U.S. Stem Cell, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - U.S. Stem Cell, Inc.	Financial_Report.xls
EX-32.1 - EX-32.1 - U.S. Stem Cell, Inc.	d28298_ex32-1.htm
EX-31.1 - EX-31.1 - U.S. Stem Cell, Inc.	d28298_ex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-33718

________________________

BIOHEART, INC.
(Exact name of registrant as specified in its charter)

________________________



Florida		65-0945967
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

13794 NW 4^th Street, Suite 212, Sunrise, Florida 33325
(Address of principal executive offices) (Zip Code)

(954) 835-1500
(Registrant’s telephone number, including area code)

________________________

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.045 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company x

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

As of August 11, 2011, there were 63,723,173 outstanding shares of the registrant’s common stock, par value $0.001 per share.

BIOHEART, INC. AND SUBSIDIARIES

INDEX


PART I		Financial Information	Page Number

	Item 1.	Financial Statements (unaudited)	2

		Condensed Consolidated Balance Sheets – June 30, 2011 (Unaudited) and December 31, 2010	2

		Unaudited Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2011, June 30, 2010 and the period from August 12, 1999 (date of inception) to June 30, 2011	3

		Unaudited Condensed Consolidated Statements of Stockholders Deficit –Six Months Ended June 30, 2011	4

		Unaudited Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2011, June 30, 2010 and the period from August 12, 1999 (date of inception) to June 30, 2011	5

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

	Item 4.	Controls and Procedures	37

PART II		Other Information	37

	Item 1	Legal Proceedings	37

	Item 1A.	Risk Factors	37

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

	Item 3.	Defaults Upon Senior Securities	38

	Item 4.	Removed and Reserved	39

	Item 5	Other Information	39

	Item 6.	Exhibits	41

SIGNATURES			44

EX-31.1			45

EX-32.1			46

PART I. - FINANCIAL INFORMATION

BIOHEART, INC. AND SUBSIDIARIES

(a development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
	2011		2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	34,185	$	3,298
Accounts receivable, net		-		1,266
Inventory		64,258		64,612
Prepaid and other		86,633		34,322
Total current assets		185,076		103,498

Property and equipment, net		28,454		47,439

Other assets		157,859		157,859

Total assets	$	371,389	$	308,796

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	2,419,875	$	2,050,161
Accrued expenses		3,936,323		3,581,445
Advances, related party		386,000		238,000
Deposits		465,286		465,286
Subordinated debt, related party		1,500,000		1,500,000
Notes payable, related party		365,000		225,000
Notes payable, net of debt discount		3,494,910		3,232,271
Total current liabilities		12,567,394		11,292,163

Long term debt:
Derivative liability		221,313		-
Note payable, long term		275,032		1,032,827
Total long term debt		496,345		1,032,827

Total liabilities		13,063,739		12,324,990

Commitments and contingencies		-		-

Stockholders' deficit:
Preferred stock, par value $0.001; 5,000,000 shares authorized, none issued and outstanding as of June 30, 2011 and December 31, 2010		-		-
Common stock, par value $0.001; 75,000,000 shares authorized, 45,491,855 and 37,545,865 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively		45,492		37,545
Additional paid in capital		96,055,802		94,274,281
Common stock subscribed		38,750		-
Subscriptions receivable		-		(3,800)
Deficit accumulated during development stage		(108,832,394)		(106,324,220)
Total stockholders' deficit		(12,692,350)		(12,016,194)

Total liabilities and stockholders' deficit	$	371,389	$	308,796

See the accompanying notes to these unaudited condensed consolidated financial statements

BIOHEART, INC. AND SUBSIDIARIES

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


									From August 12,
									1999 (date of
	Three months ended June 30,				Six months ended June 30,				Inception) to
	2011		2010		2011		2010		June 30, 2011
			(restated)				(restated)

Revenue	$	3,495	$	6,672	$	3,495	$	36,466	$	1,194,551
Cost of sales		139		2,395		139		16,799		550,279
Gross profit		3,356		4,277		3,356		19,667		644,272

Operating expenses:
Research and development		107,569		677,821		277,680		1,093,677		64,103,331
Marketing, general and administrative		556,506		386,715		1,047,014		813,967		33,579,951
Depreciation and amortization		10,280		13,584		18,985		36,697		870,347
Total operating expenses		674,355		1,078,120		1,343,679		1,944,341		98,553,629

Net loss from operations		(670,999)		(1,073,843)		(1,340,323)		(1,924,674)		(97,909,357)

Other income (expenses):
Development revenues		-		-		-		-		117,500
Gain on change of fair value of derivative liability		92,001		-		92,001				92,001
Interest income		-		-		-		1		762,277
Other income		475		-		3,864		-		249,418
Loss on settlement of debt		(250,644)		-		(361,516)		-		(361,516)
Interest expense		(492,480)		(52,913)		(902,200)		(736,023)		(11,782,717)
Total other income (expenses)		(650,648)		(52,913)		(1,167,851)		(736,022)		(10,923,037)

Net loss before income taxes		(1,321,647)		(1,126,756)		(2,508,174)		(2,660,696)		(108,832,394)

Income taxes (benefit)		-		-		-		-		-

NET LOSS	$	(1,321,647)	$	(1,126,756)	$	(2,508,174)	$	(2,660,696)	$	(108,832,394)

Net loss per common share, basic and diluted	$	(0.03)	$	(0.04)	$	(0.06)	$	(0.11)

Weighted average number of common shares outstanding, basic and diluted		43,208,580		26,776,596		41,868,749		23,921,224

See the accompanying notes to these unaudited condensed consolidated financial statements


															Deficit
															Accumulated
							Additional						Common		During
	Preferred stock			Common stock			Paid in		Deferred		Subscription		Stock		Development
	Shares	Amount		Shares	Amount		Capital		Compensation		Receivable		Subscription		Stage		Total
Balance, December 31, 2010	-	$	-	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	-		-	736,737		737		-		-		-		-		-		737
Common stock in exchange for services	-		-	300,000		300		59,700		-		-		-		-		60,000
Common stock issued upon conversion of notes payable	-		-	2,135,543		2,136		365,702		-		-		-		-		367,838
Issuance of common stock, net of issuance costs of $40,000	-		-	4,777,160		4,777		630,973		-		-		-		-		635,750
Stock based compensation	-		-	-		-		180,429		-		-		-		-		180,429
Fair value of warrants issued for services	-		-	-		-		53,200		-		-		-		-		53,200
Common stock subscription	-		-	-		-		-		-		-		38,750		-		38,750
Beneficial conversion feature connection with amendment of convertible note	-		-	-		-		361,516		-		-		-		-		361,516
Beneficial conversion feature connection with issuance of convertible note	-		-	-		-		129,998		-		-		-		-		129,998
Net loss	-		-	-		-		-		-		-		-		(2,508,174)		(2,508,174)
Balance, June 30, 2011	-	$	-	45,491,855	$	45,492	$	96,055,802	$	-	$	-	$	38,750	$	(108,832,394)	$	(12,692,350)

See the accompanying notes to these unaudited condensed consolidated financial statements

BIOHEART, INC. AND SUBSIDIARIES

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


			From August 12,
			1999 (date of
	Six months ended June 30,		Inception) to
	2011	2010	June 30, 2011
		(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (2,508,174)	$ (2,660,696)	$ (108,832,394)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	18,985	36,697	870,347
Bad debt expense	1,266	-	166,266
Discount on convertible debt	224,080	-	486,304
Loss on settlement of debt	361,516	-	361,516
Gain on change in fair value of derivative liability	(92,001)	-	(92,001)
Non cash payment of interest	158,441	-	158,441
Amortization of warrants issued in exchange for licenses and intellectual property	-	-	5,413,156
Amortization of warrants issued in connection with notes payable	159,372	140,536	5,223,472
Amortization of loan costs	6,099	66,154	1,221,682
Warrants issued in exchange for services	-	-	285,659
Equity instruments issued in connection with R&D agreement	-	-	360,032
Equity instruments issued in connection with settlement agreement	-	567,529	3,381,629
Common stock issued in connection with accounts payable	-	93,918	655,382
Common stock issued in exchange for services	60,000	-	1,382,917
Common stock issued in connection with amounts due to guarantors of Bank of America loan	-	69,159	69,159
Common stock issued in exchange for distribution rights and intellectual property	-	-	99,997
Warrants issued on connection with services rendered	53,200	-	53,200
Warrants issued in connection with accounts payable		-	7,758
Stock based compensation	180,429	94,596	9,645,443
(Increase) decrease in:
Receivables	-	1,845	(1,265)
Inventory	354	120,853	(153,264)
Prepaid and other current assets	(21,284)	(7,210)	(55,605)
Other assets	-	-	(28,854)
Increase (decrease) in:
Accounts payable	369,714	74,527	3,003,993
Accrued expenses	323,851	437,065	4,972,693
Deferred revenue	-	-	465,287
Net cash used in operating activities	(704,152)	(965,027)	(70,879,050)

See the accompanying notes to these unaudited condensed consolidated financial statements

BIOHEART, INC. AND SUBSIDIARIES

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


					From August 12,
					1999 (date of
	Six months ended June 30,				Inception) to
	2011		2010		June 30, 2011
			(restated)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment		-		-		(898,800)
Net cash used in investing activities		-		-		(898,800)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net		678,300		914,868		62,550,475
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		140,000		-		365,000
Proceeds from related party advances		148,000		-		386,000
Proceeds from exercise of stock options		737		-		292,854
Proceeds from notes payable		59,750		-		11,557,750
Repayments of notes payable		(291,748)		-		(3,568,605)
Payment of loan costs		-		(20,000)		(1,219,268)
Net cash provided by financing activities		735,039		894,868		71,812,035

Net (decrease) increase in cash and cash equivalents		30,887		(70,159)		34,185

Cash and cash equivalents, beginning of period		3,298		75,031		-
Cash and cash equivalents, end of period	$	34,185	$	4,872	$	34,185

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	129,554	$	193,393	$	1,736,155
Income taxes paid	$	-	$	-	$	-

Non cash financing activities:
Common stock issued in settlement of notes payable	$	345,746	$	-	$	2,517,746

See the accompanying notes to these unaudited condensed consolidated financial statements

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the presentation of the accompanying unaudited condensed consolidated financial statements follows:

General

The accompanying unaudited condensed consolidated financial statements of Bioheart, Inc., (the “Company”), have been prepared in accordance with the rules and regulations (S-X) of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results from operations for the six month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2010 financial statements and footnotes thereto included in the Company’s SEC Form 10-K.

