UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 


 

 

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

 

 

For the fiscal year ended December 31, 2019

   

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

 

 

For the transition period from ________ to ___________

 

U.S. STEM CELL, INC.

(Exact name of registrant as specified in its charter)

 

FLORIDA

 

001-33718

 

65-0945967 

(State or other jurisdiction of

incorporation or organization)

 

 (Commission

file number)

 

(I.R.S. Employer

Identification No.)

 

1560 Sawgrass Corporate Pkwy

4th Floor, Sunrise, FL 33323

(Address of Principal Executive Offices)

 

(954) 835-1500

(Issuer’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

USRM

OTC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

 

(Check one):

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

As of June 28, 2019, the last trading day of registrant’s second fiscal quarter, the aggregate market value of the registrant’s common stock, $0.001 par value, held by non-affiliates, computed by reference to the closing sale price of the common stock reported on the OTC Markets, Inc., for the quarter ended June 30, 2019, was approximately $3,730,263. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. 

 

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of July 15, 2021 was 452,413,153.

 

Transitional Small Business Disclosure Format Yes ☐  No ☒

 

Documents Incorporated By Reference            None

 

 

 

U.S. STEM CELL, INC.

 

INDEX TO ANNUAL REPORT ON FORM 10-K
Fiscal Year Ended December 31, 2019

 

   

Page

     

PART I

Item 1.

Business

2

Item 1A.

Risk Factors

10

Item 1B.

Unresolved Staff Comments

15

Item 2.

Properties

15

Item 3.

Legal Proceedings

16

Item 4.

Mine Safety Disclosures

16

     

PART II

     

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

17

Item 6.

Selected Financial Data

18

Item 7.

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

18

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 8.

Financial Statements and Supplementary Data

28

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

28

Item 9A.

Controls and Procedures

29

Item 9B.

Other Information

30

     

PART III

     

Item 10.

Directors, Executive Officers and Corporate Governance

31

Item 11.

Executive Compensation

34

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

41

Item 13.

Certain Relationships and Related Transactions, and Director Independence

44

Item 14.

Principal Accounting Fees and Services

48

     

PART IV

     

Item 15.

Exhibits, Financial Statement Schedules

50

     

CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002

     

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as well as historical information. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from anticipated results, performance or achievements expressed or implied by such forward-looking statements. When used in this Annual Report on Form 10-K, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan,” “intend,” “may,” “will,” “expect,” “believe,” “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements, although some forward-looking statements are expressed differently. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity or our achievements or industry results, to be materially different from any future results, performance levels of activity or our achievements or industry results expressed or implied by such forward-looking statements. Such forward looking statements appear in Item 1- “Business” and Item 7-“Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Annual Report. Factors that could cause our actual results to differ materially from anticipated results expressed or implied by forward-looking statements include, among others:

 

• our ability to manage our business despite operating losses and cash outflows;

 

• our ability to obtain sufficient capital or strategic business arrangements to fund our operations and expansion plans, including meeting our financial obligations under various licensing and other strategic arrangements and the funding of our development programs;

 

• our ability to build and maintain the management and human resources infrastructure necessary to support the growth of our business;

 

• whether a large global market is established for our cellular-based products and services and our ability to capture a meaningful share of this market;

 

• the effect of any U.S. Food and Drug Administration rulings, rules and regulations;

 

• scientific and medical developments beyond our control;

 

• our ability to obtain and maintain, as applicable, appropriate governmental licenses, accreditations or certifications or comply with healthcare laws and regulations or any other adverse effect, actions,  or limitations caused by government regulation of our business;

 

• whether any of our current or future patent applications result in issued patents, the scope of those patents and our ability to obtain and maintain other rights to technology required or desirable for the conduct of our business;

 

• our ability to bring our filings with the Securities and Exchange Commission current and maintain current filings;

 

• the economic effects of the pandemic, the promptness of distribution of vaccines, domestically and internationally to limit the impact of COVID-19, the effect of new variants of COVID-19, and the short and long term economic impact of COVID-19 on the marketplace

 

The factors discussed herein, including those selected risks described in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings with the Securities and Exchange Commission (the “SEC”) which are available for review at www.sec.gov under “Search for Company Filings” could cause actual results and developments to be materially different from those expressed or implied by such statements. All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

Except as required by law, the Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Unless otherwise indicated or the context otherwise requires, all references in this Form 10-K to “we,” “us,” “our,” “our company,” “U.S. Stem Cell” or the “Company” refer to U.S. Stem Cell, Inc. and its subsidiaries.

 

 

 

PART I

 

Item 1. BUSINESS

 

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 disease and injury. We are also a regenerative medicine company specializing in physician/veterinary training and certification and stem cell products. Our lead cardiac product candidate is MyoCell™, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with autologous muscle cells, or cells from a patient’s body, for the purpose of improving cardiac function in chronic heart failure patients.  Our lead product for in clinic use was Adipocell, a proprietary kit for the isolation of adipose derived stem cells which, as of the date of this filing, is currently on hold.

 

Biotechnology Product Candidates

 

We are an enterprise in the regenerative medicine/cellular therapy industry. Our prior focus was on the discovery, development, and commercialization of cell based therapeutics. Our business included the development of proprietary cell therapy products, distribution of regenerative medicine products, as well as revenue generating physician and patient based regenerative medicine/cell therapy training services,

 

US Stem Cell Training, Inc. (“SCT”), an operating division of our company, is a content developer of regenerative medicine/cell therapy informational and training materials for physicians and patients. SCT also provides in-person and online training courses which are delivered through in-person presentations at SCT’s state of the art facilities and globally at university, hospital and physician’s office locations as well as through online webinars. Additionally, SCT provides hands-on clinical application training for physicians and health care professionals interested in providing regenerative medicine / cell therapy procedures.

 

Vet biologics, (“VBI”), an operating division of our company, is a veterinary regenerative medicine company committed to providing veterinarians with the ability to deliver the highest quality regenerative medicine therapies to dogs, cats and horses. VBI provides veterinarians with extensive regenerative medicine capabilities including the ability to isolate regenerative stem cells from a patient’s own adipose (fat) tissue directly on-site within their own clinic or stall-side.

 

During fiscal 2019, we had interests in US Stem Cell Clinic, LLC, (“SCC”), Regenerative Wellness Clinic, LLC, and US Stem Cell Clinic of the Villages, LLC as partially owned investments of our company (in which we had a 49.9%, 49.9% and 49% respectively member interests), which were physician run regenerative medicine/cell therapy clinics providing cellular treatments for patients afflicted with neurological, autoimmune, orthopedic and degenerative diseases. During the last quarter of 2019 (and in early 2021 in the case of SCC), we divested ourselves of our Member Interests in SCC and Regenerative Wellness Clinic, LLC , while and US Stem Cell Clinic of the Villages, LLC is currently dormant. .

 

U.S. Stem Cell’s comprehensive map of products and services:

 

 

USSTEM20191231_10KIMG001.GIF

 

 

2

 

U.S. Stem Cell, Inc. was incorporated in the State of Florida in August 1999 as Bioheart, Inc. In 2015, we changed our name to U.S. Stem Cell, Inc. Our principal executive offices are located at 1560 Sawgrass Corporate Parkway 4th FL, Sunrise FL 33323 and our telephone number is (954) 835-1500. Information about us is available on our corporate websites at www. us-stemcell.com. We include our website addresses in the Annual Report on Form 10-K only as an interactive textual reference and do not intend it to be an active link to our website. The information on our websites is expressly not incorporated by reference in the Annual Report on Form 10-K.

 

The Annual Report includes the following trademarks, service marks and trade names owned by the Company: U.S. Stem Cell, Inc. ™, US Stem Cell Training, Vetbiologics, MyoCell ™ and Adipocell ™. These trademarks, service marks and trade names are the property of U.S. Stem Cell, Inc. and its affiliates.

 

REGENERATIVE MEDICINE / CELL THERAPY INDUSTRY

 

Regenerative medicine is defined as the process of replacing or regenerating human cells, tissues or organs to restore normal function. Among the categories of therapeutic technology platforms within this field are cell therapy; tissue engineering; tools, devices and diagnostics; and aesthetic medicine. U.S. Stem Cell’s business model is focused on two of these areas. First, cell therapy, in which we introduce cells (adult, donor or patient, stem cell or differentiated) into the body to prevent and treat disease; and second, we are a provider of services and products to physicians and veterinaries who provide or seek to provide cellular therapies and direct patient care for individuals and animals who may benefit from cellular therapy.

 

All living complex organisms start as a single cell that replicates, differentiates (matures) and perpetuates in an adult organism through its lifetime. Cellular therapy is the process that uses cells to prevent, treat or cure disease, or regenerate damaged or aged tissue. To date, the most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, first bone marrow and then blood and umbilical cord-derived stem cells have been used to restore bone marrow, as well as blood and immune system cells damaged by the chemotherapy and radiation that are used to treat many cancers. These types of cell therapies are standard practice world-wide and are typically reimbursed by insurance.    

 

Within the field of cell therapy, research and development using stem cells to treat a host of diseases and conditions has greatly expanded. Stem cells (in either embryonic or adult forms) are primitive and undifferentiated cells that have the unique ability to transform into or otherwise affect many different cells, such as white blood cells, nerve cells or heart muscle cells. U.S. Stem Cell’s cell therapy development efforts are focused on the use of adult stem cells; those cells which are found in the muscle, fat tissue and peripheral blood.

 

There are two general classes of cell therapies: Patient Specific Cell Therapies (“PSCTs”) and Off-the-Shelf Cell Therapies (“OSCTs”). In PSCTs, cells collected from a person (“donor”) are transplanted, with or without modification, to a patient (“recipient”). In cases where the donor and the recipient are the same individual, these procedures are referred to as “autologous”. In cases in which the donor and the recipient are not the same individual, these procedures are referred to as “allogeneic.” Autologous cells offer a low likelihood of rejection by the patient and we believe the long-term benefits of these PSCTs can best be achieved with an autologous product. In the case of OSCT, donor cells are expanded many fold in tissue culture, and large banks of cells are frozen in individual aliquots that may result in treatments, in our observation, for as many as 10,000 people from a single donor tissue. By definition, OSCTs are always allogeneic in nature.

 

3

 

CELLULAR THERAPY PRODUCT DEVELOPMENT PIPELINE

 

Specific to cellular therapy, we are focused on the discovery, development and commercialization of autologous cellular therapies for the treatment of chronic and acute heart damage as well as vascular and autoimmune diseases.

 

In our pipeline, subject to development based on future financing, we have multiple product candidates for the treatment of heart damage, including MyoCell™ and Myocell SDF-1. MyoCell and MyoCell SDF-1 are autologous muscle-derived cellular therapies designed to populate regions of scar tissue within a patient’s heart with new living cells for the purpose of improving cardiac function in chronic heart failure patients. 

 

MyoCell SDF-1 is intended to be an improvement to MyoCell™. MyoCell SDF-1 is similar to MyoCell but the myoblast cells to be injected for use in MyoCell SDF-1 are 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.

 

At present, our development pipeline is on hold.

 

STATUS OF CELLULAR THERAPY PRODUCT DEVELOPMENT CLINICAL TRIALS.

 

MyoCell/MyoCell SDF-1

 

MyoCell™ is a regenerative, cellular therapy intended to improve cardiac function for those with congestive heart failure and is designed to be utilized months or even years after a patient has suffered severe heart damage due to a heart attack or other cause. We believe that MyoCell has the potential to become a leading treatment for severe, chronic damage to the heart due to its perceived ability to satisfy, at least in part, what we believe to be an unmet demand for more effective and/or more affordable therapies for chronic heart damage. MyoCell™  uses myoblasts, cells that are precursors to muscle cells, from the patient’s own body. The myoblasts are removed from a patient’s thigh muscle, isolated, grown through our proprietary cell culturing process, and injected directly in the scar tissue of a patient’s heart. A qualified physician performs this minimally invasive procedure using an endoventricular catheter. We entered into an agreement with Biosense Webster (a Johnson & Johnson company) to use its NOGA® Cardiac Navigation System along with its MyoStar™ injection catheter for the delivery of MyoCell™ in the MARVEL Trial.

 

When injected into scar tissue within the heart wall, myoblasts have been shown to be capable of engrafting in the damaged tissue and differentiating into mature skeletal muscle cells. In a number of clinical and animal studies, the engrafted skeletal muscle cells have been shown to express various proteins that are important components of contractile function. By using myoblasts obtained from a patient’s own body, we believe MyoCell™ is able to avoid certain challenges currently faced by other types of cell-based clinical therapies including tissue rejection and instances of the cells differentiating into cells other than muscle. Although a number of therapies have proven to improve the cardiac function of a damaged heart, no currently available competing treatment, to our knowledge, has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart as MyoCell™ has demonstrated.

 

Our completed clinical trials of MyoCell™ were primarily targeted to patients with severe, chronic damage to the heart, who are in Class II or Class III heart failure according to the New York Heart Association, or NYHA, heart failure classification system. The NYHA system classifies patients in one of four categories based on how limited they are during physical activity. NYHA Class II heart failure patients have a mild limitation of activity and are generally comfortable at rest or with mild exertion while NYHA Class III heart failure patients suffer from a marked limitation of activity and are generally comfortable only at rest.

 

We believe the market for treating patients in NYHA Class II or NYHA Class III heart failure is significant. According to the American Heart Association (“AHA”) Statistics and the European Society of Cardiology Task Force for the Treatment of Chronic Heart Failure, in the United States and Europe there are approximately 5.2 million and 9.6 million, respectively, patients with heart failure. The AHA Statistics further indicate that, after heart failure is diagnosed, the one-year mortality rate is high, with one in five dying and that 80% of men and 70% of women under age 65 who have heart failure will die within eight years.

 

We believe that approximately 60% of heart failure patients are in either NYHA Class II or NYHA Class III heart failure based upon a 1999 study entitled “Congestive Heart Failure Due to Diastolic or Systolic Dysfunction – Frequency and Patient Characteristics in an Ambulatory Setting” by Diller, PM, et. al.

 

4

 

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.

 

We have completed various clinical trials for MyoCell™ including 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 U.S. Food and Drug Administration, or the “FDA”, to proceed with a 330-patient, multicenter Phase II/III trial of MyoCell™ in North America and Europe, or the “MARVEL Trial”. We completed the MyoCell™ implantation procedure on the first patient in the MARVEL Trial on October 24, 2007. Thus far, 20 patients, including 6 control patients, have been treated. Initial results for the 20 patients were released at the Heart Failure Society of American meeting in 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.

 

Advancement of the MyoCell™ and MyoCell™ SDF-1 clinical development programs is contingent, among many factors, upon the Company obtaining access to sufficient funding to execute the necessary clinical trials to achieve proof of efficacy and regulatory authorization to market such products.. No assurances can be provided that such development programs will be realized. 

 

Adipocell

 

Adipocell, a proprietary kit for the isolation of adipose derived stem cells which, as of the date of this filing, is currently on hold.

 

Business Strategy

 

U.S. Stem Cell’s mission is to advance to market novel regenerative medicine and cellular therapy products that substantially benefit humankind. Our business strategy is, to the extent possible, finance our clinical development pipeline through revenue (cash in-flows) generated through the marketing and sales of unique educational and training services, animal health products and distribution of products in the industry.

 

A fundamental shift in venture capital investment strategies where, management believes, financial sponsorship is now directed toward commercial or near commercial enterprises has required U.S. Stem Cell to adapt its mission combining immediate revenue generating opportunities with longer-term development programs. Accordingly, U.S. Stem Cell developed a multifaceted portfolio of revenue generating products and services in its US Stem Cell Training and Vetbiologics, operating divisions that will, if successful, financially support its clinical development programs. Our goal is to maximize shareholder value through the generation of short-term profits that increase cash in-flows and decrease the need venture financings – a modern biotechnology company development strategy. On May 9, 2018, the U.S. Department of Justice filed an injunctive action, specifically United States of America v. U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., Kristin C. Comella, and Theodore Gradel. The Complaint was filed at the request of the U.S. Food and Drug Administration (FDA) and alleges that the respective defendants manufacture “stromal vascular fraction” (SVF) products from patient adipose (fat) tissue, which the companies then market as stem cell-based treatments without first obtaining what the government alleges are necessary FDA approvals. The Company has retained counsel to defend in this action. On June 25, 2019, the federal court for the Southern District of Florida ruled in favor of the government, enjoining the Company and the other defendants from certain product sales and processes. The Company filed an appeal on August 23, 2019 and attended oral argument on January 13, 2021. On June 2, 2021, the Eleventh Circuit Court ruled to affirm lower courts’ judgement. The Company did not challenge the district court’s judgment upon any other ground. The Company is not able to predict the duration, scope, results, or consequences of the U.S. Department of Justice actions and final rulings and management is assessing its options on a going forward basis.

 

5

 

We will continue to evaluate and act upon opportunities to increase our top line revenue position and that correspondingly increase cash in-flows. These opportunities include but are not limited to the development and marketing of new products and services, mergers and acquisitions, joint ventures, licensing deals and more.

 

Further, if the opportunity presents itself whereby the Company can raise additional capital at a reasonable fair market value, the Company will do so. Accordingly, we plan to continue in our efforts to restructure, equitize or eliminate legacy balance sheet issues that are obstacles to market capitalization appreciation and capital fund raising.

 

US STEM CELL TRAINING

 

US Stem Cell Training offers a variety of courses for physicians and other health care professionals. These courses include didactic lecture series and hands-on clinical techniques in the field of regenerative medicine. We are currently hosting these courses throughout the United States and in multiple countries. These courses are also available in an online format. Pricing currently ranges from $500-$7,500 depending on the location and modules.

 

U.S. STEM CELL, INC.

 

U.S. Stem Cell markets several products to physicians for in clinic regenerative medicine use. These products include equipment (centrifuges, heating block, laminar hood, autoclave) for laboratory use. We are also providing a variety of materials necessary to obtain bone marrow including, trocars, syringes and other supplies.

 

VETBIOLOGICS

 

Vetbiologics is focused on providing regenerative medicine therapies to veterinarians for use in both small and large animals. We provide a complete regenerative medicine package which includes training, equipment and supplies necessary for in clinic cell therapy. We sell kits for isolating stem cells from bone marrow and fat. We also provide kits for isolating platelet rich plasma. The kits include all of the disposables and reagents necessary. Vetbiologics is also working on several off the shelf type products including an allogeneic stem cell source.

 

GENERAL AMERICAN CAPITAL PARTNERS

 

On March 3, 2017, we entered into an asset sale and lease agreement (sale/leaseback transaction; “Asset Sale and Lease Agreement”), with GACP (General American Capital Partners) Stem Cell Bank LLC, a Florida limited liability company (“GACP) whereby we sold certain lab, medical and other equipment relating to the cell banking business for $400,000 and leased back the sold equipment over a three year term.  The lease includes a base monthly rental payment of $20,000, due the first day of each calendar month.  In addition, we are required to pay 2.3%, 22.5% and 31.6% of revenues collected on deposits arising from cell banking business for years 1, 2 and 3, respectively.  At the expiration of the lease, we returned all leased equipment and along with any maintenance records, logs, etc. in our  possession to the lessor with no right of repurchase. Further, as a consequence of the Court Order , the Company resolved to divest itself of certain equipment and other assets (the “Equipment Assets”) used in connection with the Company’s human tissue banking business, but consistent however with the requirements of the Court Order, and to adjust the business plan and operations to accommodate this potential divesture. The divestiture became effective October 10th, 2019.

 

6

 

Royalty Agreement/Middle East

 

On November 9, 2016, the Company entered into an Intellectual Property License Agreement whereby the Company granted High Rise Group Company the exclusive right to the Company’s intellectual property (as defined) for the licensed use and development in Kuwait and other GCC/Middle East countries for 25 years in exchange for a payment of $75,000 and a 5% royalty generated under the agreement.  The royalty payment is recorded as deferred revenue and amortized over the term of the agreement.  The carrying balance as of December 31, 2019 and 2018 was $65,500 and $68,500, respectively.

 

The intent is for U.S. Stem Cell Middle East to offer regenerative treatment options to patients, based on U.S. Stem Cell, Inc. products and technologies like MyoCell™. To date, the first clinic in Kuwait City has been completed but has not begun operations as High Rising Group has not yet been able to secure regulatory approvals to operate.

 

Historic Subsidiaries:

 

During fiscal 2019, we had interests in US Stem Cell Clinic, LLC, (“SCC”), Regenerative Wellness Clinic, LLC, and US Stem Cell Clinic of the Villages, LLC as partially owned investment of our company (in which we had a 49.9%, 49.9% and 49% respectively member interests), which were physician run regenerative medicine/cell therapy clinics providing cellular treatments for patients afflicted with neurological, autoimmune, orthopedic and degenerative diseases. . During the last quarter of 2019 (and in early 2021 in the case of SCC), we divested ourselves of our Member Interests in SCC and Regenerative Wellness Clinic, LLC , while and US Stem Cell Clinic of the Villages, LLC is currently dormant.

 

The following is a description of such subsidiaries when they were subsidiaries of our company is fiscal 2019 (the Company is not providing any update since divesting itself of the Member Interests in such subsidiaries; all information provided is limited to their relevance to the business of the Company in fiscal 2019:

 

U.S. STEM CELL, INC.

 

U.S. Stem Cell markets several products to physicians for in clinic regenerative medicine use. These products include equipment (centrifuges, heating block, laminar hood, autoclave) necessary to separate and obtain cellular medicine therapies. We are also providing a variety of materials necessary to obtain fat and/or bone marrow including cannulas, trocars, syringes and other supplies. U.S. Stem Cell also supplies laboratory kits for processing adipose and bone marrow tissue to obtain a mixture of cells for use in clinic. These kits include disposables and reagents. U.S. Stem Cell also provides banking services to patients interested in storing their fat or bone marrow and the cells from this tissue. U.S. Stem Cell is a registered FDA tissue bank in good standing.

 

US STEM CELL CLINIC, LLC, REGENERATIVE WELLNESS CLINIC, LLC and US STEM CELL OF THE VILLAGES, LLC

 

US Stem Cell Clinic LLC, Regenerative Wellness Clinic LLC and US Stem Cell of the Villages LLC, partly owned investments, are offering in-clinic regenerative medicine treatments to patients suffering from degenerative diseases. Adipose stem cells can be obtained from the patient easily, abundantly, and with minimal patient discomfort. Clinical applications for patients can be performed in an office setting using autologous adipose-derived stem cells. Current applications include orthopedic conditions (tendon/ligament injuries, osteoarthritis, etc.), degenerative conditions (COPD, diabetes), neurological (MS, Parkinson’s, spinal cord injuries, autism, etc.) and auto-immune (RA, Crohn’s, colitis, lupus). Pricing depends on application and ranges from $5,000 to $12,000. We will provide operating assistance as well as management services to US Stem Cell of the Villages LLC, the latter to be compensated at fee of five percent (5%) of the LLC gross revenues. During the last quarter of 2019 (and in early 2021 in the case of SCC), we divested ourselves of our Member Interests in SCC and Regenerative Wellness Clinic, LLC , while and US Stem Cell Clinic of the Villages, LLC is currently dormant.

 

Patents and Proprietary Rights

 

We own or hold licenses or sublicenses to an intellectual property portfolio consisting of numerous patents and patent applications in the United States, and in foreign countries, for use in the field of heart muscle regeneration. References in this report to “our” patents and patent applications and other similar references include the patents and patent applications that are owned by us, and references to patents and patent applications that are “licensed” to us and other similar references refer to patents, patent applications and other intellectual property that are licensed or sublicensed to us.

 

7

 

Patent life determination depends on the date of filing of the application or the date of patent issuance and other factors as promulgated under the patent laws. Under the U.S. Drug Price Competition and Patent Term Restoration Act of 1984, as amended, a patent which claims a product, use or method of manufacture covering drugs and certain other products, including biologic products, may be extended for up to five years to compensate the patent holder for a portion of the time required for research and FDA review of the product. Only one patent applicable to an approved drug or biologic product is eligible for a patent term extension. This law also establishes a period of time following approval of a drug or biologic product during which the FDA may not accept or approve applications for certain similar or identical drugs or biologic products from other sponsors unless those sponsors provide their own safety and efficacy data.

 

MyoCell™ is no longer protected by patents, which means that competitors will be free to sell products that incorporate the same or similar technologies that are used in MyoCell™ without infringing our patent rights. As a result, MyoCell, if approved for use, may be vulnerable to competition. In addition, many of the patent and patent applications that have been licensed to us that pertain to our other product candidates do not cover certain countries within Europe.

