S-1/A 1 g05278a4sv1za.htm BIOHEART, INC. Bioheart, Inc.
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As filed with the Securities and Exchange Commission on September 6, 2007
Registration No. 333-140672
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
Amendment No. 4
to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
BIOHEART, INC.
(Exact name of Registrant as specified in its Charter)
 
         
Florida   8731   65-0945967
(State or other jurisdiction of
incorporation or organization)		   (Primary Standard Industrial
Classification Code Number)		   (I.R.S. Employer
Identification Number)
 
13794 NW 4th Street, Suite 212
Sunrise, Florida 33325
(954) 835-1500
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
William M. Pinon
President and Chief Executive Officer
Bioheart, Inc.
13794 NW 4th Street, Suite 212
Sunrise, Florida 33325
(954) 835-1500
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
 
Copies to:
     
David E. Wells, Esq.
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, Florida 33131
(305) 810-2500		   James A. Lebovitz, Esq.
Dechert LLP
2929 Arch Street
Philadelphia, Pennsylvania 19104
(215) 994-4000
 
      Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
      If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
CALCULATION OF REGISTRATION FEE
             
             
             
      Proposed Maximum      
      Aggregate     Amount of
Title of Each Class of Securities to be Registered     Offering Price(1)     Registration Fee(2)
             
Common stock, par value $0.001 per share
     $70,000,000     $4,820
             
             
(1)  Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act.
 
(2)  Includes $4,052 previously paid.
     The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Prospectus
Subject to Completion, Dated September 6, 2007
3,575,000 Shares
(BIOHEART LOGO)
Common Stock
This is our initial public offering of shares of our common stock. We are offering 3,575,000 shares. We expect the initial public offering price to be between $14.00 and $16.00 per share.
Currently no public market exists for shares of our common stock. We have applied to have our common stock quoted on the NASDAQ Global Market under the symbol “BHRT.”
 
Investing in our common stock involves risks.
See “Risk Factors” beginning on page 8 of this prospectus.
 
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
                 
    Per Share   Total
         
Public offering price
   $       $    
Underwriting discounts and commissions
   $       $    
Proceeds, before expenses, to Bioheart, Inc. 
   $       $    
Bioheart, Inc. has granted the underwriters a 30-day option to purchase up to an additional 536,250 shares of common stock to cover over-allotments.
Merriman Curhan Ford & Co.
  Dawson James Securities, Inc.
The date of this Prospectus is           , 2007

 

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    F-1  
 EX-1.1 Form of Underwriting Agreement
 EX-4.3 Loan and Security Agreement
 EX-10.22 Warrant to Purchase
 EX-23.1 Consent of Grant Thornton LLP
      Through and including                     , 2007 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. In this prospectus, unless otherwise stated or the context otherwise requires, references to “Bioheart,” “we,” “us,” “our company,” and similar references refer to the consolidated operations of Bioheart, Inc. and its subsidiaries.
      For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

