock Purchase Warrant, issued November 30, 2010. |
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Form of Registration Rights Agreement, dated November 30, 2010. |
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Unsecured Convertible Promissory Note for $25,000, with Magna Group, LLC, dated January 3, 2011. |
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Promissory Note for $139,728.82 with Magna Group, LLC, dated January 3, 2011. |
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Securities Purchase Agreement with Magna Group, LLC, dated January 3, 2011. |
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Subordination Agreement, dated January 3, 2011. |
40
Exhibit No.
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Exhibit Description
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Notice of Conversion Election, dated January 3, 2011. |
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Unsecured Convertible Promissory Note for $34,750, with Magna Group, LLC, dated May 16, 2011. |
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Promissory Note for $139,728.82 with Magna Group, LLC, dated May 16, 2011. |
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Securities Purchase Agreement with Magna Group, LLC, dated May 16, 2011. |
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Subordination Agreement, dated May 16, 2011. |
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Promissory Note for $139,728.82 with Lotus Funding Group, LLC, dated June 15, 2011. |
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Partial Assignment and Modification Agreement, dated June 15, 2011. |
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Subordination Agreement, dated June 15, 2011. |
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Promissory Note for $140,380.21 with Greystone Capital Partners, dated July 8, 2011. |
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Partial Assignment and Modification Agreement, dated July 8, 2011. |
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Subordination Agreement, dated July 8, 2011. |
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Promissory Note for $139,728.82 with Greystone Capital Partners, dated August 1, 2011. |
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Partial Assignment and Modification Agreement, dated August 1, 2011. |
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Subordination Agreement, dated August 1, 2011. |
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Promissory Note for $139,728.82 with Greystone Capital Partners, dated September 1, 2011. |
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Partial Assignment and Modification Agreement, dated September 1, 2011. |
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Subordination Agreement, dated September 1, 2011. |
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Standby Equity Distribution Agreement dated as of November 2, 2011. |
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Registration Rights Agreement dated as of November 2, 2011. |
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Promissory Note for $139,728.82 with Greystone Capital Partners, dated January 3, 2012 |
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Term Note B Promissory Note for $139,728.82 with Greystone Capital Partners, dated January 3, 2012 |
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Unsecured Convertible Promissory Note for $63,000, with Asher Enterprises, Inc. dated April 2, 2012 |
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Unsecured Convertible Promissory Note for $125,000, with IBC Funds LLC., dated January 9, 2013 |
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Unsecured Convertible Promissory Note for $37,500, with Asher Enterprises, Inc. dated February 20, 2013 |
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Unsecured Convertible Promissory Note for $42,500, with Asher Enterprises, Inc. dated January 9, 2013 |
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2013 Bioheart, Inc. Omnibus Equity Compensation Plan |
41
Exhibit No.
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Exhibit Description
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Limited Waiver and Forbearance Agreement and Amendment to Limited Waiver and Forbearance Agreement dated October 1, 2012 and
September 17, 2014, respectively. |
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Securities Purchase Agreement, dated as of October 7, 2014, by and between Magna Holdings I, LLC and Bioheart,
Inc. |
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Registration Rights Agreement, dated as of October 7, 2014, by and between Magna Holdings I, LLC and Bioheart,
Inc. |
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Common Stock Purchase Agreement, dated as of October 23, 2014, by and between Magna Equities II, LLC and Bioheart,
Inc. |
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Registration Rights Agreement, dated as of October 23, 2014, by and between Magna Equities II, LLC and Bioheart,
Inc. |
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Code of Ethics for Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar
functions |
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Code of Business Conduct and Ethics |
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Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 |
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Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
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XBRL Taxonomy Extension Schema Document |
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XBRL Taxonomy Calculation Linkbase Document |
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XBRL Taxonomy Labels Linkbase Document |
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XBRL Taxonomy Presentation Linkbase Document |
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XBRL Definition Linkbase Document |
(1)
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Incorporated by reference to the Companys Form S-1 filed
with the Securities and Exchange Commission (the SEC) on February 13, 2007. |
(2)
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Incorporated by reference to Amendment No. 1 to the