 

Our commercial success will depend to a significant degree on our ability to:

 

defend and enforce our patents and/or compel the owners of the patents licensed to us to defend and enforce such patents, to the extent such patents may be applicable to our products and material to their commercialization;

obtain additional patent and other proprietary protection for MyoCell™ and our other product candidates;

obtain and/or maintain appropriate licenses to patents, patent applications or other proprietary rights held by others with respect to our technology, both in the United States and other countries; and

preserve company trade secrets and other intellectual property rights relating to our product candidates; and operate without infringing the patents and proprietary rights of third parties.

 

In addition to patented intellectual property, we also rely on our own trade secrets and proprietary know-how to protect our technology and maintain our competitive position, since patent protection may not be available or applicable to our technology.  Our policy is to require each of our employees, consultants and advisors to execute a confidentiality and inventions assignment agreement before beginning their employment, consulting or advisory relationship with us. The agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual’s relationship with us except in limited circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the course of rendering services to us. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to which we have rights, which may impair our ability to protect our proprietary information or obtain patent protection in the future.

 

We work with others in our research and development activities and one of our strategies is to enter into collaborative agreements with third parties to develop our proposed products. Disputes may arise about inventorship and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us and our licensors, collaborators, consultants and others. In addition, other parties may circumvent any proprietary protection we do have. As a result, we may not be able to maintain our proprietary position.

 

We are not currently a party to any litigation or other adverse proceeding challenging our patents, patent licenses or intellectual property rights. However, if we become involved in litigation or any other adverse intellectual property proceeding, for example, as a result of an alleged infringement, or a third party alleging an earlier date of invention, we may have to spend significant amounts of money and time and, in the event of an adverse ruling, we could be subject to liability for damages, including treble damages, invalidation of our intellectual property and injunctive relief that could prevent us from using technologies or developing products, any of which could have a significant adverse effect on our business, financial condition and results of operation.

 

In addition, any claims relating to the infringement of third party proprietary rights, or earlier date of invention, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert management’s attention and resources and require us to enter royalty or license agreements which are not advantageous, if available at all.

 

See Item 1A. “Risk Factors — Risks Related to Our Intellectual Property” for a discussion of additional risks we face with respect to our intellectual property rights.

 

8

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the website at http://www.sec.gov. The public may also read and copy any document we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

 

9

 

Item 1A. Risk Factors

 

The risk factors required pursuant to Regulation S-K, Item 503(c) are not required for smaller reporting companies. Accordingly, the Company has determined to provide particular risk factors at this time. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition. If any events described in the risk factors actually occur, our business, operating results, prospects and financial condition could be materially harmed. In connection with the forward looking statements that appear elsewhere in this annual report, you should also carefully review the cautionary statement referred to under “Cautionary Note Regarding Forward Looking Statements.”

 

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.

 

Risks Related to Our Financial Position and Need for Additional Financing

 

We will need to secure additional financing in 2019 in order to continue to finance our operations. If we are unable to secure additional financing on acceptable terms, or at all, we may be forced to curtail or cease our operations.

 

As of December 31, 2019, the Company had a bank overdraft of $1,520 and a working capital deficit (current liabilities in excess of current assets) of $8,684,422. During the year ended December 31, 2019, the net loss was $3,835,337 and net cash used in operating activities was $1,210,994. As such, our existing cash resources are insufficient to finance even our immediate operations. Accordingly, we will need to secure additional sources of capital to develop our business and product candidates as planned. We are seeking substantial additional financing through public and/or private financing, which may include equity and/or debt financings, research grants and through other arrangements, including collaborative arrangements.

 

As part of such efforts, we may seek loans from certain of our executive officers, directors and/or current shareholders. We may also seek to satisfy some of our obligations to the guarantors of our loan with Seaside National Bank & Trust, or the Guarantors, through the issuance of various forms of securities or debt on negotiated terms. On January 3, 2018, the Company renewed the loan with Seaside National Bank and Trust extends the maturity date to May 18, 2020, all other terms and conditions remain unchanged. On May 18, 2020, the Seaside loan was turned into a Demand Note with no fixed maturity date but with a redocumentation requirement every four years. The new redocumentation deadline is May 2022. However, financing and/or alternative arrangements with the Guarantors may not be available when we need it, or may not be available on acceptable terms.

 

If we are unable to secure additional financing in the near term, we may be forced to:

 

 

curtail or abandon our existing business plans;

 

reduce our headcount;

 

default on our debt obligations;

 

file for bankruptcy;

 

seek to sell some or all of our assets; and/or

 

Cease our operations.

 

If we are forced to take any of these steps, any investment in our common stock may be worthless.

 

If we raise additional capital and/or secure alternative arrangements, with the Guarantors or otherwise, by issuing equity, equity-related or convertible securities, the economic, voting and other rights of our existing shareholders may be diluted, and those newly issued securities may be issued at prices that are a significant discount to current and/or then prevailing market prices. In addition, any such newly issued securities may have rights superior to those of our common stock. If we obtain additional capital through collaborative arrangements, we may be required to relinquish greater rights to our technologies or product candidates than we might otherwise have or become subject to restrictive covenants that may affect our business.

 

10

 

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

 

Our independent registered public accounting firm issued its report dated July 15th, 2021 in connection with the audit of our financial statements as of December 31, 2019, which included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern. In addition, the notes to our financial statements for the year ended December 31, 2019 included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. If we are not able to continue as a going concern, it is likely that holders of our common stock will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We are a development stage life sciences company with a limited operating history and a history of net losses and negative cash flows from operations. We may never be profitable, and if we incur operating losses and generate negative cash flows from operations for longer than expected, we may be unable to continue operations.

 

We are a development stage life sciences company and have a limited operating history, limited capital, limited sources of revenue, and have incurred losses since inception. Our operations to date have been limited to organizing our company, developing and engaging in clinical trials of our MyoCell™ product candidate, expanding our pipeline of complementary product candidates through internal development and third party licenses, expanding and strengthening our intellectual property position through internal programs and third party licenses and recruiting management, research and clinical personnel. Consequently, it may be difficult to predict our future success or viability due to our lack of operating history. As of December 31, 2018, we have accumulated a deficit of approximately $133.6 million. Our MyoCell™ product candidate has not received regulatory approval or generated any material revenues and is not expected to generate any material revenues until commercialization of MyoCell, if ever.

 

Our ability to continue generating revenues from any of our product candidates will depend on a number of factors, including our ability to successfully complete clinical trials, obtain necessary regulatory approvals and implement our commercialization strategy. In addition, even if we are successful in obtaining necessary regulatory approvals and bringing one or more product candidates to market, we will be subject to the risk that the marketplace will not accept those products. We may, and anticipate that we will need to, transition from a company with a research and development focus to a company capable of supporting commercial activities and we may not succeed in such a transition.

 

Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable. Our failure to successfully commercialize our product candidates or to become and remain profitable could impair our ability to raise capital, expand our business, diversify our product offerings and continue our operations.

 

Risks Related to Product Development

 

All of our product candidates are in an early stage of development and we may never succeed in developing and/or commercializing them. We depended heavily on the success of our MyoCell product candidate. If we are unable to commercialize any of our other product candidates or experience significant delays in doing so, our business may fail.

 

 

We have invested a significant portion of our efforts and financial resources in our MyoCell™ product candidate and depended heavily on its success. MyoCell™ was in the clinical testing stage of development, although we have suspended work under our clinical trials.

 

 

We need to devote significant additional research and development, financial resources and personnel to develop commercially viable products, obtain regulatory approvals and establish a sales and marketing infrastructure.

 

 

We are likely to encounter hurdles and unexpected issues as we proceed in the development of our other product candidates. There are many reasons that we may not succeed in our efforts to develop our product candidates, including the possibility that:

 

 

our product candidates will be deemed ineffective, unsafe or will not receive regulatory approvals;

 

11

 

 

our product candidates will be too expensive to manufacture or market or will not achieve broad market acceptance

 

 

others will hold proprietary rights that will prevent us from marketing our product candidates; or

 

 

our competitors will market products that are perceived as equivalent or superior.

 

Our approach of using cell-based therapy for the treatment of heart damage is risky and unproven and no products using this approach have received regulatory approval in the United States or Europe.

 

No company, to our knowledge, has yet been successful in its efforts to obtain regulatory approval in the United States or Europe of a cell-based therapy product for the treatment of heart damage. Cell-based therapy products, in general, may be susceptible to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy or other characteristics that may prevent or limit their approval by regulators or commercial use. Many companies in the industry have suffered significant setbacks in advanced clinical trials, despite promising results in earlier trials.

 

One of our competitors exploring the use of skeletal myoblasts ceased enrolling new patients in its European Phase II clinical trial based on the determination of its monitoring committee that there was a low likelihood that the trial would result in the hypothesized improvement in heart function. Although our clinical research to date suggests that MyoCell™ may improve the contractile function of the heart, we have not yet been able to demonstrate a mechanism of action and additional research is needed to precisely identify such mechanism.

 

U.S. Food and Drug Administration injunction has curtailed our business.

 

On May 9, 2018, the U.S. Department of Justice filed an injunctive action, specifically United States of America v. U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., Kristin C. Comella, and Theodore Gradel. The Complaint was filed at the request of the U.S. Food and Drug Administration (FDA) and alleges that the respective defendants manufacture “stromal vascular fraction” (SVF) products from patient adipose (fat) tissue, which the companies then market as stem cell-based treatments without first obtaining what the government alleges are necessary FDA approvals. The Company  retained counsel to defend in this action. On June 25, 2019, the federal court for the Southern District of Florida ruled in favor of the government, enjoining the Company and the other defendants from certain product sales and processes. The Company filed an appeal on August 23, 2019 and attended oral argument on January 13, 2021. On June 2, 2021, the Eleventh Circuit Court ruled to affirm lower courts’ judgement. The Company did not challenge the district court’s judgment upon any other ground. The Company is not able to predict the duration, scope, results, or consequences of the U.S. Department of Justice actions and final rulings and management is assessing its options on a going forward basis.

 

Healthcare reform could substantially reduce our revenues, earnings and cash flows.

 

We cannot predict how employers, private payors or persons buying insurance might react to the changes brought on by broad U.S. healthcare reform legislation or what form many of these regulations will take before implementation. The healthcare reform legislation, enacted in 2010, introduced healthcare insurance exchanges which provide a marketplace for eligible individuals and small employers to purchase healthcare insurance. While patients have begun receiving insurance coverage through these exchanges, the business and regulatory environment for these exchanges continues to evolve as the exchanges mature. Additionally, there is uncertainty about how the applicable state and federal agencies will enforce regulations relating to the exchanges. There is also a considerable amount of uncertainty as to the prospective implementation of the federal healthcare reform legislation and what similar measures might be enacted at the state level. There have been multiple attempts through legislative action and legal challenges to repeal or amend the Patient Protection and Affordable Care Act of 2010, as modified by the Health Reform Acts, including the case that was recently heard by the U.S. Supreme Court, King v. Burwell. Although the Supreme Court upheld the provision by the federal government of subsidies to individuals in federally facilitated healthcare exchanges in Burwell, which ultimately did not disrupt significantly the implementation of the healthcare reform legislation, we cannot predict whether other current or future efforts to repeal or amend these laws will be successful, nor can we predict the impact that such a repeal or amendment would have on our business and operations, or on our revenues and earnings. In addition, in the last year, the executive branch and Congress have taken actions to weaken or modify the Affordable Care Act. The enacted reforms,  future legislative changes, as well as current ongoing uncertainty in matters related to the Affordable Care Act, could have a material adverse effect on our results of operations.

 

12

 

Risks Related to Our Common Stock

 

Our common stock may be considered a penny stock, and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock is considered to be a “penny stock.” It does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Exchange Act. Our common stock is a “penny stock” because it meets one or more of the following conditions (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange or (iii) it is not quoted on the NASDAQ Global Market, or has a price less than $5.00 per share. The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock are subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Securities Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

FINRA sales practice requirements may limit a shareholders ability to buy and sell our common shares.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.  In addition, there are a limited number of clearing houses that clear “penny stocks” and those that will clear such stocks may enforce internal time consuming administrative requirements and may arbitrarily determine to refuse to clear any stock.

 

Rule 144 sales in the future may have a depressive effect on the companys stock price as an increase in supply of shares for sale, with no corresponding increase in demand will cause prices to fall.

 

All of the outstanding shares of common stock held by the present officers, directors, and affiliate stockholders are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act of 1933 and as required under applicable state securities laws. Rule 144 provides in essence that a person who is an affiliate or officer or director who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a Company’s issued and outstanding common stock. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of six months if the Company is a current reporting company under the Securities Exchange Act of 1934. The Company, as of the date of this report, not current in its filings but is making efforts to bring the filings current. A sale under Rule 144 or under any other exemption from the Securities Act of 1933, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop. In addition, if we are deemed a shell company pursuant to Section 12(b)-2 of the Act, our “restricted securities”, whether held by affiliates or non-affiliates, may not be re-sold for a period of 12 months following the filing of a Form 10 level disclosure or registration pursuant to the Securities Act of 1933. Currently, we are not current in our report and the exemption to registration required pursuant to Rule 144 is unavailable to our shareholders. While we intend to bring our filings current to permit the use of the exemption to registration required pursuant to Rule 144, there can be no assurances as to timing and subsequent continued filings.

 

13

 

Failure to achieve and maintain effective internal controls in accordance with section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.

 

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. As discussed in Item 9A – “Controls and Procedures” of this Form 10-K, we have evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of December 31, 2019.

 

A material weakness is defined as a deficiency or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses we identified is that we do not have sufficient segregation of duties within accounting functions, which is a basic internal control, although the Board of Directors has a separately-designated standing Audit Committee established in accordance with Section 3(a) (58) (A) of the Exchange Act. The members of our Audit Committee are Mr. Borman, who serves as Chairperson of the Audit Committee, Dr. Murphy, and Mr. Anderson. Our Board of Directors has determined that Mr. Borman qualifies as a “financial expert” as that term is defined in the rules of the SEC implementing requirements of the Sarbanes-Oxley Act of 2002.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

The Company is committed to remediating its material weaknesses as promptly as possible. Implementation of the Company’s remediation plans has commenced and is being overseen by the board. However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future. Even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock and we could fail to meet our financial reporting obligations. We have identified weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

 

If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

 

Public disclosure requirements and compliance with changing regulation of corporate governance pose challenges for our management team and result in additional expenses and costs which may reduce the focus of management and the profitability of our company.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

 

COVID-19.

 

We cannot, at this point, determine the extent to which COVID-19 outbreak will impact business or the economy as both are highly uncertain and cannot be predicted.

 

14

 

THE OUTBREAK OF THE CORONAVIRUS MAY NEGATIVELY IMPACT SOURCING AND MANUFACTURING OF THE PRODUCTS THAT WE SELL AS WELL AS CONSUMER SPENDING, WHICH COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect our business, results of operations and financial condition.

 

THE OUTBREAK OF THE COVID-19 MAY ADVERSELY AFFECT OUR MARKET.

 

Further, such risks as described above could also adversely affect our market, resulting in reduced spending in non-COVID-19 health care. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial interruption of our operations. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition and results of operations.

 

An economic recession had set in from the pandemic in 2020 and into 2021. This outbreak could decrease spending, adversely affect demand for our products, and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak or the timing and the degree to which economic recovery will be realized post-pandemic and, consequently, its effects on our business or results of operations, financial condition, or liquidity, at this time. We cannot anticipate the effect that the impairments caused by the COVID-19 pandemic or the degree to which the economy rebounds post-pandemic will have on our fiscal 2021 results, or the effectiveness and distributions of recently announced vaccines and changes to mask mandate policies. We will continue to evaluate the nature and extent of COVID-19’s impact to our business, consolidated results of operations, financial condition and liquidity, and our results presented herein are not necessarily indicative of the results to be expected for future years.

 

THE OUTBREAK OF COVID-19 HAS RESULTED IN A WIDESPREAD HEALTH CRISIS THAT COULD ADVERSELY AFFECT THE ECONOMIES AND FINANCIAL MARKETS WORLDWIDE AND COULD EXPONENTIALLY INCREASE THE RISK FACTORS DESCRIBED HEREIN AND IN OUR PRIOR FILINGS.

 

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED

 

Item 1B. Unresolved Staff Comments

 

This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer.

 

Item 2. Properties

 

Our headquarters are located in Sunrise, Florida which we currently lease on a month-to-month basis at a monthly lease rate of $99.00.

 

We believe the space available at our headquarters will be sufficient to meet the needs of our operations for the foreseeable future.

 

15

 

Item 3. Legal Proceedings

 

On December 12, 2017, a product liability lawsuit was filed in Broward County, specifically Jeannine Mallard v. U.S. Stem Cell, Inc., US Stem Cell Clinics LLC., Regenestem, LLC., Regenestem Network, LLC., and Kristin C. Comella. The Company will continue to defend it vigorously. On December 6, 2019, the Company was one of the parties to a Settlement Agreement and General Release (the “Agreement”) related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year non-interest bearing unsecured promissory note, dated December 6, 2019, in the principal amount of $250,000, payable in monthly increments of $750 per month, with a final balloon payment of $205,000 due on January 1, 2025.

 

On September 17, 2015, a product liability lawsuit was filed in Broward County, specifically Patsy Bade v. Bioheart, Inc. US Stem Cell Clinics LLC, Alejandro Perez, ARNP, and Shareen Greenbaum, M.D., and on November 30, 2015, a product liability lawsuit was filed in Broward County, specifically Elizabeth Noble v. Bioheart, Inc. US Stem Cell Clinics LLC, Alejandro Perez, ARNP, and Shareen Greenbaum, M.D. During the year ended December 31, 2016, both matters settled by the Company’s insurance policy with no additional cost to the Company, excluding the Company payment of the $100,000 insurance company deductible of which $11,000 was paid in fiscal 2017. As a result of the final settlement and determination of insurance coverage, the Company recognized $100,000 of expense due to litigation for the year ended December 31, 2017. The remaining amount due under this settlement is $30,050 and $48,500 as of December 31, 2019 and 2018, respectively.

 

On June 3, 2019, the Company was one of the parties to a Settlement Agreement and General Release (the “Agreement”) related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year 5.25% Promissory Note, dated June 15, 2019, in the principal amount of Five Hundred Thousand Dollars ($500,000), payable in monthly increments of Five Thousand ($5,000) per month.

 

The Company is subject at times to other legal proceedings and claims, which arise in the ordinary course of its business.  Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.  There was no outstanding litigation as of December 31, 2019 or subsequent to December 31, 2019 other than that described above.

 

Government Claim

 

On May 9, 2018, the U.S. Department of Justice filed an injunctive action, specifically United States of America v. U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., Kristin C. Comella, and Theodore Gradel. The Complaint was filed at the request of the U.S. Food and Drug Administration (FDA) and alleges that the respective defendants manufacture “stromal vascular fraction” (SVF) products from patient adipose (fat) tissue, which the companies then market as stem cell-based treatments without first obtaining what the government alleges are necessary FDA approvals. The Company has retained counsel to defend in this action. . On June 25, 2019, the federal court for the Southern District of Florida ruled in favor of the government, enjoining the Company and the other defendants from certain product sales and processes. The Company filed an appeal on August 23, 2019 and attended oral argument on January 13, 2021. On June 2, 2021, the Eleventh Circuit Court ruled to affirm lower courts’judgement. The Company did not challenge the district court’s judgment upon any other ground. The Company is not able to predict the duration, scope, results, or consequences of the U.S. Department of Justice actions and final rulings and management is assessing its options on a going forward basis.

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

16

 

PART II

 

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is listed on the OTC Markets, Inc. (OTC) under the symbol “USRM”. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock, as reported by the OTC Markets. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

 

   

Fiscal Year 2018

 
   

High

   

Low

 

First Quarter

  $ 0.0810     $ 0.0274  

Second Quarter

  $ 0.0800     $ 0.0250  

Third Quarter

  $ 0.0395     $ 0.0300  

Fourth Quarter

  $ 0.0353     $ 0.0124  

 

   

Fiscal Year 2019

 
   

High

   

Low

 

First Quarter

  $ 0.0300     $ 0.0175  

Second Quarter

  $ 0.0255     $ 0.0089  

Third Quarter

  $ 0.0100     $ 0.0041  

Fourth Quarter

  $ 0.0064     $ 0.0036  

 

Holders

 

As of December 31, 2019, there were approximately 479 shareholders of record of our common stock.

 

Dividends

 

We have never declared or paid any cash dividends on our common stock or other securities and do not currently anticipate paying any cash dividends in the foreseeable future. The declaration and payment of dividends by us are subject to the discretion of our Board of Directors and the restrictions specified in our articles of incorporation, any contractual limitations, and by applicable law. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

The following table provides certain information regarding our existing equity compensation plans as of December 31, 2019:

 

   

Number of securities to be issued upon exercise of outstanding options

   

Weighted-average exercise price of

outstanding options

   

Number of securities remaining available for issuance under equity

compensation plans

 

Equity compensation plans approved by security holders (1)

    111,120,474       0.02474       34,168,070  

Equity compensation plans not approved by security holders (2)

    1,110,468       12.84       0  

 

 

(1)

Consists of our 1999 Officers and Employees Stock Option Plan, 1999 Directors and Consultants Stock Option Plan and Omnibus Equity Compensation Plan, 2013 Omnibus Equity Compensation Plan.

     
 

(2)

Includes:

 

1,000,000 warrants issued for services at $0.2713 per share issued on August 27, 2018 expiring ten years from date of issuance.

 

17

 

Recent Sales of Unregistered Securities

 

In fiscal 2019, we issued an aggregate of 22,371,084 shares of our common stock, having a fair value of $348,460, in settlement of outstanding accounts payable and accrued expenses. In connection with the issuance, we issued an aggregate of 4,000,000 shares of our common stock, having a fair value of $89,250, for services and we sold an aggregate of 13,276,707 shares of our common stock for gross cash proceeds of $50,000. 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(b) 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. We filed a Notice of Exempt Offering of Securities on Form D on May 4, 2018.

 

Issuer Purchases of Equity Securities

 

None.

 

Transfer Agent: Continental Stock Transfer & Trust Company, One State Street, 30th Floor, New York, NY 10004 acts as transfer agent for our common stock.

 

Item 6. Selected Financial Data

 

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

 

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following is management’s discussion and analysis (“MD&A”) of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

 

The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-K

 

The Company’s MD&A is comprised of significant accounting estimates made in the normal course of its operations, overview of the Company’s business conditions, results of operations, liquidity and capital resources and contractual obligations. The Company did not have any off balance sheet arrangements as of December 31, 2019 or 2018.

 

The discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States (or “GAAP”). The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Our Ability To Continue as a Going Concern

 

The Company’s management has evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed as of the date of the end of the period covered by this Yearly Report on Form 10-K (the “Form 10-K”).This determination was based on the following factors, as of December 31, 2019, the Company had a bank overdraft of $1,520 and a working capital deficit (current liabilities in excess of current assets) of $8,684,422. During the year ended December 31, 2019, the net loss was $3,835,337 and net cash used in operating activities was $1,210,994. In the opinion of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.  As part of its long term goal, management of the Company will refocus on its animal health division while it evaluates its future opportunities for its human division and subsidiary.

 

18

 

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 candidates are MyoCell™ and Adipocell. MyoCell™ is an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with autologous muscle cells, or cells from a patient’s body, for the purpose of improving cardiac function in chronic heart failure patients. Adipocell is an innovative cell therapy kit with multiple possible treatment applications using autologous adipose cells. We are presently investigating the use of adipose cells in a variety of clinical applications.

 

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 patient’s 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 kit to obtain patient-derived cells proposed for various in clinic procedures. We hope to demonstrate that these product candidates are safe and effective complements to existing therapies for various indications.

 

19

 

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 Webster’s (a Johnson & Johnson company) NOGA® Cardiac Navigation System along with the MyoStar™ 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.