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PROSPECTUS SUMMARY
      This summary highlights selected information described more fully elsewhere in this prospectus. This summary may not contain all the information that is important to you. Before investing in our common stock, you should read the entire prospectus, including “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and our consolidated financial statements and related notes. The consolidated financial statements and related notes included in this prospectus have been prepared in accordance with accounting principles generally accepted in the United States. Unless otherwise stated, all figures assume no exercise of the underwriters’ option to purchase additional common shares.
Our Business
      We are a biotechnology company focused on the discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies for the treatment of chronic and acute heart damage. Our lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with autologous muscle cells, or cells from the patient’s body, for the purpose of improving cardiac function in chronic heart failure patients. The core technology used in MyoCell has been the subject of human clinical trials conducted over the last six years involving 84 enrollees and 70 treated patients. Our most recent clinical trials of MyoCell include the SEISMIC Trial, a completed 40 patient Phase II clinical trial in various countries in Europe, and the MYOHEART Trial, a completed 20 patient Phase I dose escalation trial in the United States. Interim results of the SEISMIC and MYOHEART Trials were announced in January 2007 and updated interim results are disclosed in this prospectus. We have been cleared by the U.S. Food and Drug Administration, or the FDA, to proceed with a 330 patient, multicenter Phase II/III trial of MyoCell in North America, Europe and Israel, or the MARVEL Trial. We intend to seek to have final data available for the MARVEL Trial by the third quarter of 2009. If the results of the MARVEL Trial demonstrate statistically significant evidence of the safety and efficacy of MyoCell, we anticipate having a basis to ask the FDA to consider the MARVEL Trial a pivotal trial. The SEISMIC, MYOHEART and MARVEL Trials have been designed to test the safety and efficacy of MyoCell in treating patients with severe, chronic damage to the heart. Upon regulatory approval of MyoCell, we intend to generate revenue from the sale of MyoCell cell culturing services for treatment of patients by interventional cardiologists.
      In our pipeline, we have multiple product candidates for the treatment of heart damage, including Bioheart Acute Cell Therapy, an autologous, adipose cell treatment for acute heart damage, and MyoCell II with SDF-1, a therapy utilizing autologous cells genetically modified to express additional growth factors. We hope to demonstrate that our various product candidates are safe and effective complements to existing therapies for chronic and acute heart damage.
MyoCell
      MyoCell is a clinical therapy intended to improve cardiac function and designed to be utilized months or even years after a patient has suffered severe heart damage due to a heart attack or other cause. We believe that MyoCell has the potential to become a leading treatment for severe, chronic damage to the heart due to its perceived ability to satisfy, at least in part, what we believe to be an unmet demand for more effective and/or more affordable therapies for chronic heart damage. MyoCell uses myoblasts, cells that are precursors to muscle cells, from the patient’s own body. The myoblasts are removed from a patient’s thigh muscle, isolated, grown through our proprietary cell culturing process, and injected directly in the scar tissue of a patient’s heart. An interventional cardiologist performs this minimally invasive procedure using an endoventricular catheter. We have entered into an agreement with a Johnson & Johnson company to use its NOGA® Cardiac Navigation System along with its MyoStartm injection catheter for the delivery of MyoCell in the MARVEL Trial.
      When injected into scar tissue within the heart wall, myoblasts have been shown to be capable of engrafting in the damaged tissue and differentiating into mature skeletal muscle cells. In a number of clinical

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and animal studies, the engrafted skeletal muscle cells have been shown to express various proteins that are important components of contractile function. By using myoblasts obtained from a patient’s own body, we believe MyoCell is able to avoid certain challenges currently faced by other types of cell-based clinical therapies including tissue rejection and instances of the cells differentiating into cells other than muscle. Although a number of therapies have proven to improve the cardiac function of a damaged heart, no currently available treatment has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart.
      Our clinical trials of MyoCell to date, including the SEISMIC Trial and the MYOHEART Trial, have been primarily targeted to patients with severe, chronic damage to the heart who are in Class II or Class III heart failure according to the New York Heart Association, or NYHA, heart failure classification system. The NYHA system classifies patients in one of four categories based on how limited they are during physical activity. NYHA Class II heart failure patients have a mild limitation of activity and are generally comfortable at rest or with mild exertion while NYHA Class III heart failure patients suffer from a marked limitation of activity and are generally comfortable only at rest.
      If the final SEISMIC Trial data is available in the first quarter of 2008 and is generally consistent with the interim data, we intend to seek, in the second quarter of 2008, approval from various European regulatory bodies to market MyoCell to treat the subclass of patients who would meet the eligibility criteria for participation in the SEISMIC Trial and who are in NYHA Class III heart failure, whose condition appears to be deteriorating despite optimal medical therapy and for whom no other promising treatment alternatives have been identified (i.e., generally the sickest 30% of NYHA Class III heart failure patients), or the Class III Subgroup. We intend to seek to enroll and treat all of the clinical patients in the MARVEL Trial by the end of the fourth quarter of 2008. If we meet that enrollment timeline, we would expect final trial results in the third quarter of 2009. If the final safety and efficacy results provide what we believe is significant proof that MyoCell is safe and effective, we anticipate submitting such data to the FDA to obtain regulatory approval of MyoCell.
      In addition to studies we have sponsored, we understand that myoblast-based clinical therapies have been the subject of at least eleven clinical trials involving more than 325 enrollees, including at least 235 treated patients. Although we believe many of the trials are different from the trials sponsored by us in a number of important respects, it is our view that the trials have advanced the cell therapy industry’s understanding of the potential opportunities and limitations of myoblast-based therapies.
      We believe the market for treating patients in NYHA Class II or NYHA Class III heart failure is significant. According to the American Heart Association Heart Disease Statistics — 2007 Update, or the AHA Statistics, and the European Society of Cardiology Task Force for the treatment of chronic heart failure in the United States and Europe there are approximately 5.2 million and 9.6 million, respectively, patients with heart failure. The AHA Statistics further indicate that after heart failure is diagnosed, the one-year mortality rate is high, with one in five dying and that 80% of men and 70% of women under age 65 who have heart failure will die within eight years. We believe that approximately 60% of heart failure patients are in either NYHA Class II or NYHA Class III heart failure based upon a 1999 study entitled “Congestive Heart Failure Due to Diastolic or Systolic Dysfunction — Frequency and Patient Characteristics in an Ambulatory Setting” by Diller, PM, et. al.
      Our operations are still in the development stage and we have yet to successfully develop and obtain regulatory approval of any drug, device or therapy. Our net loss for 2006 was approximately $13.2 million and, as of June 30, 2007, we have accumulated a deficit during our development stage of approximately $69.6 million.