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 June 30, 2011, the Company has accumulated a deficit through its development stage of $108,832,394.

The unaudited condensed consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Estimates

The preparation of the unaudited condensed consolidated 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.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

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

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

Cash

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

Accounts Receivable

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 June 30, 2011 and December 31, 2010, allowance for doubtful accounts was $8,751 and $7,485, respectively.

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.

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.

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.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

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 43,471,738 and 38,183,175 for the three months ended June 30, 2011 and 2010, respectively and 45,861,767 and 35,327,803 for the six months ended June 30, 2011 and 2010, 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 11)

As of June 30, 2011, there were outstanding stock options to purchase 1,899,112 shares of common stock, 1,458,942 shares of which were vested.

Concentrations of Credit Risk

The Company’s financial instrument that is exposed to a concentration of credit risk is 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 June 30, 2011, one customer represented 100% of the Company’s accounts receivable. As of December 31, 2010, one customer represented 53% of the Company’s accounts receivable

For the three and six month periods ended June 30, 2011, the Company's revenues earned from the sale of products and services were $3,495, from one customer. For the three and six month periods ended June 30, 2010, the Company’s revenues earned from sale of products and services were $6,672 and $36,466, 82 % and 100% of the revenues were from one customer, respectively.

Reliance on Key Personnel and Consultants

The Company has 7 full-time employees and no part-time employees. The Company is heavily dependent on the continued active participation of these current executive officers, employees 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.

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 $107,569 and $677,821 for the three months ended June 30, 2011 and 2010, respectively; $277,680 and $1,093,677 for the six months ended June 30, 2011 and 2010, respectively and $64,103,331 from August 12, 1999 (date of inception) to June 30, 2011.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

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.

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 unaudited condensed consolidated financial position, results of operations or cash flows.

NOTE 2 – RESTATEMENT

The accompanying unaudited condensed consolidated Statement of Operations and Statement of Cash Flows for the three and six months ended June 30, 2010 and from August 12, 1999 to June 30, 2010 have been restated to correct the errors in the accounting of Company issuances of warrants in connection with notes payable from 2007 through 2009. These changes correct the allocated fair value assigned to the issued warrants and a change in the treatment from a recorded asset (deferred financing costs) to a debt discount shown net with the related notes payable.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Unaudited Condensed Consolidated Statement of Operations
For the Three Months Ended June 30, 2010


	As Previously Reported			Adjustment			Reference		As Restated
Revenue	$	29,794		$	(23,122	)		(1)	$	6,672
Cost of sales		14,404			(12,009	)		(1)		2,395
Gross profit		15,390			(11,113	)				4,277

Operating expenses		866,221			211,899			(1)		1,078,120

Loss from operations		(850,831	)		(223,012	)				(1,073,843	)

Other income (expense):
Interest income		1			(1	)		(1)		-
Interest expense		(683,110	)		630,197			(1),(2)		(52,913	)

Net loss before income taxes		(1,533,940	)		407,184					(1,126,756	)

Income taxes (benefit)		-			-					-

NET LOSS	$	(1,533,940	)	$	407,184				$	(1,126,756	)

Loss per common share, basic and fully diluted	$	(0.07	)	$	0.04				$	(0.04	)

Weighted average number of shares outstanding, basic and fully diluted		21,115,148								26,776,596

(1): Correct reporting for three months ended June 30, 2010; the Company erroneously reported three months ended June 30, 2010 within the 10-Q filing

(2): Correction of the determined fair value of warrants and related amortization

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Unaudited Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2010


	As Previously Reported			Adjustment		Reference		As Restated
Revenue	$	36,466		$				$	36,466
Cost of sales		16,799							16,799
Gross profit		19,667							19,667

Operating expenses		1,944,341							1,944,341

Loss from operations		(1,924,674	)						(1,924,674	)

Other income (expense):
Interest income		1							1
Interest expense		(1,138,413	)		402,390		(2)		(736,023	)

Net loss before income taxes		(3,063,086	)		402,390				(2,660,696	)

Income taxes (benefit)		-			-				-

NET LOSS	$	(3,063,086	)	$	402,390			$	(2,660,696	)

Loss per common share, basic and fully diluted	$	(0.13	)	$	0.02			$	(0.11	)

Weighted average number of shares outstanding, basic and fully diluted		23,670,644							23,921,224

(2): Correction of the determined fair value of warrants and related amortization

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Unaudited Condensed Consolidated Statement of Operations
From August 12, 1999 (date of Inception) to June 30, 2010


	As previously reported		Adjustment		Reference	As restated

Revenue	$ 1,181,139		$ -			$ 1,181,139
Cost of sales	547,174		-			547,174
Gross profit	633,965					633,965

Operating expenses:
Research and development	66,452,250		(3,000,000	)	(1)	63,452,250
Marketing, general and administrative	31,414,063		164.229		(3)	31,578,292
Depreciation and amortization	831,101		-			831,101
Total operating expenses	98,697,414		(2,835,771	)		95,861,643

Net loss from operations	(98,063,449	)	(2,835,771	)		(95,227,678)

Other income (expenses):
Development revenues	117,500		-			117,500
Interest income	762,276		-			762,275
Reversal of Litigation Accrual	3,000,000		3,000,000		(1)	-
Interest expense	(9,508,195)		(1,049,422	)	(2)	(8,458,773)
Total other income (expenses)	(5,628,419)		(1,950,578	)		(7,578,997)

Net loss before income taxes	(103,691,868)		885,193			(102,806.675)

Income taxes (benefit)	-		-			-

NET LOSS	$ (103,691,868)		$ 766,707			$ (102,806,675)

(1) Reclassify gain on litigation accrual to operating expenses

(2) Correction of fair value of vested employee options

(3) Correction of the determined fair value of warrants and related amortization

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Unaudited Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2010



	As Previously Reported			Adjustment			Reference		As Restated
Cash flows from operating activities:
Net loss	$	(3,063,087	)	$	402,390			(1)	$	(2,660,696	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		94,596			-					94,596
Amortization of warrants issued in connection with notes payable		542,927			(402,390	)		(1)		140,537
All other operating activities (unchanged)		1,460,537			-					1,460,537
Net cash used in operations		(965,027	)		-					(965,027	)

Cash flows from investing activities (unchanged)		-			-					-

Cash flows from financing activities (unchanged)		894,868			-					894,868

Net decrease in cash and cash equivalents		(70,159	)		-					(70,159	)
Cash and cash equivalents, beginning of period		75,031			-					75,031
Cash and cash equivalents, end of period	$	4,872		$	-				$	4,872

Unaudited Condensed Consolidated Statement of Cash flow
From August 12, 1999 (date of Inception) to June 30, 2010



	As Previously Reported			Adjustment			Reference		As Restated
Cash flows from operating activities:
Net loss	$	(103,691,868	)	$	885,193			(1), (2)	$	(102,806,675	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		9,146,921			164,229			(2)		9,311,150
Amortization of warrants issued in connection with notes payable		4,259,305			(1,049,422	)		(1)		3,209,883
All other operating activities (unchanged)		21,039,961			-					21,039,961
Net cash used in operations		(69,245,681	)		-					(69,245,681	)

Cash flows from investing activities (unchanged)		(898,800	)		-					(898,800	)

Cash flows from financing activities (unchanged)		70,149,353			-					70,149,353

Net increase in cash and cash equivalents		4,872			-					4,872
Cash and cash equivalents, beginning of period		-			-					-
Cash and cash equivalents, end of period	$	4,872		$	-				$	4,872

(1) Correction of the determined fair value of warrants and related amortization

(2) Correction of fair value of vested employee options

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

NOTE 3 – GOING CONCERN MATTERS

The accompanying unaudited condensed 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 unaudited condensed consolidated financial statements during six months ended June 30, 2011, the Company incurred net losses attributable to common shareholders of $2,508,174 and used $704,152 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.