 

GENERAL AMERICAN CAPITAL PARTNERS

 

On March 3, 2017, we entered into an asset sale and lease agreement (sale/leaseback transaction; “Asset Sale and Lease Agreement”), with GACP (General American Capital Partners) Stem Cell Bank LLC, a Florida limited liability company (“GACP) whereby we sold certain lab, medical and other equipment relating to the cell banking business for $400,000 and leased back the sold equipment over a three year term.  The lease includes a base monthly rental payment of $20,000, due the first day of each calendar month.  In addition, we are required to pay 2.3%, 22.5% and 31.6% of revenues collected on deposits arising from cell banking business for years 1, 2 and 3, respectively.  At the expiration of the lease, we are required to return all leased equipment and along with any maintenance records, logs, etc. in our  possession to the lessor with no right of repurchase. As a consequence of the Court Order dated June 4, 2019 (see Note 12 “Government Claim”), the Company resolved to terminate its relationship with GACP and divest itself of certain equipment and other assets (the “Equipment Assets”) used in connection with the Company’s human tissue banking business, but consistent however with the requirements of the Court Order, and to adjust the business plan and operations to accommodate this potential divesture.

 

Subsequent events

 

During the year ended December 31, 2020, the Company issued an aggregate of 10,354,560 shares of its common stock, having a fair value of $51,914, in settlement of outstanding accounts payable. In connection with the issuances, the Company incurred a $3,586 net gain on settlement.

 

During the year ended December 31, 2020, the Company issued 3,481,467 shares of its common stock, having a fair value of $21,744, in lieu of payment in cash of accrued and unpaid interest of $18,340, resulting in a loss on settlement of $3,404.

 

On February 10, 2021, as part of a settlement agreement, the Company transferred its entire member interest in U.S. Stem Cell, LLC to Dr. Kristen Comella as settlement for $100,000 of accrued interest owed to Dr. Comella.

 

Results of Operations Overview

 

Revenues

 

Our primary source of revenue is from the sale of test kits and equipment, training services, patient treatments and laboratory services, and cell banking. Our revenue may vary substantially from quarter to quarter and from year to year. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicative of our future performance. We do not expect to generate substantial revenues until we obtain regulatory approval for and commercialize our product candidates.

 

20

 

We recognized revenues of $3,072,293 in 2019 compared to revenues of $6,700,888 in 2018. Our revenue in 2019 was generated from the sale of test kits and equipment, training services, patient treatments and laboratory services, and cell banking. Our revenues for 2018 were generated from the sale, test kits and equipment, training services, patient treatments and laboratory services, and cell banking. 

 

As a consequence of the Court Order (see Note 12) the Company resolved to divest itself of certain equipment and other assets (the “Equipment Assets”) used in connection with the Company’s human tissue banking business, but consistent however with the requirements of the Court Order, and to adjust the business plan and operations to accommodate this potential divesture.

 

Cost of Sales

 

Cost of sales consists of the costs associated with the production of MyoCath and test kits, product costs, labor for production and training and lab and banking costs consistent with products and services provided.

 

Cost of sales was $1,335,237 in the year ended December 31, 2019 compared to $2,110,532 in the year ended December 31, 2018.  The decrease is due to the decrease in revenues. 

 

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.

 

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 which is included in the Marketing, General and Administrative above, 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 as determined by our Board of Directors, with input from management.

 

In valuing our common stock, our Board of Directors considered a number of factors, including, but not limited to:

 

 

our financial position and historical financial performance;

 

the illiquidity of our capital stock;

 

arm’s length sales of our common stock;

 

the development status of our product candidates;

 

the business risks we face;

 

vesting restrictions imposed upon the equity awards;

 

an evaluation and benchmark of our competitors; and

 

the prospects of a liquidity event.

 

On April 1, 2013, our Board of Directors approved, subject to subsequently received shareholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the “2013 Omnibus Plan” (replacing the 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan). The 2013 Omnibus Plan initially reserved up to fifty thousand (50,000) shares of common stock for issuance. On August 4, 2014, the Board of Directors approved to set the reserve to one hundred thousand (100,000) shares of common stock for issuance and to close the 1999 Officers and Employees Stock Option Plan. On February 2, 2015, at the annual meeting of shareholders, the majority of shareholders approved the 2013 Omnibus Equity Compensation Plan. On November 2, 2015, the Board of Directors approved the increase of the reserve under the 2013 Omnibus Plan to five hundred million (500,000,000) shares of common stock for issuance, effective September 16, 2016, approved an addition of twenty five million (25,000,000) shares of common stock to the reserve, effective April 21, 2017, approved an addition of twenty five million (25,000,000) shares of common stock to the reserve, effective August 7, 2017, approved an addition of thirty million (30,000,000) shares of common stock to the reserve and effective May 7, 2018, approved an addition of one hundred million (100,000,000) shares of common stock to reserve.

 

21

 

A summary of options at December 31, 2019 and activity during the year then ended is presented below:

 

   

Shares

   

Weighted-

Average

Exercise Price

   

Weighted-

Average

Remaining

Contractual

Term (in years)

 

Options outstanding at December 31, 2018

    112,970,693     $ 0.0329       8.7  

Granted

    40,900,000     $ 0.0055       10.0  

Exercised

    -                  

Forfeited/Expired

    (42,750,219

)

  $ 0.0280          

Options outstanding at December 31, 2019

    111,120,474     $ 0.0247       8.3  

Options exercisable at December 31, 2019

    55,026,724     $ 0.0255       7.9  

Available for grant at December 31, 2019

    34,168,070                  

 

A summary of stock option activity for the year ended December 31, 2019 is as follows:

 

Options Outstanding

   

Options Exercisable

 

Exercise
Price

   

Outstanding

Number
of Options

   

Weighted

Average

Remaining Life

In Years

   

Weighted

Average
Exercise

price

   

Exercisable

Number
of Options

   

Weighted

Average

Exercise

price

 

$0.000 to $0.010

      41,900,000       9.0     $ 0.0051       13,050,000     $ 0.0043  

$0.011 to $0.020

      16,300,000       6.7       0.0196       13,800,000       0.0196  

$0.021 to $0.030

      9,710,000       8.9       0.0253       8,052,500       0.0252  
$0.0363       22,735,000       7.6       0.0363       14,680,000       0.0363  
$0.0536       20,000,000       8.4       0.0536       5,000,000       0.0536  
$0.1540       475,474       5.8       0.1540       444,224       0.1540  

Total

      111,120,474       8.3     $ 0.0247       55,026,724     $ 0.0255  

 

On May 7, 2018, we granted an aggregate 30,000,000 options to purchase the Company’s common stock at $0.0536 per share to key employees, vesting over 4 years, at grant date anniversary and exercisable over 10 years. The aggregate fair value of $1,438,473, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 261.13% and Risk free rate: 2.90%.

 

On August 8, 2018, we granted an aggregate 2,340,000 options to purchase our company’s common stock at $0.02576 per share to key employees, vesting over 4 years, at grant date anniversary and exercisable over 10 years. The aggregate fair value of $91,988, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 217.72% and Risk free rate: 2.83%.

 

On December 3, 2018, we granted an aggregate 9,000,000 options to purchase our company’s common stock at $0.02511 per share to board members, vesting immediately exercisable over 10 years. The aggregate fair value of $195,722, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 215.29% and Risk free rate: 2.83%.

 

On September 1, 2019, the Company granted an aggregate 33,400,000 options to purchase the Company’s common stock at $0.0056 per share to key employees, vesting over 4 years, at grant date anniversary and exercisable over 10 years. The aggregate fair value of $192,189, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 215.10% and Risk-free rate: 1.45%.

 

On November 18, 2019, the Company granted to its directors an aggregate of 7,500,000 options to purchase the Company’s common stock at $0.0049 per share that vested immediately and are exercisable for 10 years. The aggregate fair value of $34,477, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 213.97% and Risk-free rate: 1.81%.

 

22

 

The aggregate intrinsic value of outstanding stock options was $0, based on options with an exercise price less than the Company’s stock price of $0.0035 as of December 31, 2019, which would have been received by the option holders had those option holders exercised their options as of that date.

 

The fair value of all options that vested during the years ended December 31, 2019 and 2018 was $735,176 and $753,007, respectively. As of December 31, 2019, the Company had $1,415,552 of total unrecognized compensation cost related to non-vested awards granted under the 2013 Omnibus Plan, which the Company expects to recognize over a weighted average period of 1.24 years.

 

Warrants

 

A summary of common stock purchase warrants for the year ended December 31, 2019 is presented below:

 

   

Number of

Warrants

   

Weighted-Average

Exercise Price

   

Weighted-Average

Remaining Life

in Years

 

Outstanding at December 31, 2018

    1,114,019     $ 14.7350       9.1  

Issued

    -                  

Exercised

    -                  

Expired

    (3,551

)

  $ 607.31          

Outstanding at December 31, 2019

    1,110,468     $ 12.84       8.2  

Exercisable at December 31, 2019

    1,108,923     $ 2.14       8.2  

 

The following information applies to common stock purchase warrants outstanding and exercisable at December 31, 2019:

 

Warrants Outstanding

    Warrants Exercisable  

Exercise
Price

   

Outstanding Number

of Warrants

   

Weighted

Average

Remaining

Life in Years

   

Weighted

Average

Exercise

Price

   

Exercisable Number

of Warrants

   

Weighted

Average

Exercise

Price

 
$0.01 –20.00       1,086,536       8.2     $ 1.27       1,086,536     $ 1.27  
$20.01 –30.00       19,543       4.2     $ 25.06       19,543     $ 25.06  
$40.01 –50.00       2,253       2.8     $ 48.83       2,253     $ 48.83  
$50.01 –60.00       543       1.6     $ 60.00       543     $ 60.00  
> 60.00     $ 1,593       6.8     $ 7,690.00       48     $ 7,690.00  
        1,110,468       8.2     $ 12.84     $ 1,108,923     $ 2.14  

 

On August 27, 2018, we issued 1,000,000 warrants to purchase our company’s common stock at $0.02713 per share for services rendered, vesting 6 months from issuance and exercisable over 10 years. The aggregate fair value of $24,986, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 217.01% and Risk free rate: 2.85%.

 

Interest Expense

 

Interest expense during the year ended December 31, 2019 was $981,001 compared to $1,444,807 for the year ended December 31, 2018. Interest expense primarily consists of interest incurred on the principal amount of the Northstar loan,  the Seaside National Bank loan, the Capital Lease with GACP, accrued fees and interest payable to the Guarantors, imputed interest on non-interest bearing debt,  the amortization of debt discounts and non-cash interest incurred relating to our issued convertible notes payable.

 

The debt discounts amortization and non-cash interest incurred during the year ended December 31, 2019 and 2018 was $198,355 and $195,967, respectively. There was nominal change in interest year over year.

 

On January 3, 2018, we  renewed the loan with Seaside National Bank and Trust extend the maturity date to May 18, 2020 all other terms and conditions remain unchanged. On May 18, 2020, the Seaside loan was turned into a Demand Note with no fixed maturity date but with a redocumentation requirement every four years. The new redocumentation deadline is May 2022.

 

23

 

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

 

Effective January 1, 2018, we recognize revenue in accordance with Accounting Standards Codification 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers.

 

At the time of each transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.

 

Our primary sources of revenue are from the sale of test kits and equipment, training services, patient treatments, laboratory services and cell banking. 

 

Revenues for kits and equipment sold are not recorded until kits and equipment are received by the customer. Revenues from in-person trainings are recognized when the training occurs and revenues from on demand online trainings are recognized when the customer purchases the rights to the training course. Any cash received as a deposit for trainings are recorded by the Company as a liability.

 

Patient treatments and laboratory services revenue are recognized when those services have been completed or satisfied.

 

Revenues for cell banking sales are accounted for as multiple performance obligations as described in 606 and addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Because the Company sells its services separately, on more than a limited basis and at a price within a narrow range, our company was able to allocate revenue based on stand-alone pricing. The multiple performance obligations include stem cell banking, dose retrieval and yearly storage fees. Revenues for stem cell banking and dose retrieval is recognized at the point of service and revenues for the yearly storage fees is recognized over the term of the banking contract, which is typically one year with annual renewals.

 

Stock-based compensation

 

We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by our company in the same expense classifications in the statements of operations, as if such amounts were paid in cash.

 

24

 

Income taxes

 

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards that are available to be carried forward to future years for tax purposes.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  When it is not considered to be more likely than not that a deferred tax asset will be realized, a valuation allowance is provided for the excess.  Although we have significant loss carry forwards available to reduce future income for tax purposes, no amount has been reflected on the balance sheet for deferred income taxes as any deferred tax asset has been fully offset by a valuation allowance.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include stock-based compensation,  debt discounts and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.

 

Research and Development Costs

 

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.

 

Depreciation

 

Depreciation is computed using the straight-line method over the assets’ expected useful lives or the term of the lease, for assets under capital leases.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less.

 

Options and warrants issued

 

We allocate the proceeds received from equity financing and the attached options and warrants issued, based on their relative fair values, at the time of issuance.  The amount allocated to the options and warrants is recorded as additional paid in capital.

 

Related Parties

 

For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where our company  and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

 

25

 

Results of Operations

 

We are a research and development stage company and our MyoCell™ product candidate has not received regulatory approval or generated any material revenues and is not expected to until late 2019, if ever. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative cash flows from operations for the foreseeable future as we continue clinical trials, undertake new clinical trials, apply for regulatory approvals, make capital expenditures, add information systems and personnel, make payments pursuant to our license agreements upon our achievement of certain milestones, continue development of additional product candidates using our technology, establish sales and marketing capabilities and incur the additional cost of operating as a public company.

 

Comparison of Years Ended December 31, 2019 and December 31, 2018

 

Revenues

 

We recognized revenues of $3,072,093 in 2019, revenues generated from the sale of, kits and equipment, services, and laboratory services.  In 2018, we recognized revenues of $6,700,888, revenues generated from the sales of kits and laboratory services. Variance year over year was due to increased competition and saturated market.

 

Cost of Sales

 

Cost of sales was $1,335,237 in 2019 and $2,110,532 in 2018. Variance was due to increased cost of service materials for the tissue bank.

 

Research and Development

 

Research and development expenses were $263 in 2019, a decrease of $5,176 from research and development expenses of $5,439in 2018. The decrease was primarily attributable to a decrease in the amount of available funds.

 

The timing and amount of our planned research and development expenditures is dependent on our ability to obtain additional financing.

 

Marketing, General and Administrative

 

Marketing, general and administrative expenses were $4,454,711 in 2019, a decrease of $1,227,585 from marketing, general and administrative expenses of $5,682,296 in 2018. The decrease is due to reduced operations due to the Court order.

 

Gain (loss) on settlement of debt

 

During the year ended December 31, 2019, we recognized a net gain of $214,883 primarily related to the dissolved GACP transaction and divestiture of assets. In 2018, we recognized a gain of $5,625 primarily related to the settlement of accounts payable and accrued interest.

 

Gain on sale of equipment

 

In March 2017, we entered a sale/leaseback transaction whereby we sold our lab and other medical equipment and re-leased the equipment back for 36 months.  In connection with the sale/leaseback, we realized a gain on sale of equipment of $128,845 which is recognized as of the divestiture of the assets in October 2019. During the year ended December 31, 2019, we recognized $128,845 in current period operations as compared to $107,371 for the previous year.

 

Income from equity investment

 

Our investment of 33% member interest ownerships of U.S. Stem Cell Clinic, LLC and Regenerative Wellness Clinic, LLC (subsequently increased after December 31, 2018) and well as our 49% member interest ownership in U.S. Stem Cell of the Villages LLC are accounted for using the equity method of accounting.  As such, we report our pro rata share of its income or loss for the period.  For the year ended December 31, 2018 and 2017, our pro rata share of its income was $247,813 and $192,383, respectively.

 

26

 

Interest Expense

 

Interest expense was $981,001 in 2019 compared to interest expense of $1,444,807 in 2018. Non-cash interest comprised of amortization of debt discounts and totaled $198,355 in 2019 as compared to $195,967 in 2018.  Variance in interest due to amortization of capitalized expenses.

 

Inflation

 

Our opinion is that inflation has not had, and is not expected to have, a material effect on our operations.

 

Climate Change

 

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

 

Liquidity and Capital Resources

 

In 2019, we continued to finance our operational cash needs with cash generated from financing activities.

 

Operating Activities

 

Net cash used in operating activities during the year ended December 31, 2019 was $1,210,994 and consisted primarily of a net loss of $3,835,337, a decrease in deferred revenue of $272,865, gain on settlement of notes payable and accrued interest of $214,883, gain on sale of equipment of $128,845 and income on equity investments of $117,318, partially offset by related party notes payable issued for services rendered of $978,077, stock-based compensation of $824,426, notes payable issued in pre-trial settlements of $698,937, an increase in accounts payable of $344,536, depreciation and amortization expense of $242,615 and amortization of debt discount of $198,335.

 

Net provided by operating activities during the year ended December 31, 2018 was $602,467 and consisted primarily of stock-based compensation of $1,227,924, related party notes payable issued for services rendered of $800,000, an increase in accounts payable of $426,263, an increase in accrued expenses of $226,673, depreciation and amortization expense of $207,132 and amortization of debt discount of $195,967, partially offset by a net loss of $2,160,427, income on equity investments of $247,813 and gain on sale of equipment of $128,845.

 

Investing Activities

 

Net cash provided by investing activities for the year ended December 31, 2019 was $166,834 and consisted of proceeds from equity investments.

 

Net cash provided by investing activities for the year ended December 31, 2018 was $311,700 and consisted of proceeds from equity investments.

 

Financing Activities

 

Net cash used in financing activities for the year ended December 31, 2019 was $312,986 and consisted primarily of repayments of notes payable of $512,486 and repayments of related party notes of $321,607, partially offset by proceeds from related party advances of $276,843 and proceeds from related party notes of $107,868.

 

Net cash used in financing activities for the year ended December 31, 2018 was $543,820 and consisted primarily of repayments of related party notes of $708,422 and repayments of notes payable of $656,468, partially offset by proceeds from sale of common stock of $367,700, proceeds from notes payable of $220,211, proceeds from related party advances of $130,000 and equity contribution by related party of $103,159.

 

27

 

Existing Capital Resources and Future Capital Requirements

 

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

 

At December 31, 2019, we had cash and cash equivalents totaling $0; our working capital deficit as of such date was $8,684,422. Our independent registered public accounting firm has issued its report dated July 15th 2021 in connection with the audit of our financial statements as of December 31, 2019 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern.

 

As of December 31, 2019, we had $6,691,144 in outstanding debt, net of debt discount of $79,744.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Recent Accounting Pronouncements

 

Refer to Note 1. Organization and Summary of Significant Accounting Policies in the notes to our financial statements for a discussion of recent accounting pronouncements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Not required for smaller reporting companies.

 

Item 8. Financial Statements and Supplementary Data

 

Our Financial Statements begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

28

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Our Chief Executive Officer and Principal Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were not effective.

 

Managements Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined In Exchange Act Rule 13a-15(f). The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel,

 

 

● to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;

 

● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

 

● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

 

Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. In addition, because of changes in conditions, the effectiveness of internal control may vary over time.

 

We carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) who also acts as our Chief Financial Officer (CFO) of the effectiveness our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2019. Based upon that evaluation, our CEO/ CFO concluded that our disclosure controls and procedures are not effective at the reasonable assurance level due to the following material weaknesses:

 

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

29

 

Remediation of Material Weaknesses

 

We intend to remediate the material weaknesses in our disclosure controls and procedures identified above by hiring a full-time CFO with SEC reporting experience in the future and expanding accounting staff when working capital permits and by working with our independent registered public accounting firm to refine our internal procedures. We currently address the limitations through a separately-designated standing Audit Committee established in accordance with Section 3(a) (58) (A) of the Exchange Act. The members of our Audit Committee are Mr. Borman, who serves as Chairperson of the Audit Committee, Dr. Murphy, and Mr. Anderson. Our Board of Directors has determined that Mr. Borman qualifies as a “financial expert” as that term is defined in the rules of the SEC implementing requirements of the Sarbanes-Oxley Act of 2002. 

 

The Company is a smaller reporting company and is not subject to Section 404(b) of the Sarbanes Oxley Act. Accordingly, this Annual Report does not contain an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, since the rules for smaller reporting companies provide for this exemption.

 

(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Executive Officers and Directors

 

Set forth below is information regarding our current executive officers and directors

 

Mike Tomas

56

Director, President and Chief Executive Officer, Chief Financial Officer

William P. Murphy, Jr., M.D.

97

Director, Chairman of the Board

Mark P. Borman

66

Director

Sheldon T. Anderson

70

Director

Greg Knutson

69

Director

 

Our Bylaws provide that we shall have that number of directors determined by the majority vote of the board of directors. Currently we have six directors.  Each director will serve until our next annual shareholder meeting. Directors are elected for one-year terms. Our Board of Directors elects our officers at the regular annual meeting of the Board of Directors following the annual meeting of shareholders. Vacancies may be filled by a majority vote of the remaining directors then in office. Our directors and executive officers are as follows:

 

Executive Officers and Directors

 

Mike Tomas. Mike Tomas, President & CEO of U.S. Stem Cell Inc, is considered by many in the industry as one of the most experienced marketers and operating executives for IT/Communications and Biotech/Life Sciences private equity and venture groups portfolio companies. The son of a serial entrepreneur, he spent nearly 20 years driving the evolution of telecommunications technology in the U.S. and Mexico in leadership roles ranging from sales, marketing, customer service, telemarketing, engineering, and operations. Upon retiring as Chief Marketing Officer of Avantel, MCI/Worldcom’s Global Ventures $1B investment with Banamex (at the time, the largest bank in Latin America), Mr. Tomás joined other former-MCI executives (including MCI CEO Jerry Taylor) and helped form an integrated customer communications software solution that was named on Red Herring magazine’s “Top Ten to Watch” list.

 

Upon the successful sale of that company in 2001, Mr. Tomas helped launch The ASTRI Group, an early-stage private equity investment company providing capital, business development and strategic marketing support to emerging private companies. Mr. Tomas sits on the board of U.S. Stem Cell Inc. (adult stem cell development and applications) and has sat on the boards of The IDEA Center (Miami Dade College’s entrepreneurial institute), Career Source Florida (appointed by Florida Governor Rick Scott to his statewide workforce investment board) and is the past chairman of Florida International University’s Global Entrepreneurship Center. Mr. Tomas is an inductee into the Miami-Dade College and WACE Halls of Fame for business, an FIU Torch Award winner--and winner of top communications, medical innovations, education and entrepreneurial awards. An avid athlete, Mr. Tomas was also a Miami-Dade County Sports Commissioner.

 

William P. Murphy, Jr., M.D. Dr. Murphy has served as a member of our Board of Directors since June 2003. Dr. Murphy founded Small Parts, Inc., a supplier of high quality mechanical components for design engineers, in 1964 and served as its Chairman until his retirement in April 2005. Small Parts, Inc. was acquired by Amazon.com, Inc. in March 2005. From October 1999 until October 2004, Dr. Murphy served as the Chairman and Chief Executive Officer of Hyperion, Inc., a medical diagnosis company which had an involuntary bankruptcy filed against it in December 2003. Dr. Murphy is the founder of Cordis Corporation (now Cordis Johnson & Johnson) which he led as President, Chairman and Chief Executive Officer at various times during his 28 years at Cordis until his retirement in October 1985. Cordis Johnson & Johnson is a leading firm in cardiovascular instrumentation.

 

Dr. Murphy received an M.D. in 1947 from the University of Illinois and a B.S. in pre-medicine from Harvard College in 1946. He also studied physiologic instrumentation at Massachusetts Institute of Technology, or MIT. After a two year rotating internship at St. Francis Hospital in Honolulu, he became a Research Fellow in Medicine at the Peter Bent Brigham Hospital in Boston where he was the dialysis engineer on the first clinical dialysis team in the United States. He continued as an Instructor in Medicine and then a research associate in Medicine at Harvard Medical School. Dr. Murphy is the author of numerous papers and owns 17 patents.

 

31

 

He is the recipient of a number of honors, including the prestigious Lemelson-MIT Lifetime Achievement Award, the MIT Corporate Leadership Award, the Distinguished Service Award from North American Society of Pacing and Electrophysiology, and the Jay Malina Award from the Beacon Council of Miami, Florida. He is also a member of the Inventors Hall of Fame.

