During the year ended December 31, 2013, we settled an outstanding note payable and certain accounts payable by issuances of common stock. As such we realized a net $1,023,439 gain on extinguishment of debt during the year ended December 31, 2013, as compared to nil for same period last year.
As of December 31, 2013, we issued convertible notes and common stock purchase warrants with anti-dilutive provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the year ended December 31, 2013, we incurred a $29,179 gain on change in fair value of our derivative liabilities compared to a gain of $119,795 the same period last year.
Our opinion is that inflation has not had, and is not expected to have, a material effect on our operations.
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.
In 2013, we continued to finance our considerable operational cash needs with cash generated from financing activities.
Net cash used in operating activities was $1,913,326 in 2013 as compared to $1,095,276 of cash used in 2012. Our use of cash for operations in 2013 reflected a net loss generated during the period of $3,143,259, adjusted for non-cash items such as stock-based compensation of $210,666, amortization of debt discounts associated with our convertible notes of $368,682, related party notes payable issued for services rendered of $500,000, preferred stock issued in connection with a forbearance agreement of $274,050, common stock issued in settlement of accounts payable of $2,500,non-cash interest payments of $228,657 and depreciation expense of $2,190, net with gain on settlement of debt of $1,023,439 and gain on change in fair value of derivative liabilities of $29,179 . A net decrease in operating assets of $129,633 and a net increase in operating liabilities of $566,173 contributed to our use of operating cash in 2013.
Net cash used in investing activities was $9,425 in 2013 compared to $933 in 2012.
Net cash provided by financing activities was $1,968,978 in 2013 as compared to $1,059,381 in 2012. In 2013 ,we sold, in a private placement and put agreements, shares of common stock and warrants for aggregate net cash proceeds of approximately $1,426,914. In addition, we received an aggregate of $215,500 related party loans and advances and $415,500 from issuance of notes payable, net of repayments of $88,847.
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, 2013, we had cash and cash equivalents totaling $46,227; our working capital deficit as of such date was $13,362,480. Our independent registered public accounting firm has issued its report dated March 24, 2014 in connection with the audit of our financial statements as of December 31, 2013 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern.
As of December 31, 2013, we had $5,784,449 in outstanding loans.
On April 30, 2012, we were informed that Northstar assumed all amounts outstanding under the BlueCrest loan. On April 30, 2012, Northstar agreed with us to extend until May 1, 2012 the initial payment date for any and all required monthly payments and payable with respect to the BlueCrest loan and to waive any and all defaults and/or events of default with respect to such payments.
As of September 30, 2012, the Company was in default, however, subsequent to September 30, 2012, the Company renegotiated the terms of the Note, Northstar has agreed to suspend the requirement of principal payments by the Company and allow payment of interest-only in common stock.
On September 21, 2012, the Company issued 5,000,000 common stock purchase warrants to Northstar that was treated as Additional interest expense upon issuance.
On October 1, 2012, the Company and Northstar entered into a limited waiver and forbearance agreement providing a recapitalized new note balance comprised of all sums due Northstar with a maturity date extended perpetually. The Company agreed to issue 5,000,000 shares of Series A Convertible Preferred Stock and 10,000,000 of common stock in exchange for $210,000 as payment towards outstanding debt, default interest, penalties, professional fees outstanding and due Northstar. In addition, the Company executed a security agreement granting Northstar a lien on all patents, patent applications, trademarks, service marks, copyrights and intellectual property rights of any nature, as well as the results of all clinical trials, know-how for preparing Myoblasts, old and new clinical data, existing approved trials, all right and title to Myoblasts, clinical trial protocols and other property rights.
In addition, the Company granted Northstar a perpetual license on products as described for resale, relicensing and commercialization outside the United States. In connection with the granted license, Northstar shall pay the Company a royalty of up to 8% on revenues generated.
Effective October 1, 2012, the effective interest rate was 12.85% per annum. The parties agreed, as of February 28, 2013, to reduce the interest rate to 7% per annum.
In connection with the consideration paid, Northstar waived, from the effective date through the earlier of termination or expiration of the agreement, satisfaction of the obligations as described in the forbearance agreement. In 2012, 5,000,000 shares of Series A Convertible Preferred Stock were approved to be issued. In addition, the Company is obligated to issue additional preferred stock equal in lieu of payment of cash of accrued and unpaid interest on each six month anniversary of the effective date (October 1, 2012). In lieu of the initial two payments in preferred stock, the parties have determined to modify the voting rights of the Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stock holders to 25 votes per share on matters to be voted on by the common stock holders and all prior and subsequent payments of interest will be in common stock; payments of common stock for April 1, 2013 and October 1, 2013 were made the fourth quarter of 2013 based on the closing price of the common stock on April 1, 2013 and October 1, 2013 respectively.
As described above, during the year ended December 31, 2013, the Company issued the 5,000,000 shares of Series A Convertible Preferred Stock and the 10,000,000 of common stock described above in exchange for the $210,000 as payment towards outstanding principle of the debt. In addition, the Company issued 15,000,000 shares of Series A Convertible Preferred Stock as a penalty in settlement of the terms of the forbearance agreement.
On November 2, 2011, we entered into a Standby Equity Distribution Agreement, or the SEDA, with Greystone Capital Partners, or GCP. Pursuant to the SEDA’s terms, we may, at our sole discretion and upon giving written notice to GCP, each an “Advance Notice”, periodically sell shares of our common stock to GCP. For each share of Common Stock purchased under the SEDA, GCP will pay us an amount, referred to as the “Purchase Price”, that is eighty percent (80%) of the lowest daily volume weighted average price of the Common Stock as quoted by Bloomberg, LP, during the five (5) consecutive Trading Days (as such term is defined in the SEDA) immediately subsequent to the date of the relevant Advance Notice. We are not obligated to sell any shares of common stock to GCP but may, over the term of the SEDA and in our sole discretion, sell to GCP that number of shares of common stock valued at the Purchase Price from time to time in effect that equals up to one million dollars ($1,000,000) in the aggregate. GCP's obligation to purchase shares of Common Stock under the SEDA is subject to certain conditions, including (i) periodic sales of shares of our common stock to GCP must be separated by a time period equal to five Trading Days, and (ii) the amount of any individual periodic sale designated by us in any Advance Notice shall not exceed fifty percent (50%) of the average weekly volume of shares of our common stock traded during the two (2) week period immediately prior to an Advance Notice, where a “week” is five (5) consecutive Trading Days. GCP’s obligations under the SEDA are not transferable.
During the year ended December 31, 2013, the Company issued an aggregate of 31,052,141 shares of its common stock in exchange for $346,914 draw down on the equity line.
Other than the SEDA, we have no commitments or arrangements from third parties for any additional financing to fund our research and development and/or other operations. We will need to seek substantial additional financing through public and/or private financing, which may include equity and/or debt financings, and through other arrangements, including collaborative arrangements. We may also seek to satisfy some of our obligations to the Guarantors through the issuance of various forms of securities or debt on negotiated terms. However, financing and/or alternative arrangements with the Guarantors may not be available when we need it, or may not be available on acceptable terms. In addition, our ability to obtain additional debt financing and/or alternative arrangements with the Guarantors may be limited by the amount of, terms and restrictions of our then current debt. Accordingly, we will generally be restricted from, among other things, incurring additional indebtedness or liens, with limited exceptions. Additional debt financing, if available, may involve restrictive covenants that limit or further limit our operating and financial flexibility and prohibit us from making distributions to shareholders.
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If we raise additional funds and/or secure alternative arrangements with the Guarantors by issuing equity, equity-related or convertible securities, the economic, voting and other rights of our existing shareholders may be diluted, and those 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.
Cassel Salpeter & Co.
On November 20, 2013, we entered into an Investment Banking Agreement with Cassel Salpeter & Co. (“CSC”), who will act as exclusive third party financial advisor in connection with investment banking matters. The term of the Investment Banking Agreement shall be for a period of twenty four months unless terminated or extended in accordance with its terms. For these services, CSC will receive monthlyfees, have received 5,207,630 ten year common stock purchase warrants, exercisable at $.0113 and will receive applicable consideration in the event the closing of a Mezzanine Financing consisting of non-convertible subordinated debt and/or sale of equity securities. We will also reimburse CSC for its reasonable out-of-pocket expenses associated with the services provided pursuant to the Investment Banking Agreement.
Cassel Salpeter & Co. is an independent investment banking firm that provides advice to middle-market and emerging growth companies in the U.S. and worldwide. Together, the firm’s professionals have more than 50 years of experience providing private and public companies with a broad spectrum of investment banking and financial advisory services, including: mergers and acquisitions; equity and debt capital raises; fairness and solvency opinions; valuations; and restructurings, such as 363 sales and plans of reorganization. Co-founded by James Cassel and Scott Salpeter, the firm provides objective, unbiased, results-focused services that clients need to achieve their goals. Personally involved at every stage of all engagements, the firm’s senior partners have forged relationships and completed hundreds of transactions and assignments nationwide. The firm’s headquarters are in Miami.
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.
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Item 9A.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Exchange Act, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended December 31, 2012 we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of December 31, 2013.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
With the participation of our Principal Executive Officer and Principal Financial Officer, currently the same person, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on our evaluation and the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2013, based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Our management believes that these material weaknesses are due to the small size of our accounting staff. The small size of our accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the high cost of such remediation relative the benefit expected to be derived thereby.
To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework. These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.
In light of this material weakness, we performed additional analyses and procedures in order to conclude that our financial statements for the year ended December 31, 2013 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the year ended December 31, 2013 are fairly stated, in all material respects, in accordance with US GAAP.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm.
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Limitations on Effectiveness of Controls and Procedures
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Controls
During the fiscal quarter ended December 31, 2013, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Item 9B.
Other Information
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 executive officers and directors as of December 31, 2013
| | |
| | |
Mike Tomas | 48 | Director, President and Chief Executive Officer, Chief Financial Officer |
William P. Murphy, Jr., M.D. | 90 | Director, Chairman of the Board |
| | |
Mark P. Borman | 59 | Director |
Charles A. Hart | 53 | Director |
Sam Ahn | 59 | Director |
Kristin Comella | 37 | Director, Chief Scientific Officer |
Sheldon T. Anderson | 63 | 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 seven 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.Mr. Mike Tomas was appointed President and Chief Executive Officer and a member of our Board of Directors on June 19, 2010. Mike Tomas was appointed as the Company’s President and Chief Executive Officer, and as a director on June 19, 2010. Mr. Tomas has been President for the past nine years of The ASTRI Group, an early stage private equity investment company in Florida with an investment in Bioheart since 2001. In 2003, he joined Bioheart’s Board of Directors as the independent representative of The ASTRI Group. ASTRI provides capital, business development and strategic marketing support to emerging private companies. Mr. Tomas will continue to serve as President of The ASTRI Group. Previously from 1983 to 2001, Mr. Tomas held ascending executive positions including Chief Marketing Officer at Avantel, a $1 billion dollar joint venture with MCI. Upon retiring from MCI and WorldCom, Tomas joined other ex-MCI executives and helped raise $40M in venture capital to form Ineto, an integrated customer communications software solution that was successfully sold in 2001.
Mr. Tomas sits on the boards of Avisena (revenue cycle management company for medical practices), SilverSky (fka Perimeter Internetworking) (SaaS/managed security services provider for medical practices and financial institutions), Rokk3r Labs (a digital and mobile products developer and portfolio), Bioheart (adult stem cell development for heart muscle tissue repair) and is the current chairman of Florida International University’s Global Entrepreneurship Center. He 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. Mr. Tomas holds a Masters of Business Administration from the University of Miami and a Bachelor’s degree from Florida International University.
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.
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Dr. Murphy received an M.D. in 1947 from the University of Illinois and a B.S in pre-medicine from Harvard College in 1946. He also studied physiologic instrumentation at Massachusetts Institute of Technology, or MIT. After a two year rotating internship at St. Francis Hospital in Honolulu, he became a Research Fellow in Medicine at the Peter Bent Brigham Hospital in Boston where he was the dialysis engineer on the first clinical dialysis team in the United States. He continued as an Instructor in Medicine and then a research associate in Medicine at Harvard Medical School. Dr. Murphy is the author of numerous papers and owns 17 patents. He is the recipient of a number of honors, including the prestigious Lemelson-MIT Lifetime Achievement Award, the MIT Corporate Leadership Award, the Distinguished Service Award from North American Society of Pacing and Electrophysiology, and the Jay Malina Award from the Beacon Council of Miami, Florida. 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 most recently served as Corporate Officer, Treasurer and Vice President of Investor Relations with ADC Telecommunications. During his career, Mr. Borman has held positions with General Instrument Corporation, First Chicago Corporation, FMC Corporation, Price Waterhouse, and KPMG. Mr. Borman received his B.A. in Accounting from Michigan State University and his M.B.A. from the University of Chicago Graduate School of Business. He is a Certified Public Accountant and Chartered Financial Analyst and has experience as an advisor, board member, faculty, speaker, and mentor.
Charles A. Hart. Mr. Hart has served as a member of our Board of Directors since May 2009. Mr. Hart has more than 20 years of entrepreneurial experience. Mr. Hart founded Hart Masonry, Inc. in 1986 and has served as its President since then. He is also the Founder and President of Wildridge Enterprises. Mr. Hart is a member of the Board of Directors for Eagle Street Properties LLP.
Sam Ahn.Dr. Ahn previously served as a member of the Company's Board of Directors from January 2001 thru September 2008. Dr Ahn was one of the early pioneers in developing the field of endovascular surgery by coordinating and leading the first endovascular training courses in the US and Europe as well as developing some of the endovascular devices and techniques currently in clinical use today. He is a former Professor of Surgery in the Division of Vascular Surgery at UCLA, where he was also the Director of the Endovascular Surgery Program. In 2006 Dr. Ahn founded Vascular Management Associates, Inc., a consulting and management firm that sets up outpatient endovascular centers across the US. VMA has set up 8 such sites to date and is on track to set up two more this year. In 2008, he co-founded Wright-Ahn Technology, LLC, to develop and commercialize endovascular devices. In 2009, he co-founded MediBank International, LLC, a global healthcare IT Company. Dr. Ahn graduated from the University of Texas, Southwestern Medical School in Dallas, and received his general and vascular surgical residency training at UCLA. He also earned his MBA from the UCLA Anderson School of Management in August, 2004. Dr. Ahn sits on five vascular journal editorial boards, and has published over 120 peer-reviewed manuscripts, 50 book chapters, and five textbooks, including the first and definitive textbook on Endovascular Surgery. During the past eighteen years he has consulted for over 50 biomedical companies, both new and established, and has authored over 15 patents.
Kristin Comella.Ms. Comella was appointed Chief Scientific Officer in September 2010. Ms. Comella has served as our Vice President of R&D and Corporate Development since December 2008 and has played a major role in managing our product development, manufacturing and quality systems since joining Bioheart in 2004. Ms. Comella has 15 years of industry experience with expertise in regenerative medicine, training and education, research and product development, and currently serves on multiple advisory boards in the stem cell arena. Ms. Comella has many years of cell culturing experience including building and managing the stem cell laboratory at Tulane University's Center for Gene Therapy and developing stem cell therapies for osteoarthritis at Osiris Therapeutics. Ms. Comella holds an M.S. in Chemical Engineering from The Ohio State University and a B.S. in Chemical Engineering from the University of South Florida. On March 12, 2013, Kristin Comella was appointed to serve as a member of our Board of Directors.
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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.
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 were 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.
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:
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| | |
| 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: |
| | |
| 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, are available on our web site at http://www.bioheartinc.com/investorrelations.html. If we make substantive amendments to the Code of Ethics for Senior Financial Officers or the Code of Business Conduct and Ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within four days of such amendment or waiver.
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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 from the procedures described in our Annual Report on Form 10-K for the year ended December 31, 2012.
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. Hart. 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.
Item 11.
Executive Compensation.
Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31, 2012 and 2011, 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, 2013, or the Named Executive Officers.
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Name and
Principal Position |
Fiscal
Year
| Salary
($) | Bonus
($) | Stock
Awards
($) | Option
Awards ($) | Non-
Equity
Incentive Plan
Compen-
sation ($) | Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings ($) |
All Other
Compen-
sation
($) |
Total ($) |
Mike Tomas (5)
CEO, President,
CFO and
Director | 2013 | $391,667 | $375,000 (1) | $ — | $170,137 (2)(3) | | | | $936,804 |
2012 | 247,585 | — | — | 100,000 (4) | — | — | — | 347,585 |
| | | | | | | | | |
Kristin Comella (6)
Chief Science
Officer and Director | 2013 | 159,167 | 125,000 (1) | — | 81,916 (2) | | | | 366,083 |
2012 | 105,671 | — | — | — | — | — | — | 105,671 |
| |
(1) | On August 1, 2013, Mr. Tomas and Ms. Comella received $375,000 and $125,000, respectively, promissory notes for bonuses awarded. The promissory notes bear 5% interest per annum, unsecured and are due on demand. |
(2) | On August 1, 2013, Mr. Tomas and Ms. Comella were granted 10,000,000 and 5,000,000, respectively, options to purchase the Company’s common stock at $0.01576 per share for ten years, vesting annually over four years. |
(3) | On September 1, 2013, Mr. Tomas, as a member of the Company’s Board of Directors, was granted 400,000 options to purchase the Company’s common stock at $0.01654 for ten years, vesting immediately. |
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| |
(4) | On January 16, 2012, Mr. Tomas was granted 500,000 options to purchase the Company’s common stock at $0.10 per share for ten years, vesting annually over four years. On August 6, 2012, Mr. Tomas was granted 2,000,000 options to purchase the Company’s common stock at $0.03 per share for ten years vesting annually over four years. |
(5) | Mr. Tomas was appointed Chief Executive Officer and President on June 18, 2010. |
(6) | Ms. Comella was appointed Chief Scientific Officer on September 24, 2010. |
Our Stock Option Plans
In December 1999, our Board of Directors and shareholders adopted our 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan, or the Director Plan. The Employee Plan and the Director Plan are collectively referred to herein as “the Plans”. The Plans are administered by the Board of Directors and the Compensation Committee. The objectives of the Plans include attracting and retaining key personnel by encouraging stock ownership in the Company by such persons. In February 2010 the Directors & Consultants Plan was amended to extend the termination date of the Plan to December 1, 2011.