NOTE 4 – INVENTORY

Inventory consists of raw materials. 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 5 – PREPAID AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of June 30, 2011 and December 31, 2010 primarily consisted of payments on corporate insurance policies and prepaid stock based compensation.

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment as of June 30, 2011 and December 31, 2010 is summarized as follows:


	June 30, 2011 (unaudited)			December 31, 2010
Laboratory and medical equipment	$	352,358		$	352,358
Furniture, fixtures and equipment		130,916			130,916
Computer equipment		53,481			53,481
Leasehold improvements		362,046			362,046
		898,801			898,801
Less accumulated depreciation and amortization		(870,347	)		(851,362	)
	$	28,454		$	47,439

The Company incurred depreciation and amortization expenses of $10,280 and $13,584 for the three month periods ended June 30, 2011 and 2010, respectively, $18,985 and $36,697 for the six month periods ended June 30, 2011 and 2010, respectively and $870,347 from August 12, 1999 (date of inception) to June 30, 2011.

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.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

NOTE 7 – ACCRUED EXPENSES

Accrued expenses consisted of the following as of June 30, 2011 and December 31, 2010:


	June 30, 2011(unaudited)		December 31, 2010
License and royalty fees	$	1,401,264	$	1,090,000
Amounts payable to the Guarantors of the Company’s loan agreement with Bank of America and Seaside Bank, including fees and interest		1,105,571		1,102,941
Interest payable on notes payable		596,291		595,342
Vendor accruals		366,511		582,403
Employee commissions, compensation, etc		289,186		208,239
Other		177,500		2,520
	$	3,936,323	$	3,581,445

NOTE 8 – NOTES PAYABLE

Notes payable were comprised of the following as of June 30, 2011 and December 31, 2010:



	June 30, 2011			December 31, 2010
	(unaudited)
Seaside Bank note payable. Terms described below	$	980,000		$	980,000
BlueCrest Capital Finance note payable. Monthly payments of principal and interest as described below., net of unamortized debt discount of $197,617 and $317,709 respectively		1,368,026			1,958,834
Short-term note payable, net of unamortized debt discount of $19,569 and $58,708 respectively. Terms described below		1,365,403			1,326,264
Short-term note payable, net of unamortized debt discount of $12,500. Terms described below		12,500			—
Short-term note payable, net of unamortized debt discount of $96,438. Terms described below		13,562			-
Short-term note payable, net of unamortized debt discount of $30,466. Terms described below		4,284
Short-term note payable, net of unamortized debt discount of $73,562. Terms described below		26,167
		3,769,942			4,265,098
Less current portion		(3,494,910	)		(3,232,271	)
Notes payable – long term	$	275,032		$	1,032,827

Notes payable at June 30, 2011 mature as follows:



One year from June 30, 2011	$	3,494,910
Long term portion		275,032

	$	3,769,942

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

BlueCrest Capital Finance Note Payable

On June 1, 2007, the Company closed on a $5.0 million senior loan from BlueCrest Capital Finance, L.P. with a term of 36 months which bears interest at an annual rate of 12.85% (the “BlueCrest Loan”). The first three months required payment of interest only with equal principal and interest payments over the remaining 33 months. As consideration for the loan, the Company issued to BlueCrest Capital Finance, L.P. a warrant to purchase 65,030 shares of common stock at an exercise price of $7.69 per share. The warrant, which became exercisable one year following the date the warrant was issued, has a ten year term. This warrant had a fair value of $455,483, which was accounted for as additional paid in capital and reflected as a component of debt discount and is being amortized as interest expense ratably over the term of the loan. The Company also paid the lender a fee of $100,000 to cover diligence and other costs and expenses incurred in connection with the loan. On August 31, 2007, BlueCrest Capital Finance, L.P. assigned its rights, liabilities, duties and obligations under the BlueCrest Loan and warrant to BlueCrest Venture Finance Master Fund Limited (“BlueCrest”).

The loan may be prepaid in whole but not in part. However, the Company is subject to a prepayment penalty equal to 3% of the outstanding principal if the BlueCrest Loan is prepaid during the first year of the loan, 2% of the outstanding principal if prepaid during the second year of the loan and 1% of the outstanding principal if prepaid during the third year of the loan. As collateral to secure its repayment obligations under the loan, the Company granted BlueCrest a first priority security interest in all of the Company’s assets, excluding intellectual property but including the proceeds from any sale of any of the Company’s intellectual property. The loan has certain restrictive terms and covenants including among others, restrictions on the Company’s ability to incur additional senior or pari-passu indebtedness or make interest or principal payments on other subordinate loans.

In the event of an uncured event of default under the loan, all amounts owed to BlueCrest are immediately due and payable and BlueCrest has the right to enforce its security interest in the assets securing the loan. During the continuance of an event of default, all outstanding amounts under the loan will bear interest (payable on demand) at an annual rate of the 14.85%. In addition, any unpaid amounts are subject, until paid, to a service charge in an amount equal to two percent (2%) of the unpaid amount. Events of default include, among others, the Company’s failure to timely make payments of principal when due, the Company’s uncured failure to timely pay any other amounts owing to BlueCrest under the loan, the Company’s material breach of the representations and warranties contained in the loan agreement and the Company’s default in the payment of any debt to any of its other lenders in excess of $100,000 or any other default or breach under any agreement relating to such debt, which gives the holders of such debt the right to accelerate the debt.

The amount of interest expense on the principal amount of the BlueCrest Loan for the six months ended June 30, 2011 and 2010 totaled approximately $125,449 and $189,115, respectively.

On January 2, 2009, the Company failed to make the monthly payment of principal and interest of approximately $181,000 due on such date. On January 28, 2009, the Company received from BlueCrest notice of this event of default (the “Default Notice”) under the BlueCrest Loan. By reason of the stated event, BlueCrest demanded payment of a 2% late fee of approximately $3,600, together with the principal and interest payment of approximately $181,000. On February 2, 2009, the Company received from BlueCrest notice of acceleration of the outstanding principal amount of the BlueCrest Loan and demanded repayment in full of all outstanding principal and accrued interest on the loan, including late fees, in the aggregate amount of $2,947,045. (The acceleration notice, together with the Default Notice, are referred to as the “Notices”).

The Company and BlueCrest entered into an amendment to the BlueCrest Loan as of April 2, 2009 (the “ BlueCrest Loan Amendment”), that, among other things, includes BlueCrest’s agreement to forbear from exercising any of its rights or remedies regarding the defaults described in Notices (the “Forbearance”) as long as there are no new defaults under the BlueCrest Loan, as amended.

The BlueCrest Loan Amendment, (a) increases the amount of permitted unsecured indebtedness of the Company, (b) amended the amortization schedule for the Loan to provide for interest-only payments until July 1, 2009, at which time monthly principal and interest payments of $262,692 will commence, and (c) prohibits the Company from granting any lien against its intellectual property and grants to BlueCrest a lien against the Company’s intellectual

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

property that will become effective in the event of a default. In addition, the Company issued BlueCrest a warrant to purchase 1,315,542 shares of the Company’s common stock at $0.53 per share. The fair value of the issued warrants of $539,676 was determined using the Black Scholes Option Pricing Model and was recorded as a debt discount and amortized ratably over the term of the loan. In connection with the BlueCrest Loan Amendment the Company paid BlueCrest accrued interest in the aggregate amount of $126,077. The Company also paid BlueCrest a fee of $15,000. Effective July 1, 2009, the Company and BlueCrest agreed to enter into an amendment to the BlueCrest Loan to amend the amortization schedule for the Loan to provide for interest-only payments until January 1, 2010, at which time monthly principal and interest payments of $139,728 will commence. In connection with that Amendment the Company issued BlueCrest a warrant to purchase $600,000 of the Company’s common shares and paid a fee of $29,435. The fair value of the issued warrants of $575,529 was determined using the Black Scholes Option Pricing Model and was recorded as a debt discount and amortized ratably over the term of the loan.

Effective December 31, 2009, the Company and BlueCrest entered into an amendment to the BlueCrest Loan to amend the amortization schedule for the Loan to provide for interest-only payments until July 1, 2010, at which time monthly principal and interest payments of $139,728.82 will commence. In connection with that Amendment, the Company issued BlueCrest a warrant to purchase $600,000 of the Company’s common shares and paid a fee of $20,000. The Company also provided BlueCrest with a lien on its Intellectual Property. The fair value of the issued warrants of $507,606 was determined using the Black Scholes Option Pricing Model and was recorded as a debt discount and amortized ratably over the term of the loan.

For the six month period ending June 30, 2011 the Company paid $712,924 in principal and $125,449 in interest. As of June 30, 2011 the balance due under the Loan is $1,565,643.

Short-term Notes Payable

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 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 Noteholder 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 is being amortized as interest expense ratably over the term of the loan. The Company amortized $39,139 to current period operations for the six months ended June 30, 2011 and 2010.