 

Mark P. Borman. Mr. Borman has served as a member of the Company’s Board of Directors since May 2009. He is a seasoned financial officer with more than 30 years of broad-based financial and investor relations experience. Mr. Borman brings small-company entrepreneurial passion and larger-company disciplines. In addition to the valuable experience he gained working with entrepreneurs and their startups from 2009 to present, Mr. Borman has experience with global, NASDAQ- and NYSE-listed companies in various executive and financial roles. He is currently a board member with public and private technology companies and  serves on advisory and non-profit boards. During his career, Mr. Borman has held positions with ADC Telecommunications, General Instrument Corporation, First Chicago Corporation, FMC Corporation, Price Waterhouse, and KPMG. Mr. Borman received his B.A. in Accounting from Michigan State University and his M.B.A. in Finance from the University of Chicago Booth  School of Business. He is an Audit Committee Financial Expert under SEC rules, a Certified Public Accountant and Chartered Financial Analyst. Mr. Borman is a Board Leadership Fellow and member of the National Association of Corporate Directors.

 

Sheldon T. Anderson. Mr. Anderson is Chairman of the Florida Advisory Board of Northern Trust Corporation. From 1992 through December 31, 2012, Mr. Anderson served in a variety of executive capacities with Northern Trust Corporation, including his most recent position as Chairman and Chief executive Officer Southeast Region of Northern Trust Corporation. Mr. Anderson is the Chair-elect of the Beacon Council, Miami-Dade County’s economic development agency. He is a Board member of the Miami-Dade College Foundation, Inc.; Museum of Contemporary Art (MOCA); the New World Symphony; Baptist Health Systems Governing Board and Carrollton School of the Sacred Heart. He is Past Chair and a member of the Advisory Council of the United Way of Miami-Dade County. Anderson is President of the Board of Cleveland Orchestra Miami / Miami Music Association and also serves on the Advisory Board of the University of Miami School of Law for Ethics& Public Service.  He is a member of the Orange Bowl Committee and the President’s Council of Florida International University. A Miami native, Sheldon holds a degree in International Studies from Ohio State University.

 

Greg Knutson. Mr. Knutson founded Concrete Specialists, Inc. in 1985 and continues to serve as its President. Mr. Knutson founded Sunwood Properties in 2009 and continues to serve as its President. Mr. Knutson founded G&G Land Development, LLC and continues to serve as its Managing Partner. Mr. Knutson, a holder of Member Interests in Northstar, was appointed as a Manager of Northstar Biotech Group, LLC in late 2014.

 

Family Relationships

 

There are no family relationships among our executive officers and directors.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent (10%) of our outstanding Common Stock, or the Reporting Persons, to file with the SEC initial reports of ownership on Form 3 and reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons are required by SEC regulation to furnish us with copies of all such reports they file. Based solely on a review of Forms 3 and 4 furnished to us by the Reporting Persons or prepared on behalf of the Reporting Persons by the Company and on written representations from certain Reporting Persons that no Forms 5 was required, the Company believes that the Reporting Persons have complied with reporting requirements applicable to them.

 

Conflicts of Interest

 

Members of our management are associated with other firms involved in a range of business activities.  Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of our company.  Although the officers and directors are engaged in other business activities, we anticipate they will devote an important amount of time to our affairs.

 

32

 

Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be formed for the purpose of engaging in business activities similar to ours.  Accordingly, additional direct conflicts of interest may arise in the future with respect to such individuals acting on behalf of us or other entities.  Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise.  Currently, we do not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.

 

Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis.  A breach of this requirement will be a breach of the fiduciary duties of the officer or director.  If we or the companies with which the officers and directors are affiliated both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity.  However, all directors may still individually take advantage of opportunities if we should decline to do so.  Except as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.

 

Involvement in Certain Legal Proceedings

 

None of the following events have occurred during the past ten years and are material to an evaluation of the ability or integrity of any director or officer of the Company:

 

 

1.

A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

     
 

2.

Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

     
 

3.

Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities: 

     
 

a.

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

b.

Engaging in any type of business practice; or

 

c.

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

     
 

4.

Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;

     
 

5.

Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

     
 

6.

Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

     
 

7.

Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

33

 

 

a.

Any Federal or State securities or commodities law or regulation; or

 

b.

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

c.

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

     
 

8.

Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Code of Ethics

 

As part of our system of corporate governance, our Board of Directors has adopted a code of ethics that is specifically applicable to our Chief Executive Officer and senior financial officers. This Code of Ethics for Senior Financial Officers, as well as our Code of Business Conduct and Ethics, applicable to all directors, officers and employees. If we make substantive amendments to the Code of Ethics for Senior Financial Officers or the Code of Business Conduct and Ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within four days of such amendment or waiver.

 

Shareholder Recommendations for Board Nominees

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 

Audit Committee

 

The Board of Directors has a separately-designated standing Audit Committee established in accordance with Section 3(a) (58) (A) of the Exchange Act. The members of our Audit Committee are Mr. Borman, who serves as Chairperson of the Audit Committee, Dr. Murphy, and Mr. Anderson. Our Board of Directors has determined that Mr. Borman qualifies as a “financial expert” as that term is defined in the rules of the SEC implementing requirements of the Sarbanes-Oxley Act of 2002. 

 

34

 

Item 11. Executive Compensation.

 

Summary Compensation Table

 

The following table sets forth, for the fiscal years ended December 31, 2019 and 2018, the aggregate compensation awarded to/earned by or paid to our Chief Executive Officer and our two most highly compensated officers (other than the Chief Executive Officer), who were serving as executive officers as of December 31, 2019, or the Named Executive Officers.

 

Name and

Principal

Position

 

Fiscal

Year

 

Salary

($)

   

Bonus

($)

     

Stock

Awards

($)

   

Option

Awards

($)

     

Non-

Equity

Incentive Plan

Compensation

($)

   

Change in

Pension

Value

and Non-

Qualified

Deferred

Compensation

Earnings

($)

   

All Other

Compensation

($)

   

Total

($)

 

Mike Tomas

CEO, President,

 

2019

  $ 880,603     $ 500,000   (1)   $     $ 121,979   (2)(3)                           $ 1,502,582  

CFO and Director

 

2018

  $ 1,305,837     $ 500,000   (4)   $     $ 991,602   (5)(6)                           $ 2,797,439  
                                                                         

Kristin Comella

Chief Science

 

2019

    139,799       300,000   (1)         $ 57,542   (2)                           $ 497,341  

Officer and Director*

 

2018

    452,588       300,000   (4)         $ 512,111   (5)(6)                           $ 1,264,699  

 

(1)

On July 1, 2019, Mr. Tomas and Ms. Comella received $500,000 and $300,000, respectively, promissory notes for bonuses awarded.   The promissory notes bear 5% interest per annum, unsecured and were due on demand

(2)

On September 1, 2019, Mr. Tomas and Ms. Comella were granted 20,000,000 and 10,000,000, respectively, options to purchase the Company’s common stock at $0.00557 per share for ten years, vesting over four years at each anniversary.

(3)

On November 18, 2019, Mr. Tomas was granted 1,500,000 options to purchase the Company’s common stock at $0.00495 per share for ten years, vesting immediately.

(4)

On May 7, 2018, Mr. Tomas and Ms. Comella received $500,000 and $300,000, respectively, promissory notes for bonuses awarded.   The promissory notes bear 5% interest per annum, unsecured and were due on demand

(5)

On May 7, 2018, Mr. Tomas and Ms. Comella were granted 20,000,000 and 10,000,000, respectively, options to purchase the Company’s common stock at $0.0536 per share for ten years, vesting over four years at each anniversary.

(6)

On December 3, 2018, Mr. Tomas and Ms. Comella were granted 1,500,000 options (each) to purchase the Company’s common stock at $0.02511 per share for ten years, vesting immediately.

   

 

*Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

35

 

Our Stock Option Plans

 

On April 1, 2013, the Board of Directors approved, subject to subsequently received shareholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the “2013 Omnibus Plan” (replacing the 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan).. The 2013 Omnibus Plan initially reserved up to fifty thousand (50,000) shares of common stock for issuance. On August 4, 2014, the Board of Directors approved to set the reserve to one hundred thousand (100,000) shares of common stock for issuance and to close the 1999 Officers and Employees Stock Option Plan. On February 2, 2015, at the annual meeting of shareholders, the majority of shareholders approved the 2013 Omnibus Equity Compensation Plan. On November 2, 2015, the Board of Directors approved the increase of the reserve under the 2013 Omnibus Plan to five hundred million (500,000,000) shares of common stock for issuance, effective September 16, 2016, approved an addition of twenty five million (25,000,000) shares of common stock to the reserve, effective April 21, 2017, approved an addition of twenty five million (25,000,000) shares of common stock to the reserve, effective August 7, 2017, approved an addition of thirty million (30,000,000) shares of common stock to the reserve and effective May 7, 2018, approved an addition of one hundred million (100,000,000) shares of common stock to reserve.

 

Employment Agreements

 

Employment Agreements

 

On July 1, 2019, the Company’s Board of Directors approved the 2019/2020 salary for Mike Tomas, Chief Executive Officer, for $750,000 per year, beginning July 1, 2019 with an incentive bonus ranging from $150,000 to $500,000. In addition, the Board of Directors approved a bonus of $500,000 and options to acquire 20,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note bearing interest at 5% per annum. On May 7, 2018, the Company’s Board of Directors approved the 2018/2019 salary for Mike Tomas, Chief Executive Officer, for $750,000 per year, beginning July 1, 2018 with an incentive bonus ranging from $150,000 to $500,000. In addition, the Board of Directors approved a bonus of $500,000 and options to acquire 20,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note bearing interest at 5% per annum.

 

On July 1, 2019, the Company’s Board of Directors approved the 2019/2020 salary for Kristin Comella, Chief Scientific Officer, for $400,000 per year, beginning July 1, 2018 with an incentive bonus ranging from $100,000 to $300,000. In addition, the Board of Directors approved a bonus of $300,000 and options to acquire 10,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note. On May 7, 2018, the Company’s Board of Directors approved the 2018/2019 salary for Kristin Comella, Chief Scientific Officer, for $400,000 per year, beginning July 1, 2018 with an incentive bonus ranging from $100,000 to $300,000. In addition, the Board of Directors approved a bonus of $300,000 and options to acquire 10,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note. Effective September 1, 2019, Dr. Comella resigned from the Company.

 

36

 

Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth outstanding equity awards held by our Named Executive Officers as of December 31, 2019:

 

   

Number of Securities Underlying

   

Option

 

Option

   

Unexercised Options and Warrants

   

Exercise Price

 

Expiration

Name

 

Total (#)

   

Unexercisable (#)

   

($/per share)

 

Date

Mike Tomas

    500       -       0.15402  

6/18/2020

      500       -       0.15402  

8/12/2021

      500       -       0.15402  

1/16/2022

      2,000       -       0.15402  

8/6/2022

      10,000       -       0.15402  

8/1/2023

      400       -       0.15402  

9/1/2023

      10,000       -       0.15402  

2/24/2024

      800       -       0.15402  

2/24/2024

      4,299       -       0.15402  

5/24/2024

      10,000       -       0.15402  

8/1/2024

      400       -       0.15402  

11/3/2024

      291,885       -       0.15402  

11/2/2025

      10,000       -       0.15402  

11/2/2025

      1,500,000       -       0.01960  

9/19/2026

      10,000,000       2,500,000       0.01960  

9/19/2026

      10,000,000       5,000,000       0.00430  

2/6/2027

      15,000,000       7,500,000       0.03626  

8/7/2027

      1,500,000       -       0.03626  

8/7/2027

      20,000,000       15,000,000       0.05360  

5/7/2028

      1,500,000       -       0.02511  

12/3/2028

      20,000,000       20,000,000       0.00557  

9/1/2029

      1,500,000       -       0.00495  

11/18/2029

                           

Kristin Comella*

    20       -       0.15402  

1/19/2019

      3       -       0.15402  

3/13/2019

      30       -       0.15402  

5/28/2019

      250       -       0.15402  

8/12/2021

      500       -       0.15402  

8/6/2022

      5,000       -       0.15402  

8/1/2023

      5,000       -       0.15402  

2/24/2024

      400       -       0.15402  

2/24/2024

      5,000       -       0.15402  

8/1/2024

      400       -       0.15402  

11/3/2024

      1,000       -       0.15402  

2/2/2025

      175,131       -       0.15402  

11/2/2025

      5,000       -       0.15402  

11/2/2025

      1,500,000       -       0.01960  

9/19/2026

      5,000,000       1,250,000       0.01960  

9/19/2026

      5,000,000       2,500,000       0.00430  

2/6/2027

      7,500,000       3,750,000       0.03626  

8/7/2027

      1,500,000       -       0.03626  

8/7/2027

      10,000,000       7,500,000       0.05360  

5/7/2028

      1,500,000       -       0.02511  

12/3/2028

      10,000,000       10,000,000       0.00557  

9/1/20298

 

*Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

37

 

Options Exercises and Stocks Vested

 

Options exercised and stocks vested as at December 31, 2018 are as follows:

 

   

Option awards

   

Stock awards

 

Name

 

Number of Shares Acquired on Exercise (#)

   

Value Realized

on Exercise ($)

   

Number of Shares Acquired on Vesting (#)

   

Value Realized on Investing ($)

 

Mike Tomas, NEO

    0       0       0       0  

Kristin Comella, NEO*

    0       0       0       0  

 

*Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

Grants of Plan-Based Awards

 

Grants of plan-based awards as at December 31, 2018 are as follows:

 

   

Estimated future payouts

under non-equity incentive

plan awards

   

Estimated future payouts

under equity incentive

plan awards

   

All other stock awards:

Number of shares of stock

 or units

(#)

   

All other option awards: Number of securities underlying

Options (#)

   

Exercise or base price of option awards

($/Sh)

   

Grant date fair value of stock and option awards

 

Name

 

Grant

date

   

Threshold ($)

   

Target

($)

   

Maximum

($)

   

Threshold

($)

   

Target

($)

   

Maximum

($)

                 

Mike Tomas, NEO

    n/a       0       0       0       0       0       0       0       0       0       0  

Kristin Comella, NEO

    n/a       0       0       0       0       0       0       0       0       0       0  

 

Reference – Grant Date - n/a = not applicable.

 

Non-Qualified Deferred Compensation

 

As at December 31, 2018 the Company had no formalized deferred compensation plan.

 

Name

 

Executive

contributions

in last FY ($)

   

Registrant

contributions in

last FY ($)

   

Aggregate

earnings in last

FY ($)

   

Aggregate

withdrawals/

distributions ($)

   

Aggregate

balance at last

FYE ($)

 

Mike Tomas, NEO

    0       0       0       0       0  

Kristin Comella, NEO*

    0       0       0       0       0  

 

*Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

38

 

Golden Parachute Compensation

 

As at December 31, 2019, the Company had no arrangements in place relating to the termination of employees.

 

Name

 

Cash

($)

   

Equity

($)

   

Pension/NQDC

($)

   

Perquisites/benefits

($)

   

Tax reimbursement

($)

   

Other

($)

   

Total

($)

 

Mike Tomas, NEO

    0       0       0       0       0       0       0  

Kristin Comella*, NEO

    0       0       0       0       0       0       0  

 

*Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

Compensation of Directors

 

The following table sets forth summary information concerning the total compensation paid to our non-employee directors during the fiscal year ended December 31, 2019 for services to our company.

 

Name

 

Fees Earned or

Paid in Cash ($)

   

Equity Awards ($)

     

Total ($)

 

William P Murphy, Jr.

  $ -     $ 6,895 (1

)

  $ 6,895  

Sheldon T. Andersen

  $ -     $ 6,895 (1

)

  $ 6,895  

Mark Borman

  $ -     $ 6,895 (1

)

  $ 6,895  

Gregory Knutson

  $ -     $ 6,895 (1

)

  $ 6,895  

Total:

  $ -     $ 27,580       $ 27,580  

 

(1)

Represents a stock option granted November 18, 2019 for the purchase of 1,500,000 shares of common stock, vesting immediately, at an exercise price of $0.00495 per share and expiration date of November 18, 2029.

 

Pension Benefits

 

As of December 31, 2018, the Company had no pension or retirement plans.

 

Name

 

Plan name

 

Number of years

credited service (#)

   

Present value of

accumulated benefit ($)

   

Payments during

last fiscal year ($)

 

Mike Tomas, NEO

 

not applicable

    0       0       0  

Kristin Comella, NEO

 

not applicable

    0       0       0  

 

39

 

Equity Compensation Plan Information

 

The following table sets forth information as of December 31, 2019 for all compensation plans under the Company’s Stock Option Plan:

 

   

No. of Shares of Common Stock Underlying Unexercised Common Stock Purchase Options

 

Date of

 

Additional Consideration to be Received Upon Exercise or Material Conditions Required to

   

Option Exercise

   

Value Realized if

 

Option Expiration

Name

 

Exercisable (#)

 

Grant

 

Exercise

   

Price ($)

   

Exercised ($)

 

Date

Mike Tomas, NEO

    500  

6/18/2010

  $ -     $ 0.15402     $ -  

6/18/2020

      500  

8/12/2011

    -       0.15402       -  

8/12/2021

      500  

1/16/2012

    -       0.15402       -  

1/16/2022

      2,000  

8/6/2012

    -       0.15402       -  

8/6/2022

      10,000  

8/01/2013

    -       0.15402       -  

8/1/2023

      400  

9/1/2013

    -       0.15402       -  

9/1/2023

      10,000  

2/24/2014

    -       0.15402       -  

2/24/2024

      800  

2/24/2014

    -       0.15402       -  

2/24/2024

      3,225  

5/12/2014

    -       0.15402       -  

5/12/2014

      10,000  

8/01/2014

    -       0.15402       -  

8/1/2024

      400  

11/3/2014

    -       0.15402       -  

11/3/2024

      291,885  

11/2/2015

    -       0.15402       -  

11/2/2025

      5,000  

11/2/2015

    -       0.15402       -  

11/2/2025

      1,500,000  

9/19/2016

    -       0.01960       -  

9/19/2026

      2,500,000  

9/19/2016

    -       0.01960       -  

9/19/2026

      1,500,000  

8/7/2017

    -       0.03626       -  

8/7/2027

      20,000,000  

5/7/2018

    -       0.05360       -  

5/7/2028

      1,500,000  

12/3/2018

    -       0.02511       -  

12/3/2028

      20,000,000  

9/1/2019

    -       0.00557       -  

9/1/2029

      1,500,000  

11/18/2019

    -       0.00495       -  

11/18/2029

Kristin Comella, NEO

    20  

1/9/2009

    -       0.15402       -  

1/9/2019

      3  

3/13/2009

    -       0.15402       -  

3/13/2019

      30  

5/29/2009

    -       0.15402       -  

5/28/2019

      250  

8/12/2011

    -       0.15402       -  

8/12/2021

      500  

8/06/2012

    -       0.15402       -  

8/06/2022

      5,000  

8/01/2013

    -       0.15402       -  

8/1/2023

      5,000  

2/24/2014

    -       0.15402       -  

2/24/2024

      400  

2/24/2014

    -       0.15402       -  

2/24/2024

      5,000  

8/01/2014

    -       0.15402       -  

8/1/2024

      400  

11/3/2014

    -       0.15402       -  

11/3/2024

      1,000  

2/2/2015

    -       0.15402       -  

2/2/2025

      175,131  

11/2/2015

    -       0.15402       -  

11/2/2025

      2,500  

11/2/2015

    -       0.15402       -  

11/2/2025

      1,500,000  

9/19/2016

    -       0.01960       -  

9/19/2026

      1,250,000  

9/19/2016

    -       0.01960       -  

9/19/2026

      1,500,000  

8/7/2017

    -       0.03626       -  

8/7/2027

      10,000,000  

5/7/2018

    -       0.05360       -  

5/7/2028

      1,500,000  

12/3/2018

    -       0.02511       -  

12/3/2028

      10,000,000  

9/1/2019

    -       0.00557       -  

9/1/2029

 

Director Compensation

 

As of December 31, 2019, we had five directors that qualified for compensation. Our non-employee directors do not receive cash compensation for their services as directors. However, it is generally our policy to annually grant each non-employee director options to purchase shares of our common stock provided that he or she has served as a member of our Board of Directors for at least six months and one day of the twelve month period immediately preceding the date of grant. Our two employee directors, Mike Tomas and Kristin Comella, also are granted director options to purchase shares of our common stock In addition, we reimburse non-employee directors for actual out-of-pocket expenses incurred.

 

40

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth the beneficial ownership (1) of our common stock as of July 15th, 2021, based on an aggregate of 452,413,153common shares issued, for each of our greater than 5% shareholders, directors, named executive officers that continue to serve as executive officers of U.S. Stem Cell and by all of our directors and named executive officers as a group as of December 31, 2019. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o U.S. Stem Cell, Inc., 1560 Sawgrass Corporate Parkway, 4th FL Sunrise FL 33323. Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all shares of our common stock beneficially owned by them.

 

 

(1)

The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 under the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose.  The Company believes that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted.  The “Amount of Beneficial Ownership” in calculated based on total shares held plus warrants held (plus stock options entitled to exercise).  The aggregate of these items will be used as the denominator each for the percentage calculation below.

 

 

Name and Address of Beneficial Owner

 

Amount of Beneficial Ownership

     

Percent of Class

 

Mike Tomas, President, CEO, CFO, and Director

    28,597,063 (1

)

    6.0  
                   

Kristin Comella, Chief Scientific Officer and Director

    4,071,484 (2

)

    1.0  
                   

William P. Murphy, Director**

    6,066,461 (3

)

    1.0  
                   

Mark P. Borman, Director

    6,529,752 (4

)

    1.0  
                   

Sheldon T. Anderson, Director

    6,005,282 (5

)

    1.0  
                   

Greg Knutson**

    3,625,000 (6

)

    *  
                   

All officers and directors as a group (6 persons)

    54,895,042, (7

)

    12.0  
                   

Northstar Biotechnology Group, LLC

    33,837,04 (8

)

    7.0  

 

* less than 1%

** Excludes Northstar Biotechnology Group, LLC (“Northstar”), owned partly by certain directors and existing shareholders of the Company, including Dr. William P. Murphy Jr. and controlled by Gregory Knutson, a member of the Board of Directors appointed on March 5, 2017.

 

(1)

Includes shares are held by The Astri Group over which Mr. Tomas has shared voting and investment power and includes (i) includes 8,279 shares of common stock and (ii) 28,588,784shares of common stock issuable upon exercise of presently exercisable stock options .

(2)

Includes 4,071,484shares of common stock issuable upon exercise of presently exercisable stock options.

(3)

Includes (i) 63,481 shares of common stock and (ii) 6,002,980shares of common stock issuable upon exercise of presently exercisable stock options.  Shares are directly owned by trusts controlled by Dr. Murphy and his spouse.

(4)

Includes (i) 526,942 shares of common stock and (ii) 6,002,810shares of common stock issuable upon exercise of presently exercisable stock options

(5)

Includes (i) 1,941 shares of common stock and (ii) 6,003,341shares of common stock issuable upon exercise of presently exercisable options and warrants.

(6)

Includes 3,625,000,000 shares of common stock issuable upon exercise of presently exercisable stock options.

(7)

Includes an aggregate of (i) 73,725 shares of common stock and (ii) 50,222,875shares of common stock issuable upon exercise of presently exercisable stock options and warrants.

(8)

Includes 33,817,036shares of common stock and (ii) 20,000 shares of common stock issuable upon exercise of warrants.

 

41

 

DESCRIPTION OF SECURITIES

 

The following statements relating to the capital stock set forth the material terms of our securities; however, reference is made to the more detailed provisions of, and such statements are qualified in their entirety by reference to, the Certificate of Incorporation, amendment to the Certificate of Incorporation and the By-laws, copies of which are filed as exhibits to this registration statement.

 

COMMON STOCK

 

The holders of our Common Stock are entitled to one vote per share on all matters to be voted on by our stockholders, including the election of directors. Our stockholders are not entitled to cumulative voting rights, and, accordingly, the holders of a majority of the shares voting for the election of directors can elect the entire board of directors if they choose to do so and, in that event, the holders of the remaining shares will not be able to elect any person to our board of directors.

 

On February 4, 2013, effective with the filing of the amendment to the Company’s Articles of Incorporation with the Florida Secretary of State (confirmed as filed on February 11, 2013), the Company amended its Articles of Incorporation to increase the authorized shares of capital stock of the Company to nine hundred and seventy million (970,000,000) shares of capital stock consisting of 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.

 

Effective May 22, 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.