In July 2008, the Board of Directors approved, subject to shareholder approval, the establishment of the Bioheart Omnibus Equity Compensation Plan, or the “Omnibus Plan. The establishment of the Omnibus Plan was approved by the Company’s shareholders at the Annual Meeting of Shareholders held on July 30, 2008. Pursuant to the Omnibus Plan, the Company may grant restricted stock, incentive stock options, non-statutory stock options, stock appreciation rights, deferred stock, stock awards, performance shares, and other stock-based awards consisting of cash, restricted stock or unrestricted stock in various combinations to the Company’s employees, directors and consultants. 5,000,000 shares of common stock have been reserved for issuance under the Omnibus Plan.
In fiscal,the Board of Directors approved, subject to shareholder approval 2013 Omnibus Equity Compensation Plan or the “2013 Omnibus Plan. Pursuant to the 2013 Omnibus Plan, the Company may grant restricted stock, incentive stock options, non-statutory stock options, stock appreciation rights, deferred stock, stock awards, performance shares, and other stock-based awards consisting of cash, restricted stock or unrestricted stock in various combinations to the Company’s employees, directors and consultants. 50,000,000 shares of common stock have been reserved for issuance under the 2013 Omnibus Plan.
Employment Agreements
As of this time, there are no employment agreements with any named executive officer.
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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, 2012:
| | | | | | | |
| Number of Securities Underlying | | Option | | |
| Unexercised Options and Warrants | | Exercise Price | | Option Expiration |
Name | Exercisable (#) | | Unexercisable (#) | | ($/per share) | | Date |
Mike Tomas | 250,000 | | 250,000 | | 0.0169 | | 1/16/2022 |
| 750,000 | | 1,250,000 | | 0.0169 | | 8/6/2022 |
Mike Tomas | 125,000 | | 375,000 | | 0.50 | | 06/18/2020 |
| 250,000 | | 250,000 | | 0.0169 | | 08/12/2021 |
| — | | 10,000,000 | | 0.0158 | | 8/1/2023 |
| 400,000 | | — | | 0.0165 | | 9/1/2023 |
| | | | | | | |
Kristin Comella | 187,500 | | 312,500 | | 0.0169 | | 8/6/2022 |
| 12,356 | | — | | 0.71 | | 08/31/2014 |
| 24,712 | | — | | 0.71 | | 02/19/2015 |
| 618 | | — | | 0.71 | | 12/30/2015 |
| 9,267 | | — | | 0.71 | | 04/18/2016 |
| 6,178 | | — | | 0.71 | | 01/01/2017 |
| 6,500 | | — | | 0.71 | | 10/16/2017 |
| 19,700 | | — | | 0.71 | | 01/09/2019 |
| 2,955 | | — | | 0.74 | | 03/13/2019 |
| 30,000 | | — | | 0.85 | | 05/28/2019 |
| 125,000 | | 125,000 | | 0.0158 | | 08/21/2021 |
| — | | 5,000,000 | | 0.0158 | | 08/1/2023 |
Outstanding Stock Awards at Year End
The outstanding equity awards as at December 31, 2013 are as follows:
| | | | | |
Name | Stock awards |
Number of shares
or units of stock
that have not vested
(#) | Market value of
shares or units of
stock that have not
vested (#) | Equity incentive plan awards:
number of unearned shares,
units or other rights that have
not vested (#) | Equity incentive plan awards:
market or payout value of
unearned shares, units or other
rights that have not vested ($) |
Mike Tomas, NEO | 1,750,000 | 0.0169 per share | 0 | 0 |
Kristin Comella, NEO | 312,500 | 0.0169 per share | 0 | 0 |
Kristin Comella, NEO | 125,000 | 0.0158 per share | 0 | 0 |
Mike Tomas, NEO | 1,750,000 | 0.0169 per share | 0 | 0 |
Mike Tomas, NEO | 375,000 | 0.50 per share | 0 | 0 |
Mike Tomas, NEO | 10,000,000 | 0.0158 per share | 0 | 0 |
Kristin Comella, NEO | 5,000,000 | 0.0158 per share | 0 | 0 |
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Options Exercises and Stocks Vested
Options exercised and stocks vested as at December 31, 2013 are as follows:
| | | | |
Name | Option awards | Stock awards |
Number of Shares Acquired
on Exercise (#) | Value Realized on
Exercise ($) | Number of Shares
Acquired on Vesting (#) | Value
Realized on Investing ($) |
Mike Tomas, NEO | 0 | 0 | 0 | 0 |
Kristin Comella, NEO | 0 | 0 | 0 | 0 |
| | | | |
| | | | |
| | | | |
Grants of Plan-Based Awards
Grants of plan-based awards as at December 31, 2013 are as follows:
| | | | | | | | | | | |
Name | Grant
date | Estimated future payouts
under non-equity incentive
plan awards | Estimated future payouts
under equity incentive plan
awards | All other
stock
awards:
Number
of shares
of stock
or units
(#) | All other
option
awards:
Number of
securities
underlying
options
(#) | Exercise
or base
price of
option
awards
($/Sh) | Grant
date fair
value of
stock and
option
awards |
Threshold
($) | Target
($) | Maximum
($) | Threshold
(#) | Target
(#) | Maximum
(#) |
Mike Tomas, NEO | n/a | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Kristin Comella, NEO | n/a | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Reference – Grant Date - n/a = not applicable.
Non Qualified Deferred Compensation
As atDecember 31, 2013the Company had no formalized deferred compensation plan.
| | | | | |
Name | Executive contributions in last FY ($) | 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 |
| | | | | |
| | | | | |
| | | | | |
Golden Parachute Compensation
As at December 31, 2013, the Company had no arrangements in place relating to the termination of employees.
| | | | | | | |
Name | Cash
($) | Equity
($) | Pension/NQDC
($) | Perquisites/benefits
($) | Tax reimbursement
($) | Other
($) | Total
($) |
Mike Tomas, NEO | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Kristin Comella, NEO | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| | | | | | | |
| | | | | | | |
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Compensation of Directors
Directors who provide services to the Company in other capacities has been previously reported under “Summary Compensation”. The following table summarizes compensation paid to or earned by our directors who are not Named Executive Officers for their service as directors of our company during the fiscal year endedDecember 31, 2013.
| | | | | | | |
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards(1) ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All other Comp-ensation ($) | Total(1) ($) |
Mike Tomas, Director | 0 | 0 | $6,304 | 0 | 0 | 0 | $6,304 |
Charles A. Hart, Director | 0 | 0 | $6,304 | 0 | 0 | 0 | $6,304 |
William P. Murphy Jr., Director | 0 | 0 | $6,304 | 0 | 0 | 0 | $6,304 |
Samuel S. Ahn, Director | 0 | 0 | $6,304 | 0 | 0 | 0 | $6,304 |
Mark Bormon, Director | 0 | 0 | $6,304 | 0 | 0 | 0 | $6,304 |
(1)
The values in the “Option Awards” and included within the “Total” columns above do not represent a cash payment of any kind. Rather these values represent the calculated Black-Scholes theoretical value of granted options. It is important to note that these granted options may or may not ever be exercised. Whether granted options are exercised or not will be based primarily, but not singularly, on the Company’s future stock price and whether the granted options become “in-the-money”. If these granted options are unexercised and expire, the cash value or benefit to the above noted individuals is $nil.
Pension Benefits
As ofDecember 31, 2013, the Company had no pension or retirement plans.
| | | | |
Name | Plan name | Number of years
credited service (#) | Present value of
accumulated benefit ($) | Payments during last
fiscal year ($) |
Mike Tomas, NEO | not applicable | 0 | 0 | 0 |
Kristin Comella, NEO | not applicable | 0 | 0 | 0 |
| | | | |
| | | | |
| | | | |
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Equity Compensation Plan Information
The following table sets forth information as of December 31, 2013 for all compensation plans under the Company’s Stock Option Plan
| | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | |
| | | No. of | | | | Consideration | | | | | | |
| | | Shares of Common | | | | to be Received | | | | | | |
| | | Stock Underlying | | | | Upon Exercise | | | | | | |
| | | Unexercised | | | | or Material | | | | Value | | |
| | | Common Stock | | | | Conditions | | Option | | Realized | | Option |
| | | Purchase Options | | Date of | | Required to | | Exercise | | if | | Expiration |
| Name | | Exercisable (#) | | Grant | | Exercise | | Price ($) | | Exercised ($) | | Date |
| Mike Tomas, NEO | | | 375,000 | | | | 9/18/2010 | | | $ | — | | | $ | 0.50 | | | $ | — | | | | 6/18/2020 | |
| | | | 250,000 | | | | 8/12/2011 | | | | — | | | | 0.0169 | | | | — | | | | 8/12/2021 | |
| | | | 250,000 | | | | 1/16/2012 | | | | — | | | | 0.0169 | | | | — | | | | 1/16/2022 | |
| | | | 1,250,000 | | | | 8/6/2012 | | | | — | | | | 0.0169 | | | | — | | | | 8/6/2022 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 400,000 | | | | 9/1/2013 | | | | — | | | | 0.0165 | | | | — | | | | 9/1/2023 | |
| Kristin Comella, NEO | | | 24,712 | | | | 2/20/2005 | | | | — | | | | 0.71 | | | | — | | | | 2/19/2015 | |
| | | | 9,267 | | | | 4/19/2006 | | | | — | | | | 0.71 | | | | — | | | | 4/19/2016 | |
| | | | 6,178 | | | | 1/2/2007 | | | | — | | | | 0.71 | | | | — | | | | 1/2/2017 | |
| | | | 6,500 | | | | 10/17/2007 | | | | — | | | | 0.71 | | | | — | | | | 10/17/2017 | |
| | | | 19,700 | | | | 1/9/2009 | | | | — | | | | 0.71 | | | | — | | | | 1/9/2019 | |
| | | | 2,955 | | | | 3/13/2009 | | | | — | | | | 0.71 | | | | — | | | | 3/13/2019 | |
| | | | 30,000 | | | | 5/29/2009 | | | | — | | | | 0.85 | | | | — | | | | 5/29/2019 | |
| | | | 125,000 | | | | 8/12/2011 | | | | — | | | | 0.0169 | | | | — | | | | 8/12/2021 | |
| | | | 187,500 | | | | 8/06/2012 | | | | — | | | | 0.0169 | | | | — | | | | 8/06/2022 | |
Director Compensation
As of December 31, 2013, we had seven directors that qualified for compensation. Our non-employee directors do not receive cash compensation for their services as directors. However, it is generally our policy to annually grant each non-employee director options to purchase shares of our common stock provided that he or she has served as a member of our Board of Directors for at least six months and one day of the twelve month period immediately preceding the date of grant. In addition, we reimburse non-employee directors for actual out-of-pocket expenses incurred.
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Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the beneficial ownership(1) of our common stock as of March 24th, 2014, based on an aggregate of 420,920,157 common shares issued and outstanding and 108,001,736 shares issuance upon the conversion of securities, for each of our greater than 5% shareholders, directors, named executive officers that continue to serve as executive officers of Bioheart and by all of our directors and named executive officers as a group. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325. >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, which totals 523,493,786, will be used as the denominator 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 | | 17,478,947 | (1) | 3.3 |
| | | | |
Kristin Comella, Chief Scientific Officer and Director | | 1,062,288 | (2) | * |
| | | | |
William P. Murphy, Director** | | 10,335,458 | (3) | 2.0 |
| | | | |
| | | | |
| | | | |
Charles A. Hart, Director** | | 15,662,534 | (4) | 3.0 |
| | | | |
Sam Ahn, Director** | | 33,881,807 | (5) | 6.4 |
| | | | |
Mark P. Borman, Director | | 633,450 | (6) | * |
| | | | |
Sheldon T. Anderson, Director | | 3,881,988 | (7) | * |
| | | | |
All officers and directors as a group (7 persons) | | 82,936,472 | (8) | 15.8 |
Northstar Biotechnology Group, LLC | | 47,950,906 | (9) | 9.2 |
* 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., Dr. Samuel Ahn and Charles Hart.
| |
(1) | (i) Includes shares are held by The Astri Group over which Mr. Tomas has shared voting and investment power and includes (i) includes 6,578,947 shares of common stock and (ii) 10,900,000 shares of common stock issuable upon exercise of presently exercisable stock options. |
| |
77
| |
(2) | Includes 1,062,288 shares of common stock issuable upon exercise of presently exercisable stock options. |
| |
(3) | Includes (i) 8,771,929 shares of common stock and (ii) 1,563,529 shares of common stock issuable upon exercise of presently exercisable stock options and warrants. Shares are directly owned by trusts controlled by Dr. Murphy and his spouse. |
| |
(4) | Includes (i) 9,150,094 shares of common stock and (ii) 6,512,440 shares of common stock issuable upon exercise of presently exercisable stock options. |
| |
(5) | Includes (i) 22,862,091 shares of common stock and (ii) 11,019,716 shares of common stock issuable upon exercise of presently exercisable stock options. |
| |
(6) | Includes (i) 23,450 shares of common stock and (ii) 610,000 shares of common stock issuable upon exercise of presently exercisable stock options |
| |
(7) | Includes (i) 1,940,994 shares of common stock and (ii) 1,940,994 shares of common stock issuable upon exercise of presently exercisable warrants. |
| |
(8) | Includes an aggregate of (i) 46,827,505 shares of common stock and (ii)25,489,251shares of common stock issuable upon exercise of presently exercisable stock options and warrants. |
| |
(9) | Excludes 20,000,000 shares of Series A Preferred Stock (non-convertible) with each share of Series A Preferred Stock having voting power of twenty-five common shares. |
DESCRIPTION OF SECURITIES
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.
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.
78
On February 4, 2013, the Company amended its Articles of Incorporation to increase the number of authorized shares to 970,000,000, consisting of 20,000,000 $0.001 par value preferred stock and 950,000,000 $0.001 common stock.
The holders of the Company’s Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors, in its discretion, from funds legally available there for and subject to prior dividend rights of holders of any shares of our Preferred Stock which may be outstanding. Upon the Company’s liquidation, dissolution or winding up, subject to prior liquidation rights of the holders of our Preferred Stock, if any, the holders of our Common Stock are entitled to receive on a pro rata basis our remaining assets available for distribution. Holders of the Company’s Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. All outstanding shares of the Company’s Common Stock are, and all shares being offered by this prospectus will be, fully paid and not liable to further calls or assessment by the Company.
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, 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 an aggregate of 20,000,000 shares of Series A Preferred Stock.
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.
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.
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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.
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.
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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
On February 29, 2012, the Note issued to BlueCrest Master Fund Limited (as described above) was assigned to Northstar Biotechnology Group, LLC (“Northstar”), owned partly by certain directors and existing shareholders of the Company, 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.
On March 30, 2012, the Company and Northstar agreed to extend until May 1, 2012 the initial payment date for any and all required monthly under the Note, such that the first of the four monthly payments required under the Note will be due and payable on May, 2012 and all subsequent payments will be due on a monthly basis thereafter commencing on June 1, 2012, and to waive any and all defaults and/or events of default under the Note with respect to such payments. As of September 30, 2012, the Company was in default, however, subsequent to September 30, 2012, the Company renegotiated the terms of the note, Northstar has agreed to suspend the requirement of principal payments by the Company and allow payment of interest-only in restricted stock.
On October 1, 2012, the Company and Northstar entered into a limited waiver and forbearance agreement whereby the Company agreed to issue 5,000,000 shares of Series A Convertible Preferred Stock and 10,000,000 of common stock in exchange for $210,000 as payment towards outstanding debt, default interest, penalties, professional fees outstanding and due Northstar. In addition, the Company executed a security agreement granting Northstar a lien on all patents, patent applications, trademarks, service marks, copyrights and intellectual property rights of any nature, as well as the results of all clinical trials, know-how for preparing Myoblasts, old and new clinical data, existing approved trials, all right and title to Myoblasts, clinical trial protocols and other property rights. As of December 31, 2013, the principle of this note was $362,000.
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 February 28, 2013, the effective interest rate will be 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. In addition, the Company is obligated to issue additional preferred stock equal in lieu of payment of cash of accrued and unpaid interest on each six month anniversary of the effective date (October 1, 2012). In lieu of the initial two payments in preferred stock, the parties modified the voting rights of the Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stock holders to 25 votes per share on matters to be voted on by the common stock holders and all prior and subsequent payments of interest will be in common stock; payments of common stock for April 1, 2013 and October 1, 2013 shall be made the fourth quarter of 2013 based on the closing price of the common stock on April 1, 2013 and October 1, 2013 respectively.
As described above, during the year ended December 31, 2013, the Company issued the 5,000,000 shares of Series A Convertible Preferred Stock and the 10,000,000 of common stock described above in exchange for the $210,000 as payment towards outstanding principle of the debt. In addition, the Company issued 15,000,000 shares of Series
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A Convertible Preferred Stock as a penalty in settlement of the terms of the forbearance agreement. The fair value of the Preferred Stock of $274,050 was included in interest expense for the year ended December 31, 2013.
On September 30, 2013, the Company issued 8,771,929 shares of its common stock as payment of $100,000 towards cash advances.
On December 24, 2013, the Company issued 3,915,662 shares of its common stock as payment of accrued interest through June 30, 2013 of $85,447.