The amount of interest expense on the principal amount of the loan for the year ended December 31, 2009 was approximately $187,000. The Company has not paid any of the interest accrued to date under the Promissory Note and Agreement. The Company recorded interest expense of $125,449 for the six months ended June 30, 2011

In July 2009, Bruce Meyers and Dana Smith (jointly, the “Lenders”) funded a total $120,000 loan to the Company. The Loan was in the nature of convertible debt and was evidenced by an unsecured promissory note (the “Note”), that was convertible into common stock of the Company at a price that was 22.5% less than the average of the closing bid prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise their conversion right under the Note. The Note was to bear interest at the rate of 10% per annum, with interest payable due at maturity. The terms sheet provides that all unpaid interest (and principal) will be due and payable on the date that is the earlier to occur of the first anniversary of the closing date of the Loan or the closing of a financing in an amount that is equal to or greater than $3.0 million that will satisfy the Company’s obligation under its loan with BlueCrest. However, during the year ended December 31, 2009, the Lenders elected to convert the entire amount of the Loan to shares of the Company’s common stock. Accordingly, the aggregate number of unregistered and restricted shares of the Company’s common stock issued in connection with, and as a result of the conversion of, the

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Loan was 355,294 shares. The Company will have no obligation to file any registration statement with respect to the shares, except that the Lenders will have customary “piggyback” registration rights.

In February 2009, Bruce Meyers and Robert Seguso (jointly, the “Lenders”) funded the remaining $100,000 of a total $200,000 loan to the Company. The funds were delivered, net of original issue discount in the amount of $10,000, pursuant to a terms sheet provided by Bruce Meyers, for a convertible debt financing to be provided to the Company (the “Loan”). Although the terms sheet provided that the Lenders would be provided a complete set of loan documentation, the Lenders delivered to the Company the entire net proceeds of the Loan, in the amount of $190,000, in advance of receiving any documentation. The initial funding of $100,000 was made to the Company on January 21, 2009. However, the Company determined that it would not proceed with the Loan unless and until the Lenders funded the balance of the net proceeds which was completed on February 3, 2009 and provided that the Board of Directors of the Company approved the Loan, which approval was obtained on February 11, 2009.

The above Loan was in the nature of convertible debt and was evidenced by an unsecured promissory note (the “Note”), that was convertible into common stock of the Company at a price that was 22.5% less than the average of the closing bid prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise their conversion right under the Note. The Note was to bear interest at the rate of 10% per annum, with interest payable due at maturity. The terms sheet provides that all unpaid interest (and principal) will be due and payable on the date that is the earlier to occur of the first anniversary of the closing date of the Loan or the closing of a financing in an amount that is equal to or greater than $3 million that will satisfy the Company’s obligation under its loan with BlueCrest. However, during the year ended December 31, 2009, the Lenders elected to convert the entire amount of the Loan to shares of the Company’s common stock.

In addition to the Note, the Company issued to the Lenders 200,000 unregistered and restricted shares of the Company’s common stock. We believe that the offer and sale of the securities is made only to accredited investors and, accordingly, is exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. The fair value of the issued shares were recorded as a debt discount and amortized ratably over the term of the loan.

Prior to funding the balance of the Loan, the Lenders delivered to the Company, on January 26, 2009, a notice electing to convert $100,000 of the Loan into shares of the Company’s common stock. The price per share for such election was $0.50995. This required the issuance to the Lenders of 196,098 unregistered and restricted shares of the Company’s common stock.

On February 3, 2009, contemporaneously with the funding of the remainder of the Loan, the Lenders delivered to the Company notice of their election to convert the remainder of the Loan into shares of the Company’s common stock at a price per share of $0.5704. This required the issuance to the Lenders of 175,316 unregistered and restricted shares of the Company’s common stock.

Accordingly, the aggregate number of unregistered and restricted shares of the Company’s common stock issued in connection with, and as a result of the conversion of, the Loan was 571,414 shares. The Company will have no obligation to file any registration statement with respect to the shares, except that the Lenders will have customary “piggyback” registration rights.

At June 30, 2011 and December 31, 2010, the Company has outstanding two notes payable with interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822 are payable in one balloon payment upon the date the Noteholder provides written demand, however the Company is not obligated to make payments until the BlueCrest Loan is paid off.

On January 3, 2011, the Company issued a $139,729 Unsecured Convertible Note that matures in June 1, 2012 in exchange for Bluecrest Capital Finance note payable. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at a conversion rate of 50% of the five lowest closing prices for the common stock during the five trading day period prior to date of conversion. During six months ended June 30, 2011, the Company recorded a loss on settlement of debt of $110,872.

The Company’s identified embedded derivatives related to the Convertible Promissory Note entered into on January 3, 2011. 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 the

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value $146,013 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model based on the following assumptions:



Dividend yield:	-0-	%
Volatility	169.48	%
Risk free rate:	0.19	%

The initial fair value of the embedded debt derivative of $146,013 was allocated as a debt discount up to the proceeds of the note ($139,729) with the remainder ($6,284) charged to current period operations as interest expense.

During the six months ended June 30, 2011, the Company issued an aggregate of 959,934 shares of common stock valued at $276,017, in settlement of the Convertible Promissory Note of $139,729 and balance $136,288 charged to operation for current quarter.

On January 3, 2011, the Company issued a $25,000 Unsecured Convertible Note that matures in January 2012. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at a conversion rate of 50% of the three lowest closing prices for the common stock during the ten trading day period prior to date of conversion, minimum conversion rate of $0.0025 per share.

In conjunction with the issuance of the Unsecured Convertible Note on May 16, 2011, the Company determined that there were insufficient authorized shares to meet possible conversion demands after considering prior issued and outstanding common shares and other common stock equivalents, therefore the Company bifurcated the embedded conversion option in connection to the note The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At May 16, 2011, the Company determined a fair value $51,130 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model based on the following assumptions:



Dividend yield:	-0-	%
Volatility	181.64	%
Risk free rate:	0.18	%

The initial fair value of the embedded debt derivative of $51,130 was allocated as a reclassification from equity of a previously recorded beneficial conversion feature ($25,000) with the remainder ($26,130) charged to current period operations as interest expense.

In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital and a discount against the Convertible Note.

The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $25,000 is charged operations ratably over the note term as interest expense.

For the six months ended June 30, 2011, the Company amortized $12,500 of debt discount to current period operations as interest expense.

On May 16, 2011, the Company issued a $139,729 Unsecured Convertible Note that matures in May 16, 2012 in exchange for Bluecrest Capital Finance note payable. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at a conversion rate of 55% of the five lowest closing prices for the common stock during the five trading day period prior to date of conversion, minimum conversion rate of $0.001 per share.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

The Company determined that there were insufficient authorized shares to meet possible conversion demands after considering prior issued and outstand common shares and other common stock equivalents, therefore the Company bifurcated the embedded conversion option in connection to the note The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value $261,387 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model based on the following assumptions:



Dividend yield:	-0-	%
Volatility	181.64	%
Risk free rate:	0.18	%

The initial fair value of the embedded debt derivative of $261,387 was allocated as a debt discount up to the proceeds of the note ($139,729) with the remainder ($121,658) charged to current period operations as interest expense.

The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $139,729 is charged operations ratably over the note term as interest expense. During six months ended June 30, 2011, the Company recorded a loss on settlement of debt of $143,180.

During the six months ended June 30, 2011, the Company issued an aggregate of 338,834 shares of common stock in settlement of $29,728 towards the convertible note.

For the six months ended June 30, 2011, the Company amortized $43,290 of debt discount to current period operations as interest expense.

On May 16, 2011, the Company issued a $34,750 Unsecured Convertible Note that matures in January 2012. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at a conversion rate of 50% of the three lowest closing prices for the common stock during the ten trading day period prior to date of conversion, minimum conversion rate of $0.001 per share.

The Company determined that there were insufficient authorized shares to meet possible conversion demands for a portion of the Unsecured Convertible Note ($12,236) after considering prior issued and outstand common shares and other common stock equivalents, therefore the Company bifurcated the embedded conversion option in connection to the note The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value $22,889 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Pricing Model based on the following assumptions:



Dividend yield:	-0-	%
Volatility	181.64	%
Risk free rate:	0.18	%

The initial fair value of the embedded debt derivative of $22,889 was allocated as a debt discount up to the proceeds of the note ($12,236) with the remainder ($10,653) charged to current period operations as interest expense.

In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in the remainder of the Convertible Note ($22,514). The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital and a discount against the Convertible Note.

The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $34,750 is charged operations ratably over the note term as interest expense.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

For the six months ended June 30, 2011, the Company amortized $4,284 of debt discount to current period operations as interest expense.

On June 15, 2011, the Company issued a $139,729 Unsecured Convertible Note that matures in June 15, 2012 in exchange for Bluecrest Capital Finance note payable. Note bears interest at a rate of 8% per annum and is convertible into shares of the Company’s common stock, at a conversion rate of 50% of the three lowest closing prices for the common stock during the ten trading day period prior to date of conversion, minimum and maximum conversion rate of $0.001 and $0.13 per share, respectively.

The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $107,484 is charged operations ratably over the note term as interest expense. During six months ended June 30, 2011, the Company recorded a loss on settlement of debt of $107,484.

During the six months ended June 30, 2011, the Company issued an aggregate of 836,775 shares of common stock in settlement of $40,000 towards the convertible note.

For the six months ended June 30, 2011, the Company amortized and wrote off $33,922 to current period operations as interest expense.

Notes payable, related party

At June 30, 2011, the Company has outstanding three related party notes payable with interest at 8% per annum due at maturity. The three subordinated notes, $125,000, $100,000 and $140,000 are 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 BlueCrest loan is paid off.