 

On October 12, 2015, the Company filed an amendment to its Articles of Incorporation and affected a 1-for-1,000 reverse stock split of its issued and outstanding shares of common stock, $0.001 par value, and effective November 19, 2015. The Financial Industry Regulatory Authority (“FINRA”) declared the ex-dividend date for the dividend date as November 4, 2015 (the “2015 Reverse Split”).  

 

The holders of the Company’s Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors, in its discretion, from funds legally available there for and subject to prior dividend rights of holders of any shares of our Preferred Stock which may be outstanding and any contractual limitations. Upon the Company’s liquidation, dissolution or winding up, subject to prior liquidation rights of the holders of our Preferred Stock, if any, the holders of our Common Stock are entitled to receive on a pro rata basis our remaining assets available for distribution. Holders of the Company’s Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. All outstanding shares of the Company’s Common Stock are, fully paid and not liable to further calls or assessment by the Company.

 

Preferred Stock

 

The Company is authorized to issue 20,000,000 shares of preferred stock, par value $0.001. The designations, rights, and preferences of such preferred stock are to be determined by the Board of Directors. Subsequently and prior to the 2015 “Reverse Split”, 20,000,000 shares were designated as Series A Preferred Stock.

 

The Series A Preferred Stock collectively has voting rights equal to 25 votes on all matters presented to be voted by the holders of common stock per share of preferred stock and the right to convert to one share of common stock for each share of preferred stock. Northstar Biotechnology Group, LLC was issued, prior to the 2015 “Reverse Split” , an aggregate of 20,000,000 shares of Series A Preferred Stock which were converted to common stock pursuant to a Settlement Agreement dated March 1, 2017. As of the date of this  report, no shares of preferred stock are issued and outstanding.

 

DIVIDENDS

 

Dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment of dividends, if any, will be within the discretion of our Board of Directors. We presently intend to retain all earnings, if any, for use in its business operations and accordingly, the Board of Directors does not anticipate declaring any dividends prior to a business combination.

 

42

 

INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

We are incorporated under the laws of the State of Florida. Our articles of incorporation require us to indemnify and limit the liability of directors to the fullest extent permitted by the Florida Business Corporation Act, or the “FBCA”, as it currently exists or as it may be amended in the future.

 

Pursuant to the FBCA, a Florida corporation may indemnify any person who may be a party to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another entity, against liability incurred in connection with such proceeding (including any appeal thereof) if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

 

In addition, in accordance with the FBCA, a Florida corporation is permitted to indemnify any person who may be a party to a derivative action if such person acted in any of the capacities set forth in the preceding paragraph, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expenses of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding (including appeals), provided that the person acted under the standards set forth in the preceding paragraph. However, no indemnification shall be made for any claim, issue, or matter for which such person is found to be liable unless, and only to the extent that, the court determines that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.

 

Any indemnification made under the above provisions, unless pursuant to a court’s determination, may be made only after a determination that the person to be indemnified has met the standard of conduct described above. This determination is to be made by a majority vote of a quorum consisting of the disinterested directors of the board of directors, by duly selected independent legal counsel, or by a majority vote of the disinterested shareholders. The board of directors also may designate a special committee of disinterested directors to make this determination. Notwithstanding the foregoing, a Florida corporation must indemnify any director, officer, employee or agent of a corporation who has been successful in the defense of any proceeding referred to above.

 

Generally, pursuant to the FBCA, a director of a Florida corporation is not personally liable for monetary damages to our company or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, unless: (a) the director breached or failed to perform his duties as a director; and (b) the director’s breach of, or failure to perform, those duties constitutes (i) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) an approval of an unlawful distribution, (iv) with respect to a proceeding by or in the right of the company to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the company, or willful misconduct, or (v) with respect to a proceeding by or in the right of someone other than the company or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. The term “recklessness,” as used above, means the action, or omission to act, in conscious disregard of a risk: (a) known, or so obvious that it should have been known, to the directors; and (b) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission.

 

Furthermore, under the FBCA, a Florida corporation is authorized to make any other further indemnification or advancement of expenses of any of its directors, officers, employees or agents under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both for actions taken in an official capacity and for actions taken in other capacities while holding such office. However, a corporation cannot indemnify or advance expenses if a judgment or other final adjudication establishes that the actions of the director, officer, employee, or agent were material to the adjudicated cause of action and the director, officer, employee, or agent (a) violated criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his or her conduct was unlawful, (b) derived an improper personal benefit from a transaction, (c) was or is a director in a circumstance where the liability for unlawful distributions applies, or (d) engaged in willful misconduct or conscious disregard for the best interests of the corporation in a proceeding by or in right of the corporation to procure a judgment in its favor.

 

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

 

We maintain a liability insurance policy, pursuant to which our directors and officers may be insured against liability they incur for serving in their capacities as directors and officers of our company, including liabilities arising under the Securities Act or otherwise.

 

43

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

 

Amendment of our Bylaws

 

Our bylaws may be adopted, amended or repealed by the affirmative vote of a majority of our outstanding shares. Subject to applicable law, our bylaws also may be adopted, amended or repealed by our Board of Directors.

 

Item 13. Certain Relationships and Related Transactions and Director Independence.

 

Certain Relationships and Related Party Transactions

 

Advances

 

As of December 31, 2019 and 2018, our officers and directors have provided advances in the aggregate of $511,744 and $234,901, for working capital purposes, respectively. The advances are unsecured, due on demand and non-interest bearing.

 

Northstar Biotechnology Group, LLC-Preferred stock

 

On March 1, 2017, the Series A Preferred share were converted to common stock pursuant to a Settlement Agreement dated March 1, 2017. In addition, and separate and apart from the conversion, Northstar will receive Ten Million (10,000,000) shares of common stock. Northstar will receive ten percent (10%) of all Company international sales (based on a gross sales basis). Furthermore, a Northstar designee, Greg Knutson, was appointed to the Board of Directors of the Company (see Item 5.02).  The parties agreed to a mutual release and Northstar agreed to terminate any UCC lien on the Company assets previously filed for the benefit of Northstar.

 

Notes payable-related party

 

Northstar Biotechnology Group, LLC

 

On February 29, 2012, a promissory note issued to BlueCrest Master Fund Limited was assigned to Northstar Biotechnology Group, LLC (“Northstar”), owned partly by certain directors and existing shareholders of the Company at the time, including Dr. William P. Murphy Jr., Dr. Samuel Ahn and Charles Hart. At the date of the assignment, the principal amount of the BlueCrest note was $544,267 the (“Note”).

 

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. The Company did not make the required payment, and as a result, was in default of the revised agreement. The Company renegotiated the terms of the Note and Northstar 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 common stock purchase warrants to Northstar that was treated as additional interest expense upon issuance.

 

44

 

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 shares 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 was 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 agreed to modify the voting rights of the subsequently cancelled 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 March 1, 2017, Northstar and the Company entered into a settlement agreement (“Settlement Agreement “) related to then pending litigation (See Note 11). Pursuant to the terms and conditions of the Settlement Agreement, Northstar converted its outstanding Series A Convertible preferred stock, into twenty million (20,000,000) shares of common stock according to the original conversion terms. In addition, and separate and apart from the conversion, Northstar received Eleven Million (11,000,000) shares of the Company’s common stock. Northstar will receive ten percent (10%) of all Company international sales (based on a gross sales basis). There was no effect of the 10% obligation as there were no international sales in 2017 or, to date, in 2018 Furthermore, a Northstar designee, Greg Knutson, was appointed as a member of the Board of Directors of the Company and two Company directors, Michael Tomas and Kristin Comella, each exercised their prior Northstar options to each receive a Five percent (5%) Member Interest in Northstar.  The parties agreed to a mutual release and Northstar agreed to terminate any UCC lien on the Company assets previously filed for the benefit of Northstar. On March 9, 2017 and April 1, 2017, the Company issued 30,000,000 and 1,000,000 shares of its common stock, respectively, as described above. In connection with the settlement, the Company recorded a loss on litigation settlement of $316,800.

 

On September 30, 2013, the Company issued 8,772 shares of its common stock as payment of $100,000 towards cash advances.

 

On December 24, 2013, the Company issued 3,916 shares of its common stock as payment of accrued interest through June 30, 2013 of $85,447.

 

On April 2, 2014, the Company issued 275 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, the limited waiver and forbearance agreement entered into on October 1, 2012 to provide that the perpetual license on products as described for resale, relicensing and commercialization outside the United States was amended as such on the condition that Northstar provide certain financing, which financing the Company, in its sole discretion, could decline and retain the license.

 

On October 3, 2014, the Company issued 515 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2014 per the forbearance agreement.

 

45

 

On April 3, 2015, the Company issued 1,363 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,635 due April 1, 2015 per the forbearance agreement.

 

On October 2, 2015, the Company issued 4,156 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2015 per the forbearance agreement.

 

On October 7, 2015, the Company issued 34,522 shares of its common stock in settlement of $100,000 principal payment towards the outstanding debt.

 

On April 7, 2016, the Company issued 57,778 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due April 1, 2016 per the forbearance agreement.

 

On October 6, 2016, the Company issued 848,490 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2016 per the forbearance agreement.

 

On April 1, 2017, the Company issued 286,315 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,703 due October 1, 2016 per the forbearance agreement.

 

On October 2, 2017, the Company issued 559,187 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2016 per the forbearance agreement.

 

On October 19, 2018, the Company issued 164,523 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,195 due October 1, 2016 per the forbearance agreement.

 

On April 1, 2019, the Company issued 379,141 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,145.

 

On October 2, 2019, the Company issued 1,692,353 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,195.

 

As of December 31, 2019 and 2018, the remaining carrying value of this note was $262,000.

 

Officer and Director Notes

 

   

2019

   

2018

 

Note payable, Mr. Tomas

    161,786       483,393  

Note payable, Mr. Tomas

    500,000       500,000  

Note payable, Mr. Tomas

    500,000       -  

Note payable, Mr. Tomas

    178,077       -  

Note payable, Dr. Comella*

    255,579       147,711  

Note payable, Dr. Comella*

    300,000       300,000  

Note payable, Dr. Comella*

    300,000       300,000  

Note payable, Dr. Comella*

    300,000       -  

Total

  $ 2,495,442     $ 1,731,004  

 

* Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

Notes payable, Mr. Tomas

 

On July 1, 2014, the Company issued a $500,000 promissory note in settlement of compensation earned. The promissory note bears interest of 5% per annum and was due on January 1, 2015. During the year ended December 31, 2019 and 2018, the Company paid off $101,729 and $398,271 the outstanding promissory note. The principal outstanding balance of this note as of December 31, 2019 is $0.

 

On September 6, 2016, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due upon demand. During the year ended December 31, 2018, the Company paid off $500,000 of the outstanding promissory note. The principal outstanding balance of this note as of December 31, 2019 is $0 .

 

46

 

On August 7, 2017, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due one year from date of issuance. During the year ended December 31, 2019, the Company paid off $321,607 of the outstanding promissory note.. The principal outstanding balance of this note as of December 31, 2019 is $161,786.

 

On May 7, 2018, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due six months from date of issuance. The principal outstanding balance of this note as of December 31, 2019 is $500,000.

 

On July 1, 2019, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due November 7, 2019. As of December 31, 2019, the remaining carrying value of the note was $500,000.

 

On December 31, 2019, the Company issued a $178,077 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of December 31, 2019, the remaining carrying value of the note was $178,077.

 

At December 31, 2019 and 2018, accrued interest on the notes was $389,695 and $340,009, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

Notes payable, Dr. Comella*

 

On September 6, 2016, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and was due upon demand. During the year ended December 31, 2019, the Company increased the balance to $255,579 of the outstanding promissory note. The principal outstanding balance of this note as of December 31, 2019 is 255,579.

 

On August 7, 2017, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due one year from date of issuance. The principal outstanding balance of this note as of December 31, 2019 is $300,000.

 

On May 7, 2018, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due six months from date of issuance. The principal outstanding balance of this note as of December 31, 2019 is $300,000.

 

On July 1, 2019, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due November 7, 2019. As of December 31, 2019, the remaining carrying value of the note was $300,000.

 

At December 31, 2019 and 2018, accrued interest on the notes was $150,708 and $102,974, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

*Kristin Comella ceased to be a member of the Board of Director or an officer as of September 1, 2019.

 

Transactions with Pavillion

 

On May 1, 2016, the Company entered into a consulting agreement with Pavillion, Inc., whose owner is related to an officer of the Company.  The agreement is for 12 months and renewable for 6 month periods.  Compensation is at $250 per hour or, at the Company’s discretion, in shares of the Company’s common stock. For the year ended December 31, 2018 and 2017, the Company has incurred $120,000 and $120,000 of expense under the agreement, respectively. As of December 31, 2018 and 2017, the Company had $64,909 and $187,409, respectively, in accounts payable owed to Pavillion. On June 1, 2018, effective June 30, 2018, the Company terminated the agreement in accordance with its terms and no further compensation was derived by Pavillion.

 

47

 

Transactions with GACP

 

On March 3, 2017, the Company entered into an asset sale and lease agreement (sale/leaseback transaction, the “Asset Sale and Lease Agreement”) with GACP, whereby the Company sold certain lab, medical and other equipment relating to the cell banking business for $400,000 and leased back the sold equipment over a three year term (See “Lab and Medical Equipment Capitalized Lease” below). The Company determined that the transaction was a capitalized lease and accordingly recorded the leased assets and liability based on the estimated present value of the minimum lease payments (see Notes 4 and 6).

 

In connection with the asset sale and lease agreement, the Company is obligated to accrue 10% of banking revenue as for marketing, offset by any incurred costs of the Company.  At December 31, 2018 and 2017, the outstanding accrued marketing obligation is $179,352 and $141,560, respectively (see Note 5).

 

On March 3, 2017, the Company also entered into a customer purchase agreement with GACP, whereby the Company agreed to sell, for $50,000, the first 5,000 customers of the cell banking business after the effective date of the equipment sale/leaseback agreement with rights to purchase additional customers at a price of $20 per customer.  There is no reduction in the selling price should the new customers be fewer than 5,000.  The effective date of the sale is upon the expiry or early termination of the related equipment lease transaction.

 

On March 3, 2017, the Company also entered into an asset purchase agreement of intellectual property with GACP whereby the Company agreed to sell all of the Company’s worldwide rights, title or interest in certain intellectual and other property (as defined) associated with the cell banking business for $50,000. The effective date of the sale is upon the expiry or early termination of the related equipment lease transaction.

 

In connection with the March 3, 2017 asset purchase agreement, the CEO of U.S. Stem Cell, Inc. has been retained as CEO of American Stem Cell Centers of Excellence, which is owned by General American Capital Partners (GACP), to help with scientific and successful operational deployment of clinics. 

 

On April 3, 2017, U.S. Stem Cell received a commitment to invest up to $5,000,000 from GACP with the intent for GACP to receive up to 63,873,275 shares of common stock.  To date, GACP has invested, pursuant to this commitment, $250,000 in return for 858,281 shares. Subsequent to this investment, GACP has informed the Company that they will make no further investments pursuant to this agreement and has entered into a new agreement to invest $3,000,000 to open their own clinics (branded American Stem Cell) using the US Stem Cell Inc. protocols, procedures, products and technologies. As of September 30, 2018 (effective May 9, 2018), pursuant to an Amendment to Asset Sale and Lease Agreement, dated June 18, 2018, GACP has suspended their obligation to open additional clinics (tolling such obligation to a mutually agreeable date in the future) and has suspended the monthly aggregate number of stem cell kits set forth for purchase in a given month arising from such clinics. All other terms and conditions of the agreements between U.S. Stem Cell, Inc. and GACP remain in full force and effect. On October 10th, 2019 U.S. Stem Cell terminated it’s transactions with GACP.

 

Item 14.  Principal Accounting Fees and Services. Independent Registered Public Accounting Firm Fees

 

We engaged RBSM LLP ("RBSM") as our independent registered public accounting firm for the audit of our financial statements for the year ended December 31, 2018 commencing April 23, 2018. Prior to the engagement of RBSM, Fiondella, Milone, LaSaracina LLP (FML) served as our independent registered public accounting firm.

 

Aggregate fees billed to us for the fiscal years ended December 31, 2018 and 2017 by our independent registered public accounting firms are as follows:

 

Types of Fees

 

2019

   

2018

 

Audit Fees (1)

  $ 80,000     $ 95,500  

Audit Related Fees

  $ -     $ -  

Tax Fees

          $ 5,300  

All Other Fees

    -       -  

 

(1)

This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit of the annual financial statements or the reviews of the interim financial statements.

 

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Audit Committee Pre-Approval Policy

 

Consistent with policies of the SEC regarding auditor independence, the Audit Committee has responsibility for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Audit Committee has adopted, and our Board has ratified, an Audit and Non-Audit Services Pre-Approval Policy pursuant to which the Audit Committee is required to pre-approve the audit and non-audit services performed by our independent registered public accounting firm in order to assure that these services do not impair the auditor’s independence from us.

 

Prior to engagement of the independent auditor for the next year’s audit, the independent auditor and the Audit Committee will review a list of services and related fees expected to be rendered during that year within each of four categories of services to the Audit Committee for approval:

 

(i) Audit Services: Audit services include the annual financial statement audit (including required quarterly reviews), equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on our financial statements. Audit Services also include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review as well as the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.

 

(ii) Audit-Related Services: Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence related to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit Services,” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities, financial audits of employee benefit plans, agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.

 

(iii) Tax Services: Tax services include services such as tax compliance, tax planning and tax advice; however, the Audit Committee will not permit the retention of the independent registered public accounting firm in connection with a transaction initially recommended by the independent registered public accounting firm, the sole business purpose of which may be tax avoidance and treatment which may not be supported in the Internal Revenue Code and related regulations.

 

(iv) All Other Services: All other services are those permissible non-audit services that the Audit Committee believes are routine and recurring and would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.

 

Prior to engagement, the Audit Committee pre-approves the services and fees of the independent auditor within each of the above categories. During the year, it may become necessary to engage the independent auditor for additional services not previously contemplated as part of the engagement. In those instances, the Audit and Non-Audit Services Pre-Approval Policy requires that the Audit Committee specifically approve the services prior to the independent auditor’s commencement of those additional services. Under the Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee may delegate the ability to pre-approve audit and non-audit services to one or more of its members provided the delegate reports any pre-approval decision to the Audit Committee at its next scheduled meeting. As of the date hereof, the Audit Committee has not delegated its ability to pre-approve audit.

 

 

 

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PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a)(1) Financial Statements

 

See Item 8. “Financial Statements and Supplementary Data” for Financial Statements included with this Annual Report on Form 10-K.

 

(a)(2) Financial Statement Schedules

 

All schedules have been omitted because the required information is not applicable or the information is included in the financial statements or the notes thereto.

 

(a)(3) Exhibits

 

Exhibit No.

Exhibit Description

   

2.1(20)

Asset Sale and Lease Agreement between U.S. Stem Cell, Inc. and GACP Stem Cell Bank LLC., dated March 3, 2017.

2.2(20)

Asset Purchase Agreement between U.S. Stem Cell, Inc. and GACP Stem Cell Bank LLC., dated March 3, 2017.

2.3(20)

Customer Purchase Agreement between U.S. Stem Cell, Inc. and GACP Stem Cell Bank LLC., dated March 3, 2017.

3.1 (1)

Articles of Incorporation

3.2(5)

Amended and Restated Articles of Incorporation

3.3(8)

Articles of Amendment to the Articles of Incorporation

3.4(17)

Articles of Amendment to the Articles of Incorporation

3.5 (7)

Amended and Restated Bylaws

3.6(19)

Amendment to Bylaws

4.1(4)

Loan and Security Agreement, dated as of May 31, 2007 by and between BlueCrest Capital Finance, L.P. and the Registrant

4.2(9)

Amendment to Loan and Security Agreement, between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009

4.3(9)

Grant of Security Interest (Patents), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009

4.4(9)

Security Agreement (Intellectual Property), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009

4.5(9)

Subordination Agreement, by Hunton & Williams, LLP in favor of BlueCrest Venture Finance Master Fund Limited, entered into and effective April 2, 2009

4.6(9)

Amended and Restated Promissory Note, dated April 2, 2009, by the Company to BlueCrest Venture Finance Master Fund Limited

4.7(9)

Warrant to purchase shares of the Registrant’s common stock, dated April 2, 2009, issued to BlueCrest Venture Finance Master Fund Limited

4.8(10)

Warrant to purchase shares of the Registrant’s common stock, dated April 2, 2009, issued to Rogers Telecommunications Limited

4.9(10)

Warrant to purchase shares of the Registrant’s common stock, dated April 2, 2009, issued to Hunton & Williams, LLP

4.10 (15)

Series A Convertible Preferred Stock

10.1(1)

Lease Agreement between the Registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006.

10.2(3)

Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the Registrant, Howard J. Leonhardt and Brenda Leonhardt

10.3(3)

Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the Registrant and William P. Murphy Jr., M.D.

10.4(3)

Loan Agreement, dated as of June 1, 2007, by and between the Registrant and Bank of America, N.A.

10.5(5)

Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the Registrant and Samuel S. Ahn, M.D.

 

50

 

 

10.6(5)

Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the Registrant and Dan Marino

10.7(5)

Loan Guarantee, Payment and Security Agreement, dated as of September 19, 2007, by and between the Registrant and Jason Taylor

10.8(6)

Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the Registrant and Howard and Brenda Leonhardt

10.9(6)

Second Amendment to Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the Registrant and Howard and Brenda Leonhardt

10.10(6)

Second Amendment to Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the Registrant and William P. Murphy, Jr., M.D.

10.11(11)

Loan Agreement with Seaside National Bank and Trust, dated October 25, 2010.

10.12(11)

Promissory Note with Seaside National Bank and Trust, dated October 25, 2010.

10.13(11)

Amended and Restated Loan and Security Agreement with BlueCrest Venture Finance Master Fund Limited, dated October 25, 2010.

10.14(12)

Unsecured Convertible Promissory Note for $25,000, with Magna Group, LLC, dated January 3, 2011.

10.15(12)

Promissory Note for $139,728.82 with Magna Group, LLC, dated January 3, 2011.

10.16(13)

Unsecured Convertible Promissory Note for $34,750, with Magna Group, LLC, dated May 16, 2011.

10.17(13)

Promissory Note for $139,728.82 with Magna Group, LLC, dated May 16, 2011.

10.18**(14)

2013 U.S. Stem Cell, Inc. Omnibus Equity Compensation Plan

10.19(16)

Senior Convertible Note with Magna Equities II, LLC, dated October 1, 2015

10.20(16)

Securities Purchase Agreement, dated as of October 1, 2015, by and between Magna Equities II, LLC and U.S. Stem Cell, Inc.

10.21(16)

Registration Rights Agreement, dated as of October 1, 2015, by and between Magna Holdings I, LLC and U.S. Stem Cell, Inc.

10.22(18)

Senior Convertible Note Magna Equities II, LLC, dated December 3, 2015

10.23(18)

Amended and Restated Senior Convertible Note, dated December 3, 2015.

10.24(18)

Securities Purchase Agreement, dated as of December 3, 2015, by and between Magna Equities II, LLC and U.S. Stem Cell, Inc.

10.25(18)

Registration Rights Agreement, dated as of December 3, 2015, by and between Magna Holdings I, LLC and U.S. Stem Cell, Inc.

10.26(20)

Non-Competition and Non-Solicitation Agreement between U.S. Stem Cell, Inc. and GACP Stem Cell Bank LLC., dated March 3, 2017.

10.27(21)

First Amendment to Lease Agreement between the Registrant and Sawgrass Business Plaza, LLC, as amended, dated November 17, 2017

14.1(2)

Code of Business Conduct and Ethics

21.0*

Subsidiary List

31.01*

Certification of Chief Executive Officer and Chief Financial Officer (Principal Accounting Officer) pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01*

Certifications of Chief Executive Officer and Chief Financial Officer (Principal Accounting Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS

XBRL Instance Document

101 SCH

XBRL Taxonomy Extension Schema Document

101 CAL

XBRL Taxonomy Calculation Linkbase Document

101 DEF

XBRL Taxonomy Extension Definition Linkbase Document

101 LAB

XBRL Taxonomy Labels Linkbase Document

101 PRE

XBRL Taxonomy Presentation Linkbase Document

 

*

Filed herewith

                 

**

Indicates management contract or compensatory plan.

         

(1)

Incorporated by reference to the Company’s Form S-1 filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2007.

(2)

Incorporated by reference to Amendment No. 1 to the Company’s Form S-1 filed with the SEC on June 5, 2007.