As of December 31, 2013, the principle of this note was $362,000.
Lease Guarantee
The Company’s former Chairman of the Board, Chief Executive Officer and Chief Technology Officer has personally guaranteed the Company’s obligations under its lease for its facilities in Sunrise, Florida and has provided a personal guarantee for the Company credit card, which is for his own use only.
Advances
As of December 31, 2013 and 2012, the Company officers and directors have provided advances in the aggregate of $461,198 and $313,448 respectively, for working capital purposes. The advances are unsecured, due on demand and non-interest bearing.
On August 1, 2013, advances in aggregate of $22,750 were converted into a demand promissory note with 5% interest per annum. On September 30, 2013, the Company issued 1,995,614 shares of common stock in settlement of the $22,750 promissory note.
On September 30, 2013, the Company issued 8,771,929 shares of its common stock as payment of $100,000 towards cash advances.
Officer and Director Notes
At December 31, 2013 and 2012, the Company has outstanding notes payable to officers and directors with interest at 8% per annum due at maturity. The three subordinated notes, $125,000, $100,000 and $140,000 were previously due on October 22, 2012, November 30, 2012 and June 4, 2011 respectively, and are unsecured. The Company is not obligated to make payment until Northstar loan is paid off.
On October 9, 2012, the Company issued an aggregate of $1,278,324 promissory notes due October 9, 2013 to officers and directors in settlement of outstanding advances and accrued compensation. The promissory notes bear interest of 5% per annum and due at maturity. On September 30, 2013, the Company issued an aggregate of 15,350,876 shares of its common stock in settlement of $175,000 of related party notes payable. During the year ended December 31, 2013, the Company paid $2,000 of the outstanding promissory notes.
On August 1, 2013, the Company issued an aggregate of $500,000 promissory notes due on demand to officers and employee in settlement of accrued compensation. The promissory notes bear interest of 5% per annum and due at various maturity dates. During the year ended December 31, 2013, the Company paid off $70,847 of the outstanding promissory notes.
Subordinated debt, related party
As of December 31, 2013 and 2012, the Company officers and directors have provided notes in aggregate of $1,500,000. The notes are at 8% per annum and are due upon payoff of the Northstar note payable described above.
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Item 14. Principal Accounting Fees and Services. Independent Registered Public Accounting Firm Fees
In December of 2012, Bioheart engaged Fiondella, Milone, LaSaracina LLP (FML) to perform the 2012 audit. Aggregate fees billed to us for the fiscal years ended December 31, 2013 and 2012 by our independent registered public accounting firms are as follows:
| | | | | | |
Types of Fees | 2013 | 2012 |
Audit Fees (1) | $ | 65,500 | | $ | 65,500 | |
Audit Related Fees | | — | | | — | |
Tax Fees | | — | | | — | |
All Other Fees | | — | | | — | |
| | |
| | |
(1) | | This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit of the annual financial statements or the reviews of the interim financial statements. |
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.
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Prior to engagement, the Audit Committee pre-approves the services and fees of the independent auditor within each of the above categories. During the year, it may become necessary to engage the independent auditor for additional services not previously contemplated as part of the engagement. In those instances, the Audit and Non-Audit Services Pre-Approval Policy requires that the Audit Committee specifically approve the services prior to the independent auditor’s commencement of those additional services. Under the Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee may delegate the ability to pre-approve audit and non-audit services to one or more of its members provided the delegate reports any pre-approval decision to the Audit Committee at its next scheduled meeting. As of the date hereof, the Audit Committee has not delegated its ability to pre-approve audit services.
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 |
| | |
3.1(6) | | Amended and Restated Articles of Incorporation of the registrant, as amended |
3.2(9) | | Articles of Amendment to the Articles of Incorporation of the registrant |
3.3(8) | | Amended and Restated Bylaws |
4.1(5) | | Loan and Security Agreement, dated as of May 31, 2007 by and between BlueCrest Capital Finance, L.P. and the registrant |
4.2(12) | | Notice of Event of Default, from BlueCrest Venture Finance Master Fund Limited to the Company, dated January 28, 2009 |
4.3(12) | | Notice of Acceleration, from BlueCrest Venture Finance Master Fund Limited to the Company, dated February 2, 2009 |
4.4(13) | | Amendment to Loan and Security Agreement, between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009 |
4.5(13) | | Grant of Security Interest (Patents), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009 |
4.6(13) | | Security Agreement (Intellectual Property), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009 |
4.7(13) | | Subordination Agreement, by Hunton & Williams, LLP in favor of BlueCrest Venture Finance Master Fund Limited, entered into and effective April 2, 2009 |
4.8(13) | | Amended and Restated Promissory Note, dated April 2, 2009, by the Company to BlueCrest Venture Finance Master Fund Limited |
4.9(13) | | Warrant to purchase 1,315,542 shares of the registrant’s common stock, dated April 2, 2009, issued to BlueCrest Venture Finance Master Fund Limited |
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| | | | | | |
4.10(14) | | Warrant to purchase 451,043 shares of the registrant’s common stock, dated April 2, 2009, issued to Rogers Telecommunications Limited |
4.11(14) | | Warrant to purchase 173,638 shares of the registrant’s common stock, dated April 2, 2009, issued to Hunton & Williams, LLP |
4.12(4) | | Warrant to purchase shares of the registrant's common stock issued to Howard J. Leonhardt and Brenda Leonhardt |
4.12(19) | | 10% Convertible Promissory Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith |
4.13(19) | | 10% Convertible Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers |
4.14(19) | | Registration Rights Agreement, dated July 23, 2009 |
4.15(4) | | Warrant to purchase shares of the registrant's common stock issued to the R&A Spencer Family Limited Partnership |
4.15(19) | | Subordination Agreement, dated July 23, 2009 |
4.16(19) | | Note Purchase Agreement, dated July 23, 2009 |
4.17(19) | | Closing Confirmation of Conversion Election, dated July 23, 2009 |
4.20(6) | | Warrant to purchase shares of the registrant's common stock issued to Samuel S. Ahn, M.D. |
4.23(7) | | Warrant to purchase shares of the registrant's common stock issued to Howard and Brenda Leonhardt |
4.27(11) | | Form of Warrant Agreement for October 2008 Private Placement |
4.30(19) | | 10% Convertible Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers |
4.31 (34) | | Series A Convertible Preferred Stock |
4.32 (35) | | Amendment to the Series A Convertible Preferred Stock |
10.1**(1) | | 1999 Officers and Employees Stock Option Plan |
10.2**(1) | | 1999 Directors and Consultants Stock Option Plan |
10.3(1) | | Form of Option Agreement under 1999 Officers and Employees Stock Option Plan |
10.4(3) | | Form of Option Agreement under 1999 Directors and Consultants Stock Option Plan |
10.5**(4) | | Employment Letter Agreement between the registrant and Scott Bromley, dated August 24, 2006. |
10.6(1) | | Lease Agreement between the registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006. |
10.7(1) | | Asset Purchase Agreement between the registrant and Advanced Cardiovascular Systems, Inc., dated June 24, 2003. |
10.8(4) | | Conditionally Exclusive License Agreement between the registrant, Dr. Peter Law and Cell Transplants International, LLC, dated February 7, 2000, as amended. |
10.9(4) | | Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant, Howard J. Leonhardt and Brenda Leonhardt |
10.10(4) | | Loan Guarantee, Payment and Security Agreement, dated as of June 1, 2007, by and between the registrant and William P. Murphy Jr., M.D. |
10.11(4) | | Loan Agreement, dated as of June 1, 2007, by and between the registrant and Bank of America, N.A. |
10.13(4) | | Warrant to purchase shares of the registrant's common stock issued to Howard J. Leonhardt and Brenda Leonhardt |
10.14(4) | | Warrant to purchase shares of the registrant's common stock issued to William P. Murphy, Jr., M.D. |
10.16(4) | | Material Supply Agreement, dated May 10, 2007, by and between the registrant and Biosense Webster |
10.17(5) | | Warrant to purchase shares of the registrant's common stock issued to BlueCrest Capital Finance, L.P. |
10.18(6) | | Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Samuel S. Ahn, M.D. |
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| | | | | | |
10.19(6) | | Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Dan Marino |
10.21(6) | | Loan Guarantee, Payment and Security Agreement, dated as of September 19, 2007, by and between the registrant and Jason Taylor |
10.22(7) | | Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and Howard and Brenda Leonhardt |
10.24(7) | | Second Amendment to Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and Howard and Brenda Leonhardt |
10.25(7) | | Second Amendment to Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007, by and between the registrant and William P. Murphy, Jr., M.D. |
10.26**(10) | | Bioheart, Inc. Omnibus Equity Compensation Plan |
10.28(11) | | Form of Registration Rights Agreement for October 2008 Private Placement |
10.29(19) | | 10% Convertible Promissory Note Due July 23, 2010, in the amount of $20,000, payable to Dana Smith |
10.31(19) | | Registration Rights Agreement, dated July 23, 2009 |
10.32(19) | | Subordination Agreement, dated July 23, 2009 |
10.33(19) | | Note Purchase Agreement, dated July 23, 2009 |
10.34(19) | | Closing Confirmation of Conversion Election, dated July 23, 2009 |
10.35**(20) | | Amended and Restated 1999 Directors and Consultants Stock Option Plan |
10.36(21) | | Preliminary Commitment Letter with Seaside National Bank and Trust, dated September 30, 2010. |
10.37(22) | | Loan Agreement with Seaside National Bank and Trust, dated October 25, 2010. |
10.38(22) | | Promissory Note with Seaside National Bank and Trust, dated October 25, 2010. |
10.39(22) | | Amended and Restated Loan and Security Agreement with BlueCrest Venture Finance Master Fund Limited, dated October 25, 2010. |
10.40(23) | | Form of Subscription Agreement, executed November 30, 2010. |
10.41(23) | | Form of Common Stock Purchase Warrant, issued November 30, 2010. |
10.42(23) | | Form of Registration Rights Agreement, dated November 30, 2010. |
10.43(24) | | Unsecured Convertible Promissory Note for $25,000, with Magna Group, LLC, dated January 3, 2011. |
10.44(24) | | Promissory Note for $139,728.82 with Magna Group, LLC, dated January 3, 2011. |
10.45(24) | | Securities Purchase Agreement with Magna Group, LLC, dated January 3, 2011. |
10.46(24) | | Subordination Agreement, dated January 3, 2011. |
10.47(24) | | Notice of Conversion Election, dated January 3, 2011. |
10.48(25) | | Unsecured Convertible Promissory Note for $34,750, with Magna Group, LLC, dated May 16, 2011. |
10.49(25) | | Promissory Note for $139,728.82 with Magna Group, LLC, dated May 16, 2011. |
10.50(25) | | Securities Purchase Agreement with Magna Group, LLC, dated May 16, 2011. |
10.51(25) | | Subordination Agreement, dated May 16, 2011. |
10.52(26) | | Promissory Note for $139,728.82 with Lotus Funding Group, LLC, dated June 15, 2011. |
10.53(26) | | Partial Assignment and Modification Agreement, dated June 15, 2011. |
10.54(26) | | Subordination Agreement, dated June 15, 2011. |
10.55(27) | | Promissory Note for $140,380.21 with Greystone Capital Partners, dated July 8, 2011. |
10.56(27) | | Partial Assignment and Modification Agreement, dated July 8, 2011. |
10.57 (28) | | Subordination Agreement, dated July 8, 2011. |
10.58 (29) | | Promissory Note for $139,728.82 with Greystone Capital Partners, dated August 1, 2011. |
10.59 (29) | | Partial Assignment and Modification Agreement, dated August 1, 2011. |
10.60 (29) | | Subordination Agreement, dated August 1, 2011. |
10.61 (30) | | Promissory Note for $139,728.82 with Greystone Capital Partners, dated September 1, 2011. |
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| | | | | | |
10.62 (30) | | Partial Assignment and Modification Agreement, dated September 1, 2011. |
10.63 (30) | | Subordination Agreement, dated September 1, 2011. |
10.64 (31) | | Standby Equity Distribution Agreement dated as of November 2, 2011. |
10.65 (31) | | Registration Rights Agreement dated as of November 2, 2011. |
10.66(32) | | Promissory Note for $139,728.82 with Greystone Capital Partners, dated January 3, 2012 |
10.67(32) | | Term Note B Promissory Note for $139,728.82 with Greystone Capital Partners, dated January 3, 2012 |
10.68(32) | | Unsecured Convertible Promissory Note for $63,000, with Asher Enterprises, Inc. dated April 2, 2012 |
10.69(32) | | Unsecured Convertible Promissory Note for $125,000, with IBC Funds LLC., dated January 9, 2013 |
10.70(32) | | Unsecured Convertible Promissory Note for $37,500, with Asher Enterprises, Inc. dated February 20, 2013 |
10.71(32) | | Unsecured Convertible Promissory Note for $42,500, with Asher Enterprises, Inc. dated January 9, 2013 |
10.80(33) | | 2013 Bioheart, Inc. Omnibus Equity Compensation Plan |
14.1(2) | | Code of Ethics for Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions |
14.2(2) | | Code of Business Conduct and Ethics |
31.1* | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | | |
| | |
* | | Filed herewith |
** | | Indicates management contract or compensatory plan. |
(1) | | Incorporated by reference to the Company’s Form S-1 filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2007. |
(2) | | Incorporated by reference to Amendment No. 1 to the Company’s Form S-1 filed with the SEC on June 5, 2007. |
(3) | | Incorporated by reference to Amendment No. 2 to the Company’s Form S-1 filed with the SEC on July 12, 2007. |
(4) | | Incorporated by reference to Amendment No. 3 to the Company’s Form S-1 filed with the SEC on August 9, 2007. |
(5) | | Incorporated by reference to Amendment No. 4 to the Company’s Form S-1 filed with the SEC on September 6, 2007. |
(6) | | Incorporated by reference to Amendment No. 5 to the Company’s Form S-1 filed with the SEC on October 1, 2007. |
(7) | | Incorporated by reference to Post-effective Amendment No. 1 to the Company’s Form S-1 filed with the SEC on October 11, 2007. |
(8) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 3, 2008. |
(9) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2008. |
(10) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2008. |
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(11) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2008. |
(12) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 3, 2009. |
(13) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 8, 2009. |
(14) | | Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2009. |
(15) | | Incorporated by reference to the Company’s Annual Report on Form 10-K/A filed with the SEC on April 30, 2009. |
(16) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 18, 2009. |
(17) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 20, 2009. |
(18) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 9, 2009. |
(19) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 3, 2009. |
(20) | | Incorporated by reference to Exhibit 4.6 to the Company’s Post-Effective Amendment to Registration Statement on Form S-8/A, filed with the SEC on June 2, 2010. |
(21) | | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2010. |
(22) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 29, 2010. |
(23) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2010. |
(24) | | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2011. |
(25) | | Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on May 25, 2011 |
(26) | | Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on June 21,2011 |
(27) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 15. 2011 |
(28) | | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2011 |
(29) | | Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on January 13, 2012 |
(30) | | Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on January 30, 2012 |
(31) | | Incorporated by reference to the Company Registration Statement on Form S-1/A filed with the SEC on February 8, 2012 |
(32) | | Incorporated by reference to the Company Annual Report on Form 10-K filed with the SEC on March 29, 2013 |
(33) | | Incorporated by reference to the Company Quarterly Report on Form 10-Q filed with the SEC on May 9, 2013 |
(34) | | Incorporated by reference to the Company Current Report on Form Pre-14C filed with the SEC on December 18, 2012 |
(35) | | Incorporated by reference to the Company Current Report on Form 8-K filed with the SEC on December 31, 2013 |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| | |
| | |
| BIOHEART, INC. |
| | |
| By: | /s/ Mike Tomas |
| Mike Tomas
Chief Executive Officer & President |
Dated: March 24, 2014 | |
| | |
| By: | /s/ Mike Tomas |
| Mike Tomas
Chief Financial Officer (Principal Accounting Officer) |
Dated: March 24, 2014
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 | | March 24, 2014 |
William P. Murphy, Jr., M.D. | | | | |
| | | | |
/s/ Mike Tomas | | Chief Executive Officer, Chief Financial Officer, & Director | | March 24, 2014 |
Mike Tomas | | | | |
| | | | |
/s/ Mark P. Borman | | Director | | March 24, 2014 |
Mark Borman | | | | |
| | | | |
/s/ Kristin Comella | | Director | | March 24, 2014 |
Kristin Comella | | | | |
| | | | |
/s/ Charles A. Hart | | Director | | March 24, 2014 |
Charles A. Hart | | | | |
| | | | |
/s/ Samuel S. Ahn, MD, MBA | | Director | | March 24, 2014 |
Samuel S. Ahn, MD, MBA | | | | |
| | | | |
/s/ Sheldon Anderson | | Director | | March 24, 2014 |
Sheldon Anderson | | | | |
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INDEX OF EXHIBITS
As required under Item 15. Exhibits, Financial Statement Schedules, the exhibits filed as part of this report are provided in this separate section. The exhibits included in this section are as follows:
| | |
| | |
Exhibit No. | | Description |
| | |
31.1 | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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FORM 10-K—ITEM 8
BIOHEART, INC.
INDEX TO FINANCIAL STATEMENTS
| |
Report of Independent Registered Public Accounting Firm | F-2 |
| |
Balance Sheets as of December 31, 2013 and 2012 | F-3 |
| |
Statements of Operations for the years ended December 31, 2013, 2012 and the cumulative period from August 12, 1999 (date of inception) to December 31, 2013 | F-4 |
| |
Statement of Shareholders’ (Deficit) Equity for the period from August 12, 1999 (date of inception) through December 31, 2013 | F-5 |
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Statements of Cash Flows for the years ended December 31, 2013, 2012 and the cumulative period from August 12, 1999 (date of inception) to December 31, 2013 | F-13 |
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Notes to Financial Statements | F-15 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Bioheart, Inc.