NOTE 9 – DERIVATIVE LIABILITY

During 2011, in connection with the issuance of convertible notes, the Company has 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.

The fair value of the derivative at June 30, 2011 was determined using the Binomial Lattice Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 192.00%, risk free rate: 0.19%, expected life from 0.51 to 0.88 years.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

NOTE 10 – STOCKHOLDERS’ EQUITY

Common stock

During the six months ended June 30, 2011, the Company issued an aggregate of 603,834 shares of its common stock on exercise of options.

During the six months ended June 30, 2011, the Company issued an aggregate of 2,135,543 shares of its common stock in exchange for outstanding notes payable.

During the six months ended June 30, 2011, the Company issued an aggregate of 300,000 shares of its common stock in exchange for services rendered.

NOTE 11 – STOCK OPTIONS AND WARRANTS

Stock Options

A summary of options at June 30, 2011 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, 2010		2,119,431		$	3.28		5.4
Granted		1,764,940		$	0.32
Exercised		(831,526	)	$	0.001
Forfeited/Expired		(1,027,301	)	$	2.62
Options outstanding at December 31, 2010		2,025,544		$	2.79		6.8
Granted		603,834		$	0.001
Exercised		(603,834	)	$	0.001
Expired		(126,432	)	$	1.01
Options outstanding at June 30, 2011		1,899,112		$	2.90		6.3
Options exercisable at June 30, 2011		1,458,942		$	3.57		5.5
Available for grant at June 30, 2011		4,582,433

The following information applies to options outstanding and exercisable at June 30, 2011:

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011



	Options Outstanding						Options Exercisable
	Shares		Weighted- Average Remaining Contractual Term		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
$0.00 – $0.70		724,360		8.9	$	0.56		326,161	$	0.61
$0.71 – $1.28		324,780		6.8	$	0.77		294,434	$	0.76
$5.25 – $5.67		803,604		3.8	$	5.58		791,979	$	5.59
$7.69		39,572		5.2	$	7.69		39,572	$	7.69
$8.47		6,796		5.8	$	8.47		6,796	$	8.47
		1,899,122		6.3	$	2.90		1,458,942	$	3.57

During the six months ended June 30, 2011, the Company granted an aggregate of 603,834 non employee stock options in connection services rendered at the exercise price of $0.001 per share.

The fair values of the vesting non employee options for the six months ended June 30, 2011 were determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 143.99% 146.17% to 147.71%; and Risk free rate: 2.96% to 3.48%.

The fair value of all options vesting during the six months ended June 30, 2011 and 2010 of $180,429 and $94,596, respectively, was charged to current period operations.

Warrants

A summary of warrants at June 30, 2011 and activity during the year then ended is presented below:



	Shares			Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)
Outstanding at January 1, 2010		7,355,057		$	3.06		9.4
Issued		6,693,712		$	0.78
Exercised		—		$	0.00
Forfeited		128,040		$	0.74
Outstanding at December 31, 2010		13,920,729		$	1.98		5.8
Issued		4,048,854		$	0.26
Exercised		—		$
Forfeited		(123,169	)	$	4.15
Outstanding at June 30, 2011		17,846,414		$	1.58		5.1
Exercisable at June 30, 2011		12,339,964		$	1.27		4.1

During the six months ended June 30, 2011, the Company issued an aggregate of 3,668,854 warrants to purchase the Company’s common stock from $0.09 to $0.65 per share expiring three years from the date of issuance in connection with the sale of the Company’s common stock.

In addition, during the six months ended June 30, 2011, the Company issued an aggregate of 280,000 warrants to purchase the Company’s common stock from $0.19 per share expiring in February 2016 in connection with the sale of the Company’s common stock.. The fair value of the warrants of $53,200 was determined by using the Black Scholes Option Pricing Model with the following assumptions: dividends: 0%; volatility: 146.37%, risk free rate: 2.3% , were charged to current period operations

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

The following information applies to warrants outstanding and exercisable at June 30, 2011:



	Warrants Outstanding						Warrants Exercisable
	Shares		Weighted- Average Remaining Contractual Term		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
0.01 - $0.50		8,069,650		3.3	$	0.16		4,107,650		0.18
0.52 - $0.68		3,800,078		6.0	$	0.59		3,800,078	$	0.59
0.70 - $1.62		2,626,285		3.8	$	0.79		2,626,285	$	0.79
1.81 – $2.61		427,119		0.4	$	2.07		427,119	$	2.07
3.60 – $4.93		105,000		2.2	$	4.87		105,000	$	4.87
5.67 – $7.69		2,818,282		11.0	$	7.50		1,273,832	$	7.26
		17,846,414		4.5	$	1.58		12,339,964	$	1.27

NOTE 12 – RELATED PARTY TRANSACTIONS

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.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

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 various licensing agreements, 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 2010 and $200,000 for 2009. This minimum royalty threshold will remain $200,000 for 2011 and thereafter. As of June 30, 2011, the Company has not made any payments other than the initial payment to acquire the license. At June 30, 2011 and December 31, 2010, the Company’s liability under this agreement was $1,401,264 and $1,090,000, respectively, which is reflected as a component of accrued expenses on the consolidated balance sheets. In the three months ended June 30, 2011 and 2010, the Company incurred expenses of $52,500, for the six months ended June 30, 2011 and 2010 $105,000 and $1,195,000 from August 12, 1999 (date of inception) to June 30, 2011. 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 $206,264 in accrued expenses as of June 30, 2011.

Approximate annual future minimum obligations under this agreement as of June 30, 2011 are as follows:

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Year Ending December 31,



2011	$	105,000
2012		210,000
2013		210,000
2014 — 2015		420,000
Total	$	945,000

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 June 30, 2011 or December 31, 2010.

Litigation

On March 13, 2009, Judge Bernice Bouie Donald of the United States District Court for the Western District of Tennessee issued a Memorandum Opinion and Order in litigation brought against the Company by Dr. Peter K. Law and Cell Transplants Asia Limited (“CTAL”) (collectively, the “Plaintiffs”), captioned Peter K. Law, et al. v. Bioheart, Inc., No. 2:07-cv-2177 (the “Action”). The Action, which has been the subject of previous disclosures by the Company, was commenced on March 9, 2007, and asserted claims against the Company and Howard J. Leonhardt, individually, with respect to a license agreement entered into between Bioheart, Inc. and Cell Transplants International, LLC (“CTI”) on February 7, 2000 (the “Original License Agreement”). Pursuant to the License Agreement, among other things, CTI granted the Company a license to certain patents “related to heart muscle regeneration and angiogenesis for the life of the patents.” In July 2000, Bioheart and CTI, together with Dr. Law, executed an addendum to the License Agreement, which amended or superseded a number of the terms of the License Agreement (the “License Addendum”).

In their amended complaint, Dr. Law and CTAL asserted 14 breach of contract and related claims pertaining to the Original License Agreement and License Addendum, including, among others, claims that the Company had breached obligations to provide shares of Bioheart common stock to Dr. Law, pay royalties on “gross sales” of MyoCell, pay a $3 million milestone payment due upon Bioheart’s “commencement of a bona fide Phase II human clinical trial study that utilizes technology claimed under U.S. Patent No. 5,130,141 with F.D.A. approval in the United States,” and to refrain from sublicensing Plaintiffs’ patents. Plaintiffs also sought a declaratory judgment that the License Addendum was unenforceable due to a lack of consideration and/or economic duress. At the outset of the Action, the individual claim against Mr. Leonhardt was dismissed along with Plaintiffs’ claim for civil conspiracy, leaving 12 claims to be adjudicated.

The Company denied the material allegations of the amended complaint, denied it had any liability to Plaintiffs, and asserted a number of defenses to Plaintiffs’ claims, as well as counterclaims seeking a declaration that the License Addendum was a legally valid and binding agreement and asserting that Dr. Law and/or CTI had breached various obligations in the parties’ agreements.

Following the completion of discovery, the Action was tried to the Court, without a jury, from September 22-25, 2008.

On March 13, 2009, the Court rendered its decision in the Action, dismissing the amended complaint after finding that Plaintiffs had failed to establish any of their 12 remaining claims. With respect to Plaintiffs’ claim for the $3 million milestone payment, the Court found that the payment was “payable only to CTI,” not the Plaintiffs, and that CTI, a dissolved Tennessee limited liability company, had never been made a party to the Action and therefore was “not properly before the Court.” The Court also found that, even assuming Plaintiffs could assert a claim for the milestone payment on behalf of CTI, the payment was not due because “Bioheart’s MyoCell process does not utilize

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

technology claimed under the ‘141 patent.” In addition, the Court found that Bioheart owed no royalties because it has not yet made any “gross sales” of MyoCell.

The Court found in Bioheart’s favor on its counterclaim seeking a declaration that the License Addendum was a valid and enforceable agreement and its counterclaim that Dr. Law breached his obligation under the License Addendum to provide Bioheart with “all pertinent and critical information” related to Bioheart’s filing of an IND application with the FDA. The Court awarded Bioheart nominal damages of $1.00 on the latter counterclaim, and dismissed Bioheart’s other counterclaims. Judgment upon the Memorandum Opinion and Order was entered on March 18, 2009.