(3)

Incorporated by reference to Amendment No. 3 to the Company’s Form S-1 filed with the SEC on August 9, 2007.

(4)

Incorporated by reference to Amendment No. 4 to the Company’s Form S-1 filed with the SEC on September 6, 2007.

(5)

Incorporated by reference to Amendment No. 5 to the Company’s Form S-1 filed with the SEC on October 1, 2007.

(6)

Incorporated by reference to Post-effective Amendment No. 1 to the Company’s Form S-1 filed with the SEC on October 11, 2007.

(7)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2008.

 

51

 

 

(8)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2008.

(9)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 8, 2009.

(10)

Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2009.

(11)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 29, 2010.

(12)

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2011.

(13)

Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on May 25, 2011.

(14)

Incorporated by reference to the Company Quarterly Report on Form 10-Q filed with the SEC on May 9, 2013.

(15)

Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 28, 2014.

(16)

Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on October 2, 2015.

(17)

Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on November 4, 2015.

(18)

Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on December 4, 2015.

(19)

Incorporated by reference to the text of the Company Current Report on Form 8-K filed with the SEC on August 3, 2016.

(20)

Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on March 8, 2017.

(21)

Incorporated by reference to the Company Annual Report on Form 10-K filed with the SEC on April 16, 2018.

 

52

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

U.S. STEM CELL, INC.

 
       
 

By:

/s/ Mike Tomas

 
   

Mike Tomas
Chief Executive Officer & President

 
 


July 15, 2021

 

 

 

By:

/s/ Mike Tomas

 
   

Mike Tomas
Chief Financial Officer (Principal Accounting Officer)

     
  July 15, 2021  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Each person whose signature appears below, hereby authorizes Mike Tomas, as attorney in fact to sign on his or her behalf, individually, in each capacity stated below, and to file all amendments or supplements to this annual report on Form 10-K.

 

SIGNATURE

 

TITLE

 

DATE

         

/s/ William P. Murphy, Jr., M.D.

 

Chairman of the Board

  July 15, 2021

William P. Murphy, Jr., M.D.

       
         

/s/ Mike Tomas

 

Chief Executive Officer, Chief Financial Officer,  & Director

  July 15, 2021

Mike Tomas

       
         

/s/ Mark P. Borman

 

Director

  July 15, 2021

Mark Borman

       
         

/s/  Sheldon Anderson

 

Director

  July 15, 2021

Sheldon Anderson

       
         

/s/  Greg Knutson

 

Director

  July 15, 2021

Greg Knutson

       

 

53

 

FORM 10-KITEM 8

 

U.S. STEM CELL, INC.

 

INDEX TO FINANCIAL STATEMENTS

 

Reports of Independent Registered Public Accounting Firms

F-2

   

Balance Sheets as of December 31, 2019 and 2018

F-3

   

Statements of Operations for the years ended December 31, 2019 and 2018

F-4

   

Statement of Stockholders’ Deficit for the two years ended December 31, 2019

F-5

   

Statements of Cash Flows for the years ended December 31, 2019 and 2018

F-6

   

Notes to Financial Statements

F-7

 

 

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of U.S Stem Cell, Inc.

 

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of U.S Stem Cell, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. 

 

The Company's Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, generated negative cash flows from operating activities, will require additional capital to fund its current operating plan, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans in regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Change in Accounting Principle

 

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of the Accounting Standards Codification Topic 842, Leases.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ RBSM LLP

 

We have served as the Company’s auditor since 2018.

 

New York, NY 

July 15, 2021

 

 

 

F-2

 

U.S. STEM CELL, INC.

BALANCE SHEETS

 

   

December 31,

   

December 31,

 
   

2019

   

2018

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ -     $ 1,357,146  

Accounts receivable, net

    48,208       18,035  

Inventory

    8,096       93,215  

Prepaid expenses and other current assets

    10,000       38,128  

Total current assets

    66,304       1,506,524  
                 

Property and equipment, net

    -       242,615  

Investments

    23,539       57,790  

Deposits

    -       10,160  
                 

Total assets

  $ 89,843     $ 1,817,089  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

               

Current liabilities:

               

Bank overdraft

  $ 1,520     $ -  

Accounts payable

    1,187,989       1,182,730  

Accrued expenses

    1,115,526       1,155,792  

Advances - related parties

    511,744       234,901  

Deferred revenue, current portion

    23,800       293,665  

Deferred gain on sale of equipment, current portion

    21,474       128,845  

Deposits, current portion

    465,286       465,286  

Promissory note, current portion, net of debt discount of $29,296 and $0, respectively

    1,368,467       -  

Notes payable - related parties

    2,757,442       1,993,104  

Notes and capital leases payable, current portion, net of debt discount of $9,057 and $62,240, respectively

    1,297,477       462,330  

Total current liabilities

    8,750,725       5,916,653  
                 

Long-term liabilities:

               

Deferred revenue

    62,500       65,500  

Deferred gain on sale of equipment

    -       21,474  

Deposits

    -       100,000  

Promissory note, net of debt discount of $0 and $99,183, respectively

    -       1,298,579  

Notes and capital leases payable, net of debt discount of $41,391 and $12,413, respectively

    756,014       1,297,093  

Total long-term liabilities

    818,514       2,782,646  
                 

Total liabilities

    9,569,239       8,699,299  
                 

Commitments and contingencies (See Note 12)

               
                 

Stockholders' deficit:

               

Preferred stock, par value $0.001; 20,000,000 shares authorized, -0- issued and outstanding

    -       -  

Common stock, par value $0.001; 2,000,000,000 shares authorized, 417,724,767 and 378,076,976 shares issued and outstanding, respectively

    417,725       378,077  

Additional paid-in capital

    123,726,894       122,528,391  

Accumulated deficit

    (133,624,015 )     (129,788,678 )

Total stockholders' deficit

    (9,479,396 )     (6,882,210 )
                 

Total liabilities and stockholders' deficit

  $ 89,843     $ 1,817,089  

 

The accompanying notes are an integral part of these financial statements.

 

F-3

 

U.S. STEM CELL, INC.

STATEMENTS OF OPERATIONS

 

   

For the year ended December 31,

 
   

2019

   

2018

 

Revenue:

               

Products

  $ 378,621     $ 1,664,016  

Services

    2,642,921       5,036,872  

Management fees - related party

    50,751       -  

Total revenue

    3,072,293       6,700,888  
                 

Cost of sales

    1,335,237       2,110,532  
                 

Gross profit

    1,737,056       4,590,356  
                 

Operating expenses:

               

Research and development

    263       5,439  

Marketing, general and administrative

    4,454,712       5,682,296  

Pre-litigation settlement

    698,937       -  

Depreciation and amortization

    -       524  

Total operating expenses

    5,153,912       5,688,259  
                 

Loss from operations

    (3,416,856 )     (1,097,903 )
                 

Other income (expenses):

               

Gain on settlement of debt

    214,883       5,625  

Gain on sale of equipment

    128,845       128,845  

Miscellaneous income

    101,474       -  

Income from equity investments

    117,318       247,813  

Interest expense

    (981,001 )     (1,444,807 )

Total other income (expenses)

    (418,481 )     (1,062,524 )
                 

Net loss before income taxes

    (3,835,337 )     (2,160,427 )
                 

Income taxes (benefit)

    -       -  
                 

NET LOSS

  $ (3,835,337 )   $ (2,160,427 )
                 

Net loss per common share, basic and diluted

  $ (0.01 )   $ (0.01 )
                 

Weighted average number of common shares outstanding, basic and diluted

    398,037,479       365,636,453  

 

The accompanying notes are an integral part of these financial statements.

 

F-4

 

U.S. STEM CELL, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balance, December 31, 2017

    -     $ -       342,113,098     $ 342,113     $ 120,185,821     $ (127,628,251 )   $ (7,100,317 )

Common stock issued in settlement of accounts payable and accrued interest

    -       -       15,220,378       15,220       563,259       -       578,479  

Common stock issued for services

    -       -       10,866,274       10,866       439,065       -       449,931  

Common stock issued for expenses incurred, related party

    -       -       526,918       527       13,995       -       14,522  

Fair value of warrants issued for compensation

    -       -       -       -       24,986       -       24,986  

Common shares issued for cash

    -       -       9,350,308       9,351       358,349       -       367,700  

Related party contribution to equity investment

    -       -       -       -       189,909       -       189,909  

Stock-based compensation

    -       -       -       -       753,007       -       753,007  

Net loss

    -       -       -       -       -       (2,160,427 )     (2,160,427 )

Balance, December 31, 2018

    -       -       378,076,976       378,077       122,528,391       (129,788,678 )     (6,882,210 )

Common stock issued in settlement of accounts payable and accrued interest

    -       -       22,371,084       22,371       326,089       -       348,460  

Common stock issued for services

    -       -       4,000,000       4,000       85,250       -       89,250  

Contribution to equity investment

    -       -       -       -       15,265       -       15,265  

Stock-based compensation

    -       -       -       -       735,176       -       735,176  

Common shares issued for cash

    -       -       13,276,707       13,277       36,723       -       50,000  

Net loss

    -       -       -       -       -       (3,835,337 )     (3,835,337 )

Balance, December 31, 2019

    -     $ -       417,724,767     $ 417,725     $ 123,726,894     $ (133,624,015 )   $ (9,479,396 )

 

The accompanying notes are an integral part of these financial statements.

 

F-5

 

U.S. STEM CELL, INC.

STATEMENTS OF CASH FLOWS

 

   

For the year ended December 31,

 
   

2019

   

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (3,835,337 )   $ (2,160,427 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

               

Depreciation and amortization

    242,615       207,132  

Bad debt (recoveries)

    46,121       62,207  

Amortization of discount on debt

    198,355       195,967  

Gain on settlement of notes payable and accrued interest

    (214,883 )     (5,625 )

Gain on sale of equipment

    (128,845 )     (128,845 )

Common shares issued as payment of expenses - related party

    -       14,522  

Related party notes payable issued for services rendered

    978,077       800,000  

Income on equity investments

    (117,318 )     (247,813 )

Note payable issued in pre-trial settlement

    698,937       -  

Stock-based compensation

    824,426       1,227,924  

Changes in operating assets and liabilities:

               

Accounts receivable

    (76,294 )     (37,283 )

Inventory

    85,119       (22,851 )

Prepaid expenses and other current assets

    28,128       (35,000 )

Deposits

    10,160       -  

Accounts payable

    344,536       426,263  

Accrued expenses

    (21,926 )     226,673  

Deferred revenue

    (272,865 )     79,623  

Net cash (used in) provided by operating activities

    (1,210,994 )     602,467  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Proceeds from (payments to) equity investments

    166,834       311,700  

Net cash provided by investing activities

    166,834       311,700  
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from overdraft protection

    1,520       -  

Proceeds from notes payable

    -       220,211  

Proceeds from sale of common stock

    50,000       367,700  

Net proceeds from common stock subscriptions

    -       -  

Proceeds from related party advances

    276,843       130,000  

Equity contribution by related party

    -       103,159  

Proceeds from related party notes

    107,868       -  

Repayments of related party notes

    (321,607 )     (708,422 )

Proceeds from notes payable

    84,876       -  

Repayments of notes payable

    (512,486 )     (656,468 )

Net cash used in financing activities

    (312,986 )     (543,820 )
                 

Net (decrease) increase in cash and cash equivalents

    (1,357,146 )     370,347  

Cash and cash equivalents, beginning of period

    1,357,146       986,799  

Cash and cash equivalents, end of period

  $ -     $ 1,357,146  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Interest paid

  $ 782,646     $ 1,114,693  

Income taxes paid

  $ -     $ -  
                 

Non-cash financing activities:

               

Common stock issued in settlement of accounts payable and accrued interest

  $ 348,460     $ 578,479  

Equity contributed to investment

  $ 15,265     $ 189,909  

 

The accompanying notes are an integral part of these financial statements.

 

F-6

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

NOTE 1 NATURE OF OPERATIONS

 

U.S. Stem Cell, Inc. was incorporated under the laws of the State of Florida in August 1999. The Company is in the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. The business includes the development of proprietary cell therapy products as well as revenue generating physician and patient-based regenerative medicine/cell therapy training services, cell collection and cell storage services, the sale of cell collection and treatment kits for humans and animals, and the operation of cell therapy clinics. To date, the Company has not generated significant revenues in that they remain less than their total operating expenses, has incurred expenses, and has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a research and development business enterprise.

 

NOTE 2 GOING CONCERN AND MANAGEMENTS LIQUIDITY PLANS

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As shown in the accompanying financial statements, as of December 31, 2019, the Company had a bank overdraft of $1,520 and a working capital deficit (current liabilities in excess of current assets) of $8,684,422. During the year ended December 31, 2019, the net loss was $3,835,337 and net cash used in operating activities was $1,210,994. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the audited financial statements.

 

The Company’s primary source of operating funds in 2019 and 2018 has been from revenue generated from sales with additional cash proceeds from the sale of common stock and the issuances of promissory notes and other debt. The Company has experienced net losses from operations since inception, but expects these conditions to improve in the future as it develops its business model. The Company has a stockholders’ deficit at December 31, 2019 and requires additional financing to fund future operations.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

NOTE 3 SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, stock-based compensation, debt discounts and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.

 

Fair Value

 

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable, accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

F-7

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The Company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value.

 

Cash

 

The Company considers cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts. Credit is extended to customers based on an evaluation of their financial condition, industry reputation, and other judgmental factors considered by the Company’s management. The Company generally does not require collateral or other security interest to support accounts receivable. Based on trends and specific factors, the customer’s credit terms may be modified, including required payment upon delivery.

 

The Company performs regular on-going credit evaluations of its customers as deemed relevant. As events, trends, and circumstance warrant, the Company’s management estimates the amounts that are more likely than not to be uncollectible. These amounts are recognized as bad debt expense and are reflected within selling, general, administrative and other expenses on the Company’s accompanying statement of operations.

 

Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of December 31, 2019 and 2018, the allowance for doubtful accounts was $13,203 and $30,808, respectively.

 

Inventories

 

Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During the periods presented, there were no inventory write-downs.

 

Investments

 

The Company follows Accounting Standards Codification subtopic 323-10, Investments-Equity Methods and Joint Ventures (“ASC 323-10) which requires the accounting for investments where the Company can exert significant influence, but not control of a joint venture or equity investment. The Company accounted for its 49.9% member interest ownerships of U.S. Stem Cell Clinic, LLC and Regenerative Wellness Clinic, LLC, respectively, and its 49% member interest ownership of U.S. Stem Cell Clinic of the Villages utilizing the equity method of accounting (See Note 5).

 

Property and Equipment

 

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 15 years. Equipment under capital leases is recorded at the estimated present value of the minimum lease payments. Equipment under capital leases is amortized over the term of the lease, which is three years.

 

F-8

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

Long-Lived Assets

 

The Company follows FASB ASC 360-10-15-3, “Impairment or Disposal of Long-lived Assets.” Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The Company determined that there was no impairment on its long-lived assets during the period presented.

 

Revenue Recognition

 

Effective January 1, 2018, the Company recognizes revenue in accordance with Accounting Standards Codification 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers.

 

At the time of each transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.

 

The Company’s primary sources of revenue are from the sale of test kits and equipment, training services, patient treatments, laboratory services and cell banking. 

 

Revenues for kits and equipment sold are not recorded until kits and equipment are received by the customer. Revenues from in-person trainings are recognized when the training occurs and revenues from on demand online trainings are recognized when the customer purchases the rights to the training course. Any cash received as a deposit for trainings are recorded by the Company as a liability.

 

Patient treatments and laboratory services revenue are recognized when those services have been completed or satisfied.

 

Revenues for cell banking are accounted for as multiple performance obligations as described in ASC 606 and addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Because the Company sells its services separately, on more than a limited basis and at a price within a narrow range, the Company was able to allocate revenue based on stand-alone pricing. The multiple performance obligations include stem cell banking, dose retrieval and yearly storage fees. Revenues for stem cell banking and dose retrieval is recognized at the point of service and revenues for the yearly storage fees is recognized over the term of the banking contract, which is typically one year with annual renewals.

 

At December 31, 2019 and 2018, the Company had deferred revenues of $86,300 and $359,165, respectively, which includes $65,500 and $68,500, respectively, to the Intellectual Property Licensing Agreement.

 

Research and Development

 

The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $263 and $5,439 for the year ended December 31, 2019 and 2018, respectively.

 

F-9

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

Stock-Based Compensation

 

Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For stock-based awards to employees, non-employees and directors, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment.

 

Income Taxes

 

The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

 

Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate.  Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.

 

Net Loss per Common Share

 

The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.  Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.

 

The computation of basic and diluted income (loss) per share as of December 31, 2019 and 2018 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.

 

Potentially dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:

 

   

 December 31,

 
   

2019

   

2018

 

Options

    111,120,474       112,970,693  

Warrants

    1,110,468       1,114,019  

Total potentially dilutive shares

    112,230,942       114,084,712  

 

Recent Accounting Pronouncements

 

FASB Accounting Standards Updates (“ASU”) 2017-04 (Topic 350), “Intangibles – Goodwill and Others” – Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. The Company is currently evaluating the effect that ASU 2017-04 will have on its financial statements and related disclosures.

 

F-10

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

FASB ASU 2017-01 (Topic 805), “Business Combinations: Clarifying the Definition of a Business” – Issued in January 2017, ASU 2017-01 revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance was effective for the Company in the first fiscal quarter of 2018. The adoption of this standard did not have a material impact on the Company’s financial statements and related disclosures.

 

In February 2016, the FASB established ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company adopted the new standard on January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. The new standard had a material effect on the Company’s financial statements. The most significant effects of adoption relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; and (2) providing significant new disclosures about its leasing activities. Upon adoption, the Company recognized additional operating lease liabilities, net of deferred rent, of approximately $57,000 based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The Company also recognized corresponding ROU assets of approximately $57,000. On October 24, 2019, the Company entered into an Assignment and Assumption of Lease by and between the Company, American Cell Technology, LLC, and Sawgrass Business Plaza, LLC. Subsequently, the Company relocated to a new location within the same city and entered into a month-to-month lease. Accordingly, the right of use assets and lease liabilities were eliminated. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Beginning in 2019, the Company changed to its disclosed lease recognition policies and practices, as well as to other related financial statement disclosures due to the adoption of this standard (See Note 6).

 

FASB issued ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, and Derivatives and Hedging (“ASU 2017-11”) – Adopted in July 2017, ASU No. 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable non-controlling interests. The Company has adopted ASU No. 2017-11 effective as of January 1, 2018. The adoption of ASU No. 2017-11 has eliminated the derivative liabilities from the Company’s financial statements. The adoption of this standard has not had a material impact on the Company’s financial position and results of operations.

 

FASB ASU No. 2018-07 (Topic 718), “Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting” – Issued in June 2018, ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606. The Company adopted the new standard on January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

 

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.

 

F-11

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 will become effective for the Company on January 1, 2020. The adoption of this update is not expected to have a material impact on the Company’s financial statements and related disclosures.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

NOTE 4 PROPERTY AND EQUIPMENT

 

Property and equipment as of December 31, 2019 and 2018 is summarized as follows:

 

   

 December 31,

 
   

2019

   

2018

 

Laboratory and medical equipment

  $ -     $ 5,590  

Furniture, fixtures and equipment

    5,598       125,633  

Computer equipment

    1,809       49,951  

Equipment under capital lease

    -       624,602  

Leasehold improvements

    -       362,046  

Property and equipment, cost

    7,407       1,167,822  

Less: accumulated depreciation and amortization

    (7,407 )     (925,207 )

Property and equipment, net

  $ -     $ 242,615  

 

On March 3, 2017, the Company entered into an asset sale and lease agreement (sale/leaseback transaction, the “Asset Sale and Lease Agreement”) with GACP, whereby the Company sold certain lab, medical and other equipment relating to the cell banking business for $400,000 and leased back the sold equipment over a three-year term.

 

The Company determined that the transaction was a capitalized lease and accordingly recorded the leased assets and liability based on the estimated present value of the minimum lease payments.

 

Included in net property are assets under capital leases of $624,602, less accumulated depreciation of $624,602 as of December 31, 2019 and $624,602, less accumulated depreciation of $383,559 December 31, 2018, respectively.

 

As a consequence of the Court Order (see Note 12 “Government Claim”), the Company resolved to divest itself of certain equipment and other assets (the “Equipment Assets”) used in connection with the Company’s human tissue banking business, but consistent however with the requirements of the Court Order, and to adjust the business plan and operations to accommodate this potential divesture. To facilitate the above, the Company entered into a Termination and Release Agreement and a Letter Agreement intended to divest itself of certain equipment and other assets underlying the related equipment lease transaction (see Note 6). In addition, on October 24, 2019, the Company entered into an Assignment and Assumption of Lease by and between the Company, American Cell Technology, LLC, and Sawgrass Business Plaza, LLC. Subsequently, the Company relocated to a new location within the same city and entered into a month-to-month lease. As part of the termination of the operating lease, the Company left certain property and equipment (all of which had been fully depreciated) at the old location.

 

F-12

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

In connection with the sale of the lab, medical and other equipment, the Company realized a gain on sale of equipment of $386,535.  The gain is recognized ratably over the term of the lease to operations. During the year ended December 31, 2019 and 2018, the Company recognized $128,845 and $128,845, as the gain on sale of equipment, respectively.  As of December 31, 2019 and 2018, deferred gain on sale of equipment was $21,474 and $150,319, respectively.

 

Depreciation expense was $242,615 and $207,132 of which $242,615 and $206,608 was included in cost of sales for the year ended December 31, 2019 and 2018, respectively.

 

NOTE 5 INVESTMENTS

 

U.S. Stem Cell Clinic, LLC

 

The investment in U.S. Stem Cell Clinic, LLC is comprised of a 49.9% (increased from 33.3% on January 29, 2019) member interest ownership and is accounted for using the equity method of accounting. The Company’s income earned by U.S. Stem Cell Clinic, LLC member interest was $75,054 and $172,995 for the year ended December 31, 2019 and 2018, respectively (inception to date income of $623,260) and is included in other income (expense) in the accompanying Statements of Operations.  In addition, during the year ended December 31, 2019 and 2018, the Company received distributions totaling $64,870 and $199,000, respectively, from U.S. Stem Cell Clinic, LLC (inception to date of $663,870).  The carrying value of the investment at December 31, 2019 and 2018 is $23,539 and $8,921, respectively.

 

At December 31, 2019 and 2018, accounts receivable for sales of product and services to U.S. Stem Cell Clinic, LLC was $28,763 and $0 respectively. Revenues earned from sales to U.S. Stem Clinic, LLC for the year ended December 31, 2019 and 2018 were $337,108 and $734,966, respectively.

 

In January 2019, a member of U.S. Stem Cell Clinic, LLC contributed 16.6% of his ownership interest to the Company increasing the Company’s member interest from 33.3% to 49.9%. The Company recorded the contribution to equity of $4,435.

 

During the last quarter of 2019 (and in early 2021 in the case of SCC), we divested ourselves of our Member Interests in SCC and Regenerative Wellness Clinic, LLC ,  and US Stem Cell Clinic of the Villages, LLC  is currently dormant. 

 

An affiliate of one of the Company’s officers is a minority investor in the U.S. Stem Cell Clinic, LLC.

 

Regenerative Wellness Clinic, LLC

 

The investment in Regenerative Wellness Clinic, LLC is comprised of a 49.9% (increased from 33.3% on January 29, 2019) member interest ownership and is accounted for using the equity method of accounting. The Company has provided technical expertise, but no cash investment with Regenerative Wellness Clinic, LLC’s startup in 2017. The Company’s income earned by Regenerative Wellness Clinic, LLC member interest was $69,345 and $70,787 for the year ended December 31, 2019 and 2018, respectively (inception to date income of $113,047) and is included in other income (expense) in the accompanying Statements of Operations. In addition, during the year ended December 31, 2019 and 2018, the Company received distributions totaling $101,963 and $49,000, respectively, from Regenerative Wellness Clinic, LLC (inception to date of $101,963). The carrying value of the investment at December 31, 2019 and 2018 is $0 and $21,787, respectively. In October 2019, the Company divested its entire interest in Regenerative Wellness Clinic, LLC.

 

At December 31, 2019 and 2018, accounts receivable for sales of products and services to Regenerative Wellness Clinic, LLC was $0. Revenues earned from sales to Regenerative Wellness Clinic, LLC for the year ended December 31, 2019 and 2018 was $132,984 and $198,294, respectively.