13794 NW 4th Street, Suite 212,
Sunrise, Florida 33325
We have audited the accompanying balance sheets of Bioheart, Inc. (the “Company”) (a development stage company) as of December 31, 2013 and 2012, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bioheart, Inc. (a development stage enterprise) as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the two years ended December 31, 2013.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage, and has incurred net losses of $118,180,983 since inception. In addition, as of December 31, 2013 the Company’s current liabilities exceed its current assets by $13,362,480. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| |
/s/ Fiondella, Milone and LaSaracina LLP |
| |
Glastonbury, Connecticut |
| |
March 24, 2014 | |
F-2
| | | | | |
| BIOHEART, INC. |
| (a development stage company) |
| BALANCE SHEETS |
| DECEMBER 31, 2013 AND 2012 |
| | | | | |
| | | | 2013 | | | | 2012 | |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 46,227 | | | $ | — | |
| Accounts receivable, net | | | 19,913 | | | | 1,342 | |
| Inventory | | | — | | | | 62,953 | |
| Prepaid and other | | | 784 | | | | 41,533 | |
| Total current assets | | | 66,924 | | | | 105,828 | |
| | | | | | | | | |
| Property and equipment, net | | | 9,055 | | | | 1,820 | |
| | | | | | | | | |
| Other assets | | | 10,160 | | | | 54,662 | |
| | | | | | | | | |
| Total assets | | $ | 86,139 | | | $ | 162,310 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Bank overdraft | | $ | — | | | $ | 89 | |
| Accounts payable | | | 2,382,267 | | | | 2,556,043 | |
| Accrued expenses | | | 4,480,335 | | | | 4,731,488 | |
| Advances, related party | | | 416,198 | | | | 313,448 | |
| Deposits | | | 478,286 | | | | 465,286 | |
| Subordinated debt, related party | | | 1,500,000 | | | | 1,500,000 | |
| Notes payable, related party | | | 2,241,477 | | | | 2,215,324 | |
| Notes payable, net of debt discount | | | 1,930,841 | | | | 2,364,972 | |
| Total current liabilities | | | 13,429,404 | | | | 14,146,650 | |
| | | | | | | | | |
| Derivative liability | | | 403,811 | | | | 611,227 | |
| | | | | | | | | |
| Stockholders' deficit: | | | | | | | | |
| Preferred stock, par value $0.001; 20,000,000 and 5,000,000 shares authorized as of December 31, 2013 and 2012, respectively, 20,000,000 and -0- issued and outstanding as of December 31, 2013 and 2012, respectively | | | 20,000 | | | | — | |
| Common stock, par value $0.001; 950,000,000 and 195,000,000 shares authorized as of December 31, 2013 and 2012, respectively, 379,787,745 and 182,062,802 shares issued and outstanding as of December 31, 2013 and 2012, respectively | | | 379,788 | | | | 182,063 | |
| Additional paid in capital | | | 103,819,119 | | | | 100,260,094 | |
| Common stock subscription | | | 215,000 | | | | — | |
| Deficit accumulated during development stage | | | (118,180,983 | ) | | | (115,037,724 | ) |
| Total stockholders' deficit | | | (13,747,076 | ) | | | (14,595,567 | ) |
| | | | | | | | | |
| Total liabilities and stockholders' deficit | | $ | 86,139 | | | $ | 162,310 | |
| | | | | | | | | |
See the accompanying notes to these financial statements |
F-3
| | | | | | | |
| BIOHEART, INC. |
| (a development stage company) |
| STATEMENTS OF OPERATIONS |
| | | | | | | |
| | | | | | | From August 12, |
| | | | | | | 1999 (date of |
| | | Year ended December 31, | | Inception) to |
| | | 2013 | | 2012 | | December 31, 2013 |
| | | | | | | (unaudited) |
| Revenue | | $ | 96,085 | | | $ | 61,109 | | | $ | 1,365,725 | |
| Cost of sales | | | 30,831 | | | | 1,070 | | | | 582,735 | |
| Gross profit | | | 65,254 | | | | 60,039 | | | | 782,990 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| Research and development | | | 626,983 | | | | 401,941 | | | | 65,320,035 | |
| Marketing, general and administrative | | | 2,267,831 | | | | 2,178,352 | | | | 39,105,667 | |
| Impairment of investment | | | — | | | | — | | | | 58,695 | |
| Depreciation and amortization | | | 2,190 | | | | 14,589 | | | | 900,104 | |
| Total operating expenses | | | 2,897,004 | | | | 2,594,882 | | | | 105,384,501 | |
| | | | | | | | | | | | | |
| Net loss from operations | | | (2,831,750 | ) | | | (2,534,843 | ) | | | (104,601,511 | ) |
| | | | | | | | | | | | | |
| Other income (expenses): | | | | | | | | | | | | |
| Development revenues | | | — | | | | — | | | | 117,500 | |
| Gain on extinguishment of debt | | | 1,023,439 | | | | — | | | | 1,023,439 | |
| Gain on change of fair value of derivative liability | | | 29,179 | | | | 119,795 | | | | 123,948 | |
| Interest income | | | — | | | | — | | | | 762,277 | |
| Other income | | | 73,756 | | | | 18,234 | | | | 344,821 | |
| Interest expense | | | (1,437,883 | ) | | | (1,619,653 | ) | | | (15,951,457 | ) |
| Total other income (expenses) | | | (311,509 | ) | | | (1,481,624 | ) | | | (13,579,472 | ) |
| | | | | | | | | | | | | |
| Net loss before income taxes | | | (3,143,259 | ) | | | (4,016,467 | ) | | | (118,180,983 | ) |
| | | | | | | | | | | | | |
| Income taxes (benefit) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| NET LOSS | | $ | (3,143,259 | ) | | $ | (4,016,467 | ) | | $ | (118,180,983 | ) |
| | | | | | | | | | | | | |
| Net loss per common share, basic and diluted | | $ | (0.01 | ) | | $ | (0.03 | ) | | | | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding, basic and diluted | | | 251,828,970 | | | | 146,463,828 | | | | | |
See the accompanying notes to these financial statements
F-4
| | | | | | | | | | | | | | | | | | | |
| BIOHEART, INC. |
| (a development stage company) |
| STATEMENT OF STOCKHOLDERS' DEFICIT |
| FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
| |
| | | | | | | | | | | | | | | | | Deficit | | |
| | | | | | | | | | | | | | | | | Accumulated | | |
| | | | | | | | | | | Additional | | | | | | During | | |
| | | | Preferred stock | | | | Common stock | | | | Paid in | | | | Deferred | | | | Subscription | | | | Development | | | | | |
| | | | Shares | | | | Amount | | | | Shares | | | | Amount | | | | Capital | | | | Compensation | | | | Receivable | | | | Stage | | | | Total | |
Balance, August 12, 1999 (date of
inception) (unaudited) | | | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Issuance of common stock | | | — | | | | — | | | | 4,324,458 | | | | 4,324 | | | | 395,676 | | | | — | | | | — | | | | — | | | | 400,000 | |
| Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 98,000 | | | | (98,000 | ) | | | — | | | | — | | | | — | |
| Amortization of stock based compensation | | | — | | | | — | | | | — | | | | — | | | | — | | | | 49,000 | | | | — | | | | — | | | | 49,000 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (903,290 | ) | | | (903,290 | ) |
| Balance, December 31, 1999 (unaudited) | | | — | | | | — | | | | 4,324,458 | | | | 4,324 | | | | 493,676 | | | | (49,000 | ) | | | — | | | | (903,290 | ) | | | (454,290 | ) |
Issuance of common stock, net of issuance
costs of $61,905 | | | — | | | | — | | | | 1,493,575 | | | | 1,494 | | | | 9,607,201 | | | | — | | | | — | | | | — | | | | 9,608,695 | |
| Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 2,559,000 | | | | (2,559,000 | ) | | | — | | | | — | | | | — | |
Fair value of warrants issued in exchange
for licenses and intellectual property | | | — | | | | — | | | | — | | | | — | | | | 5,220,000 | | | | — | | | | — | | | | — | | | | 5,220,000 | |
| Amortization of stock based compensation | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,080,692 | | | | — | | | | — | | | | 1,080,692 | |
| Contributed capital | | | — | | | | — | | | | — | | | | — | | | | 1,050,000 | | | | — | | | | — | | | | — | | | | 1,050,000 | |
Common stock issued in exchange for
services | | | — | | | | — | | | | 7,964 | | | | 8 | | | | 51,993 | | | | — | | | | — | | | | — | | | | 52,001 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (14,113,933 | ) | | | (14,113,933 | ) |
| Balance, December 31, 2000 (unaudited) | | | — | | | | — | | | | 5,825,997 | | | | 5,826 | | | | 18,981,870 | | | | (1,527,308 | ) | | | — | | | | (15,017,223 | ) | | | 2,443,165 | |
Issuance of common stock, net of issuance
costs of $98,996 | | | — | | | | — | | | | 985,667 | | | | 986 | | | | 6,282,018 | | | | — | | | | — | | | | — | | | | 6,283,004 | |
| Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 779,000 | | | | (779,000 | ) | | | — | | | | — | | | | — | |
| Amortization of stock based compensation | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,523,000 | | | | — | | | | — | | | | 1,523,000 | |
Conversion of contributed capital to
common stock | | | — | | | | — | | | | 81,084 | | | | 81 | | | | (81 | ) | | | — | | | | — | | | | — | | | | — | |
Common stock issued in exchange for
services | | | — | | | | — | | | | 8,291 | | | | 8 | | | | 53,993 | | | | — | | | | — | | | | — | | | | 54,001 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8,173,464 | ) | | | (8,173,464 | ) |
| Balance, December 31, 2001 (unaudited) | | | — | | | $ | — | | | | 6,901,039 | | | $ | 6,901 | | | $ | 26,096,800 | | | $ | (783,308 | ) | | $ | — | | | $ | (23,190,687 | ) | | $ | 2,129,706 | |
F-5
| | | | | | | | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENT OF STOCKHOLDERS' DEFICIT |
FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
|
| | | | | | | | Deficit | |
| | | | | | | | Accumulated | |
| | | | | Additional | | | During | |
| Preferred stock | Common stock | Paid in | Deferred | Subscription | Development | |
| Shares | Amount | Shares | Amount | Capital | Compensation | Receivable | Stage | Total |
Balance, December 31, 2001 (unaudited) | - | $ - | 6,901,039 | $ 6,901 | $ 26,096,800 | $ (783,308) | $ - | $ (23,190,687) | $ 2,129,706 |
Issuance of common stock | - | - | 1,092,883 | 1,093 | 7,075,105 | - | - | - | 7,076,198 |
Stock based compensation | - | - | - | - | 143,521 | (143,521) | - | - | - |
Amortization of stock based compensation | - | - | - | - | - | 613,083 | - | - | 613,083 |
Common stock issued in exchange for
services | - | - | 35,137 | 35 | 227,468 | - | - | - | 227,503 |
Net loss | - | - | - | - | - | - | - | (9,257,954) | (9,257,954) |
Balance, December 31, 2002 (unaudited) | - | - | 8,029,059 | 8,029 | 33,542,894 | (313,746) | - | (32,448,641) | 788,536 |
Issuance of common stock | - | - | 561,701 | 562 | 3,181,712 | - | - | - | 3,182,274 |
Stock based compensation | - | - | - | - | (155,893) | 155,893 | - | - | - |
Amortization of stock based compensation | - | - | - | - | - | 79,371 | - | - | 79,371 |
Common stock issued in exchange for
services | - | - | 144,300 | 144 | 823,743 | - | - | - | 823,887 |
Net loss | - | - | - | - | - | - | - | (6,037,528) | (6,037,528) |
Balance, December 31, 2003 (unaudited) | - | - | 8,735,060 | 8,735 | 37,392,456 | (78,482) | - | (38,486,169) | (1,163,460) |
Issuance of common stock | - | - | 808,570 | 809 | 4,580,104 | - | - | - | 4,580,913 |
Stock based compensation | - | - | - | - | 637,858 | (637,858) | - | - | - |
Amortization of stock based compensation | - | - | - | - | - | 148,812 | - | - | 148,812 |
Common stock issued in exchange for
services | - | - | 17,004 | 17 | 96,314 | - | - | - | 96,331 |
Net loss | - | - | - | - | - | - | - | (5,519,151) | (5,519,151) |
Balance, December 31, 2004 (unaudited) | - | - | 9,560,634 | 9,561 | 42,706,732 | (567,528) | - | (44,005,320) | (1,856,555) |
Issuance of common stock, net of issuance
costs of $32,507 | - | - | 1,994,556 | 1,994 | 11,265,560 | - | - | - | 11,267,554 |
Issuance of common stock in lieu of cash
compensation | - | - | 1,210 | 1 | 6,852 | - | - | - | 6,853 |
Stock based compensation | - | - | - | - | 1,566,147 | (1,566,147) | - | - | - |
Amortization of stock based compensation | - | - | - | - | - | 1,952,350 | - | - | 1,952,350 |
Issuance of common stock in exchange for
release of accrued liabilities | - | - | 95,807 | 96 | 542,691 | - | - | - | 542,787 |
Net loss | - | - | - | - | - | - | - | (7,326,557) | (7,326,557) |
Balance, December 31, 2005 (unaudited) | - | $ - | 11,652,207 | $ 11,652 | $ 56,087,982 | $ (181,325) | $ - | $ (51,331,877) | $ 4,586,432 |
F-6
| | | | | | | | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENT OF STOCKHOLDERS' DEFICIT |
FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
|
| | | | | | | | Deficit | |
| | | | | | | | Accumulated | |
| | | | | Additional | | | During | |
| Preferred stock | Common stock | Paid in | Deferred | Subscription | Development | |
| Shares | Amount | Shares | Amount | Capital | Compensation | Receivable | Stage | Total |
Balance, December 31, 2005 (unaudited) | - | $ - | 11,652,207 | $ 11,652 | $ 56,087,982 | $ (181,325) | $ - | $ (51,331,877) | $ 4,586,432 |
Reclassification of deferred compensation
due to adoption of SFAS No. 123 ( R ) | - | - | - | - | (181,325) | 181,325 | - | - | - |
Issuance of common stock, net of issuance
costs of $100,038 | - | - | 1,069,699 | 1,069 | 8,123,623 | - | - | - | 8,124,692 |
Equity instruments issued in connection
with settlement agreement | - | - | 47,657 | 48 | 3,294,381 | - | - | - | 3,294,429 |
Common stock issued in exchange for
services | - | - | 2,903 | 3 | 16,440 | - | - | - | 16,443 |
Common stock issued in exchange for
distribution rights and intellectual property | - | - | 13,006 | 13 | 99,984 | - | - | - | 99,997 |
Warrants issued in exchange for licenses
and intellectual property | - | - | - | - | 144,867 | - | - | - | 144,867 |
Stock based compensation | - | - | - | - | 1,224,430 | - | - | - | 1,224,430 |
Net loss | - | - | - | - | - | - | - | (13,180,646) | (13,180,646) |
Balance, December 31, 2006 (unaudited) | - | - | 12,785,472 | 12,785 | 68,810,382 | - | - | (64,512,523) | 4,310,644 |
Issuance of common stock, net of issuance
costs of $150,000 | - | - | 529,432 | 530 | 3,920,186 | - | - | - | 3,920,716 |
Exercise of stock options | - | - | 31,955 | 32 | 181,008 | - | - | - | 181,040 |
Warrants issued in connection with notes
payable | - | - | - | - | 3,162,488 | - | - | - | 3,162,488 |
Warrants issued in exchange for services | - | - | - | - | 30,559 | - | - | - | 30,559 |
Warrants issued in exchange for licenses
and intellectual property | - | - | - | - | 48,289 | - | - | - | 48,289 |
Shares issued in connection with reverse
stock split | - | - | 279 | - | - | - | - | - | - |
Stock based compensation | - | - | - | - | 931,233 | - | - | - | 931,233 |
Net loss | - | - | - | - | - | - | - | (18,067,084) | (18,067,084) |
Balance, December 31, 2007 (unaudited) | - | $ - | 13,347,138 | $ 13,347 | $ 77,084,145 | $ - | $ - | $ (82,579,607) | $ (5,482,115) |
F-7
| | | | | | | | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENT OF STOCKHOLDERS' DEFICIT |
FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
|
| | | | | | | | Deficit | |
| | | | | | | | Accumulated | |
| | | | | Additional | | | During | |
| Preferred stock | Common stock | Paid in | Deferred | Subscription | Development | |
| Shares | Amount | Shares | Amount | Capital | Compensation | Receivable | Stage | Total |
Balance, December 31, 2007
(unaudited) | - | $ - | 13,347,138 | $ 13,347 | $ 77,084,145 | $ - | $ - | $ (82,579,607) | $ (5,482,115) |
Initial public offering of common stock,
net of offering costs of $4,327,171 | - | - | 1,100,000 | 1,100 | 1,446,729 | - | - | - | 1,447,829 |
Issuance of common stock, net of
issuance costs of $24,325 | - | - | 1,230,280 | 1,230 | 2,117,275 | - | - | - | 2,118,505 |
Stock based compensation | - | - | - | - | 1,320,995 | - | - | - | 1,320,995 |
Warrants issued in exchange for
services | - | - | - | - | 251,850 | - | - | - | 251,850 |
Warrants issued in exchange for notes
payable | - | - | - | - | 168,387 | - | - | - | 168,387 |
Warrants issued in connection with
settlement agreement | - | - | - | - | 87,200 | - | - | - | 87,200 |
Exercise of stock options | - | - | 61,778 | 62 | 79,014 | - | - | - | 79,076 |
Net loss | - | - | - | - | - | - | - | (14,149,401) | (14,149,401) |
Balance, December 31, 2008
(unaudited) | - | - | 15,739,196 | 15,739 | 82,555,595 | - | - | (96,729,008) | (14,157,674) |
Issuance of common stock, net of
issuance costs of $13,664 | - | - | 2,680,230 | 2,682 | 1,857,140 | - | - | - | 1,859,822 |
Subscription receivable | - | - | 85,090 | 85 | 59,451 | - | (59,536) | - | - |
Stock based compensation | - | - | - | - | 296,838 | - | - | - | 296,838 |