Subsequent to the Court rendering its decision in the Action, the Plaintiffs filed a motion with the Court seeking reconsideration of its decision. The Company’s response was filed on April 20, 2009, and the Court’s response was received on October 15, 2009. The Plaintiffs’ motion to alter or amend was granted in part to clarify that Plaintiff failed to prove that the MyoCath catheter reads upon the claims of a patent other than the Schmidt catheter patent. Plaintiffs’ motion was otherwise denied.

A notice of appeal was to have been filed by November 16, 2009, by Dr. Law. The appeal was not filed. The accrual made prior to November 16, 2009, to accommodate a judgment in favor of Dr. Law has been reversed.

The Company is subject to other legal proceedings that arise in the ordinary course of business. In the opinion of management, as of June 30, 2011, 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, consolidated 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.

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.

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 consolidated 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.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the warrant liability, reset and debt derivative liabilities. Convertible notes were determined at market based on their short term historical conversions


	Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3			Assets at fair Value
Liabilities:
Derivative liability	$	-	$	-	$	(221,313	)	$	(221,313	)

Total	$	-	$	-	$	(221,313	)	$	(221,313	)

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of June 30, 2011:


	Derivative Liability
Balance, December 31, 2010	$	-
Total (gains) losses
Initial fair value of debt derivative at note issuance		335,406
Mark-to-market at June 30, 2010:
Embedded debt derivative		(92,001	)
Transfers out of Level 3 upon conversion and settlement of notes		(22,092	)

Balance, June 30, 2011	$	221,313

Net Gain for the period included in earnings relating to the liabilities held at June 30, 2011	$	92,001

NOTE 15 – SUBSEQUENT EVENTS

Loan Agreement Amendment

On July 7, 2011, the Company and BlueCrest Venture Finance Master Fund Limited (“BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the Company originated as of May 31, 2007 (the “Loan”). The outstanding principal amount of the Loan as of July 7, 2011 was $1,565,643.10. On July 8, 2011, BlueCrest agreed with the Company and Greystone Capital Partners (“Greystone”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $140,380.21 (the “New Note”). The New Note was assigned to Greystone in consideration for a payment by them to BlueCrest of $140,380.21, and modified.

The New Note is a subordinated convertible note bearing interest at the rate of 8% per annum, payable at maturity. The New Note is convertible into common stock of the Company at a price that is 50% less than the average of the three (3) lowest closing prices for the Company’s common stock for the ten (10) trading days prior to the Lenders’ election to exercise its conversion right; provided, however, that if the Company engages in a financing transaction that provides for a pricing discount that is greater than 50%, then the discount allowed to Greyston will be increased to such greater discount percentage.

In July 2011, the Company issued an aggregate of 3,829,001 shares of our common stock in connection with the conversion of $140,380.21 of the July 8, 2011 convertible note.

On August 3, 2011, the Company and BlueCrest Venture Finance Master Fund Limited (“BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the Company originated as of May 31, 2007 (the “Loan”). The outstanding principal amount of the Loan as of August 3, 2011 was $1,442,679.71. On August 3, 2011, BlueCrest agreed with the Company and Greystone Capital Partners (“Greystone”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $139,728.82 (the “New Note”). The New Note was assigned to Greystone in consideration for a payment by them to BlueCrest of $139,728.82, and modified.

The New Note is a subordinated convertible note bearing interest at the rate of 8% per annum, payable at maturity. The New Note is convertible into common stock of the Company at a price that is 50% less than the average of the three (3) lowest closing prices for the Company’s common stock for the ten (10) trading days prior to the Lenders’ election to exercise its conversion right; provided, however, that if the Company engages in a financing transaction that provides for a pricing discount that is greater than 50%, then the discount allowed to Greystone will be increased to such greater discount percentage.

In August 2011, the Company issued an aggregate of 3,358,866 shares of our common stock in connection with the conversion of $139,728.82 of the August 3, 2011 convertible note.

Common Stock Issued

In July 2011, the Company issued an aggregate of 1,679,615 shares of our common stock in connection with the conversion of $80,000 of the Magna May 16, 2011 convertible note discussed in Item 5 Other Information.

In July 2011, the Company issued an aggregate of 2,594,458 shares of our common stock in connection with the conversion of the remaining balance of $99,728.82 of the Lotus June 15, 2011 convertible note discussed in Item 5 Other Information.

In July 2011, the Company issued an aggregate of 625,000 shares of our common stock in connection with the conversion of the Magna January 3, 2011convertible note discussed in Item 5 Other Information.

In July 2011, the Company issued an aggregate of 250,000 shares of our common stock in connection with Consulting Agreements.

On August 8, 2011 the Company received notice of conversion for the remaining balance of $30,000 of the Magna May 16, 2011 convertible note discussed in Item 5 Other Information. The Company issued an aggregate of 547,536 shares of our common stock in connection with the conversion.

BIOHEART, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011

Subscription Agreements

In July 2011, the Company sold an aggregate of 2,163,900 shares of the Company’s common stock and warrants to purchase 2,163,900 shares of the Company’s common stock for aggregate gross cash proceeds of $142,750. The warrants are (i) exercisable solely for cash at an exercise price of $0.06 to $0.09 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

In July 2011, the Company issued an additional 201,400 shares of the Company’s common stock and warrants to purchase 201,400 shares of the Company’s common stock in connection with Subscription Agreements received in June 2011. The warrants are (i) exercisable solely for cash at an exercise price of $0.08 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

In August 2011, the Company sold an aggregate of 2,676,780 shares of the Company’s common stock and warrants to purchase 2,676,780 shares of the Company’s common stock for aggregate gross cash proceeds of $205,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.06 to $0.11 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

Issuance of Options and Warrants

Between July 1, 2011 and August 15, 2011, the Company issued options to purchase an aggregate of 304,762 shares of its common stock at a weighted average exercise price of $0.001 per share. The options vested immediately upon issuance and will expire on the tenth anniversary of the issuance date. As of August 15, 2011 an aggregate of 304,762 shares of common stock have been issued upon the exercise of the aforementioned options.

On August 12, 2011 the Company issued stock options to purchase an aggregate of 210,000 shares of common stock at an exercise price of $0.21 per share to certain members of the Company’s Board of Directors. The options vested immediately upon issuance and will expire on the tenth anniversary of the issuance date.

In August 12, 2011 the Company issue stock options to purchase an aggregate of 1,250,000 shares of common stock at an exercise price of $0.10 per share issued to certain of the Company’s employees. The options vest in 4 equal increments and expire on the tenth anniversary of the issuance date.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” are to the Company. The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and the accompanying related notes included in this quarterly report and our audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission.

Cautionary Statement Regarding Forward-Looking Statements

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Any such forward-looking statements would be contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Additional information concerning these and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

Our Ability To Continue as a Going Concern

Our independent registered public accounting firm has issued its report dated, May 10, 2011, in connection with the audit of our financial statements as of December 31, 2010, that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements as of June 30, 2011 have been prepared under the assumption that we will continue as a going concern. If we are not able to continue as a going concern, it is likely that holders of our common stock will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Overview

We are committed to maintaining our leading position within the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. Our goals are to regenerate damaged tissue, if possible, improve a patient’s quality of life, reduce hospitalizations and reduce overall health care costs.

We were incorporated in the state of Florida in August 1999. Our principal executive offices are located at 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325 and our telephone number is (954) 835-1500. Information about us is available on our corporate web site at www.bioheartinc.com. Information contained on the web site does not constitute part of, and is not incorporated by reference in, this report.

Biotechnology Product Candidates

Specific to biotechnology, we are focused on the discovery, development and, subject to regulatory approval, commercialization of autologous cell therapies for the treatment of chronic and acute heart damage and peripheral vascular disease. MyoCell is a clinical muscle-derived cell therapy designed to populate regions of scar tissue within a patient’s heart with new living cells for the purpose of improving cardiac function in chronic heart failure patients. Our most recent clinical trials of MyoCell include the SEISMIC Trial, a completed 40-patient, randomized, multicenter, controlled, Phase II-a study conducted in Europe and the MYOHEART Trial, a completed 20-patient, multicenter, Phase I dose-escalation trial conducted in the United States. We were approved by the U.S. Food and Drug Administration (the “FDA”) to proceed with a 330-patient, multicenter Phase II/III trial of MyoCell in North America and Europe (the “MARVEL Trial”). We completed the MyoCell implantation procedure on the first patient in the MARVEL Trial on October 24, 2007. Thus far, 20 patients, including 6 control patients, have been treated. Initial results for the 20 patients were released at the Heart Failure Society of American meeting in September, 2009, showing a significant (35%) improvement in the 6 minute walk for those patients who were treated, and no improvement for those who received a placebo. We are planning, on the basis of these results, to ask the FDA to consider the MARVEL Trial a pivotal trial (pivotal from Phase II to Phase III) and to reduce the number of patients in the trial to 150. The SEISMIC, MYOHEART and MARVEL Trials have been designed to test the safety and efficacy of MyoCell in treating patients with severe, chronic damage to the heart. Upon regulatory approval of MyoCell, we intend to generate revenue in the United States from the sale of MyoCell cell-culturing services for treatment of patients by qualified physicians. Abroad, we are identifying centers where it is already acceptable to use the Myocell treatment so that greater numbers of patients with this problem can have access to treatment.