Companys Form S-1 filed with the SEC on June 5, 2007. |
(3)
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Incorporated by reference to Amendment No. 2 to the
Companys Form S-1 filed with the SEC on July 12, 2007. |
42
(4)
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Incorporated by reference to Amendment No. 3 to the
Companys Form S-1 filed with the SEC on August 9, 2007. |
(5)
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Incorporated by reference to Amendment No. 4 to the
Companys Form S-1 filed with the SEC on September 6, 2007. |
(6)
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Incorporated by reference to Amendment No. 5 to the
Companys Form S-1 filed with the SEC on October 1, 2007. |
(7)
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Incorporated by reference to Post-effective Amendment No. 1 to
the Companys Form S-1 filed with the SEC on October 11, 2007. |
(8)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on July 3, 2008. |
(9)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on August 8, 2008. |
(10)
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Incorporated by reference to the Companys Quarterly Report
on Form 10-Q filed with the SEC on August 14, 2008. |
(11)
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Incorporated by reference to the Companys Quarterly Report
on Form 10-Q filed with the SEC on November 14, 2008. |
(12)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on February 3, 2009. |
(13)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on April 8, 2009. |
(14)
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Incorporated by reference to the Companys Annual Report on
Form 10-K filed with the SEC on April 15, 2009. |
(15)
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Incorporated by reference to the Companys Annual Report on
Form 10-K/A filed with the SEC on April 30, 2009. |
(16)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on May 18, 2009. |
(17)
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Incorporated by reference to the Companys Quarterly Report
on Form 10-Q filed with the SEC on May 20, 2009. |
(18)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on July 9, 2009. |
(19)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on August 3, 2009. |
(20)
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Incorporated by reference to Exhibit 4.6 to the Companys
Post-Effective Amendment to Registration Statement on Form S-8/A, filed with the SEC on June 2, 2010. |
(21)
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Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed with the SEC on October 6, 2010. |
(22)
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Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on October 29, 2010. |
(23)
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|
Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on December 6, 2010. |
(24)
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|
Incorporated by reference to the Companys Current Report
on Form 8-K filed with the SEC on January 12, 2011. |
(25)
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|
Incorporated by reference to the Company Current Report on Form
8-K filed with the SEC on May 25, 2011 |
(26)
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Incorporated by reference to the Company Current Report on Form
8-K filed with the SEC on June 21, 2011 |
(27)
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|
Incorporated by reference to the Companys Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on August 15. 2011 |
43
(28)
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|
Incorporated by reference to the Companys 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)
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|
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 Registration Statement
on Form S-1/A filed with the SEC on February 8, 2012 |
(32)
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Incorporated by reference to the Company Annual Report on Form
10-K filed with the SEC on March 29, 2013 |
(33)
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Incorporated by reference to the Company Quarterly Report on
Form 10-Q filed with the SEC on May 9, 2013 |
(34)
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Incorporated by reference to the Company Current Report on Form
Pre-14C filed with the SEC on December 18, 2012 |
(35)
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Incorporated by reference to the Company Current Report on Form
8-K filed with the SEC on December 31, 2013 |
(36)
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Incorporated by reference to the Company Information Statement
on Form 14C filed with the SEC on October 10, 2014. |
(37)
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Incorporated by reference to the Company Current Report on Form
8-K filed with the SEC on October 24, 2014 |
Exhibit No.
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Exhibit Description
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Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 |
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Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
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XBRL Taxonomy Extension Schema Document |
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XBRL Taxonomy Calculation Linkbase Document |
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XBRL Taxonomy Labels Linkbase Document |
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XBRL Taxonomy Presentation Linkbase Document |
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XBRL Definition Linkbase Document |
44
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.
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Mike Tomas Chief Executive Officer & President and Principal Financial and Accounting Officer |
45
Exhibit 10.81
LIMITED WAIVER AND FORBEARANCE AGREEMENT
THIS LIMITED WAIVER AND FORBEARANCE AGREEMENT (the Agreement),
is dated as of October 1, 2012 (the Effective Date), by and between BioHeart, Inc., a
corporation organized under the laws of Florida (the BioHeart), and NorthStar Biotech Group, LLC,
a Florida limited liability company (NorthStar).