Common stock in exchange for services | - | - | 45,000 | 45 | 45,855 | - | - | - | 45,900 |
Common stock issued in connection
with the settlement of accounts payable | - | - | 519,460 | 519 | 456,275 | - | - | - | 456,794 |
Common stock issued in connection
with issuance of note payable | - | - | 320,000 | 320 | 297,681 | - | - | - | 298,001 |
Common stock issued upon conversion
of notes payable | - | - | 606,708 | 606 | 261,618 | - | - | - | 262,224 |
Warrants issued in connection with
notes payable | - | - | - | - | 1,913,487 | - | - | - | 1,913,487 |
Exercise of stock options | - | - | 40,000 | 40 | 31,960 | - | - | - | 32,000 |
Net loss | - | - | - | - | - | - | - | (4,435,756) | (4,435,756) |
Balance, December 31, 2009
(unaudited) | - | $ - | 20,035,684 | $ 20,036 | $ 87,775,900 | $ - | $ (59,536) | $ (101,164,764) | $ (13,428,364) |
F-8
| | | | | | | | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENT OF STOCKHOLDERS' DEFICIT |
FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
|
| | | | | | | | Deficit | |
| | | | | | | | Accumulated | |
| | | | | Additional | | | During | |
| Preferred stock | Common stock | Paid in | Deferred | Subscription | Development | |
| Shares | Amount | Shares | Amount | Capital | Compensation | Receivable | Stage | Total |
Balance, December 31, 2009
(unaudited) | - | $ - | 20,035,684 | $ 20,036 | $ 87,775,900 | $ - | $ (59,536) | $ (101,164,764) | $ (13,428,364) |
Issuance of common stock, net of
issuance costs of $2,950 | - | - | 11,334,705 | 11,335 | 2,328,929 | | 59,536 | - | 2,399,800 |
Subscription receivable | - | - | 20,000 | 20 | 3,780 | - | (3,800) | - | - |
Stock based compensation | - | - | - | - | 248,457 | - | - | - | 248,457 |
Common stock in exchange for
services | - | - | 529,520 | 529 | 359,503 | - | - | - | 360,032 |
Common stock issued in connection
with settlement of accounts payable | - | - | 831,526 | 831 | 411,829 | - | - | - | 412,660 |
Common stock issued in connection
with bank guarantor liabilities | - | - | 4,794,430 | 4,794 | 2,960,576 | - | - | - | 2,965,370 |
Warrants issued in connection with
notes payable | - | - | - | - | 185,307 | - | - | - | 185,307 |
Net loss | - | - | - | - | - | - | - | (5,159,456) | (5,159,456) |
Balance, December 31, 2010
(unaudited) | - | $ - | 37,545,865 | $ 37,545 | $ 94,274,281 | $ - | $ (3,800) | $ (106,324,220) | $ (12,016,194) |
F-9
| | | | | | | | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENT OF STOCKHOLDERS' DEFICIT |
FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
|
| | | | | | | | Deficit | |
| | | | | | | | Accumulated | |
| | | | | Additional | | | During | |
| Preferred stock | Common stock | Paid in | Deferred | Subscription | Development | |
| Shares | Amount | Shares | Amount | Capital | Compensation | Receivable | Stage | Total |
Balance, December 31, 2010
(unaudited) | - | $ - | 37,545,865 | $ 37,545 | $ 94,274,281 | $ - | $ (3,800) | $ (106,324,220) | $ (12,016,194) |
Cancellation of previously issued
shares | - | - | (3,450) | (3) | 3 | - | - | - | - |
Proceeds from common stock
subscription | - | - | - | - | - | - | 3,800 | - | 3,800 |
Common stock issued in exchanged
of options exercised | - | - | 1,982,995 | 1,983 | (351) | - | - | - | 1,632 |
Common stock in exchange for
services | - | - | 1,000,000 | 1,000 | 114,035 | - | - | - | 115,035 |
Common stock issued upon
conversion of notes payable | - | - | 27,120,856 | 27,121 | 1,514,988 | - | - | - | 1,542,109 |
Common stock in connection with
settlement agreement | - | - | 4,521,700 | 4,522 | 312,997 | - | - | - | 317,519 |
Issuance of common stock, net of
issuance costs of $40,000 | - | - | 22,184,540 | 22,184 | 1,402,616 | - | - | - | 1,424,800 |
Common stock issued in settlement
of related party advance | - | - | 1,272,730 | 1,273 | 138,727 | - | - | - | 140,000 |
Stock based compensation | - | - | - | - | 409,314 | - | - | - | 409,314 |
Beneficial conversion feature
connection with issuance of
convertible note | - | - | - | - | 748,545 | - | - | - | 748,545 |
Net loss | - | - | - | - | �� - | - | - | (4,697,037) | (4,697,037) |
Balance, December 31, 2011 | - | $ - | 95,625,236 | $ 95,625 | $ 98,915,155 | $ - | $ - | $ (111,021,257) | $ (12,010,477) |
F-10
| | | | | | | | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENT OF STOCKHOLDERS' DEFICIT |
FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
|
| | | | | | | | Deficit | |
| | | | | | | | Accumulated | |
| | | | | Additional | | | During | |
| Preferred stock | Common stock | Paid in | Deferred | Subscription | Development | |
| Shares | Amount | Shares | Amount | Capital | Compensation | Receivable | Stage | Total |
Balance, December 31, 2011 | - | $ - | 95,625,236 | $ 95,625 | $ 98,915,155 | $ - | $ - | $ (111,021,257) | $ (12,010,477) |
Issuance of common stock | - | - | 24,085,718 | 24,085 | 485,715 | - | - | - | 509,800 |
Common stock issued for services | - | - | 952,851 | 953 | 33,647 | - | - | - | 34,600 |
Common stock issued under put
agreement | - | - | 8,947,859 | 8,948 | 141,052 | - | - | - | 150,000 |
Common stock issued upon
conversion of notes payable | - | - | 51,751,138 | 51,752 | 668,462 | | | | 720,214 |
Common stock issued for accrued
liabilities | | | 700,000 | 700 | 13,300 | - | - | - | 14,000 |
Stock based compensation | - | - | - | - | 76,674 | - | - | - | 76,674 |
Fair value of warrants issued in
connection with forbearance
agreement | - | - | - | - | 119,023 | - | - | - | 119,023 |
Beneficial conversion feature
connection with issuance of
convertible note | - | - | - | - | 234,729 | - | - | - | 234,729 |
Reclassify committed common shares
in excess of authorized amount to
liability | - | - | - | - | (427,663) | - | - | - | (427,663) |
Net loss | - | - | - | - | - | - | - | (4,016,467) | (4,016,467) |
Balance, December 31, 2012 | - | $ - | 182,062,802 | $ 182,063 | $ 100,260,094 | $ - | $ - | $ (115,037,724) | $ (14,595,567) |
F-11
| | | | | | | | | | | | | | | | | | | |
| BIOHEART, INC. |
| (a development stage company) |
| STATEMENT OF STOCKHOLDERS' DEFICIT |
| FROM AUGUST 12, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013 |
| |
| | | | | | | | | | | | | | | | | Deficit | | |
| | | | | | | | | | | | | | | | | Accumulated | | |
| | | | | | | | | | | Additional | | | | | | During | | |
| | | | Preferred stock | | | | Common stock | | | | Paid in | | | | Deferred | | | | Subscription | | | | Development | | | | | |
| | | | Shares | | | | Amount | | | | Shares | | | | Amount | | | | Capital | | | | Compensation | | | | Receivable | | | | Stage | | | | Total | |
| Balance, December 31, 2012 | | | — | | | $ | — | | | | 182,062,802 | | | | 182,063 | | | | 100,260,094 | | | | — | | | | — | | | | (115,037,724 | ) | | | (14,595,567 | ) |
Reclassify the fair value of excess
committed shares derivative to equity
upon common share authorization
increase | | | — | | | | — | | | | — | | | | — | | | | 474,954 | | | | — | | | | — | | | | — | | | | 474,954 | |
| Issuance of common stock | | | — | | | | — | | | | 50,029,227 | | | | 50,029 | | | | 814,971 | | | | — | | | | — | | | | — | | | | 865,000 | |
Common stock issued under put
agreement | | | — | | | | — | | | | 31,052,141 | | | | 31,053 | | | | 315,861 | | | | — | | | | — | | | | — | | | | 346,914 | |
Common stock issued in connection
with issuance of convertible debt | | | — | | | | — | | | | 2,500,000 | | | | 2,500 | | | | 33,750 | | | | — | | | | — | | | | — | | | | 36,250 | |
Common stock issued in connection
with settlement of debt | | | — | | | | — | | | | 57,967,906 | | | | 57,968 | | | | 735,167 | | | | — | | | | — | | | | — | | | | 793,135 | |
Common stock issued in settlement
of interest and penalty in connection
with convertible debt | | | — | | | | — | | | | 9,408,718 | | | | 9,409 | | | | 141,406 | | | | — | | | | — | | | | — | | | | 150,815 | |
| Common stock issued for services | | | — | | | | — | | | | 6,220,263 | | | | 6,220 | | | | 78,931 | | | | — | | | | — | | | | — | | | | 85,151 | |
Common stock issued in settlement
of related party notes payable | | | — | | | | — | | | | 34,890,348 | | | | 34,890 | | | | 362,860 | | | | — | | | | — | | | | — | | | | 397,750 | |
Common stock issued in settlement
of accounts payable | | | — | | | | — | | | | 5,656,340 | | | | 5,656 | | | | 151,560 | | | | — | | | | — | | | | — | | | | 157,216 | |
Preferred stock issued in settlement
of debt | | | 5,000,000 | | | | 5,000 | | | | — | | | | — | | | | 65,000 | | | | — | | | | — | | | | — | | | | 70,000 | |
Preferred stock issued in settlement
of forbearance agreement | | | 15,000,000 | | | | 15,000 | | | | — | | | | — | | | | 259,050 | | | | | | | | | | | | | | | | 274,050 | |
Proceeds from common stock
subscription | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 215,000 | | | | — | | | | 215,000 | |
| Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | 125,515 | | | | — | | | | — | | | | — | | | | 125,515 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,143,259 | ) | | | (3,143,259 | ) |
| Balance, December 31, 2013 | | | 20,000,000 | | | $ | 20,000 | | | | 379,787,745 | | | $ | 379,788 | | | $ | 103,819,119 | | | $ | — | | | $ | 215,000 | | | $ | (118,180,983 | ) | | $ | (13,747,076 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| See the accompanying notes to these financial statements |
F-12
| | | |
BIOHEART, INC. |
(a development stage company) |
STATEMENTS OF CASH FLOWS |
| | | |
| | | From August 12, |
| | | 1999 (date of |
| Year ended December 31, | Inception) to |
| 2013 | 2012 | December 31, 2013 |
| | | (unaudited) |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net loss | $ (3,143,259) | $ (4,016,467) | $ (118,180,983) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 2,190 | 14,589 | 900,104 |
Bad debt expense | - | - | 166,266 |
Discount on convertible debt | 368,682 | 468,581 | 1,980,250 |
Gain on change in fair value of derivative liability | (29,179) | (119,795) | (123,948) |
Gain on extinguishment of debt | (1,023,439) | - | (1,023,439) |
Non cash payment of interest | 228,657 | 93,209 | 499,767 |
Amortization of warrants issued in exchange for licenses and intellectual property | - | - | 5,413,156 |
Amortization of warrants issued in connection with notes payable | - | 95,291 | 5,437,604 |
Amortization of loan costs | - | 927 | 1,228,717 |
Related party notes payable issued for services rendered | 500,000 | - | 500,000 |
Warrants issued in exchange for services | - | - | 285,659 |
Warrants issued in exchange for forbearance agreement | - | 430,213 | 430,213 |
Equity instruments issued in connection with R&D agreement | - | - | 360,032 |
Equity instruments issued in connection with settlement agreement | - | - | 3,381,629 |
Common stock issued in connection with accounts payable | 2,500 | - | 759,316 |
Common stock issued in exchange for services | 85,151 | 34,600 | 1,567,673 |
Common stock issued in connection with amounts due to guarantors of Bank of America loan | - | - | 69,159 |
Common stock issued in exchange for distribution rights and intellectual property | - | - | 99,997 |
Preferred stock issued in settlement of forbearance agreement | 274,050 | - | 274,050 |
Warrants issued in connection with accounts payable | | - | 7,758 |
Stock based compensation | 125,515 | 76,674 | 10,076,517 |
(Increase) decrease in: | | | |
Receivables | (18,571) | 2,153 | (21,178) |
Inventory | 62,953 | 749 | - |
Prepaid and other current assets | 85,251 | 8,295 | 33,748 |
Other assets | - | - | (28,854) |
Increase (decrease) in: | | | |
Accounts payable | (59,059) | 324,264 | 3,200,620 |
Accrued expenses | 625,232 | 1,491,441 | 7,363,476 |
Deferred revenue | - | - | 465,287 |
Net cash used in operating activities | (1,913,326) | (1,095,276) | (74,877,404) |
F-13
| | | | | | | |
| BIOHEART, INC. |
| (a development stage company) |
| STATEMENTS OF CASH FLOWS |
| | | | | | | |
| | | | | | | From August 12, |
| | | | | | | 1999 (date of |
| | | Year ended December 31, | | Inception) to |
| | | 2013 | | 2012 | | December 31, 2013 |
| | | | | | | (unaudited) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Acquisitions of property and equipment | | $ | (9,425 | ) | | $ | (933 | ) | | $ | (909,158 | ) |
| Net cash used by investing activities | | | (9,425 | ) | | | (933 | ) | | | (909,158 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Bank overdraft | | | (89 | ) | | | 89 | | | | — | |
| Proceeds from issuance of common stock, net | | | 1,426,914 | | | | 584,800 | | | | 65,308,689 | |
| Proceeds from (payments for) initial public offering of common stock, net | | | — | | | | — | | | | 1,447,829 | |
| Proceeds from subordinated related party note | | | — | | | | — | | | | 3,000,000 | |
| Payment of note payable | | | — | | | | — | | | | (3,000,000 | ) |
| Proceeds from notes payable, related party | | | — | | | | — | | | | 505,000 | |
| Proceeds from related party advances | | | 215,500 | | | | 411,492 | | | | 1,082,992 | |
| Proceeds from exercise of stock options | | | — | | | | — | | | | 293,749 | |
| Proceeds from notes payable | | | 415,500 | | | | 63,000 | | | | 12,036,250 | |
| Repayments of notes payable | | | (88,847 | ) | | | — | | | | (3,622,452 | ) |
| Payment of loan costs | | | — | | | | — | | | | (1,219,268 | ) |
| Net cash provided in financing activities | | | 1,968,978 | | | | 1,059,381 | | | | 75,832,789 | |
| | | | | | | | | | | | | |
| Net increase (decrease) | | | 46,227 | | | | (36,828 | ) | | | 46,227 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | — | | | | 36,828 | | | | — | |
| Cash and cash equivalents, end of period | | $ | 46,227 | | | $ | — | | | $ | 46,227 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | | | |
| Interest paid | | $ | 521,742 | | | $ | 403,618 | | | $ | 2,705,824 | |
| Income taxes paid | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| Non cash financing activities: | | | | | | | | | | | | |
| Common stock issued in settlement of notes payable | | $ | 793,135 | | | $ | 720,214 | | | $ | 5,046,094 | |
| Common stock issued in settlement of accounts payable | | $ | 157,216 | | | $ | 14,000 | | | $ | 171,216 | |
| Common stock issued in settlement of related party notes payable | | $ | 397,750 | | | $ | — | | | $ | 397,750 | |
| Common stock issued in settlement of interest and penalties in connection with convertible debt | | $ | 150,815 | | | $ | — | | | $ | 150,815 | |
| Preferred stock issued in settlement of notes payable | | $ | 70,000 | | | $ | — | | | $ | 70,000 | |
| Reclassification of fair value of excess committed share liability to equity upon common share authorization increase | | $ | 474,954 | | | $ | — | | | $ | 474,954 | |
| Reclassification from notes payable to related party advances | | $ | — | | | $ | 544,267 | | | $ | 544,267 | |
| | | | | | | | | | | | | |
| See the accompanying notes to these consolidated financial statements |
F-14
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the presentation of the accompanying financial statements follows:
Basis and business presentation
Bioheart, Inc (the “Company”) was incorporated under the laws of the State of Florida in August 1999. The Company is in the development stage, as defined by Accounting Standards Codification subtopic 915-10, Development Stage Entities (“ASC 915-10”) and is the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. To date, the Company has not generated significant sales revenues, has incurred expenses and has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise. For the period from inception through December 31, 2013, the Company has accumulated a deficit through its development stage of $118,180,983.
Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. The most significant estimates are those used in determination of derivative liabilities and stock compensation. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
At the time of each transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction. If a significant portion of a fee is due after our normal payment terms or upon implementation or client acceptance, the fee is accounted for as not being fixed or determinable and revenue is recognized as the fees become due or after implementation or client acceptance has occurred. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.