 

In January 2019, a member of Regenerative Wellness Clinic, LLC contributed 16.6% of his ownership interest to the Company increasing the Company’s member interest from 33.3% to 49.9%. The Company recorded the contribution to equity of $10,830.

 

An affiliate of one of the Company’s officers is an investor in the Regenerative Wellness Clinic, LLC.

 

F-13

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

U.S. Stem Cell of the Villages LLC

 

On January 30, 2018, Greg Knutson, a director of the Company (“Knutson”) and the Company agreed to open and operate a regenerative medicine/cell therapy clinic providing cellular treatments for patients afflicted with neurological, autoimmune, orthopedic and degenerative diseases in Florida.  To that end, U.S. Stem Cell Clinic of The Villages LLC (the “LLC”) was formed January 30, 2018. Knutson provided the Company with the sum of Three Hundred Thousand Dollars ($300,000) (the “Investment”) to be utilized for the formation and initial operation of the LLC.  Currently, Knutson holds a 51% member interest in the LLC and the Company holds a 49% member interest. The Company will provide operating assistance as well as management services, the latter to be compensated at fee of five percent (5%) of the LLC gross revenues.

 

As of December 31, 2018, upon completion of U.S. Stem Cell of the Villages LLC, the Company received $189,909 from Greg Knutson, the holder of the 51% member interest. Accordingly, this was recognized as Additional paid-in capital. Subsequently, the Company contributed $86,750 as its initial investment in the U.S. Stem Cell of the Villages, LLC. The Company’s 49% income (loss) incurred by U.S. Stem Cell of the Villages LLC member interests was ($27,081) and $4,031 for year ended December 31, 2019 and 2018, respectively (inception to date loss of $23,050) and is included in other income (expense) in the accompanying Statements of Operations. In addition, during the year ended December 31, 2019 and 2018, the Company received distributions totaling $0 and $63,700, respectively, from U.S. Stem Cell of the Villages LLC. The carrying value was $0 and $27,081 at December 31, 2019 and 2018, respectively.

 

At December 31, 2019 and 2018, accounts receivable for sales of products and services to U.S. Stem Cell of the Villages LLC was $0. Revenues earned from sales to U.S. Stem Cell of the Villages LLC for the year ended December 31, 2019 and 2018 was $150,328 and $197,716, respectively.

 

During the year ended December 31, 2019, the Company received $50,751 management fees from the LLC.

 

NOTE 6 RIGHT TO USE ASSETS AND LEASE LIABILITY

 

The Company leased its headquarters in Sunrise, Florida which consisted of 4,860 square feet of space at a rate of approximately $82,620 per year. On February 4, 2016, the Company extended its facility lease to extend the term of the lease until August 31, 2019 at a monthly base rent of $7,306 plus a pro rata share of landlord’s operating expenses. Effective September 1, 2019, the Company entered into a second amendment to extend the lease through August 31, 2024 with base rent beginning at $87,674 per year and escalating to $98,678 per year plus a pro rata share of the landlord’s operating expenses.

 

On September 1, 2019, the lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined their initial present values, at inception, of $383,351. In determining the length of the lease term to its long-term lease, the Company determined there was not an option to extend the lease.

 

In determining the length of the lease term for this long-term lease, the Company determined there was not an option to extend the lease. At lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined the initial present value, at inception, of $274,180. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right to use assets of $56,734 and lease liability of $56,734.

 

On October 24, 2019, the Company entered into an Assignment and Assumption of Lease by and between the Company, American Cell Technology, LLC, and Sawgrass Business Plaza, LLC. Subsequently, the Company relocated to a new location within the same city and entered into a month-to-month lease. Accordingly, the capital lease liabilities and right of use assets and lease liabilities were eliminated, resulting in a $189,062 net gain on settlement of debt (See Note 4 and Note 8).

 

During the year ended December 31, 2019 and 2018, the Company recognized $107,156 and $137,518, respectively, as lease expense. Lease expense was comprised of the following:

 

   

 December 31,

 
   

2019

   

2018

 

Operating lease expense

  $ 106,471     $ 137,518  

Variable lease expense

    685       -  

Total lease expense

  $ 107,156     $ 137,518  

 

F-14

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

NOTE 7 ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of December 31, 2019 and 2018:   

 

   

 December 31,

 
   

2019

   

2018

 

Interest and fees payable to the Guarantors of the Company’s loan agreement with Seaside Bank

  $ 456,190     $ 347,235  

Accrued interest payable

    580,204       482,784  

Vendor accruals and other

    79,132       146,420  

Marketing obligation

    -       179,353  

Accrued expenses and other current liabilities

  $ 1,115,526     $ 1,155,792  

 

During the year ended December 31, 2019, the Company issued an aggregate of 22,371,084 shares of its common stock in settlement of outstanding accounts payable and accrued expenses. In connection with the issuance, the Company incurred a $27,097 net gain on settlement of debt.

 

During the year ended December 31, 2018, the Company issued an aggregate of 15,220,378 shares of its common stock in settlement of outstanding accounts payable and accrued expenses. In connection with the issuance, the Company incurred a $43,180 net gain on settlement of debt.

 

NOTE 8 NOTES AND CAPITAL LEASES PAYABLE

 

Notes and capital leases payable were comprised of the following as of December 31, 2019 and 2018:

 

   

 December 31,

 
   

2019

   

2018

 

Seaside Bank note payable

  $ 980,000     $ 980,000  

Hunton & Williams note payable

    391,000       444,000  

Power Up Lending Group notes payable

    -       145,486  

Weider note payable

    482,939       -  

Mallard note payable

    250,000       -  

Lab and medical equipment capitalized leases

    -       264,590  

Total notes payable

    2,103,939       1,834,076  

Less unamortized debt discount

    (50,448 )     (74,653 )

Total notes payable net of unamortized debt discount

    2,053,491       1,759,423  

Less current portion

    (1,297,477 )     (462,330 )

Long-term portion

  $ 756,014     $ 1,297,093  

 

Seaside Bank

 

On October 25, 2010, the Company entered into a Loan Agreement with Seaside National Bank and Trust for a $980,000 loan at 4.25% per annum interest that was used to refinance the Company’s loan with Bank of America. The obligation is guaranteed by certain stockholders of the Company. The Company renewed the loan with Seaside National Bank and Trust during the first quarter of 2018 to extend the maturity date to May 18, 2020. The Company renewed the loan with Seaside National Bank and Trust during the first quarter of 2020 to extend the maturity date to May 18, 2022.

 

Hunton & Williams

 

At December 31, 2016, the Company has two outstanding notes payable with interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822, are payable in one balloon payment upon the date the Noteholder provides written demand, however the Company is not obligated to make payments until the Northstar Biotech Group, LLC (or successor) Loan is paid off.

 

F-15

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On August 31, 2017, the Company and the noteholder entered into a Note Forbearance, Modification and Repayment Agreement (“Agreement”). The two notes, $61,150 and $323,822, were payable in one balloon payment upon the date of a written demand and upon certain triggering events occurring. The sum of unpaid principal and accumulated interest for both notes as of August 31, 2017 of $747,680 and an accounts payable of $40,596 result in an aggregate balance due of $788,276.

 

The noteholder agreed to accept full payment of their obligation over a four (4) year period in 48 monthly installments on an adjusted debt obligation in aggregate of $624,000 (reducing the outstanding balance), with such payments staggered in amounts such that the Company will pay $10,000 monthly the first year, $12,000 monthly the second year, $14,000 monthly the third year, and $16,000 monthly the final year.  In addition, the noteholder agreed to suspend accrual interest on the notes commencing September 1, 2017.

 

The Agreement remains in full force and effect provided the Company continues to make the monthly payments, there is no event of default as defined in the notes and an agreement to a subordination agreement by Northstar Biotech Group, LLC, which has been provided. In May 2019, the Company did not make the required scheduled payment. In September 2019, the noteholder agreed to waive their default rights under the agreement provided a minimum of $5,000 was paid by the end of 2019 and to reduce the required monthly payment to $500 per month commencing in January 2020. The Company satisfied the $5,000 payment requirement by the end of 2019 and commenced making the required $500 monthly payments in January 2020.

 

The Company imputed an interest rate of 5% and discounted the note accordingly. The imputed debt discount of $69,700 was amortized to interest expense using the effective interest method. For years ended December 31, 2019 and 2018, the Company amortized $31,201 and $28,322 of debt discount to interest expense. In September 2019, the Company was in default and was negotiating a revised payment structure. Thus, the remaining unamortized debt discount was charged to interest expense at September 30, 2019. As of December 31, 2019 and 2018, the remaining carrying value of the note was $391,000 and $412,799, net of debt discount of $0 and $31,201, respectively.

 

Power Up Lending Group, Ltd

 

On September 12, 2017, the Company entered into a revenue based factoring agreement and received an aggregate of $137,200 (less origination fees of $2,800) in exchange for $187,600 of future receipts relating to monies collected from customers or other third-party payors. Under the terms of the factoring agreement, the Company is required to make daily payments of $1,276 for 147 business days.  The Company received net proceeds of $103,085 along with cancellation of the previous revenue based factoring agreement issued in February 2017.

 

On January 2, 2018, the Company entered into a revenue based factoring agreement and received an aggregate of $137,200 (less origination fees of $2,800) in exchange for $187,600 of future receipts relating to monies collected from customers or other third-party payors. Under the terms of the factoring agreement, the Company is required to make daily payments of $1,276 for 147 business days.  The Company received net proceeds of $47,907 along with cancellation of the previous revenue based factoring agreement issued in September 2017.  In connection with the cancellation of the September 2017 revenue based factoring agreement, the Company incurred a gain in settlement of debt of $5,154 in 2018.  

 

On May 29, 2018, the Company entered into a revenue based factoring agreement and received an aggregate of $137,200 (less origination fees of $2,800) in exchange for $187,600 of future receipts relating to monies collected from customers or other third-party payors. Under the terms of the factoring agreement, the Company is required to make daily payments of $1,276 for 147 business days.  The Company received net proceeds of $78,495 along with cancellation of the previous revenue based factoring agreement issued in January 2018.  In connection with the cancellation of the January 2018 revenue based factoring agreement, the Company incurred a loss in settlement of debt of $5,105 in 2018.  

 

On November 8, 2018, the Company entered into a revenue based factoring agreement and received an aggregate of $137,200 (less origination fees of $2,800) in exchange for $187,600 of future receipts relating to monies collected from customers or other third-party payors. Under the terms of the factoring agreement, the Company is required to make daily payments of $1,276 for 147 business days.  The Company received net proceeds of $93,809 along with cancellation of the previous revenue based factoring agreement issued in May 2018.  In connection with the cancellation of the May 2018 revenue based factoring agreement, the Company incurred a loss in settlement of debt of $37,604 in 2018.

 

F-16

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On April 16, 2019, the Company entered into a revenue based factoring agreement and received an aggregate of $137,200 (less origination fees of $2,800) in exchange for $187,600 of future receipts relating to monies collected from customers or other third-party payors. Under the terms of the factoring agreement, the Company is required to make daily payments of $1,276 for 147 business days.  The Company received net proceeds of $84,876 along with cancellation of the previous revenue based factoring agreement issued in November 2018.  In connection with the cancellation of the November 2018 revenue based factoring agreement, the Company incurred a loss in settlement of debt of $1,276 in 2019.

 

As of December 31, 2019 and 2018, the remaining carrying value of the note was $0 and $102,034, net of debt discount of $0 and $43,452, respectively.

 

Weider

 

The Company, as one of the parties entered into a Settlement Agreement and General Release (the “Agreement”) dated June 3, 2019 related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year 5.25% unsecured promissory note, dated June 15, 2019, in the principal amount of $500,000, payable in monthly increments of $5,000 per month, with a final balloon payment due on June 15, 2024. Accordingly, the Company recognized Pre-litigation expense of $500,000 in the accompanying statement of operations. As of December 31, 2019, the remaining carrying value of the note was $482,939.

 

Mallard

 

The Company, as one of the parties entered into a Settlement Agreement and General Release (the “Agreement”) dated December 6, 2019 related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year non-interest bearing unsecured promissory note, dated December 6, 2019, in the principal amount of $250,000, payable in monthly increments of $750 per month, with a final balloon payment of $205,000 due on January 1, 2025. The Company imputed an interest rate of 5% and discounted the note accordingly. The imputed debt discount of $51,063 is being amortized to interest expense using the effective interest method. Accordingly, the Company recognized Pre-litigation expense of $198,937 in the accompanying statement of operations. For the year ended December 31, 2019, the Company amortized $614 of debt discount to interest expense. As of December 31, 2019, the remaining carrying value of the note was $199,551, net of debt discount of $50,448.

 

Lab and Medical Equipment Capitalized Leases

 

On March 3, 2017, the Company entered into an asset sale and lease agreement (sale/leaseback transaction; “Asset Sale and Lease Agreement”) with GACP, whereby the Company sold certain lab, medical and other equipment relating to the cell banking business for $400,000 and leased back the sold equipment over a three-year term.  The Company recognized the arrangement as a capital lease.  The Company initially recorded the equipment and the capitalized lease liability at the estimated present value of the minimum lease payments of $619,825. 

 

The lease includes a base monthly rental payment of $20,000, due the first day of each calendar month plus contingent rent equal to 2.3%, 22.5%, and 31.6% of revenues collected on deposits arising from cell banking business for years 1, 2 and 3, respectively.  The contingent rent is recognized as a period expense and as interest expense at the time of collection.  At the expiration of the lease, the Company is required to return all leased equipment and along with any maintenance records, logs, etc. in the Company’s possession to the lessor with no right of repurchase.

 

The Company determined that the present value of the minimum lease payments exceeded 90% of the estimated fair value of the equipment and therefore classified the equipment sale/lease as a capitalized lease. The effective interest rate of the capitalized lease is estimated at 10.00% based on the Company estimated incremental borrowing rate.

 

The following summarizes the assets under capital leases:

 

   

 December 31,

 
   

2019

   

2018

 

Lab, medical and other equipment

  $ 619,825     $ 619,825  

Office equipment

    4,777       4,777  

Less: accumulated depreciation

    (624,602 )     (383,559 )

Equipment under capital lease

  $ -     $ 241,043  

 

F-17

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On October 24, 2019, the Company entered into an Assignment and Assumption of Lease by and between the Company, American Cell Technology, LLC, and Sawgrass Business Plaza, LLC. Accordingly, the capital lease liabilities and right of use assets and lease liabilities were eliminated, resulting in a $189,062 net gain on settlement of debt (See Note 4 and Note 6).

 

The following summarizes the current and long-term portion of capital leases:

 

   

 December 31,

 
   

2019

   

2018

 

Leases payable, current

  $ -     $ 225,084  

Leases payable, long-term

    -       39,506  

Total leases payable

  $ -     $ 264,590  

 

NOTE 9 PROMISSORY NOTE PAYABLE

 

On June 1, 2015, the Company issued an amended and restated promissory note of $1,697,762 in settlement of the $1,500,000 outstanding subordinated debt, related accrued interest of $373,469 and accumulated and unpaid guarantor fees of $624,737.

 

The note is unsecured and non-interest bearing and requires four semi-annual payments of $75,000 beginning on December 31, 2015 with the remaining unpaid balance due June 1, 2020 (See Note 16).

 

The Company imputed an interest rate of 5% and discounted the promissory note accordingly. The imputed debt discount of $368,615 is amortized to interest expense using the effective interest method. For the years ended December 31, 2019 and 2018, the Company amortized $69,887 and $69,889, respectively, of debt discount to interest expense.  As of December 31, 2019 and 2018, the remaining carrying value of the note was $1,368,467 and $1,298,579, net of debt discount of $29,296 and $99,183, respectively.

 

NOTE 10 RELATED PARTY TRANSACTIONS

 

Advances Related Parties

 

As of December 31, 2019 and 2018, the Company’s officers and directors have provided advances that are unsecured, non-interest bearing and due on demand. During the year ended December 31, 2019 and 2018, the Company received aggregate proceeds from advances of $276,843 and $130,000, respectively. As of December 31, 2019 and 2018, the Company owed $511,744 and $234,901, respectively, for advances.

 

Notes Payable Related Parties

 

Northstar Biotechnology Group, LLC

 

On February 29, 2012, a promissory note issued to BlueCrest Master Fund Limited (“BlueCrest”) was assigned to Northstar Biotechnology Group, LLC (“Northstar”), owned partly by certain directors and existing shareholders of the Company at the time, including Dr. William P. Murphy Jr., Dr. Samuel Ahn and Charles Hart. At the date of the assignment, the principal amount of the BlueCrest note was $544,267 (the “Note”).

 

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 1, 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. The Company did not make the required payment, and as a result, was in default of the revised agreement. The Company renegotiated the terms of the Note and Northstar 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 common stock purchase warrants to Northstar that was treated as additional interest expense upon issuance.

 

F-18

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

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 shares 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 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 was 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 agreed to modify the voting rights of the subsequently cancelled Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stockholders to 25 votes per share on matters to be voted on by the common stockholders 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 September 30, 2013, the Company issued 8,772 shares of its common stock as payment of $100,000 towards principal.

 

On December 24, 2013, the Company issued 3,916 shares of its common stock as payment of accrued interest through June 30, 2013 of $85,447.

 

On April 2, 2014, the Company issued 275 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, the limited waiver and forbearance agreement entered into on October 1, 2012 to provide that the perpetual license on products as described for resale, relicensing and commercialization outside the United States was amended as such on the condition that Northstar provide certain financing, which financing the Company, in its sole discretion, could decline and retain the license.

 

On October 3, 2014, the Company issued 515 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2014 per the forbearance agreement.

 

On April 3, 2015, the Company issued 1,363 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,635 due April 1, 2015 per the forbearance agreement.

 

On October 2, 2015, the Company issued 4,156 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2015 per the forbearance agreement.

 

On October 7, 2015, the Company issued 34,522 shares of its common stock in settlement of $100,000 principal payment towards the outstanding debt.

 

F-19

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On April 7, 2016, the Company issued 57,778 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due April 1, 2016 per the forbearance agreement.

 

On October 6, 2016, the Company issued 848,490 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2016 per the forbearance agreement.

 

On March 1, 2017, Northstar and the Company entered into a settlement agreement (“Settlement Agreement “) related to then pending litigation. Pursuant to the terms and conditions of the Settlement Agreement, Northstar converted its outstanding Series A Convertible preferred stock, into twenty million (20,000,000) shares of common stock according to the original conversion terms. In addition, and separate and apart from the conversion, Northstar received eleven million (11,000,000) shares of the Company’s common stock. Northstar will receive ten percent (10%) of all Company international sales (based on a gross sales basis). There was no effect of the 10% obligation as there were no international sales in 2017 or through 2019. Furthermore, a Northstar designee, Greg Knutson, was appointed as a member of the Board of Directors of the Company and two Company directors, Michael Tomas and Kristin Comella, each exercised their prior Northstar options to each receive a five percent (5%) member interest in Northstar.  The parties agreed to a mutual release and Northstar agreed to terminate any UCC lien on the Company assets previously filed for the benefit of Northstar. On March 9, 2017 and April 1, 2017, the Company issued 30,000,000 and 1,000,000 shares of its common stock, respectively, as described above. In connection with the settlement, the Company recorded a loss on litigation settlement of $316,800.

 

On April 1, 2017, the Company issued 286,315 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,703.

 

On October 2, 2017, the Company issued 559,187 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705.

 

On October 19, 2018, the Company issued 164,523 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,195.

 

On April 19, 2019, the Company issued 379,141 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,145.

 

On October 1, 2019, the Company issued 1,692,353 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,195.

 

As of December 31, 2019 and 2018, the remaining carrying value of the note was $262,000. At December 31, 2019 and 2018, accrued interest on the note was $8,700, and is included in accrued expenses on the accompanying balance sheet.

 

Notes Payable - Mr. Tomas, President and Chief Executive Officer

 

On August 7, 2017, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due one year from date of issuance. During the year ended December 31, 2019 and 2018, the Company paid principal of $321,607 and $16,707, respectively, of this note. As of December 31, 2019 and 2018, the remaining carrying value of the note was $161,786 and 483,393, respectively.

 

On May 7, 2018, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due six months from date of issuance. As of December 31, 2019 and 2018, the remaining carrying value of the note was $500,000.

 

On July 1, 2019, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due November 7, 2019. As of December 31, 2019, the remaining carrying value of the note was $500,000.

 

F-20

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On December 31, 2019, the Company issued a $178,077 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of December 31, 2019, the remaining carrying value of the note was $178,077.

 

At December 31, 2019 and 2018, accrued interest on the notes was $389,695 and $340,009, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

Notes Payable - Dr. Comella, former Chief Science Officer

 

On September 6, 2016, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and was due upon demand. During the year ended December 31, 2019, the Company received back $107,868 of principal amounts previously paid for this note. During the year ended December 31, 2018, the Company paid principal of $90,086 of this note. As of December 31, 2019 and 2018, the remaining carrying value of the note was $255,579 and $147,711, respectively.

 

On August 7, 2017, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due one year from date of issuance. As of December 31, 2019 and 2018, the remaining carrying value of the note was $300,000.

 

On May 7, 2018, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due six months from date of issuance. As of December 31, 2019 and 2018, the remaining carrying value of the note was $300,000.

 

On July 1, 2019, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due November 7, 2019. As of December 31, 2019, the remaining carrying value of the note was $300,000.

 

At December 31, 2019 and 2018, accrued interest on the notes was $150,708 and $102,974, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

Dr. Comella is no longer a member of the Board of Directors after September 1, 2019.

 

   

 December 31,

 
   

2019

   

2018

 

Northstar

  $ 262,000     $ 262,000  

Note payable, Mr. Tomas

    161,786       483,393  

Note payable, Mr. Tomas

    500,000       500,000  

Note payable, Mr. Tomas

    500,000       -  

Note payable, Mr. Tomas

    178,077       -  

Note payable, Dr. Comella*

    255,579       147,711  

Note payable, Dr. Comella*

    300,000       300,000  

Note payable, Dr. Comella*

    300,000       300,000  

Note payable, Dr. Comella*

    300,000       -  

Total officer and director notes

  $ 2,757,442     $ 1,993,104  
                 
* Dr. Comella is no longer a member of the Board of Directors effective September 1, 2019.

 

F-21

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

Other Transactions Related Parties

 

Transactions with Pavillion, Inc.

 

On May 1, 2016, the Company entered into a consulting agreement with Pavillion, Inc., whose owner is related to an officer of the Company.  The agreement is for 12 months and renewable for six-month periods.  Compensation is at $250 per hour in cash or, at the Company’s discretion, in shares of the Company’s common stock. For the year ended December 31, 2019 and 2018, the Company has incurred $0 and $120,000, respectively, of expense under the agreement. As of December 31, 2019 and 2018, the Company had $0 and $64,909, respectively, in accounts payable owed to Pavillion. On June 1, 2018, effective June 30, 2018, the Company terminated the agreement in accordance with its terms and no further compensation was derived by Pavillion.

 

Transactions with GACP

 

On March 3, 2017, the Company entered into an asset sale and lease agreement (sale/leaseback transaction, the “Asset Sale and Lease Agreement”) with General American Capital Partners (GACP), whereby the Company sold certain lab, medical and other equipment relating to the cell banking business for $400,000 and leased back the sold equipment over a three-year term. The Company determined that the transaction was a capitalized lease and accordingly recorded the leased assets and liabilities based on the estimated present value of the minimum lease payments (see Note 4). In connection with the Asset Sale and Lease Agreement, the Company is obligated to accrue 10% of cell-banking revenue as for marketing, offset by any incurred costs of the Company.  At December 31, 2019 and 2018, the outstanding accrued marketing obligation is $0 and $179,353, respectively (See Note 7).

 

On March 3, 2017, the Company also entered into a customer purchase agreement with GACP whereby the Company received a deposit $50,000 (included in long-term liabilities at December 31, 2018) in exchange for the sale of the first 5,000 future customers of the cell-banking business after the effective date of the agreement; GACP also had the right to purchase additional customers at a price of $20 per customer.  There is no reduction in the selling price should the new customers be fewer than 5,000.  The effective date of the sale is upon the expiry or early termination of the aforementioned Asset Sale and Lease Agreement.