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Our Business Strategy
      Our principal objective is to become a leading company that discovers, develops and commercializes novel, autologous cell therapies and related devices, for the treatment of chronic and acute heart damage. To achieve this objective, we plan to pursue the following key strategies:
  •  seek to successfully commercialize our lead product candidate, MyoCell;
 
  •  develop our sales and marketing capabilities in advance of regulatory approval, if any;
 
  •  continue to develop and seek to successfully commercialize our pipeline of cell-based therapy and related device candidates;
 
  •  continue to refine our MyoCell cell culturing processes to further reduce our costs and processing times;
 
  •  expand and enhance our intellectual property rights; and
 
  •  license, acquire and/or develop complementary products and technologies.
Risk Factors
      We face numerous risks that could materially affect our business, results of operations or financial condition and your investment in the common stock. These risks, include, without limitation:
  •  the timely success and completion of our clinical trials;
 
  •  the occurrence of any unacceptable side effects during or after preclinical and clinical testing of our product candidates, including patient deaths in addition to the six that have previously occurred during our clinical trials of MyoCell;
 
  •  regulatory approval of our product candidates;
 
  •  our ability to secure additional financing to meet future capital requirements;
 
  •  our dependence on the success of our lead product candidate;
 
  •  our inability to predict the extent of our future losses or if or when we will become profitable;
 
  •  our ability to protect our intellectual property rights;
 
  •  our ability to meet our obligations on our outstanding indebtedness to BlueCrest Capital Finance, L.P., which indebtedness imposes certain restrictions on how we conduct our business and is secured by all of our assets except our intellectual property; and
 
  •  intense competition.
      These risks and others are discussed more fully in “Risk Factors” beginning on page 8.
Pipeline
      In addition to MyoCell, we have multiple cell therapies and related devices for the treatment of chronic and acute heart damage in various stages of development. We have also acquired the rights to use certain devices for the treatment of heart damage. We intend to allocate our capital, material and personnel resources among MyoCell and the product candidates described below, a number of which may have complementary therapeutic applications. For each product candidate, we have developed or are in the process of developing a regulatory approval plan. Assuming such proposed plans are able to be followed, we do not anticipate that the regulatory approval of MyoCell will be necessary for further development of our other product candidates.
  •  Bioheart Acute Cell Therapy (commenced animal studies in first quarter of 2007 and anticipate filing Investigational New Drug, or IND, application in fourth quarter of 2007) — Autologous cell therapy for the treatment of acute myocardial infarction, or MI, using cells processed by the TGI 1200.

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  •  TGI 1200 Adipose Tissue Processing System (upon approval of IND application for Bioheart Acute Cell Therapy, anticipate seeking cost reimbursement for use in connection with clinical trials of Bioheart Acute Cell Therapy) — Fully automated device for the rapid processing of patient derived fat tissue. We have licensed the rights to use for the treatment of acute MI and heart failure.
 
  •  MyoCell II with SDF-1 (IND application filed in May 2007) — Cell therapy treatment for chronic heart damage; autologous myoblasts are modified to express SDF-1 protein in an effort to stimulate angiogenesis and/or recruitment of stem cells.
 
  •  MyoCath (Phase II clinical trials) — Disposable endoventricular catheter used for the delivery of biologic solutions to the myocardium.
 