Unbilled revenue is revenue that is recognized but is not currently billable to the customer pursuant to contractual terms. In general, such amounts become billable in accordance with predetermined payment schedules, but recognized as revenue as services are performed. Amounts included in unbilled revenue are expected to be collected within one year and are included within current assets.
Cash
The Company considers cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.
F-15
Accounts Receivable
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.
Allowance for Doubtful Accounts
Any changes to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of December 31, 2013 and 2012, allowance for doubtful accounts was $-0-.
Long-Lived Assets
The Company follows FASB ASC 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The Company determined that there was no impairment on its long-lived assets during 2013 and 2012.
Other assets
During the year ended December 2011, the Company’s management performed an evaluation of its other assets (cost basis investment) for purposes of determining the implied fair value of the asset at December 31, 2011, respectively. In 2011, the test indicated that the recorded remaining book value of its investment exceeded its fair value for the year ended December 31, 2011, as determined by discounted future cash flows. As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $58,695 (unaudited), net of tax during the year ended December 31, 2011 to reduce the carrying value of the investment to $-0- (unaudited). Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
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.
Income Taxes
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes consist primarily of derivative liability and stock compensation accounting versus tax differences.
F-16
Comprehensive Income
The Company does not have any items of comprehensive income in any of the periods presented.
Net Loss per Common Share, basic and diluted
The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were 344,241,761 and 195,204,110 for the years ended December 31, 2013 and 2012, respectively.
Stock based compensation
The Company follows Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non-employees be recognized in the income statement based on their fair values. (See note 10)
As of December 31, 2013, there were outstanding stock options to purchase 23,912,943 shares of common stock, 6,600,443 shares of which were vested.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Effective December 31, 2010 and extending through December 31, 2012, all non-interest-bearing transaction accounts are fully insured by the Federal Deposit Insurance Corporation (FDIC), regardless of the balance of the account. Generally, the Company’s cash and cash equivalents in interest-bearing accounts does not exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
As of December 31, 2013, three customers represented 36%, 20% and 20%, aggregate of 76% of the Company’s accounts receivable. As of December 31, 2012, three customers represented 96% of the Company’s accounts receivable
The Company’s revenues earned from sale of products and services for the year ended December 31, 2013 included 20% of the Company’s total revenues from one customer. For the year ended December 31, 2012, Company’s revenues earned from sale of products and services included 80% of the Company’s total revenues from two customers.
Reliance on Key Personnel and Consultants
The Company has three full-time employees and no part-time employees. The Company is heavily dependent on the continued active participation of its two current executive officers, one employee and key consultants. The loss of any of the senior management or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place.
F-17
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 $626,983, $401,941 and $65,320,035 (unaudited) for the years ended December 31, 2013 and 2012, and from August 12, 1999 (date of inception) to December 31, 2013, respectively.
Derivative Instrument Liability
The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2013 and 2012, the Company did not have any derivative instruments that were designated as hedges.
Research Grants
On November 9, 2010, we received a grant in the amount of $244,500 (unaudited) under the qualifying therapeutic discovery project under section 48D of the Internal Revenue code. We have not received any research grant income in recent years.
Fair Value
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s financial position, results of operations nor cash flows.
Reclassification
Certain reclassifications have been made to prior periods’ data to conform with the current year’s presentation. These reclassifications had no effect on reported income or losses.
F-18
Recent Accounting Pronouncements
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
NOTE 2 — GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements during year ended December 31, 2013, the Company incurred net losses of $3,143,259 and used $1,913,326 in cash for operating activities. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
The Company’s ability to obtain additional debt financing and/or alternative arrangements, with the Guarantors or otherwise, may be limited by the amount of, terms and restrictions of our then current debt. Accordingly, until such time, we will generally be restricted from, among other things, incurring additional indebtedness or liens, with limited exceptions. Additional debt financing, if available, may involve restrictive covenants that limit or further limit our operating and financial flexibility and prohibit us from making distributions to shareholders.
NOTE 3 — INVENTORY
Inventory consists of raw materials in 2012. Costs of raw materials are determined using the FIFO method. Inventory is stated at the lower of costs or market (estimated net realizable value).
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2013 and 2012 is summarized as follows:
| | | | | | | | |
| | 2013 | | 2012 |
Laboratory and medical equipment | | $ | 352,358 | | | $ | 352,358 | |
Furniture, fixtures and equipment | | | 125,634 | | | | 130,916 | |
Computer equipment | | | 39,525 | | | | 54,414 | |
Leasehold improvements | | | 362,046 | | | | 362,046 | |
| | | 879,563 | | | | 899,734 | |
Less accumulated depreciation and amortization | | | (870,508 | ) | | | (897,914 | ) |
| | $ | 9,055 | | | $ | 1,820 | |
Property and equipment are recorded on the basis of cost. For financial statement purposes, property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.
Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment in accordance with the guidance for impairment of long lived assets.
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NOTE 5 — ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 2013 and 2012:
| | | | | | | |
| 2013 | | 2012 |
License and royalty fees | $ | 2,122,130 | | | $ | 1,825,675 | |
Amounts payable to the Guarantors of the Company’s loan agreement with Bank of America and Seaside Bank, including fees and interest | | 1,373,775 | | | | 1,284,705 | |
Interest payable on notes payable | | 714,180 | | | | 1,100,174 | |
Vendor accruals and other | | 120,692 | | | | 120,133 | |
Employee commissions, compensation, etc. | | 149,558 | | | | 400,801 | |
| $ | 4,480,335 | | | $ | 4,731,488 | |
During the year ended December 31, 2013, 1,000,000 shares of common stock at a common market price of $0.0195 were issued to one debt holder in exchange for $500,000 in principal and $598,125 of accrued interest relating to a previously issued note. As a result of the settlement, the Company recognized a gain of $1,078,625 during the year ended December 31, 2013.
NOTE 6 – STANDBY EQUITY DISTRIBUTION AGREEMENT
On November 2, 2011, the Company and Greystone Capital Partners (“Greystone”) entered into a Standby Equity Distribution Agreement (the “Agreement”). Pursuant to the Agreement, Greystone has agreed to provide the Company with up to $1,000,000 of funding for the 24-month period following the date February 10, 2012, the registration statement of the Company’s common stock was declared effective by the SEC (the “Equity Line”).
During this 24-month period, commencing on the date on which the SEC first declared the registration statement effective, the Company may request a draw down under the Equity Line by which the Company would sell shares of its common stock to Greystone, which is obligated to purchase the shares under the Agreement.
For each share of the Company common stock purchased under the Agreement, Greystone will pay eighty percent (80%) of the average of the lowest daily volume weighted average price for five consecutive trading days immediately preceding Advance Notice (the "Valuation Period") commencing the date an Advance Notice (the "Advance Notice") is delivered to Greystone in a manner provided by the Agreement. Subject to certain limitations and floor price reductions, the Company may, at its sole discretion, issue a Put Notice to Greystone and Greystone will then be irrevocably bound to acquire such shares. The registration statement of the Company's common stock pursuant to the Agreement was declared effective on February 10, 2012 and a Post-Effective Amendment was declared effective on May 7, 2013. On December 1, 2012, the parties to the Equity Line agreed that the Purchase Price be adjusted to seventy-five percent (75%) of the lowest daily volume weighted average price of the Common Stock as quoted by Bloomberg, LP, during the five (5) consecutive Trading Days (as such term is defined in the Equity Line) immediately subsequent to the date of the relevant Advance Notice.
During the year ended December 31, 2013, the Company issued an aggregate of 31,052,141 shares of its common stock in exchange for $346,914 draw down on the equity line. During the year ended December 31, 2012, the Company “put” 8,797,859 shares of common stock for a total of $150,000.
NOTE 7 – NOTES PAYABLE
Notes payable were comprised of the following as of December 31, 2013 and 2012:
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| | | | | | | |
| 2013 | | 2012 |
Seaside Bank note payable. | $ | 980,000 | | | $ | 980,000 | |
August 2008 Unsecured Promissory Note | | 500,000 | | | | 1,000,000 | |
Hunton & Williams notes payable | | 384,972 | | | | 384,972 | |
Asher notes payable | | 143,000 | | | | — | |
Fourth Man, LLC note payable | | 35,000 | | | | — | |
Total notes payable | | 2,042,972 | | | | 2,364,972 | |
Less unamortized debt discount | | (112,131 | ) | | | — | |
Total notes payable net of unamortized debt discount | $ | 1,930,841 | | | $ | 2,364,972 | |
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 shareholders of the Company. The Loan Agreement was scheduled to mature on December 23, 2013, however the Company is renewing the loan with Seaside National Bank and Trust during the first quarter of 2014 to extend the maturity date. The loan is not in default as of December 31, 2013.
August 2008 Unsecured Promissory Note
On August 20, 2008, the Company borrowed $1.0 million from a third party pursuant to the terms of an unsecured Promissory Note and Agreement. Outstanding principal and interest on the loan, which accrues at the rate of 13.5% per annum, is payable in one balloon payment upon the Company’s repayment of the BlueCrest Loan, which is scheduled to mature in May 2010, however the Company is not obligated to make payments until BlueCrest Loan (See Note 10) is paid off. In the event the Company completes a private placement of its common stock and/or securities exercisable for or convertible into its common stock which generates at least $19.0 million of gross proceeds, the Company may prepay, without penalty, all outstanding principal and interest due under the loan using the same type of securities issued in the subject private placement. Because repayment of the loan could occur within 12 months from the date of the balance sheet, the Company has classified this loan as short term.
Subject to certain conditions, at the end of each calendar quarter during the time the loan is outstanding, the Company may, but is not required to, pay all or any portion of the interest accrued but unpaid as of such date with shares of its common stock.
In April 2009, as consideration for the authorization to amend certain documents related to the Note, the Company issued to the Note holder a warrant to purchase 451,053 shares of common stock at an exercise price of $0.5321 per share. The warrant, which became exercisable immediately upon issuance, has a ten year term. This warrant had a fair value of $195,694, which was accounted for as additional paid in capital and reflected as a component of debt discount and has been fully amortized as interest expense ratably over the term of the loan.
During the year ended December 31, 2013, 1,000,000 shares of common stock were issued to the debt holder valued at $19,500, in exchange for $500,000 in principal and $598,125 of accrued interest relating to a previously issued note resulting in a gain of $1,078,625. A gain of $1,078,625 was included in the net gain on settlement of debt and trade payables on the statement of operations. As of December 31, 2013 the remaining principle of this note was $500,000.
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Hunton & Williams Notes
At December 31, 2013 and 2012, the Company has two unsecured outstanding notes payable with interest due at maturity. The two notes, $61,150 (11.5% interest per annum) and $323,822 (8% interest per annum) 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 (or successor) Loan is paid off (See Note 10).
Asher Notes
2012
On April 2, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”), for the sale of an 8% convertible note in the principal amount of $63,000 (the “Note”).
The Note bears interest at the rate of 8% per annum. All interest and principal was due to be repaid on January 3, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Asher Note. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Note and to fair value as of each subsequent reporting date. At the inception of the Asher Note, the Company determined the aggregate fair value of $76,682 of the embedded derivatives.
The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 222.81%, (3) weighted average risk-free interest rate of 0.18%, (4) expected life of 0.76 year, and (5) estimated fair value of the Company’s common stock of $0.0373 per share. The initial fair value of the embedded debt derivative of $76,682 was allocated as a debt discount up to the proceeds of the note ($63,000) with the remainder ($13,682) charged to current period operations as interest expense. For the year ended December 31, 2012, the Company amortized or wrote off $63,000 of debt discount to current period operations as interest expense. During the year ended December 31, 2012, the Company issued 6,297,578 shares of its common stock in settlement of the April 2, 2012 Unsecured Convertible Note and related accrued interest.
2013
During the year ended December 31, 2013, the Company entered into a Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”), for the sale of 8% convertible notes in aggregate principal amount of $255,500 (the “Asher Notes”).
The Asher Notes bear interest at the rate of 8% per annum. As of the December 31, 2013 all interest and principal must be repaid nine months from the issuance date, the last note due August 7, 2014. The Notes are convertible into common stock, at Asher’s option, at a 42% to 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Asher Notes. These embedded derivatives included certain conversion features and reset provision.
The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date which at December 31, 2013 was $207,310. At the inception of the Asher Notes, the Company determined the aggregate fair value of $335,089 of the embedded derivatives.
F-22
The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 154.80% to 164.29%, (3) weighted average risk-free interest rate of 0.09% to 0.17%, (4) expected lives of 0.67 to .77 years, and (5) estimated fair value of the Company’s common stock from $0.01 to $0.0373 per share. The initial fair value of the embedded debt derivative of $335,089 was allocated as a debt discount up to the proceeds of the note ($255,500) with the remainder ($79,589) charged to current period operations as interest expense. For the years ended December 31, 2013 and 2012, the Company amortized $162,706 and $63,000 of debt discount to current period operations as interest expense, respectively. As of December 31, 2013 the gross balance of the Asher Notes was $143,000.
Fourth Man, LLC
On October 11, 2013, the Company entered into a Securities Purchase Agreement with Fourth Man, LLC. (“Fourth Man”), for the sale of an 8% convertible note in the principal amount of $35,000 (the “Note”).
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 10, 2014. The Note is convertible into common stock, at Fourth Man’s option, at a 47% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Fourth Man Note. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Fourth Man Note and to fair value as of each subsequent reporting date. At the inception of the Fourth Man Note, the Company determined the aggregate fair value of $52,894 of the embedded derivatives.
The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 164.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.0121 per share. The initial fair value of the embedded debt derivative of $52,894 was allocated as a debt discount up to the proceeds of the note ($35,000) with the remainder ($17,894) charged to current period operations as interest expense. For the year ended December 31, 2013, the Company amortized $15,663 of debt discount to current period operations as interest expense.
NOTE 8 — RELATED PARTY TRANSACTIONS
Advances
As of December 31, 2013 and 2012, the Company officers and directors have provided advances in the aggregate of $416,198 and $313,448 respectively, for working capital purposes. The advances are unsecured, due on demand and non-interest bearing.
On August 1, 2013, advances in aggregate of $22,750 were converted into a demand promissory note with 5% interest per annum. On September 30, 2013, the Company issued 1,995,614 shares of common stock in settlement of the $22,750 promissory note.
On September 30, 2013, the Company issued 8,771,929 shares of its common stock as payment of $100,000 towards cash advances.
F-23
Notes payable-related party
Northstar Biotechnology Group, LLC
On February 29, 2012, a 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, 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.
On March 30, 2012, the Company and Northstar agreed to extend until May 1, 2012 the initial payment date for any and all required monthly under the Note, such that the first of the four monthly payments required under the Note will be due and payable on May, 2012 and all subsequent payments will be due on a monthly basis thereafter commencing on June 1, 2012, and to waive any and all defaults and/or events of default under the Note with respect to such payments. As of September 30, 2012, the Company was in default, however, subsequent to September 30, 2012, the Company renegotiated the terms of the Note, Northstar has agreed to suspend the requirement of principal payments by the Company and allow payment of interest-only in common stock.
On September 21, 2012, the Company issued 5,000,000 common stock purchase warrants to Northstar that was treated as Additional interest expense upon issuance.
On October 1, 2012, the Company and Northstar entered into a limited waiver and forbearance agreement providing a recapitalized new note balance comprised of all sums due Northstar with a maturity date extended perpetually. The Company agreed to issue 5,000,000 shares of Series A Convertible Preferred Stock and 10,000,000 of common stock in exchange for $210,000 as payment towards outstanding debt, default interest, penalties, professional fees outstanding and due Northstar. In addition, the Company executed a security agreement granting Northstar a lien on all patents, patent applications, trademarks, service marks, copyrights and intellectual property rights of any nature, as well as the results of all clinical trials, know-how for preparing Myoblasts, old and new clinical data, existing approved trials, all right and title to Myoblasts, clinical trial protocols and other property rights.
In addition, the Company granted Northstar a perpetual license on products as described for resale, relicensing and commercialization outside the United States. In connection with the granted license, Northstar shall pay the Company a royalty of up to 8% on revenues generated.
Effective October 1, 2012, the effective interest rate was 12.85% per annum. The parties agreed, as of February 28, 2013, to reduce the interest rate to 7% per annum (see Note 14 below).
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. In addition, the Company is obligated to issue additional preferred stock equal in lieu of payment of cash of accrued and unpaid interest on each six month anniversary of the effective date (October 1, 2012). In lieu of the initial two payments in preferred stock, the parties have determined to modify the voting rights of the Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stock holders to 25 votes per share on matters to be voted on by the common stock holders and all prior and subsequent payments of interest will be in common stock; payments of common stock for April 1, 2013 and October 1, 2013 were made the fourth quarter of 2013 based on the closing price of the common stock on April 1, 2013 and October 1, 2013 respectively (see Note 14 below).
F-24
As described above, during the year ended December 31, 2013, the Company issued the 5,000,000 shares of Series A Convertible Preferred Stock and the 10,000,000 of common stock described above in exchange for the $210,000 as payment towards outstanding principle of the debt. In addition, the Company issued 15,000,000 shares of Series A Convertible Preferred Stock as a penalty in settlement of the terms of the forbearance agreement. The fair value of the Preferred Stock of $274,050 was included in interest expense for the year ended December 31, 2013.
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 8,771,929 shares of its common stock as payment of $100,000 towards cash advances.
On December 24, 2013, the Company issued 3,915,662 shares of its common stock as payment of accrued interest through June 30, 2013 of $85,447.
As of December 31, 2013, the principle of this note was $362,000.
Officer and Director Notes
At December 31, 2013 and 2012, the Company has outstanding notes payable to officers and directors with interest at 8% per annum due at maturity. The three subordinated notes, $125,000, $100,000 and $140,000 were previously due on October 22, 2012, November 30, 2012 and June 4, 2011 respectively, and are unsecured. The Company is not obligated to make payment until Northstar loan is paid off.