We received approval from the FDA in July of 2009 to conduct a Phase I safety study on 15 patients of a combined therapy (Myocell with SDF-1), which we believe is the first approval of a study combining gene and cell therapies. We initially commenced work on this study, called the REGEN trial, during the first quarter of 2010. The Company suspended activity on the trial in 2010 while seeking additional funding necessary to conduct the trial. Work on the trial was reinitiated in 2011. Based on the results of the trial, we intend to either incorporate the combined treatment into the Marvel Trial, or continue with the Marvel Trial based on the use of Myocell alone.

In our pipeline, we have multiple product candidates for the treatment of heart damage, including autologous, adipose cell treatment for acute heart damage, chronic ischemia and critical limb ischemia. We hope to demonstrate that our various product candidates are safe and effective complements to existing therapies for chronic and acute heart damage as well as peripheral arterial disease.

MyoCell

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

When injected into scar tissue within the heart wall, myoblasts have been shown to be capable of engrafting in the damaged tissue and differentiating into mature skeletal muscle cells. In a number of clinical and animal studies, the engrafted skeletal muscle cells have been shown to express various proteins that are important components of contractile function. By using myoblasts obtained from a patient’s own body, we believe MyoCell is able to avoid certain challenges currently faced by other types of cell-based clinical therapies including tissue rejection and instances of the cells differentiating into cells other than muscle. Although a number of therapies have proven to

improve the cardiac function of a damaged heart, no currently available treatment has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart.

We believe the market for treating patients in NYHA Class II or NYHA Class III heart failure is significant. According to the AHA Statistics and the European Society of Cardiology Task Force for the Treatment of Chronic Heart Failure, in the United States and Europe there are approximately 5.2 million and 9.6 million, respectively, patients with heart failure. The AHA Statistics further indicate that, after heart failure is diagnosed, the one-year mortality rate is high, with one in five dying and that 80% of men and 70% of women under age 65 who have heart failure will die within eight years. We believe that approximately 60% of heart failure patients are in either NYHA Class II or NYHA Class III heart failure based upon a 1999 study entitled “Congestive Heart Failure Due to Diastolic or Systolic Dysfunction – Frequency and Patient Characteristics in an Ambulatory Setting” by Diller, PM, et. al.

MyoCath

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

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our critical accounting policies are described in Note 1 to our consolidated financial statements appearing elsewhere in this report, we believe the following policies are important to understanding and evaluating our reported financial results:

Stock-Based Compensation

Revenue Recognition

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

normal payment terms or upon implementation or client acceptance, the fee is accounted for as not being fixed or determinable and revenue is recognized as the fees become due or after implementation or client acceptance has occurred. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.

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

Research and Development Activities

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

Results of Operations

We are a development stage company and our MyoCell product candidate has not received regulatory approval or generated any material revenues and is not expected to until 2012 if ever. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant net losses and negative cash flows from operations for the foreseeable future as we continue clinical trials, undertake new clinical trials, apply for regulatory approvals, make capital expenditures, add information systems and personnel, make payments pursuant to our license agreements upon our achievement of certain milestones, continue development of additional product candidates using our technology, establish sales and marketing capabilities and incur the additional cost of operating as a public company.

Comparison of the Three Months Ended June 30, 2011 and 2010

Revenues

We recognized revenues of $3,495 in the three month period ended June 30, 2011 compared to revenues of $6,672 in the three month period ended June 30, 2010. The revenue in the three month period ended June 30, 2011 was generated mainly from the sale of MyoCath catheters.

Cost of Sales

Cost of sales was $139 in the three month period ended June 30, 2011 compared to $2,395 in the three month period ended June 30, 2011.

Research and Development

Research and development expenses were $107,569 in the three month period ended in June 30, 2011, a decrease of $570,252 from research and development expenses of $677,821 in 2010. The decrease was primarily attributable to a reduction in the amount of funds allocated to our clinical trials.

The timing and amount of our planned research and development expenditures is dependent on our ability to obtain additional financing. See “- Existing Capital Resources and Future Capital Requirements” and Item 1A. “Risk Factors - We will need to secure additional financing …” as filed with our Form 10-K with the Securities and Exchange Commission on May 10, 2011

Marketing, General and Administrative

Marketing, general and administrative expenses were approximately $557,000 in the three month period ended June 30, 2011, an increase of $169,791 from marketing, general and administrative expenses of approximately $387,000 in 2010. The increase in marketing, general and administrative expenses is attributable, in part, to an increase in salaries & wages due to the hiring of the President and CEO for the company.

Gain on change in fair value of derivative liability

During the three months ended June 30, 2011, we issued unsecured convertible notes which creates a 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 record as a liability the fair value of the possible excess and mark to market each reporting period. During the three months ended June 30, 2011, we recorded a gain on change in the fair value of the derivative liability of $92,001.

Loss on settlement of debt

During the three month period ended June 30, 2011, we incurred a non cash loss on settlement of debt of $250,644 as compared to Nil for 2010. The loss is generated from the exchange of our BlueCrest Loan payments due with convertible notes.

Interest Expense

On June 1, 2007, we entered into the BlueCrest Loan and the Bank of America Loan, both in the principal amount of $5.0 million, with interest rates of 12.85% and 4.75% (prime plus 1.5%), respectively, at December 31, 2008. On August 20, 2008, we borrowed $1.0 million from a third party at an interest rate of 13.5% per annum. Interest expense primarily consists of interest incurred on the principal amount of these loans, accrued fees and interest earned by the guarantors of the Bank of America Loan, the amortization of related deferred loan costs and the amortization of the fair value of warrants issued in connection with the BlueCrest and Bank of America Loans. The fair value of the warrants originally issued in connection with the Bank of America Loan was amortized by the end of January 2008.

Interest expense was $334,039 in the three month period ended June 30, 2011 compared to interest expense of $52,913 in 2010, A increase of $281,126. During the three months ended June 30, 2011, we incurred a non cash interest expense of $158,441from our requirement to treat a portion of our convertible notes as derivative accounting. In addition, for 2011, we incurred additional non cash amortization of debt discounts associated with our new notes.

Comparison of the Six Months Ended June 30, 2011 and 2010

Revenues

We recognized revenues of $3,495 in the six month period ended June 30, 2011 compared to revenues of $36,466 in the six month period ended June 30, 2010. The revenue in the six month period ended June 30, 2011 was generated mainly from the sale of MyoCath catheters.

Cost of Sales

Cost of sales was $139 in the six month period ended June 30, 2011 compared to $16,799 in the six month period ended June 30, 2011.

Research and Development

Research and development expenses were $277,680 in the six month period ended in June 30, 2011, a decrease of $815,997 from research and development expenses of $1,093,677 in 2010. The decrease was primarily attributable to a reduction in the amount of funds allocated to our clinical trials.

“Risk Factors - We will need to secure additional financing …” as filed with our Form 10-K with the Securities and Exchange Commission on May 10, 2011

Marketing, General and Administrative

Marketing, general and administrative expenses were $1,047,014 in the six month period ended June 30, 2011, an increase of $233,047 from marketing, general and administrative expenses of $813,967 in 2010. The increase in marketing, general and administrative expenses is attributable, in part, to an increase in salaries & wages due to the hiring of the President and CEO for the company.

Gain on change in fair value of derivative liability

During the six months ended June 30, 2011, we issued unsecured convertible notes which creates a 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 record as a liability the fair value of the possible excess and mark to market each reporting period. During the three months ended June 30, 2011, we recorded a gain on change in the fair value of the derivative liability of $92,001.

Loss on settlement of debt

During the six month period ended June 30, 2011, we incurred a non cash loss on settlement of debt of $361,516 as compared to Nil for 2010. The loss is generated from the exchange of our BlueCrest Loan payments due with convertible notes.

Interest Expense

Interest expense was $902,200 in the six month period ended June 30, 2011 compared to interest expense of $736,022 in 2010. Interest incurred on the principal amount of our outstanding loans and interest and fees earned by the guarantors totaled $320,000 in the six month period ended June 30, 2011 and $525,000 in 2010. Amortization of debt discounts and amortization of the fair value of warrants issued in connection with the Note payable totaled $253,228 in the six month period ended June 30, 2011 compared to $210,967 in 2010.

Inflation

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

Climate Change

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

Liquidity and Capital Resources

In the six month period ended June 30, 2011, we continued to finance our considerable operational cash needs with cash generated from financing activities.

Operating Activities

Net cash used in operating activities was $704,152 in the six month period ended June 30, 2011 as compared to $965,027 of cash used in 2010.

Our use of cash for operations in the six months ended June 30, 2011 reflected a net loss generated during the period of approximately $2.5 million, adjusted for non-cash items such as stock-based compensation of $180,429, amortization of the fair value of warrants granted in connection with the Note payable of $159,372, amortization of debt discounts incurred in connection with the BlueCrest Loan and Bank of America and other Loans of $230,179, loss on settlement of debt of $361,516. A increase in prepaid and other current assets of $20,930 contributed to our use of operating cash in the six months ended June 30, 2011. The increase in prepaid expenses and other current assets was due mainly to the increase in prepaid stock based compensation. Partially offsetting these uses of cash was an increase in accrued expenses of $317,378 and accounts payable of $369,714.