WHEREAS,
BioHeart is indebted to NorthStar, as successor
to Blue Crest Capital Finance, L.P. (Blue Crest) under a Loan and Security Agreement dated May
30, 2007(the Loan Agreement), which is evidenced by a promissory note dated June
1, 2007 from BioHeart to Blue Crest in the original principal amount of $5,000,000 (the Note);
and
WHEREAS,
the obligations evidenced by the Note are secured by, among other things, a lien in favor of Blue Crest on
the Collateral as defined in Paragraph 5.1 of the Loan Agreement(hereinafter, the Loan Agreement, Note and the Security Interest shall collectively
be referred to herein as the Loan Documents ); and
WHEREAS,
the Note requires that BioHeart make payments of principal and interest to Blue Crest on or before the
first (1st) day of each
calendar month beginning on first day of the first month following execution of the Loan Documents and ending on thirtysix month anniversary thereof (the
Maturity Date ); and
WHEREAS,
commencing on or about February 1, 2012, BioHeart failed to make required monthly payments of principal and
interest to Blue Crest under the Note, and instead made payments of interest only to Blue Crest from and after such date; and
WHEREAS,
on or about February 29, 2012, Blue Crest sold, assigned and transferred to NorthStar its right, title and
interest under the Loan Documents (the Loan Transfer Date ), whereby NorthStar
became the payee and holder of Blue Crest's right, title and interest in the Loan Documents and successor to Blue Crest's interests thereunder; and
WHEREAS,
following transfer of the Loan Documents, BioHeart and NorthStar have agreed to a restructuring of
BioHeart's obligations to NorthStar thereunder on the terms set-forth herein under which, among other things, NorthStar will forebear from exercising its rights
and remedies under the Loan Documents, and will agree to receive certain shares of stock in BioHeart in lieu of cash payments under the Loan Documents.
NOW, THEREFORE,
in consideration of the promises and the representations, warranties, covenants and agreements herein
contained, and intending to be legally bound hereby, BioHeart and NorthStar agree as follows:
1
ARTICLE I.
RECAPITALIZATION/FOREBEARANCE CONSIDERATION
Section 1.1 Recapitalization of
Defaulted Payments. On the Effective Date, all sums owed by BioHeart to NorthStar under the Loan
Documents for, among other things, principal, interest, late charges, default interest, penalties, professional fees, shall be added to the principal balance of
the Note and shall be recapitalized as the new principal
balance owed thereunder (the New Loan Balance ).
The maturity date of the Note shall be extended perpetually, and the obligations evidenced by the Note
shall be deemed to have been paid in full when the value of the consideration provided to NorthStar by BioHeart equals or exceeds the New Loan Balance and all
accrued and unpaid interest, costs and expenses (including, among others, legal fees) of any sort owed at the requested pay-off date (the
Accrued Expenses ). For purposes of clarity, the New
Loan Balance may be retired and paid in full when requested by BioHeart in writing, provided that the value of all consideration paid or provided by BioHeart to
NorthStar in cash or stock, shall equal or exceed the New Loan Balance and all Accrued Expenses. If a dispute exists as to the value of consideration provided
by BioHeart to NorthStar (for purposes of retirement of the New Loan Balance and the Accrued Expenses), the dispute shall be resolved with the assistance of an
investment banking firm or appraiser agreed to by and among the parties. If an agreement on the name/identity of an investment banker/appraiser cannot be
reached, one shall be appointed by the American
Arbitration Association (see Dispute section below).
Section 1.2 Consideration in Lieu
of Payments. Commencing on the Effective Date, the Loan Documents shall be modified to reflect
that BioHeart is relieved of making further payments of cash or cash equivalents to NorthStar thereunder. Instead, NorthStar shall receive the following
consideration in lieu of repayment of the obligations evidenced by the Loan Documents:
(a)
Unrestricted Common and
Preferred Stock. On the Effective Date, BioHeart shall convert the sum of two hundred and ten
thousand dollars ($210,000) from the Loan Documents, without any additional consideration, in exchange for the issuance to NorthStar of of 10,000,000 shares of
common stock, and 5,000,000 shares of preferred stock, at a price of $0.014 per share, such stock, based on the age of the debt and other factors pursuant to
Rule 144, shall be issued without the restrictive legend. Consequently, following this securities exchange, the New Loan Balance shall be reduced by two hundred
and ten thousand dollars ($210,000) . Such shares shall not be subject to dilution.
(b)
Unrestricted Preferred
Stock. NorthStar shall receive a distribution of additional, preferred shares in BioHeart equal in
lieu of payment in cash of accrued and unpaid interest on the New Loan Balance on each six (6) month anniversary of the Effective Date, which shall be payable
in shares of preferred stock in BioHeart. Such shares shall be issued without the restrictive legend provided that all factors underlying Rule 144 are
satisfied. As specified in Paragraph 1.4, interest shall accrue at the rate of twelve and eight-five hundreds of one percent (12.85%) per year on the principal
balance owed hereunder. Such shares shall not be subject to dilution.