On October 9, 2012, the Company issued an aggregate of $1,278,324 of promissory notes due October 9, 2013 to officers and directors in settlement of outstanding advances and accrued compensation (currently in default). The promissory notes bear interest of 5% per annum and due at maturity. On September 30, 2013, the Company issued an aggregate of 15,350,876 shares of its common stock in settlement of $175,000 of related party notes payable. During the year ended December 31, 2013, the Company paid $2,000 of the outstanding promissory notes and the principle balance as of December 31, 2013 is $1,101,324.
On August 1, 2013, the Company issued an aggregate of $500,000 promissory notes due on demand to officers and employee in settlement of accrued compensation. The promissory notes bear interest of 5% per annum and due at various maturity dates. During the year ended December 31, 2013, the Company paid off $86,847 of the outstanding promissory notes. The principle outstanding balance of these notes as of December 31, 2013 is $413,153.
Subordinated debt, related party
As of December 31, 2013 and 2012, the Company officers and directors have provided notes in aggregate of $1,500,000. The notes are at from 4.75% to 8% per annum and are due upon payoff of the Northstar note payable described above.
Sales Transactions
During the year ended December 31, 2013, the Company entered into several immaterial related party sales transactions with vendors that the Company’s Chief Scientific Officer is a part owner.
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NOTE 9 — DERIVATIVE LIABILITIES
Excessive committed shares
On December 31, 2012, in connection with the previously issued stock options and warrants, the Company had the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. The accounting treatment of derivative financial instruments required that the Company reclassify the derivative from equity to a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.
On February 4, 2013, in conjunction with the increase in authorized number of shares to 970,000,000, the Company determined it had adequate authorized shares to settle all of these agreements. As such, the Company adjusted the derivative liability to fair value on February 4, 2013 and reclassified the derivative liability to equity. The fair value of the derivative liability of $474,954 (a non-cash item) as of February 4, 2013 was determined using the Binomial Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 156.52%; risk free rate: 0.38%; and expected life: 3.5 years. The Company recorded a loss on change in derivative liabilities of $84,907 during the year ended December 31, 2013.
Reset warrants
On October 1, 2012, in connection with the forbearance agreement with Northstar as discussed in Note 8 above, the Company issued an aggregate of 15,000,000 common stock purchase warrants to purchase the Company’s common stock with an exercise price of $0.014 per share for ten years with anti-dilutive (reset) provisions.
The Company has identified embedded derivatives related to the issued warrants. These embedded derivatives included certain and anti-dilutive (reset) provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date.
At December 31, 2013, the fair value of the reset provision of $146,855 was determined using the Binomial Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 160.41%; risk free rate: 3.04%; and expected life: 8.75 years. The Company recorded a gain on change in derivative liabilities of $74,324 during the year ended December 31, 2013.
Convertible notes
During the year ended December 31, 2013, the Company issued convertible notes (see Note 7 above).
These notes are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Note and to fair value as of each subsequent reporting date.
F-26
The fair value of the embedded derivatives at December 31, 2013, in the amount of $256,956, was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 160.41%, (3) weighted average risk-free interest rate of 0.07 to 0.10%, (4) expected lives of 0.27 to 0.60 years, and (5) estimated fair value of the Company’s common stock of $0.01 per share. The Company recorded a gain on change in derivative liabilities of $39,762 during the year ended December 31, 2013.
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
At December 31, 2013, the aggregate derivative liabilities was valued at $403,811, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability.
NOTE 10 – STOCKHOLDERS’ EQUITY
Preferred stock
On August 17, 2012, the board of directors designated 5,000,000 shares of preferred stock as Series A Convertible Preferred Stock which was increased to 20,000,000 shares of preferred stock as Series A Convertible Preferred Stock. Each share of preferred stock is convertible into equal number of common shares at the option of the holder; entitled to 20 votes on all matters presented to be voted by the holders of common stock; upon event of liquidation, entitled to amount equal to stated value plus any accrued and unpaid dividends or other fees before distribution to junior securities. In lieu of the initial two payments due to Northstar, the parties have determined to modify the voting rights of the Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stock holders to 25 votes per share on matters to be voted on by the common stock holders (see Note 8 above).
During the year ended December 31, 2013, the Company issued an aggregate of 20,000,000 shares of Series A Convertible Preferred Stock for principle payment and settlement of forbearance (see note 8 above).
Common stock
On September 19, 2011, the Company amended its Articles of Incorporation to increase the number of authorized shares to 200,000,000, consisting of 5,000,000 $0.001 par value preferred stock and 195,000,000 $0.001 common stock.
On August 6, 2008, the Company amended its Articles of Incorporation to increase the number of authorized shares of its common stock from 50 million to 75 million shares. This amendment was approved by the Company’s shareholders at the Annual Meeting of Shareholders held on July 30, 2008.
In September 2007, by way of a written consent, the Company’s shareholders holding a majority of its outstanding shares of common stock, the Company’s shareholders approved an amendment to Bioheart’s Articles of Incorporation, increasing the number of authorized shares of capital stock so that, following the reverse stock split that was effectuated on September 27, 2007, the Company had 50 million shares of common stock authorized with a par value of $0.001 per share and five million shares of preferred stock authorized with a par value of $0.001 per share.
On February 4, 2013, the Company amended its Articles of Incorporation to increase the number of authorized shares to 970,000,000, consisting of 20,000,000 $0.001 par value preferred stock and 950,000,000 $0.001 common stock.
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On February 22, 2008 the Company completed its initial public offering (“IPO”) pursuant to which it sold 1,100,000 shares of common stock at a price per share of $5.25 for net proceeds of approximately $1.45 million after deducting underwriter discounts of approximately $400,000 and offering costs of approximately $3.92 million. The Consolidated Statement of Cash Flows for the year ended December 31, 2008 reflects the Company’s receipt of approximately $4.24 million of “Proceeds from (payments for) initial public offering of common stock, net”. The $4.24 million cash proceeds figure is approximately $2.79 million higher than the $1.45 million net proceeds figure identified above due to payment of $2.79 million of various offering expenses prior to January 1, 2008.
During the year ended December 31, 2013, the Company issued 50,029,227 shares of common stock for proceeds of $865,000.
During the year ended December 31, 2013, the Company issued 31,052,141 shares of common stock issued under its standby equity distribution agreement with Greystone Capital Partners.
During the year ended December 31, 2013, the Company issued an aggregate of 5,656,340 shares of its common stock for settlement of $82,339 of accounts payable. In connection with the settlement, the Company recorded a loss on settlement of debt of $74,877.
During the year ended December 31, 2013, the Company issued 2,500,000 shares of its common stock in connection with the issuance of a note payable.
During the year ended December 31, 2013, the Company issued 57,967,906 shares of its common stock in connection with the settlement and/or conversion of various notes payable.
During the year ended December 31, 2013, the Company issued 34,890,348 shares of its common stock in connection with the settlement of related party notes payable and advances.
During the year ended December 31, 2013, the Company issued 9,408,718 shares of its common stock in settlement of interest and penalty in connection with convertible debt.
During the year ended December 31, 2013, the Company issued 6,220,263 shares of its common stock services rendered valued at $85,151.
During the year ended December 31, 2012, the Company issued an aggregate of 952,851 shares of its common stock, valued at $34,600, in exchange for services rendered.
During the year ended December 31, 2012, the Company issued an aggregate of 51,751,138 shares of its common stock in exchange for $720,214 of outstanding notes payable and related accrued interest.
During the year ended December 31, 2012, the Company issued an aggregate of 700,000 shares of its common stock in exchange for $14,000 of accrued liabilities.
During the year ended December 31, 2011, the Company issued an aggregate of 1,982,995 shares of its common stock on exercise of options.
During the year ended December 31, 2011, the Company issued an aggregate of 27,120,856 shares of its common stock in exchange for $1,542,109 of outstanding notes payable and related accrued interest.
During the year ended December 31, 2011, the Company issued an aggregate of 1,000,000 shares of its common stock, valued at $115,035, in exchange for services rendered.
During the year ended December 31, 2011, the Company issued an aggregate of 1,272,730 shares of its common stock in settlement of outstanding related party advance in the amount of $140,000.
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In 2010, the Company also sold, in a private placement initiated in 2009, an aggregate of 1,512,890 shares of its common stock and warrants (the “Warrants”) to purchase 453,867 shares of its common stock for aggregate gross cash proceeds of approximately $852,964. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $0.68 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. (Unaudited)
In 2010, the Company issued, in connection with the conversion of $1,121,195 of debt an aggregate of 7,459,720 shares of its common stock and warrants (the “Warrants”) to purchase 3,729,860 shares of its common stock. The Warrants are (i) exercisable solely for cash at an exercise price of $0.15 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. The shares were issued under the same terms as the above mentioned private placement and therefore are included in issuance of common stock in the consolidated statement of shareholders deficit. (Unaudited)
In 2010, the Company also sold, in a private placement, an aggregate of 1,553,885 shares of its common stock for aggregate gross cash proceeds of approximately $234,020. (Unaudited)
In 2010, the Company also sold, in a private placement, an aggregate of 808,210 shares of its common stock and warrants (the “Warrants”) to purchase 404,105 shares of its common stock for aggregate gross cash proceeds of approximately $135,885. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $0.20 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. (Unaudited)
As of December 31, 2010 the Company recorded a Subscription Receivable, under the above mentioned private placement, of 20,000 shares of its common stock and warrants (the “Warrants”) to purchase 10,000 shares of its common stock for aggregate gross cash proceeds of approximately $3,800. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $0.23 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. (Unaudited)
In 2010, the Company issued, in connection with services, an aggregate of 529,520 shares of its common stock and warrants (the “Warrants”) to purchase 158,856 shares of its common stock. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $0.78 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. (Unaudited)
In 2010, the Company issued an aggregate of 831,526 shares of its common stock, in connection with the exercise of stock options, issued for Accounts Payables. (Unaudited)
In 2010, the Company issued, in connection with the Bank of America guarantor’s liability of $2,172,000 principal along with accrued expenses, an aggregate of 4,794,430 shares of its common stock and warrants (the “Warrants”) to purchase 1,438,329 shares of its common stock. The Warrants are (i) exercisable solely for cash at an weighted average exercise price of $0.74 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. (Unaudited)
F-29
In December 2009, the Company also sold, in a private placement an aggregate of 255,830 shares of its common stock and warrants (the “Warrants”) to purchase 76,749 shares of its common stock for aggregate gross cash proceeds of approximately $188,996. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $0.89 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. (Unaudited)
In 2009, the Company also sold, in a private placement initiated in 2008, an aggregate of 2,509,480 shares of its common stock and warrants (the “Warrants”) to purchase 752,844 shares of its common stock for aggregate gross cash proceeds of approximately $1.74 million. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $0.83 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. In connection with the private placement, the Company paid to a finder who introduced certain investors to the Company aggregate cash fees of $17,856 and warrants to purchase 26,592 shares of common stock at a weighted average exercise price of $0.89 per share. The warrants issued to the finder have the same terms and conditions as the Warrants issued in the private placement. The 2008 private placement was closed on October 31, 2009, with total capital raised of $3,887,032. (Unaudited)
In 2008, the Company also sold, in a private placement, an aggregate of 1,230,280 shares of its common stock and warrants (the “Warrants”) to purchase 369,084 shares of its common stock for aggregate gross cash proceeds of approximately $2.14 million. The Warrants are (i) exercisable solely for cash at a weighted average exercise price of $2.09 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time and from time to time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance. In connection with the private placement, the Company paid to a finder who introduced certain investors to the Company aggregate cash fees of $24,325 and warrants to purchase 24,325 shares of common stock at a weighted average exercise price of $1.95 per share. The warrants issued to the finder have the same terms and conditions as the Warrants issued in the private placement. (Unaudited)
In 2007, the Company sold 529,432 shares of common stock at a price of $7.69 per share to various investors for net proceeds of approximately $3.9 million. (Unaudited)
In 2006, the Company sold 1,069,699 shares of common stock at a price of $7.69 per share to various investors. The Company also issued 63,566 shares in exchange for services at a price ranging from $5.67 to $7.69 per share. (Unaudited)
In 2005, the Company sold 1,994,556 shares of common stock at a price of $5.67 per share to various investors. The Company also issued 1,210 shares in exchange for services and issued 95,807 shares in exchange for debt at a price of $5.67 per share. (Unaudited)
In 2004, the Company sold 808,570 shares of common stock at a price of $5.67 per share to various investors. The Company also issued 1,854 shares to various vendors in exchange for services valued at $10,500. The Company also issued 15,150 shares to the Company’s Chairman of the Board as compensation for services valued at $85,830. (Unaudited)
In March 2003, the Company effected a recapitalization. The recapitalization provided two shares of common stock for every one share issued as of that date. The Company’s former Chairman of the Board and founding shareholder, who owned 4,405,541 shares of common stock, did not participate in the recapitalization. The number of shares and prices per share in the accompanying financial statements has been retroactively adjusted to reflect the effect of the recapitalization. (Unaudited)
F-30
After the 2003 recapitalization, the Company sold 561,701 shares of common stock at a price of $5.67 per share to various investors. The Company issued 72,980 shares valued at $416,383 to employees as compensation for services related to the closing of various locations. The Company also issued 4,248 shares to various vendors in exchange for services valued at $24,066 and issued 67,073 shares to the Company’s former Chairman of the Board as compensation for services provided to the Company during 2003 and 2002. The shares were valued based on the underlying market price of the common stock and did not differ materially from the fair value of the common stock issued. (Unaudited)
In 2002, the Company sold 1,092,883 shares of common stock at a price of $6.47 per share to various investors. The Company also issued 35,137 shares to various vendors in exchange for services valued at $227,503. (Unaudited)
In 2001, the Company sold 985,668 shares of common stock at a price of $6.47 per share to various investors. The Company also issued 8,291 shares to various vendors in exchange for services valued at $54,001 and issued 81,084 shares to the Company’s Chairman of the Board as compensation for services provided to the Company during 2001. (Unaudited)
In 2000, the Company sold 1,493,575 shares of common stock at a price of $6.47 per share to various investors. Of the 1,493,575 shares sold in 2000, payment on 77,222 of these shares was not received until January 2001. The Company also issued 7,964 shares to various vendors in exchange for services valued at $52,001. (Unaudited)
In 1999, the Company’s former Chairman of the Board and founding shareholder contributed $400,000 to the Company in exchange for 4,324,458 shares of common stock. (Unaudited)
Former Chairman of the Board Paid in and Contributed Capital
In 2006, the Company’s former Chairman of the Board was issued 2,903 shares of the Company’s common stock at a price of $5.67 per share in exchange for $16,443 of services provided during the year. (Unaudited)
In 2005, the Company’s former Chairman of the Board was issued 95,807 shares of the Company’s common stock at a price of $5.67 per share in exchange for $542,787 of debt due to travel and other related expenses advanced by the Company’s Chairman of the Board during the previous three years. (Unaudited)
The Company’s former Chairman of the Board elected not to receive salary payments of $85,830, $130,000 and $250,000 for services provided to the Company during 2004, 2003 and 2002, respectively. Such amounts were converted into 15,150, 22,946 and 44,127 shares of the Company’s common stock at a price of $5.67 per share on December 31, 2004 and 2003, respectively, where the 2003 and 2002 shares were both issued in 2003. The shares were valued based on the underlying market price of the common stock and did not differ materially from the fair value of the common stock issued.
In 2001, the Company’s former Chairman of the Board also elected not to receive a salary payment or a stock conversion of $250,000 for services provided during 2001.
In 2000, the Company’s former Chairman of the Board contributed $800,000 to the Company and elected not to receive payment for $250,000 of salary related to services provided to the Company during 2000. Such amounts were recorded as contributed capital during 2000. On June 28, 2001, the Company’s Board of Directors approved the conversion of this contributed capital and salary deferral into 81,084 shares of the Company’s common stock at a price of $12.94 per share.
F-31
NOTE 11 — STOCK OPTIONS AND WARRANTS
Stock Options
In December 1999, the Board of Directors and shareholders adopted the 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan, or the Director Plan. The Employee Plan and the Director Plan are collectively referred to herein as the Plans. The Plans are administered by the Board of Directors and the Compensation Committee. The objectives of the Plans include attracting and retaining key personnel by encouraging stock ownership in the Company by such persons. In February 2010, the Directors & Consultants Plan was amended to extend the termination date of the Plan to December 1, 2011.
In April 1, 2013, the Board of Directors approved, subject to shareholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the “2013 Omnibus Plan”. The 2013 Omnibus Plan reserves up to fifty million shares of common stock for issuance.
Effective April 1, 2013, the Board of Directors resolved that stock options granted for the past three years as of February 25, 2013 be repriced for employees, management and board members, at the exercise price of the average of the last 5 trading days’ closing price as of February 25, 2013. Subsequently, this action was rescinded and the repricing date was set for August 5, 2013.