  •  MyoCath II (anticipate commencing animal studies in the third quarter of 2007) — Second generation disposable endoventricular catheter modified to provide multidirectional cell injection and used for the delivery of biologic solutions to the myocardium.
 
  •  BioPace (preclinical) — Cell-therapy treatment for chronic abnormal heart rhythm due to electrical disturbances in the upper chambers of the heart.
 
  •  Allocell (preclinical) — Cell-therapy treatment for chronic heart damage using myoblasts obtained from third person donors, or allogenic myoblasts.
Our Corporate Information
      We were incorporated in the state of Florida in August 1999. Our principal executive offices are located at 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325 and our telephone number is (954) 835-1500. Information about our company is available on our corporate web site at www.bioheartinc.com. Information contained on our web site does not constitute part of, and is not incorporated by reference in, this prospectus.
      Unless otherwise indicated, all share numbers and per share prices in this prospectus give effect to a reverse stock split that will become effective prior to the closing of this offering. Upon the effectiveness of the reverse stock split, every 1.6187 shares of our common stock will be combined into 1 share of our common stock.
      MyoCell®, MyoCath®, MyoCell II with SDF-1tm, MyoCath IItm, BioPacetm and Allocelltm are trademarks of Bioheart, Inc. TGI 100tm and TGI 1200tm are trademarks of Tissue Genesis, Inc. MyoStartm and NOGA® are trademarks of Cordis Corporation, a Johnson & Johnson company. This prospectus also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties’ trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties.
      This prospectus contains market data and industry forecasts that were obtained from industry publications, third-party market research and publicly available information. These publications generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe the information from these publications is reliable, we have not independently verified, and make no representation as to the accuracy of, such information.

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THE OFFERING
Issuer Bioheart, Inc.
 
Common stock offered by us 3,575,000 shares
 
Common stock to be outstanding after this offering
16,908,345 shares
 
Over-allotment option 536,250 shares
 
Use of proceeds We expect to use the net proceeds from this offering:
 
• to fund the MARVEL Trial;
 
• for projected payments pursuant to our license agreements and to further develop and protect our intellectual property portfolio;
 
• to fund an initial Phase I clinical trial of MyoCell II with SDF-1;
 
• to fund the further development, preclinical testing and/or Phase I clinical testing of our pipeline product candidates;
 
• to fund the development of a sales and marketing force;
 
• to repay accrued interest on certain debt obligations; and
 
• for other general corporate purposes.
 
See “Use of Proceeds.”
 
Dividend policy We have not declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. See “Dividend Policy” and “Description of Capital Stock.”
 
Proposed NASDAQ Global Market symbol
BHRT
 
Risk factors You should carefully read and consider the information set forth under “Risk Factors” and all other information set forth in this prospectus before investing in our common stock.
      Except as otherwise noted, the number of shares of our common stock to be outstanding after this offering excludes 888,124 shares reserved for future issuance under our Officers and Employees Stock Option Plan and our Directors and Consultants Stock Option Plan.
      Unless otherwise indicated, all information contained in this prospectus assumes:
  •  that the underwriters do not exercise their option to purchase up to 536,250 additional shares of our common stock to cover over-allotments, if any;
 
  •  that we will consummate a 1-for-1.6187 reverse stock split prior to the closing of this offering; and
 
  •  the amendment and restatement of our Articles of Incorporation, which will become effective at the closing of this offering.

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SUMMARY CONSOLIDATED FINANCIAL DATA
      The following summary consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes that are included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for the years ended December 31, 2004, 2005 and 2006 from our audited financial statements and notes thereto that are included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for the years ended December 31, 2002 and 2003 from our audited financial statements that do not appear in this prospectus. We derived the consolidated statement of operations data for the six months ended June 30, 2006 and 2007 and the consolidated balance sheet data as of June 30, 2007 from our unaudited financial statements that are included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as our audited annual financial statements and, in our opinion, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the results of operations for the periods ended June 30, 2006 and 2007 and our financial condition as of June 30, 2007. The historical results are not necessarily indicative of the results to be expected for any future periods and the results for the six months ended June 30, 2007 should not be considered indicative of results expected for the full fiscal year.
                                                             
        Six Months Ended
    Year Ended December 31,   June 30,
         
    2002   2003   2004   2005   2006   2006   2007
                             
                        (Unaudited)
    (In thousands, except per share data)
Statement of Operations Data:
                                                        