2
(c)
New Lien on Assets. On the Effective Date,
BioHeart shall execute in favor of NorthStar a revised security agreement granting NorthStar a lien on the following assets of BioHeart, which do not presently
serve as security under the Loan Agreements: all patents, patent applications, trademarks, service marks, copyrights and intellectual property rights of any
nature, as well as the results of all clinical trials, know-how for preparing Myoblasts, old and new clinical data, existing approved trials, all right and
title to Myoblasts, clinical trial protocols and other rights and property interests as may be agreed to by the parties.
(d)
License Rights. On the Effective Date,
BioHeart shall provide NorthStar with a perpetual, license on products set-forth in Exhibit A for resale, relicensing and commercialization outside of the
United States. The license shall be set-forth in a written agreement between NorthStar and BioHeart, the terms of which shall be subject to negotiations (the
NorthStar License Agreement ). The license shall include, without limitation, the products in Exhibit A and all intellectual property rights owned by
BioHeart including, without limitation, patents, copyrights, trademarks, service marks and all other forms of intellectual property, and subject to industry
standard terms and conditions. Once BioHeart raises sufficient monies to conduct the BioHeart Phase II/III FDA-Approved Trials for MARVEL, NorthStar
shall receive a perpetual, license on products set-forth in Exhibit A for resale, relicensing and commercialization within the United States; and
(e)
Unrestricted Warrants for Additional Shares.
On the Effective Date, BioHeart shall issue NorthStar the right to receive 15,000,000 warrants for unrestricted common stock in BioHeart at a price of $0.014
per share. Such new shares shall not be subject to dilution.
Section 1.3 Royalty. In connection with the
transactions described in Paragraphs 1.1 and 1.2 above, and under the terms of the NorthStar License Agreement, NorthStar shall pay BioHeart a royalty of up to
eight (8%) percent on the revenues generated from the resale, relicensing and/or commercialization of the Products identified in Exhibit A to the NorthStar
License Agreement. After the New Loan Balance is paid in full, NorthStar shall pay BioHeart the following royalties:
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GROSS REVENUES PER YEAR
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ROYALTY
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Up to $1,000,000
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8%
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Between
$1,000,001
and
$2,000,000
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7%
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Between
$2,000,001
and
$3,000,000
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6%
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Between
$3,000,001
and
$4,000,000
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5%
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In excess of $4,000,000
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4%
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3
Section 1.4 Interest Accrual.
Commencing on the Effective Date, interest on the New Loan Balance shall accrue at the rate of twelve
and eighty-five hundreds of one percent (12.85%) per year on the principal balance owed hereunder.
ARTICLE II.
AGREEMENT TO WAIVE AND FORBEAR
Section 2.1 Waiver.
(a)
In connection with the consideration
provided by BioHeart to NorthStar hereunder, NorthStar shall waive, from the Effective Date
through to the earlier of termination or expiration of the Agreement, or satisfaction of the obligations evidenced thereunder (the
Agreement End Date ), any Default or Event of Default
that has arisen under the Loan Documents prior to the Effective Date hereof (the Waived
Matters ). >Notwithstanding the foregoing, Waived Matters shall not include Defaults or Events of Default that occur
subsequent to the Effective Date.
Section 2.2 Forbearance.
(a)
In exchange for the
payments made, and consideration provided under this Agreement, NorthStar shall forbear from taking or exercising any Enforcement Action in connection with the
Waived Matters (the Forbearance ). For purposes of this Agreement, the term
Enforcement Action means any and all action in a court of competent
jurisdiction or otherwise to enforce NorthStar's rights under the Loan Documents, Florida law or otherwise against BioHeart, and that may be subject of
attachment, garnishment or seizure or other remedy by NorthStar under the Loan Documents.
(b)
BioHeart agrees that all
consideration to be provided by it under Article I must be provided by it and received by NorthStar on a timely basis. Failure to timely provide any such
consideration on a timely basis shall constitute a breach of this Agreement. In such event, upon thirty (30) days' written notice to BioHeart, NorthStar may
terminate the Agreement and the waivers and forbearances hereunder, unless BioHeart cures the breach within such thirty (30) day period.
(c)
In the event that this
Agreement is breached, NorthStar reserves the exclusive right to accept or reject, in its sole discretion, any tendered cure of such breach if the cure is less
than the full amount owed to it under the terms of this Agreement, without prejudice of its rights.