 

March 3, 2017, the Company also entered into an asset purchase agreement of intellectual property with GACP whereby the Company received a deposit of $50,000 (included in long-term liabilities at December 31, 2018) for the sale of all of the Company’s worldwide rights, title or interest in certain intellectual and other property (as defined) associated with the cell-banking business. The effective date of the sale is upon the expiry or early termination of the aforementioned Asset Sale and Lease Agreement.

 

Effective May 9, 2018, pursuant to an Amendment to the Asset Sale and Lease Agreement, GACP suspended their obligation to open additional clinics (tolling such obligation to a mutually agreeable date in the future) and it has suspended the monthly aggregate number of stem cell kits set forth for purchase in a given month arising from such clinics.

 

As a consequence of the Court Order dated June 4, 2019 (see Note 12 “Government Claim”), the Company resolved to divest itself of certain equipment and other assets (the “Equipment Assets”) used in connection with the Company’s human tissue banking business, but consistent however with the requirements of the Court Order, and to adjust the business plan and operations to accommodate this potential divesture. To facilitate the above, the Company entered into the following agreements:

 

 

Termination and Release Agreement by and between GACP, the Company, and Michael Tomas and Kristin Comella dated September 24, 2019 (terminating the Non-Competition and Non-Solicitation Agreement between U.S. Stem Cell, Inc. and GACP Stem Cell Bank LLC., dated March 3, 2017).

 

 

Letter Agreement on Stem Cell Processing and Storage by and between the Company and American Cell Technology, LLC

 

F-22

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

Effective October 9, 2019, the Company terminated the Asset Sale and Lease Agreement by and between the Company and GACP. Accordingly, the long-term deposit liabilities were written off, resulting in a gain on debt settlement of $100,000. In addition, the capital lease liabilities and right of use assets and lease liabilities were also written off (See Note 6 and Note 8).

 

NOTE 11 FAIR VALUE MEASUREMENT

 

The Company adopted the provisions of ASC 825-10. 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 non-performance. 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.

 

As of December 31, 2019 and 2018, the Company did not have any items that would be classified as level 1, 2 or 3 disclosures.

 

As of December 31, 2019 and 2018, the Company did not have any derivative instruments that were designated as hedges.

 

NOTE 12 COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

 

On July 1, 2019, the Company’s Board of Directors approved the 2019/2020 salary for Mike Tomas, Chief Executive Officer, for $750,000 per year, beginning July 1, 2019 with an incentive bonus ranging from $150,000 to $500,000. In addition, the Board of Directors approved a bonus of $500,000 and options to acquire 20,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note bearing interest at 5% per annum. On May 7, 2018, the Company’s Board of Directors approved the 2018/2019 salary for Mike Tomas, Chief Executive Officer, for $750,000 per year, beginning July 1, 2018 with an incentive bonus ranging from $150,000 to $500,000. In addition, the Board of Directors approved a bonus of $500,000 and options to acquire 20,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note bearing interest at 5% per annum.

 

F-23

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On July 1, 2019, the Company’s Board of Directors approved the 2019/2020 salary for Kristin Comella, Chief Scientific Officer, for $400,000 per year, beginning July 1, 2018 with an incentive bonus ranging from $100,000 to $300,000. In addition, the Board of Directors approved a bonus of $300,000 and options to acquire 10,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note. On May 7, 2018, the Company’s Board of Directors approved the 2018/2019 salary for Kristin Comella, Chief Scientific Officer, for $400,000 per year, beginning July 1, 2018 with an incentive bonus ranging from $100,000 to $300,000. In addition, the Board of Directors approved a bonus of $300,000 and options to acquire 10,000,000 shares of the Company’s common stock for ten years with four-year vesting and a cashless exercise provision. The cash bonus may be paid in the form a six-month promissory note. Effective September 1, 2019, Dr. Comella resigned from the Company.

 

Royalty Agreement / Middle East

 

On November 9, 2016, the Company entered into an Intellectual Property License Agreement whereby the Company granted High Rise Group Company the exclusive right to the Company’s intellectual property (as defined) for the licensed use and development in Kuwait and other GCC/Middle East countries for 25 years in exchange for a payment of $75,000 and a 5% royalty generated under the agreement.  The licensing agreement is recorded as deferred revenue and amortized over the term of the agreement.  The carrying balance as of December 31, 2019 and 2018 was $65,500 and $68,500, respectively.

 

The intent is for U.S. Stem Cell Middle East to offer regenerative treatment options to patients, based on U.S. Stem Cell, Inc. products and technologies like MyoCell™. To date, the first clinic in Kuwait City has been completed but has not begun operations as High Rising Group has not yet been able to secure regulatory approvals to operate.

 

Litigation

 

On December 12, 2017, a product liability lawsuit was filed in Broward County, specifically Jeannine Mallard v. U.S. Stem Cell, Inc., US Stem Cell Clinics LLC., Regenestem, LLC., Regenestem Network, LLC., and Kristin C. Comella. The Company will continue to defend it vigorously. On December 6, 2019, the Company was one of the parties to a Settlement Agreement and General Release (the “Agreement”) related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year non-interest bearing unsecured promissory note, dated December 6, 2019, in the principal amount of $250,000, payable in monthly increments of $750 per month, with a final balloon payment of $205,000 due on January 1, 2025 (see Note 8, “Mallard”). The case has been dismissed, with the Court reserving jurisdiction to enforce the Agreement.

 

On September 17, 2015, a product liability lawsuit was filed in Broward County, specifically Patsy Bade v. Bioheart, Inc. US Stem Cell Clinics LLC, Alejandro Perez, ARNP, and Shareen Greenbaum, M.D., and on November 30, 2015, a product liability lawsuit was filed in Broward County, specifically Elizabeth Noble v. Bioheart, Inc. US Stem Cell Clinics LLC, Alejandro Perez, ARNP, and Shareen Greenbaum, M.D. During the year ended December 31, 2016, both matters were settled by the Company’s insurance policy with no additional cost to the Company, except for the obligation to pay the insurance company deductible of $100,000, of which $11,000 was paid in fiscal 2017. The remaining amount due under this settlement is $29,000 and $30,050 as of June 30, 2020 and December 31, 2019, respectively, and is included in accounts payable.

 

On June 3, 2019, the Company was one of the parties to a Settlement Agreement and General Release (the “Agreement”) related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year 5.25% Promissory Note, dated June 15, 2019, in the principal amount of Five Hundred Thousand Dollars ($500,000), payable in monthly increments of Five Thousand ($5,000) per month (see Note 8, “Weider”).

 

On July 27, 2020, Brenda Leonhardt filed a lawsuit against U.S. Stem Cell, Inc., Mike Tomas, Dr. William P. Murphy, Jr., Richard T. Spencer, III, Mark Borman, Dr. Samuel S. Ahn, Charles Hart, Sheldon T. Anderson, Greg Knutson, and Kristin Comella in Broward County Court, Case No. CACE-10-012095. The lawsuit alleges breach of a settlement agreement, breach of contract with respect to failure to make a balloon payment under a promissory note, and under several tort theories such as misrepresentation and fraudulent transfer. The Company denies most of the allegations in the lawsuit, and moved to dismiss almost all of the claims. The motions to dismiss remain pending. U.S. Stem Cell, Inc. does note that it provided a promissory note to Ms. Leonhardt, which has not been fully satisfied.

 

F-24

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The Company is subject at times to other legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. There was no outstanding litigation as of June 30, 2020 other than that described above.

 

Government Claim

 

On May 9, 2018, the U.S. Department of Justice filed an injunctive action, specifically United States of America v. U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., Kristin C. Comella, and Theodore Gradel. The Complaint alleges, among other matters that the defendants manufacture “stromal vascular fraction” (SVF) products from patient adipose (fat) tissue, which the companies then market as stem cell-based treatments, and which U.S. Stem Cell Clinic, LLC administers to patients, without first obtaining what the government alleges are necessary FDA approvals. Although Theodore Gradel was initially listed as a defendant, he subsequently entered into a consent agreement and is no longer a party to this case.

 

The U.S. and the defendants filed cross motions for summary judgment, each asking for a ruling in its favor. On June 3, 2019, the Court entered an order granting Summary Judgment for the government and denying the defendants’ motion for summary judgment. The order focused on the defendants’ actions in providing and marketing SVF therapy. In an order dated June 4, 2019, the Court granted the defendants’ request to allow it the opportunity to work out the language of the form of injunction with the government, and if unsuccessful, to provide a status report to the Court by June 14, 2019, outlining areas of disagreement. The Court further ordered that the defendants (U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., and Kristin C. Comella) “not sell, provide or otherwise engage in any SVF therapy or any other activities to be regulated by the FDA as explained in the Court’s Order on the Parties’ Motions for Summary Judgment.” On June 25, 2019, the Court entered an Order of Permanent Injunction, generally enjoining the defendants with respect to the SVF Product and requiring other actions. The Company filed an appeal on August 23, 2019 and its counsel attended appellate oral argument on January 13, 2021. On June 2, 2021, the Eleventh Circuit Court ruled to affirm lower courts’ judgement. The Company did not challenge the district court’s judgment upon any other ground. The Company is not able to predict the duration, scope, results, or consequences of the U.S. Department of Justice actions and final rulings and management is assessing its options on a going forward basis. 

 

The Company, in divesting certain equipment and other assets and assigning its lease, has and will continue to experience a decrease in revenues as the Company both maintains the remainder of the business and transitions into similar or unrelated business opportunities as determined by management; However, management is not able to predict the duration, scope, results, or consequences of the summary judgment and any transition of the business plan. There can be no assurance that the Company will prevail on its appeal and obtain a reversal of the final judgment.

 

After the Court’s issuance of the Order of Permanent Injunction, the Company has received demand letters for compensation from persons who store their SVF Product and/or other tissue product with the tissue bank (several of the persons have requested refunds of the monies paid to the tissue bank and one person has requested a full refund of monies paid to an altogether separate company due to her not receiving the full amount of treatments she requested; such requests for compensation, to date, have not been material) and requests that the Company preserve cells in the Company’s possession.  The Company sought guidance from the Court, which entered an order generally staying the requirement to destroy any SVF Product, pending a decision on the Company’s appeal.  Many of the tissue bank depositors attempted to intervene in the FDA action, and filed an appeal when their intervention was denied. Their appeal was dismissed. It is anticipated that these depositors will present their position on tissue/SVF preservation to the trial court now that the appeal has been decided. As disclosed by the Company previously, the Company entered into a transaction in 2019 in which it divested itself of the operation of the tissue bank.

 

NOTE 13 STOCKHOLDERS DEFICIT

 

Common Stock

 

During the year ended December 31, 2018, the Company issued an aggregate of 15,220,378 shares of its common stock, having a fair value of $578,479, in settlement of outstanding accounts payable and accrued expenses. In connection with the issuance, the Company incurred a $43,180 net gain on settlement of debt.

 

During the year ended December 31, 2018, the Company issued an aggregate of 10,866,274 shares of its common stock, having a fair value of $449,931, for services.

 

F-25

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

During the year ended December 31, 2018, the Company issued 526,818 shares of its common stock, having a fair value of $14,522, as reimbursement for expenses incurred by a member of the Company’s board of directors.

 

During the year ended December 31, 2018, the Company issued an aggregate of 9,350,508 shares of its common stock for cash proceeds of $367,700.

 

During the year ended December 31, 2019, the Company issued an aggregate of 22,371,084 shares of its common stock, having a fair value of $348,460, in settlement of outstanding accounts payable and accrued expenses. In connection with the issuance, the Company incurred a $27,097 net gain on settlement of debt.

 

During the year ended December 31, 2019, the Company issued an aggregate of 4,000,000 shares of its common stock, having a fair value of $89,250, for services.

 

During the year ended December 31, 2019, the Company issued an aggregate of 13,276,707 shares of its common stock for cash proceeds of $50,000.

 

Stock Options

 

On April 1, 2013, the Board of Directors approved, subject to subsequently received stockholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the “2013 Omnibus Plan” (replacing the 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan). The 2013 Omnibus Plan initially reserved up to fifty thousand (50,000) shares of common stock for issuance. On August 4, 2014, the Board of Directors approved to set the reserve to one hundred thousand (100,000) shares of common stock for issuance and to close the 1999 Officers and Employees Stock Option Plan. On February 2, 2015, at the annual meeting of stockholders, the 2013 Omnibus Equity Compensation Plan was approved.

 

On November 2, 2015, the Company increased the shares reserved under the 2013 Omnibus Plan to five hundred million (500,000,000) shares of common stock for issuance. Effective September 16, 2016, the Company approved an additional twenty five million (25,000,000) shares of common stock to the reserve; effective April 21, 2017, the Company approved an additional twenty five million (25,000,000) shares of common stock to the reserve; effective August 7, 2017, the Company approved an additional thirty million (30,000,000) shares of common stock to the reserve; and effective May 7, 2018, the Company approved an addition of one hundred million (100,000,000) shares of common stock to reserve.

 

On May 7, 2018, the Company granted an aggregate 30,000,000 options to purchase the Company’s common stock at $0.0536 per share to key employees, vesting over 4 years, at grant date anniversary and exercisable over 10 years. The aggregate fair value of $1,438,473, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 261.13% and Risk free rate: 2.90%.

 

On August 8, 2018, the Company granted an aggregate 2,340,000 options to purchase the Company’s common stock at $0.0258 per share to key employees, vesting over 4 years, at grant date anniversary and exercisable over 10 years. The aggregate fair value of $91,988, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 217.72% and Risk free rate: 2.83%.

 

On December 3, 2018, the Company granted an aggregate 9,000,000 options to purchase the Company’s common stock at $0.0251 per share to board members, vesting immediately exercisable over 10 years. The aggregate fair value of $195,722, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 215.29% and Risk free rate: 2.83%.

 

On September 1, 2019, the Company granted an aggregate 33,400,000 options to purchase the Company’s common stock at $0.0056 per share to key employees, vesting over 4 years, at grant date anniversary and exercisable over 10 years. The aggregate fair value of $192,189, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 215.10% and Risk-free rate: 1.45%.

 

F-26

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

On November 18, 2019, the Company granted to its directors an aggregate of 7,500,000 options to purchase the Company’s common stock at $0.0049 per share that vested immediately and are exercisable for 10 years. The aggregate fair value of $34,477, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 213.97% and Risk-free rate: 1.81%.

 

A summary of the stock option activity for the year ended December 31, 2019 and 2018 is as follows:

 

           

Weighted

   

Weighted

         
           

Average

   

Average

         
   

Number of

   

Exercise

   

 Remaining Life

   

Intrinsic

 
   

Options

   

Price

   

In Years

   

Value

 

Outstanding, December 31, 2017

    71,630,763     $ 0.0280       9.2     $ 314,930  

Granted

    41,340,000     $ 0.0458                  

Exercised

    -                          

Forfeited/Expired

    (70 )   $ 2,625.08                  

Outstanding, December 31, 2018

    112,970,693     $ 0.0329       8.7     $ 189,540  

Granted

    40,900,000     $ 0.0055                  

Exercised

    -                          

Forfeited/Expired

    (42,750,219 )   $ 0.0280                  

Outstanding, December 31, 2019

    111,120,474     $ 0.0247       8.3     $ -  
                                 

Exercisable, December 31, 2019

    55,026,724     $ 0.0255       7.9     $ -  

 

 

Options Outstanding

   

Options Exercisable

 
               

Weighted

   

Weighted

           

Weighted

 
       

Outstanding

   

Average

   

Average

   

Exercisable

   

Average

 
 

Exercise

   

Number of

   

Exercise

   

Remaining Life

   

Number of

   

Exercise

 
 

Price

   

Options

   

Price

   

In Years

   

Options

   

Price

 
                                             
 

 $0.000 to $0.010

      41,900,000     $ 0.0051       9.0       13,050,000     $ 0.0047  
 

 $0.011 to $0.020

      16,300,000     $ 0.0196       6.7       13,800,000     $ 0.0196  
 

 $0.021 to $0.030

      9,710,000     $ 0.0253       8.9       8,052,500     $ 0.0252  
  $0.0363       22,735,000     $ 0.0363       7.6       14,680,000     $ 0.0363  
  $0.0536       20,000,000     $ 0.0536       8.4       5,000,000     $ 0.0536  
  $0.1540       475,474     $ 0.1540       5.8       444,224     $ 0.1540  
          111,120,474     $ 0.0247       8.3       55,026,724     $ 0.0255  

 

The aggregate intrinsic value of outstanding stock options was $0, based on options with an exercise price less than the Company’s stock price of $0.0035 as of December 31, 2019, which would have been received by the option holders had those option holders exercised their options as of that date.

 

The fair value of all options that vested during the years ended December 31, 2019 and 2018 was $735,176 and $753,007, respectively. As of December 31, 2019, the Company had $1,415,552 of total unrecognized compensation cost related to non-vested awards granted under the 2013 Omnibus Plan, which the Company expects to recognize over a weighted average period of 1.24 years.

 

Warrants

 

On August 27, 2018, the Company issued 1,000,000 warrants to purchase the Company’s common stock at $0.02713 per share for services rendered, vesting 6 months from issuance and exercisable over 10 years. The aggregate fair value of $24,986, was determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 217.01% and Risk free rate: 2.85%.

 

F-27

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

A summary of the warrant activity for the year ended December 31, 2019 and 2018 is as follows:

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Remaining

         
   

Number of

   

Exercise

   

Life

   

Intrinsic

 
   

Warrants

   

Price

   

In Years

   

Value

 

Outstanding, December 31, 2017

    133,591     $ 126.2600       4.7     $ -  

Granted

    1,000,000     $ 0.0271                  

Exercised

    -                          

Expired

    (19,572 )   $ 24.46                  

Outstanding, December 31, 2018

    1,114,019     $ 14.7350       9.1     $ -  

Granted

    -                          

Exercised

    -                          

Expired

    (3,551 )   $ 607.31                  

Outstanding, December 31, 2019

    1,110,468     $ 12.84       8.2     $ -  
                                 

Exercisable, December 31, 2019

    1,108,923     $ 2.14       8.2     $ -  

 

 

Warrants Outstanding

   

Warrants Exercisable

 
               

Weighted

   

Weighted

           

Weighted

 
       

Outstanding

   

Average

   

Average

   

Exercisable

   

Average

 
 

Exercise

   

Number of

   

Exercise

   

Remaining Life

   

Number of

   

Exercise

 
 

Price

   

Warrants

   

Price

   

In Years

   

Warrants

   

Price

 
                                             
 

 $0.00 to $20.00

      1,086,536     $ 1.27       8.2       1,086,536     $ 1.27  
 

 $20.01 to $30.00

      19,543     $ 25.06       4.2       19,543     $ 25.06  
 

 $40.01 to $50.00

      2,253     $ 48.83       2.8       2,253     $ 48.83  
 

 $50.01 to $60.00

      543     $ 60.00       1.6       543     $ 60.00  
  >$60.00       1,593     $ 7,690.00       6.8       48     $ 7,690.00  
          1,110,468     $ 12.84       8.2       1,108,923     $ 2.14  

 

The aggregate intrinsic value of the issued and exercisable warrants of $-0- represents the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price of $0.0035 as of December 31, 2019, which would have been received by the warrant holders had those warrants holders exercised their warrants as of that date.

 

NOTE 14 INCOME TAXES

 

The Company’s provision (benefit) for income taxes consists of the following United States federal and state components:

 

   

For the Years Ended

 
   

December 31,

 
   

2019

   

2018

 

Current:

               

Federal

  $ -     $ -  

State

    -       -  
                 

Deferred:

               

Federal

    (69,163 )     (953,934 )

State

    (14,310 )     (197,373 )
      (83,473 )     (1,151,307 )

Change in valuation allowance

    83,473       1,151,307  

Income tax provision (benefit)

  $ -     $ -  

 

F-28

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The deferred tax expense (benefit) is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amounts of temporary differences, net operating loss carryforwards and changes in tax rates during the year. The Company’s deferred tax assets and liabilities are comprised of the following:

 

 

   

December 31,

 
   

2019

   

2018

 

Deferred tax assets:

               

Net operating losses

  $ 24,929,613     $ 25,419,811  

Share-based compensation

    4,089,261       3,902,930  

Deferred compensation

    632,470       415,469  

Pre-litigation settlement

    172,977       -  

Other

    260,024       262,662  

Total deferred tax assets

    30,084,345       30,000,872  

Valuation allowance

    (30,084,345 )     (30,000,872 )

Net deferred tax assets

    -       -  
                 

Deferred tax liabilities:

               

Total deferred tax liabilities

    -       -  
                 

Total

  $ -     $ -  

 

The Tax Cuts and Jobs Acts (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%. ASC 740, “Income Taxes”, requires that effects of changes in tax rates to be recognized in the period enacted. Recognizing the late enactment of the Act and complexity of accurately accounting for its impact, the Securities and Exchange Commission in Staff Accounting Bulletin 118 provides guidance that allows registrants to provide a reasonable estimate of the Act in their financial statements and adjust the reported impact in a measurement period not to exceed one year.

 

As of December 31, 2019 and 2018, the Company had U.S. federal net operating loss carryforwards of approximately $98.4 million and $98.7 million, respectively, of which $2.0 million do not expire, but are instead limited to 80% of taxable income in the year utilized.    The remaining loss carryforwards expire at various dates from 2020 through 2037. These net operating loss carryforwards may be used to offset future taxable income and thereby reduce the Company’s U.S. federal income taxes. Section 382 of the Internal Revenue Code of 1986 (the “Code”) imposes an annual limit on the ability of a corporation that undergoes a greater than 50% ownership change to use its net operating loss carry forwards to reduce its tax liability. If in the future the Company issues common stock or additional equity instruments convertible into common shares which result in an ownership change exceeding the 50% limitation threshold imposed by section 382 of the Code, the Company’s net operating loss carryforwards may be significantly limited as to the amount of use in a particular year. In addition, all or a portion of the Company’s net operating loss carryforwards may expire unutilized. As of December 31, 2019 and 2018, the Company had net operating loss carryforwards for state income tax purposes of approximately $98.4 million and $98.7 million, respectively, of which $2.0 million do not expire, but are instead limited to 80% of taxable income in the year utilized.    The remaining loss carryforwards expire at various dates from 2020 through 2037.

 

For U.S. purposes, the Company has not completed its evaluation of NOL utilization limitations under Internal Revenue Code, as amended (the “Code”) Section 382/383, change of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could be utilized each year, based on the Code or might be eliminated.

 

The Company has provided a full valuation allowance against its net deferred tax assets, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits of these assets will not be realized.

 

The Company complies with the provisions of FASB ASC 740-10 in accounting for its uncertain tax positions.  ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Management has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740-10.

 

F-29

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

 

The Company is subject to income tax in the U.S., and certain state jurisdictions. The Company has not been audited by the U.S. Internal Revenue Service, or any states in connection with income taxes. The Company’s tax years generally remain open to examination for all federal and state tax matters until its net operating loss carryforwards are utilized and the applicable statutes of limitation have expired. The federal and state tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statute of limitations.

 

The Company recognizes interest and penalties related to unrecognized tax benefits, if incurred, as a component of income tax expense.

 

The significant elements contributing to the difference between the United States federal statutory tax rate and the Company’s effective tax rate are as follows:

 

 

   

For the Years Ended

 
   

December 31,

 
   

2019

   

2018

 

US federal statutory rate

  $ (805,421 )   $ (453,690 )

State tax rate, net of federal benefit

    (156,467 )     (22,280 )

Tax effect of expiring net operating loss

    181,704       -  

Other

    696,711       (675,337 )

Change in valuation allowance

    83,473       1,151,307  
                 

Income tax provision (benefit)

  $ -     $ -  

 

NOTE 15 CONCENTRATIONS

 

Concentrations of Credit Risk

 

The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, the Company’s cash and cash equivalents in interest-bearing accounts does not exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.

 

Concentrations of Revenues

 

For the years ended December 31, 2019 and 2018, one customer accounted for 11% of the Company’s net revenues.

 

Concentrations of Accounts Receivable

 

As of December 31, 2019, two customers represented 47% and 47%, respectively, representing an aggregate of 94% of the Company’s accounts receivable. As of December 31, 2018, four customers represented 41%, 16%, 10%, and 10%, respectively, representing an aggregate of 77% of the Company’s accounts receivable.

 

NOTE 16 SUBSEQUENT EVENTS

 

On June 1, 2020, the Company defaulted on a promissory note. Upon default, the note became due in full and the Company began accruing interest at the default interest rate of 18% (See Note 9).

 

F-30
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