Revenues
   $ 2     $ 46     $ 86     $ 135     $ 106     $ 75     $ 208  
Cost of sales
     —       30       46       87       73       44       34  
                                           
 
Gross profit
     2       16       40       48       33       31       174  
Expenses:
                                                        
 
Research and development
     7,361       3,502       3,787       4,534       6,878       2,669       3,186  
 
Marketing, general and administrative
     1,946       2,523       1,731       2,831       6,372       1,325       1,751  
 
Depreciation and amortization
     —       31       34       46       91       30       92  
                                           
   
Total expenses
     9,307       6,056       5,552       7,411       13,341       4,024       5,029  
                                           
 
Loss from operations
     (9,305 )     (6,040 )     (5,512 )     (7,363 )     (13,308 )     (3,993 )     (4,855 )
 
Net interest income (expense)
     47       2       (7 )     36       127       58       (186 )
                                           
 
Loss before income taxes
     (9,258 )     (6,038 )     (5,519 )     (7,327 )     (13,181 )     (3,935 )     (5,040 )
Income taxes
     —       —       —       —       —       —       —  
                                           
 
Net loss
   $ (9,258 )   $ (6,038 )   $ (5,519 )   $ (7,327 )   $ (13,181 )   $ (3,935 )   $ (5,040 )
                                           
Basic and diluted net loss per share
   $ (1.54 )   $ (0.75 )   $ (0.60 )   $ (0.69 )   $ (1.10 )   $ (0.34 )   $ (0.39 )
                                           
Weighted average shares outstanding  — basic and diluted
     6,007       8,022       9,189       10,653       12,015       11,654       13,012  
                                           
      The following table presents a summary of our consolidated balance sheet as of June 30, 2007:
  •  on an actual basis;
 
  •  on a pro forma basis to give effect to the sale by us of shares of our common stock at an assumed initial public offering price of $15.00 per share, the mid-point of the range set forth on the cover page of this prospectus, and the receipt of net proceeds of this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) each of cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $3.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this

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  prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
                 
    As of June 30, 2007
     
    Actual   Pro Forma
         
    (Unaudited)
    (in thousands)
Consolidated Balance Sheet Data:
                
Cash and cash equivalents
   $ 12,916     $ 61,130  
Working capital
     5,054       53,443  
Total assets
     17,905       64,601  
Notes payable — current
     6,194       6,194  
Note payable — long term
     3,806       3,806  
Deficit accumulated during the development stage
     (69,553 )     (69,553 )
Total shareholders’ equity
     5,699       52,570  

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RISK FACTORS
      Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information included in this prospectus, including the financial statements and related notes appearing at the end of this prospectus before deciding to invest in our common stock. If any of the following risks actually occur they would harm our business, prospects, financial condition and results of operations, possibly materially. In this event, the market price of our common stock could decline and you could lose part or all of your investment. Please read “Special Note Regarding Forward-Looking Statements.”
Risks Related to Our Financial Position and Potential Need for Additional Financing
We are a development stage life sciences company with a limited operating history and a history of net losses and negative cash flows from operations. We may never be profitable, and if we incur operating losses and generate negative cash flows from operations for longer than expected, we may be unable to continue operations.
      We are a development stage life sciences company and have a limited operating history, limited capital, limited sources of revenue and have incurred losses since inception. Our operations to date have been limited to organizing our company, developing and engaging in clinical trials of our lead product candidate, MyoCell, expanding our pipeline of complementary product candidates through internal development and third party licenses, expanding and strengthening our intellectual property position through internal programs and third party licenses and recruiting management, research and clinical personnel. Consequently, you may have difficulty in predicting our future success or viability due to our lack of operating history. As of June 30, 2007, we have accumulated a deficit during our development stage of approximately $69.6 million. Our lead product candidate has not received regulatory approval or generated any material revenues and is not expected to generate any material revenues until early 2009, if ever. Since inception, we have generated substantial net losses, including net losses of approximately $13.2 million, $7.3 million and $5.5 million in 2006, 2005 and 2004, respectively and substantial negative cash flows from operations. We anticipate that we will continue to incur significant and increasing net losses and negative cash flows from operations for the foreseeable future as we:
  •  continue the SEISMIC Trial and the MYOHEART Trial and commence the MARVEL Trial;
 