(d)
BioHeart and NorthStar
agree that each and every payment, transfer, grant, pledge or other tender of consideration hereunder shall be applied as stated, and shall not be returned by
NorthStar in the event of BioHeart's breach of this Agreement.
4
(e)
Acceptance of funds under this
Agreement by NorthStar shall not constitute a waiver of any rights or defaults under the Loan Documents.
BioHeart agrees that, in the event of a breach of this Agreement, the debt owed to NorthStar under the Loan Documents has been properly accelerated, and is due
and owing in full in the amount stated herein.
Section 2.3 Further Action by
BioHeart. As soon as practicable after the Effective Date, BioHeart shall take all such further action, to facilitate or further effectuate the waiver of
the Waived Matters and the Forbearance as requested by NorthStar and as required to fulfill its obligations hereunder.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BIOHEART
BioHeart represents and warrants to NorthStar as
follows:
Section 3.1 Due Authorization and
Enforceability. This Agreement has been duly executed and delivered by BioHeart and, assuming due authorization, execution and delivery by NorthStar, is a
valid and binding obligation of BioHeart, enforceable against BioHeart in accordance with its terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally.
Section 3.2 Non-Contravention.
The execution and delivery by BioHeart of this Agreement does not and will not, with or without the giving of notice or the lapse of time, or both (i) result in
any violation of any terms of agreements to which BioHeart is bound; (ii) conflict with or result in a breach by BioHeart of the terms or provisions of, or
constitute a default under, any mortgage, deed of trust or other agreement or instrument to which he is a party or by which he or any of its properties or
assets is or are bound or affected; or (iii) violate or contravene any applicable law, rule or regulation or any decree, judgment or order of any court or
Governmental Body having jurisdiction over BioHeart or any of its properties or assets, except for such conflicts, breaches, defaults or violations as would not
have a material adverse effect on the financial condition of BioHeart, taken as a whole and, if anything, improves the financial condition of BioHeart. For
purposes of this Agreement, the term Governmental Body means any government or political subdivision thereof, whether federal, state, local or
foreign, or any agency or instrumentality of any such government or political subdivision thereof, or any federal or state court or arbitrator.
Section 3.3 Non-Assignment.
BioHeart has not assigned its rights, or delegated its duties, under the Loan Documents to any other person or entity.
5
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF NORTHSTAR
NorthStar, solely on its own behalf, represents and warrants to BioHeart as
follows:
Section 4.1 Ownership. NorthStar is the beneficial owner and holder of the Loan
Documents, >and has not assigned its right, title or interest therein to another person or entity.
Section 4.2 Terms of Agreement. The terms of this
Agreement were the result of negotiations between NorthStar and BioHeart, and each was given the opportunity to review and comment upon the proposed terms of
this Agreement with sophisticated counsel of its own choosing.
ARTICLE V.
CONDITIONS PRECEDENT TO EFFECTIVENESS
Section 5.1 This Agreement shall become effective on the date on which
the following conditions precedent shall have been satisfied or waived, as determined by NorthStar:
(a)
NorthStar shall have received this Agreement, duly executed and
delivered by BioHeart.
(b)
BioHeart shall have (i) made the transfers and grants required of
it to NorthStar on or prior to the Effective Date as specified in Article 1.
ARTICLE VI.
MISCELLANEOUS
Section 6.1 Costs, Expenses and Taxes. BioHeart shall pay NorthStar's fees, costs and
expenses (including, among others, legal fees) incurred in
connection with the preparation, execution and delivery of this Agreement. BioHeart shall also pay any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement.
Section 6.2 Survival of Representations. The representations, warranties, covenants
and agreements of BioHeart and NorthStar contained in this Agreement shall survive the consummation and
termination of this Agreement.
Section 6.3 Prior Agreements. This Agreement and the
other agreements contemplated hereby constitute the entire agreement between the parties concerning the subject matter hereof, and supersedes any prior
representations, understandings or agreements. There are no representations, warranties, agreements, conditions or covenants, of any nature whatsoever (whether
express or implied, written or oral) between the parties hereto with respect to such subject matter except as expressly set forth herein.
6
Section 6.4 Severability. The invalidity or unenforceability of any provision hereof
shall in no >way affect the validity or enforceability of any other provision or the validity and enforceability of
this Agreement in any other jurisdiction.
Section 6.5 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of Florida, without giving effect to applicable choice of law principles to the
extent that the application of the laws of another jurisdiction would result thereby. Lxclusive venue for any dispute resolution proceeding shall be Broward
County, Florida.