A summary of options at December 31, 2013 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 January 1, 2012 | | | 4,636,318 | | | $ | 1.20 | | | 8.1 | |
Granted | | | 3,300,000 | | | $ | 0.04 | | | | |
Exercised | | | - | | | $ | | | | | |
Forfeited/Expired | | | (82,942 | ) | | $ | 5.57 | | | | |
Options outstanding at December 31, 2012 | | | 7,853,376 | | | $ | 0.67 | | | 8.2 | |
Granted | | | 17,400,000 | | | $ | 0.016 | | | 9.9 | |
Exercised | | | - | | | | | | | | |
Forfeited/Expired | | | (1,340,433 | ) | | $ | 1.08 | | | | |
Options outstanding at December 31, 2013 | | | 23,912,943 | | | $ | 0.15 | | | 9.0 | |
Options exercisable at December 31, 2013 | | | 6,600,443 | | | $ | 0.48 | | | 8.0 | |
Available for grant at December 31, 2013 | | | 32,600,000 | | | | | | | | | |
The following information applies to options outstanding and exercisable at December 31, 2013:
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| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable | |
| | Shares | | Weighted-
Average
Remaining
Contractual
Term | | Weighted-
Average
Exercise
Price | Shares | | Weighted-
Average
Exercise
Price | |
| | | | | | | | | | | | | | | | | | | | |
$0.00 – $0.70 | | | 23,290,000 | | | | 9.2 | | | $ | 0.03 | | | | 5,977,500 | | | $ | 0.07 | |
$0.71 – $1.28 | | | 162,286 | | | | 4.4 | | | $ | 0.80 | | | | 162,286 | | | $ | 0.80 | |
$5.25 – $5.67 | | | 435,945 | | | | 2.0 | | | $ | 5.57 | | | | 435,945 | | | $ | 5.57 | |
$7.69 | | | 24,712 | | | | 2.6 | | | $ | 7.69 | | | | 24,712 | | | $ | 7.69 | |
| | | 23,912,943 | | | | 9.0 | | | $ | 0.15 | | | | 6,600,443 | | | $ | 0.48 | |
On January 16, 2012, the Company granted 500,000 employee stock options in connection services rendered at the exercise price of $0.10 per share vesting over four years from the date of issuance.
The fair values of the employee options issued on January 16, 2012 were determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 164.79% and Risk free rate: 1.89%.
On August 6, 2012, the Company granted an aggregate 2,800,000 employee stock options in connection services rendered at the exercise price of $0.03 per share vesting over four years from the date of issuance.
The fair values of the employee options issued on August 6, 2012 were determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 164.91% and Risk free rate: 1.59%.
On August 5, 2013, the Company re-priced options previously issued from 2011 through 2012 for current employees and officers in aggregate of 4,890,000 options with previous exercise prices from $0.03 to $0.21 per share to $0.01694 per share, all other terms remaining unchanged. The gross change in fair value, determined using the Black Scholes option pricing model, of $1,630 was charged to current period operations.
On August 1, 2013, the Company issued an aggregate 15,000,000 options to purchase the Company’s common stock at $0.01576 per share to employees, exercisable over 4 years. The fair value of $245,749, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 153.27% and Risk free rate: 2.74%, of which $25,599 was charged to current period operations.
On September 1, 2013, the Company issued an aggregate 2,400,000 options to purchase the Company’s common stock at $0.01654 per share, respectively; to officers and employees, exercisable immediately. The fair value of $37,823, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 150.98% and Risk free rate: 2.78%, was charged to current period operations.
The fair value of all options vesting during the year ended December 31, 2013 and 2012 of $125,515 and $76,674, respectively, was charged to current period operations.
Warrants
A summary of common stock purchase warrants at December 31, 2013 and activity during the year then ended is presented below:
F-33
| | | | | | | | | | | | |
| | Shares | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Remaining
Contractual
Term (in
years) |
| | | | | | | | | | | | |
Outstanding at January 1, 2012 | | | 32,610,075 | | | $ | 0.86 | | | | 3.8 | |
Issued | | | 42,396,432 | | | $ | 0.018 | | | | 5.78 | |
Exercised | | | — | | | $ | 0.00 | | | | | |
Forfeited | | | (933,185) | | | $ | 0.76 | | | | | |
Outstanding at December 31, 2012 | | | 74,073,322 | | | $ | 0.37 | | | | 4.5 | |
Issued | | | 50,350,536 | | | $ | 0.016 | | | | 9.2 | |
Exercised | | | — | | | $ | | | | | | |
Expired | | | (6,345,002) | | | $ | 0.38 | | | | | |
Outstanding at December 31, 2013 | | | 118,078,856 | | | $ | 0.22 | | | | 6.3 | |
Exercisable at December 31, 2013 | | | 101,371,743 | | | $ | 0.13 | | | | 5.7 | |
In conjunction with the authorized issuance of common stock, the Company granted approximately 50 million common stock purchase warrants during the year ended December 31, 2013.
The following information applies to common stock purchase warrants outstanding and exercisable at December 31, 2013:
| | | | | | | | | | | | | | | | | | | | |
| | Warrants Outstanding | | Warrants Exercisable | |
| | Shares | | Weighted-
Average
Remaining
Contractual
Term | | Weighted-
Average
Exercise
Price | | Shares | Weighted-
Average
Exercise
Price | |
| | | | | | | | | | | | | | | | | | | | |
$0.01 – $0.50 | | | 111,829,723 | | | | 6.3 | | | $ | 0.03 | | | | 96,667,060 | | | $ | 0.03 | |
$0.52 – $0.68 | | | 2,699,675 | | | | 5.3 | | | $ | 0.58 | | | | 2,699,675 | | | $ | 0.58 | |
$0.70 – $1.62 | | | 848,176 | | | | 6.0 | | | $ | 0.71 | | | | 848,176 | | | $ | 0.71 | |
$5.67 – $7.69 | | | 2,701,282 | | | | 8.9 | | | $ | 7.55 | | | | 1,156,832 | | | $ | 7.35 | |
| | | 118,078,856 | | | | 6.3 | | | $ | 0.22 | | | | 101,371,743 | | | $ | 0.13 | |
During the year ended December 31, 2012, in connection with the sale of common stock, the Company issued an aggregate of 22,396,432 warrants to purchase the Company’s common stock at an exercise prices from $0.014 to $0.03 per shares exercisable in six months and expiring three years from issuance.
On September 21, 2012, the Company issued 5,000,000 warrants to purchase the Company’s common stock at $0.02 per share, expiring 10 years from the date of issuance as payment of interest.
The fair value of $119,023, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 163.45% and Risk free rate: 1.779%, was charged to current period operations.
F-34
On October 1, 2012, the Company issued 15,000,000 warrants to purchase the Company’s common stock at $0.014 per share, expiring 10 years from the date of issuance as payment of interest with certain reset provisions.
The fair value of $311,190, determined using the Binomial lattice option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 155.41% and Risk free rate: 1.64%, was charged to current period operations.
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Leases
The Company entered into several operating lease agreements for facilities and equipment. Terms of certain lease arrangements include renewal options, escalation clauses, payment of executory costs such as real estate taxes, insurance and common area maintenance. The landlord has filed a security interest against the assets of the Company.
In February 2010, the Company amended its facility lease to extend the term of the lease until January 2013.
In August 2011, the Company amended its facility lease to eliminate excess space. The amendment contains terms similar to the terms of the existing facility lease, including escalation clauses.
In July 2013, the Company amended its facility lease to extend the term of the lease until July 31, 2014. Approximate annual future minimum lease obligations under non-cancelable operating lease agreements as of December 31, 2013 are as follows:
| | | | | | |
Year ending December 31, | | | | |
2014 | | | | $ | 48,195 | |
Total | | | | $ | 48,195 | |
Rent expense was $123,216 and $89,507 for the years ended December 31, 2013 and 2012, respectively and $2,102,062 for the cumulative period from August 12, 1999 (date of inception) to December 31, 2013.
Royalty Payments
The Company is obligated to pay royalties on commercial sales of certain products that may be developed and sold under various licenses and agreements that have been obtained by the Company.
The Company has entered into a licensing agreement, which include the potential for royalty payments, as follows:
William Beaumont Hospital
In June 2000, the Company entered into an exclusive license agreement to use certain patents for the life of the patents in future projects. The patents expire in 2015. In addition to a payment of $55,000, the Company made to acquire the license, the Company is required to pay an annual license fee of $10,000 and royalties ranging from 2% to 4% of net sales of products that are covered by the patents. In order to maintain the exclusive license rights, the agreement also calls for a minimum annual royalty threshold. The minimum royalty threshold was $200,000 for 2011 and $200,000 for 2010. This minimum royalty threshold will remain $200,000 for 2012 and thereafter. As of December 31, 2013, the Company has not made any payments other than the initial payment to acquire the license. At December 31, 2013 and December 31, 2012, the Company’s liability under this agreement was $2,122,130 and $1,825,675, respectively, which is reflected as a component of accrued expenses on the balance sheets (see Note 5).
F-35
During the year ended December 31, 2013 and 2012, the Company incurred expenses of $210,000, $210,000 respectively, and $2,122,130 from August 12, 1999 (date of inception) to December 31, 2013. The Company has accrued interest for the past due commitment at 2% over the prime rate per the terms of the agreement. The Company has included $2,122,130 in accrued expenses as of December 31, 2013.
Approximate annual future minimum obligations under this agreement as of December 31, 2013 are as follows:
| | | |
Year Ending December 31, | | | |
2014 | | 210,000 | |
2015 | | 210,000 | |
Total | $ | 420,000 | |
Consulting agreements
On November 20, 2013, the Company entered into an investment banking agreement with Cassel Salpeter & Co. (“CSC”), who will act as exclusive third party financial advisor in connection with investment banking matters. The term of the Investment Banking Agreement shall be for a period of twenty four months unless terminated or extended in accordance with its terms. For these services, CSC will receive a one-time $25,000 fee, $5,000 monthlyfees and 5,207,630 ten year common stock purchase warrants, exercisable at $.0113 and applicable consideration in the event the closing of a Mezzanine Financing consisting of non-convertible subordinated debt and/or sale of equity securities. The Company will also reimburse CSC for its reasonable out-of-pocket expenses associated with the services provided pursuant to the Investment Banking Agreement. As of December 31, 2013, the Company accrued $32,424 under the agreement.
Contingency for Registration of the Company’s common stock
The Company believes that it may have issued options to purchase common stock to certain of its employees, directors and consultants in California in violation of the registration or qualification provisions of applicable California securities laws. As a result, the Company intends to make a rescission offer to these persons. The Company will make this offer to all persons who have a continuing right to rescission, which it believes to include two persons. In the rescission offer, in accordance with California law, the Company will offer to repurchase all unexercised options issued to these persons at 77% of the option exercise price multiplied by the number of option shares, plus interest at the rate of 7% from the date the options were granted. Based upon the number of options that were subject to rescission as of December 31, 2009, assuming that all such options are tendered in the rescission offer, the Company estimated that its total rescission liability would be up to approximately $371,000. However, as the Company believes there is only a remote likelihood the rescission offer will be accepted by any of these persons in an amount that would result in a material expenditure by the Company, no liability was recorded as of December 31, 2013 or 2012.
Litigation
The Company is subject to other legal proceedings that arise in the ordinary course of business. In the opinion of management, as of December 31, 2013, the amount of ultimate liability with respect to such matters, if any, in excess of applicable insurance coverage, is not likely to have a material impact on the Company’s business, financial position, results of operations or liquidity. However, as the outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.
F-36
NOTE 13 — INCOME TAXES
The Company follows Accounting Standards Codification subtopic 740, Income Taxes (“ASC 740”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under such 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 using enacted tax rates in effect for the year in which the differences are expected to reverse.
The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
| | | | | | | | | | |
| | | | 2013 | | 2012 |
Income taxes using U.S. federal statutory rate | | | | $ | (1,068,708 | ) | | | (1,365,599 | ) |
State income taxes, net of federal benefit | | | | | (108,788 | ) | | | (80,708 | ) |
Stock Option Expirations | | | | | 78,864 | | | | 326,995 | |
Net Operating Loss adjustments | | | | | (20,008) | | | | 196,416 | |
Nontaxable Gain on Derivative Instrument | | | | | (9,921 | ) | | | (40,730 | ) |
Change in Valuation Allowance | | | | | 1,127,875 | | | | 974,536 | |
Other | | | | | 686 | | | | (10,910 | ) |
| | | | $ | — | | | $ | — | |
At December 31, 2013, the significant components of the deferred tax assets (liabilities) are summarized below:
| | | | | | | |
| 2013 | | 2012 |
Deferred tax assets: | | | | | | | |
Stock Based Compensation | $ | 4,465,854 | | | $ | 4,505,907 | |
Net Operating Losses | | 35,429,429 | | | | 34,266,157 | |
Other | | 125,317 | | | | 120,661 | |
Total deferred tax assets | | 40,020,600 | | | | 38,892,725 | |
| |
Deferred tax liabilities: | | — | | | | — | |
Total deferred tax liabilities | | — | | | | — | |
Valuation allowance | | 40,020,600 | | | | 38,892,725 | |
Net deferred tax assets | $ | — | | | $ | — | |
As of December 31, 2013 and December 31, 2012, the Company had U.S. federal net operating loss carryforwards of approximately $94.2 million and $91.1 million, respectively, which expire at various dates from 2019 through 2033. 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 in 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 carry-forwards may be significantly limited as to the amount of use in a particular years. In addition, all or a portion of the Company’s net operating loss carryforwards may expire unutilized.
F-37
As of December 31, 2013 and December 31, 2012, the Company had net operating loss carryforwards for state income tax purposes of approximately $94.2 million and $91.1 million, respectively, which expire at various dates from 2019 through 2033.
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.
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 periods from December 31, 2006 to December 31, 2013 remain open to examination by the U.S. Internal Revenue Service, and state tax authorities. In addition, 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.
NOTE 14 — FAIR VALUE MEASUREMENT
The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
All items required to be recorded or measured on a recurring basis consist of derivative liabilities and are based upon level 3 inputs.
F-38
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
As of December 31, 2013 and 2012, the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in notes 7 and 9. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Notes 7 and 9 are that of volatility and market price of the underlying common stock of the Company.
As of December 31, 2013 and 2012, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of December 31, 2013, in the amount of $403,811 has a level 3 classification.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2013:
| | | | | | | | |
| | Excess Share Derivative | |
Warrant Liability | | Debt
Derivative |
Balance, December 31, 2011 | $ | - | | - | | $ | - | |
Total (gains) losses | | | | | | | | |
Initial fair value of debt derivative at note issuance | | | | - | | | 76,862 | |
Initial fair value of derivative relating to reset warrants | | - | | 311,190 | | | - | |
Initial fair value of derivative relating to exceeding authorized common shares | |
427,663 | |
- | | | - | |
Mark-to-market at December 31, 2012 | | (37,615 | ) | (90,011 | ) | | 7,651 | |
Transfers out of Level 3 upon conversion and settlement of notes | | | | | | | (84,513 | ) |
Balance, December 31, 2012 | $ | 390,048 | $ | 221,179 | | $ | - | |
Total (gains) losses | | | | | | | | |
Initial fair value of debt derivative at note issuance | | - | | - | | | 673,219 | |
Mark-to-market at December 31, 2013: | | 84,906 | | (74,324 | ) | | (39,761 | ) |
Transfers out of Level 3 upon increase in authorized shares | | (474,954 | | | | | | |
Transfers out of Level 3 upon conversion of notes payable | | - | | - | | | (376,502 | ) |
Balance, December 31, 2013 | $ | - | $ | 146,855 | | $ | 256,956 | |
Net Gain for the period included in earnings relating to the liabilities held at December 31, 2013 |
$ |
(84,906) |
$ |
74,324 | | $ | 39,761 | |
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Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price decreased approximately 50% from December 31, 2012 to December 31, 2013. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases, therefore decreasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Decreases in expected volatility would generally result in a lower fair value measurement. A 10 percent change in pricing inputs and changes in volatilities and correlation factors would result in less than a $60,318 change in our Level 3 fair value.
NOTE 15 — SUBSEQUENT EVENTS
Subsequent stock issuances
In January 2014, the Company issued 1,977,155 shares of its common stock in settlement of 2013 services provided for $12,000 and 2,941,176 shares of its common stock in settlement of $15,000 of outstanding convertible notes payable.
In February 2014, the Company sold an aggregate of 25,114,500 shares of its common stock for net proceeds of $331,500. In connection with the stock sale, the Company issued an aggregate of 25,114,500 warrants to purchase the Company’s common stock for five years at $0.011 to $0.0214 per share. In addition, the Company issued 1,746,032 shares of its common stock in settlement of $10,000 of outstanding convertible notes payable and issued an aggregate of 3,925,442 shares of its common stock in settlement of $55,000 of common stock subscriptions received in 2013.
Options granted
On February 23, 2014, the Company granted an aggregate of 15,000,000 options to purchase the Company’s common stock to an officer and key employee at an exercise price of $0.019 for ten years, vesting annually over four years. In addition, the Company granted 400,000 options to purchase the Company’s common stock to each current Director of the Company who was also a board member in fiscal 2011 at an exercise price of $0.019 per share for ten years, vesting immediately with a cashless exercise provision. Additionally, the Company granted 400,000 options to purchase the Company’s common stock to each current Director of the Company at an exercise price of $0.019 per share for ten years, vesting immediately.
Option expiry terms
On February 23, 2013, the Company affirmed that options issued to previous board members of the Company will not cease and will terminate at the earlier of the date of exercise or expiration of the option in accordance to its term.
Related debt conversions
On February 23, 2014, the Board of Directors approved the conversion of an aggregate of $300,000 related party notes payable at a conversion price of $0.019 per share
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Subsequent financing
On January 14, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”), for the sale of an 8% convertible note in the principal amount of $32,500 (the “Note”).
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 16, 2014. The Note is convertible into common stock, at Asher’s option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 140% if prepaid during the period commencing on the closing date through 179 days thereafter. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.
On February 10, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”), for the sale of an 8% convertible note in the principal amount of $32,500 (the “Note”).
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on November 12, 2014. The Note is convertible into common stock, at Asher’s option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 140% if prepaid during the period commencing on the closing date through 179 days thereafter. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.
On February 19, 2014, the Company entered into a Securities Purchase Agreement with Daniel James Management, Inc., for the sale of an 8% convertible note in the principal amount of $35,000 (the “Note”).
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 18, 2015. The Note is convertible into common stock, at Asher’s option, at a 47% discount to the lowest daily closing bid price of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal at 150%, interest and any other amounts.
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