  •  continue research and development and undertake new clinical trials with respect to our pipeline product candidates, including clinical trials related to MyoCell II with SDF-1;
 
  •  apply for regulatory approvals;
 
  •  make capital expenditures to increase our research and development and cell culturing capabilities;
 
  •  add operational, financial and management information systems and personnel and develop and protect our intellectual property;
 
  •  make payments pursuant to license agreements upon achievement of certain milestones; and
 
  •  establish sales and marketing capabilities to commercialize products for which we obtain regulatory approval, if any.
      Our limited experience in conducting and managing preclinical development activities, clinical trials and the application process necessary to obtain regulatory approvals might prevent us from successfully designing or implementing a preclinical study or clinical trial. If we do not succeed in conducting and managing our preclinical development activities or clinical trials, or in obtaining regulatory approvals, we might not be able to commercialize our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
      None of the products that we are currently developing has been approved by the FDA or any similar regulatory authority in any foreign country. Our ability to generate revenues from any of our product candidates will depend on a number of factors, including our ability to successfully complete clinical trials,

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obtain necessary regulatory approvals and implement our commercialization strategy. In addition, even if we are successful in obtaining necessary regulatory approvals and bringing one or more product candidates to market, we will be subject to the risk that the marketplace will not accept those products. We may, and anticipate that we will need to, transition from a company with a research and development focus to a company capable of supporting commercial activities and we may not succeed in such a transition.
      Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable. Our failure to successfully commercialize our product candidates or to become and remain profitable could depress the market price of our common stock and impair our ability to raise capital, expand our business, diversify our product offerings and continue our operations.
Our outstanding indebtedness to BlueCrest Capital Finance, L.P. imposes certain restrictions on how we conduct our business. In addition, all of our assets, except our intellectual property, are pledged to secure this indebtedness. If we fail to meet our obligations to BlueCrest Capital, our payment obligations may be accelerated and the collateral securing the debt may be sold to satisfy these obligations.
      Pursuant to a Loan and Security Agreement, dated May 31, 2007, BlueCrest Capital Finance, L.P., or BlueCrest Capital, agreed to provide us a three-year, $5.0 million term loan, or the BlueCrest Loan. For the first three months of the BlueCrest Loan, we are only required to make payments of interest. Commencing in October 2007, we are required to make 33 equal monthly payments of principal and interest. Interest accrues at an annual rate of 12.85%. In the event we seek to repay the BlueCrest Loan prior to maturity, we are subject to a prepayment penalty equal to 3% of the outstanding principal if paid during the first year of the BlueCrest Loan, 2% of the outstanding principal if paid during the second year of the BlueCrest Loan and 1% of the outstanding principal if paid during the third year of the BlueCrest Loan. As collateral to secure our repayment obligations to BlueCrest Capital, we have granted it a first priority security interest in all of our assets, excluding our intellectual property but including the proceeds from any sale of any of our intellectual property.
      The Loan and Security Agreement contains various provisions that restrict our operating flexibility. Pursuant to the agreement, we may not, among other things:
  •  incur additional indebtedness, except for certain permitted indebtedness. Permitted indebtedness is defined to include accounts payable incurred in the ordinary course of business, leases of equipment or property incurred in the ordinary course of business not to exceed, in the aggregate, $250,000, any unsecured debt less than $20,000 or any debt not secured by the collateral pledged to BlueCrest Capital that is subordinated to the rights of BlueCrest Capital pursuant to a subordination agreement satisfactory to BlueCrest Capital in its sole discretion;
 
  •  make any principal, interest or other payments arising under or in connection with our loan from Bank of America or any other debt subordinate to the BlueCrest Loan;
 
  •  incur additional liens on any of our assets, including any liens on our intellectual property, except for certain permitted liens including but not limited to non-exclusive licenses or sub-licenses of our intellectual property in the ordinary course of business and licenses or sub-licenses of intellectual property in connection with joint ventures and corporate collaborations (provided that any proceeds from such licenses be used to pay down the BlueCrest Loan);
 
  •  voluntarily prepay any debt prior to maturity, except for accounts payable incurred in the ordinary course of business, leases of equipment or property incurred in the ordinary course of business not to exceed, in the aggregate, $250,000 and any unsecured debt less than $20,000. However, in the event that this offering closes before January 31, 2008 and the net proceeds from this offering exceed $30 million, we may prepay our debt to Bank of America;
 
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