Section 6.6 Waiver of Jury Trial. Each of the parties
hereto irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this Agreement or the transactions contemplated hereby
and for any counterclaim therein.
Section 6.7 Headings. Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a part of, or affect the interpretation of, this Agreement.
Section 6.8 Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this
Agreement by signing any such counterpart. A facsimile or electronic mail transmission of this Agreement bearing a signature on behalf of a party hereto shall
be legal and binding on such party.
Section 6.9 Assignment; Binding Effect. BioHeart shall
not convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the express written consent of NorthStar. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement will limit
or otherwise restrict the ability of NorthStar to transfer the Loan Documents to another party.
Section 6.10 Waiver; Remedies. No delay on the part of
NorthStar in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of NorthStar of
any right, power or privilege under this Agreement, operate as a waiver of any other right, power or privilege of such party under this Agreement, nor shall any
single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other
right, power or privilege under this Agreement.
7
Section 6.11 Atnendment. This Agreement may be modified or amended, and any termhereof waived, only
by written agreement of all of the parties to this Agreement,
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, havecaused this Agreement to be executed by their respective duly authorized officers, as of the datefirst above written.
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NORTHSTAR BIOTECH GROUP, LLC
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By: |
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Name: Title: Managing Partner |
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BIOHEART, INC. |
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By:
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Name: Title: |
8
AMENDMENT TO
LIMITED WAIVER AND FORBEARANCE AGREEMENT
This amendment to the Limited Waiver
And Forbearance Agreement, as amended, (Amendment ) is made by and between NorthStar Biotech Group, LLC (NorthStar ) and Bioheart, Inc.
(BioHeart and collectively with Northstar, the Parties ).
WHEREAS, the NorthStar and BioHeart entered into a
Limited Waiver and Forbearance Agreement, on October 1, 2012, as subsequently modified (the Agreement ); and
WHEREAS, Northstar and
Bioheart now desire to further amend the Agreement.
NOW, THEREFORE, in
consideration of the mutual promises, covenants and conditions hereinafter set forth, the Parties hereto hereby agree as follows:
1.
Section 1.2(d) of the Agreement is
modified to read as follows:
License Rights.
On the Effective Date, BioHeart
shall provide NorthStar with a
perpetual license on products set-forth in
Exhibit A for resale, relicensing and commercialization outside the United States. The license shall be set-forth in a written agreement between NorthStar and
BioHeart, the terms of which shall be subject to negotiations (the NorthStar license Agreement ). The license shall include, without limitation, the
products in Exhibit A and all intellectual property rights owned by BioHeart including, without limitation, patents, copyrights, trademarks, service marks and
all other forms of intellectual property, and subject to industry standard terms and conditions. Once NorthStar provides a direct investment in the equity
securities of Bioheart such that the aggregate capital in such investment provides sufficient capital for the benefit of BioHeart in order to permit BioHeart to
satisfy the costs associated with conducting the BioHeart Phase II/III FDA- Approved Trials for MARVEL: NorthStar shall receive a perpetual license
on products set-forth in Exhibit A for resale, relicensing and commercialization within the United States; provided, however, that BioHeart may, in its sole
discretion, choose to decline such investment and retain the license. Bioheart agrees and acknowledges that if BioHeart chooses to decline the investment, and a
vote of the shareholders and/or the Board of Directors of Bioheart is required, the affiliates of NorthStar shall recuse themselves from any vote.
2.
Miscellaneous.
All capitalized terms used herein and not otherwise defined shall have the meanings assigned
in the Agreement as amended. Except as modified herein, all covenants, terms and conditions of the Agreement as amended shall remain in full force and effect,
which covenants, terms and conditions the parties hereby ratify and affirm. This Amendment may be executed in several counterparts, each one of which shall
constitute an original and all collectively shall constitute but one instrument.
SIGNATURES ON FOLLOWING
PAGE
1 | Page
Amendment To
Limited Waiver And Forbearance Agreement
by and between
NortbStar and BioHeart
IN WITNESS WHEREOF, the parties
here cause this Amendment to be duly executed as of the date first above written.
Bioheart, Inc.
By:
Name: Mike Tomas
Title: Chief Executive Officer
Date: 09/17/14
NorthStar Biotech Group, LLC:
By:
Name: Charles A. Hart
Title: Managing Member
Date:
09/18/14
2 | Page
Amendment To
Limited Waiver And Forbearance Agreement
by and between
NortbStar and BioHeart