Our use of cash for operations in the six months ended June 30, 2010 reflected a net loss generated during the period of $2.7 million, adjusted for non-cash items such as stock-based compensation of $94,596 amortization of the fair value of warrants granted in connection with the BlueCrest Loan and Bank of America loan of $140,536, amortization of loan costs incurred in connection with the BlueCrest Loan and Bank of America Loan of $66,154, equity instruments issued in settlement agreements of $567,529. A increase in prepaid and other current assets of $7,210 and an increase in accounts payable of $74,527 contributed to our use of operating cash in 2010. The increase in prepaid expenses and other current assets was due mainly to the increase in prepaid insurance. Partially offsetting these uses of cash were decreases in accrued expenses of $437,065.

Investing Activities

Net cash used in investing activities was $0 in the six month period ended June 30, 2011 and $0 in 2010.

Financing Activities

Net cash provided by financing activities was $735,039 in the six month period ended June 30, 2011 as compared to $894,868 in 2010.

In the six month period ended June 30, 2011 we sold, in a private placement, shares of common stock for aggregate net cash proceeds of $678,300.

Existing Capital Resources and Future Capital Requirements

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

At June 30, 2011 we had cash and cash equivalents totaling $34,185 however, our working capital deficit as of such date was approximately $12.38 million. Our independent registered public accounting firm has issued its report dated May 10, 2011 in connection with the audit of our consolidated financial statements as of December 31, 2010 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

Changes In Internal Control Over Financial Reporting

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Our company is not involved in any material litigation and we are unaware of any threatened material litigation. However, the biotechnology and medical device industries have been characterized by extensive litigation regarding patents and other intellectual property rights. In addition, from time to time, we may become involved in litigation relating to claims arising from the ordinary course of our business.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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

Private Placement – Common Stock and Warrants

In April 2011, the Company sold an aggregate of 97,400 shares of the Company’s common stock and warrants to purchase 82,790 shares of the Company’s common stock for aggregate gross cash proceeds of $15,000. 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 during the period commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

In June 2011, the Company sold an aggregate of 1,611,110 shares of the Company’s common stock and warrants to purchase 1,611,110 shares of the Company’s common stock for aggregate gross cash proceeds of $145,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.09 per share, (ii) non-transferable for six months following issuance and (iii) exercisable, in whole or in part, at any time during the period

commencing on the date that is six months and one day following the date of issuance and ending on the third year anniversary of the date of issuance.

Subscription agreement

On January 23, 2011, Bioheart, Inc. (the “Company”) announced that it has entered into a subscription agreement with Anc Bio Holdings, Inc., a South Korean biomedical company, and a subscription agreement with one of its U.S. agents, Bioheart Florida, LLC for a $4 million equity investment, in the aggregate. Funding of the investment will be made ratably by them in installments with 10% immediately, followed by 40% within 45 days and the remaining 50% subject to certain conditions which the Company expects to satisfy in the next 90 days.

The aggregate number of shares of common stock anticipated to be issued in connection with the investment is 25,000,000 shares. The Company will also issue to the purchasers of common stock, warrants to purchase, in the aggregate, up to 12,500,000 shares of common stock. In connection with the common stock issuance, the subscribers received “piggyback” registration rights exercisable under certain circumstances more particularly set forth in the Registration Rights Agreement entered into with each investor.

Under the terms of the subscription agreements, the Company has agreed, among other things, that:

(a) Until April 20, 2011, the Company shall not initiate or support any action to increase the number of directors serving on the Company’s Board of Directors and, subject to unforeseen circumstances outside of the Company’s control (i.e., the death or disability of a board member), the Company will not initiate or support any change to the composition of the Board of Directors’ Committees without the investors’ prior consent;

(b) The Company will provide the Investors with an estimated use of proceeds prior to the first installment payment date and the Company will utilize not less than sixty percent (60%) of such proceeds for research and development costs and clinical trial costs;

(c) The proceeds may be used to attract and hire a new Company Chief Financial Officer and the Investors, or their designee(s) will have the right to participate in the interviewing of, and the selection of, that new Chief Financial Officer; and

(d) Until April 20, 2011, the Company shall not issue more than Two Hundred, Fifty Thousand (250,000) shares of the Company’s Common Stock in connection with any single transaction (other than shares that may be issued in connection with the conversion of the existing convertible promissory note into such shares of common stock by Magna Group, LLC).

(e) the Company has agreed that, following its receipt of the first installment payment, the Company will cause a vacancy on the Company’s Board of Directors to be filled by one person designated by ABH. Additionally, the Company agreed with ABH that it shall not call a meeting nor schedule a meeting of its shareholders to be held prior to April 20, 2011.

On January 23, 2011 the Company did receive the initial 10% and is currently engaged in discussions with the investors to determine new timing for the funding of the remaining installments. As of April 18, 2011, the second installment had not been received from either ABH or BF.

Accordingly, on April 18, 2011 the Company delivered a written notice of default and termination to each of ABH and BF, in respect of the Agreements. The notice stated that it was being given as a result of the breach by each of ABH and BF of their respective payment obligations under the Agreements. A copy of the notice of default was filed with the Company’s Current Report on Form 8-K filed with the SEC on April 22, 2011.

Each of the listed sales was exempt from registration in reliance upon Section 4(s) of the Securities Act of 1933, as amended (the “Securities Act”), for transactions by an issuer not involving a public offering. The offer and sale of such securities was made without general solicitation or advertising to “accredited investors” as defined in Rule 501(a) of Regulation D promulgated by the Securities Act.

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Removed and Reserved

Item 5. Other Information

Increase to Authorized Common Stock

As of December 31, 2010, our Articles of Incorporation authorized us to issue up to 75,000,000 shares of common stock, par value $0.001 per share. The Board of Directors proposed, and on January 13, 2011 (the “Record Date”) the holders of a majority of the Company’s issued and outstanding voting common shares as of the Record Date approved, an increase in the number of authorized shares of the common stock from 75,000,000 shares to 195,000,000 shares. On January 21, 2011 the Company filed a 14C Information Statement with the Securities and Exchange Commission. Following approval by the Securities and Exchange Commission and upon the filing of the Certificate of Amendment to the Articles of Incorporation, the Company’s will be authorized to issue a total of 195,000,000 shares of common stock, par value of $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share.

Approval of Option Issuance

In June 2011, the Board of Directors approved the issuance of stock options to purchase an aggregate of 1,750,000 shares of common stock at an exercise price of $0.10 per share issued to certain of the Company’s employees. The options will vest in 4 equal increments and will expire on the tenth anniversary of the issuance date.

Loan agreement amendment

On December 31, 2009, the Company and BlueCrest Venture Finance Master Fund Limited (“BlueCrest”) entered into an Amendment to Loan and Security Agreement, amending that certain loan from BlueCrest to the Company originated as of May 31, 2007 (the “Loan”). The outstanding principal amount of the Loan as of December 31, 2010 was $2,276,543.03. On January 7, 2011, BlueCrest agreed with the Company and Magna Group, LLC (“Magna”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $139,729.82 (the “New Note”). The New Note was assigned to Magna in consideration for a payment by them to BlueCrest of $139,729.82, and modified. Additionally, Magna purchased a $25,000 convertible note from the Company (the “Convertible Note”).

The loans evidenced by the New Note and Convertible Note are in the nature of convertible debt evidenced by two unsecured convertible promissory notes, each bearing interest at the rate of 8% per annum, payable at maturity and each convertible into common stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its conversion right.


•	In January 2011, we issued an aggregate of 538,542 shares of our common stock in connection with the conversion of $87,729 of the convertible note.

•	In February 2011, we issued an aggregate of 421,392 shares of our common stock in connection with the conversion of the remaining balance of $52,000 of the convertible note.

On May 16, 2011, BlueCrest agreed with the Company and Magna Group, LLC (“Magna”) to again split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $139,729.82 (the “New Note”). The New Note was assigned to Magna in consideration for a payment by them to BlueCrest of $139,729.82, and modified. Additionally, Magna purchased a $34,750 convertible note from the Company (the “Convertible Note”).

The loans evidenced by the New Note and Convertible Note are in the nature of convertible debt evidenced by two unsecured convertible promissory notes, each bearing interest at the rate of 8% per annum, payable at maturity and each convertible into common stock of the Company at a price that is 45% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its conversion right.


•	In June 2011, we issued an aggregate of 338,834 shares of our common stock in connection with the conversion of $29,728.82 of the convertible note.

On June 15, 2011, BlueCrest agreed with the Company and Lotus Funding Group, LLC (“Lotus”) to split the note evidencing the Loan into two notes aggregating the outstanding principal balance, with the new note being in the principal amount of $139,729.82 (the “New Note”). The New Note was assigned to Lotus in consideration for a payment by them to BlueCrest of $139,729.82, and modified.

The loan evidenced by the New Note is in the nature of convertible debt evidenced by an unsecured convertible promissory note, bearing interest at the rate of 8% per annum, payable at maturity and convertible into common stock of the Company at a price that is 50% less than the average of the closing prices for the Company’s shares for the five (5) days prior to the Lenders’ election to exercise its conversion right.


•	In June 2011, we issued an aggregate of 836,775 shares of our common stock in connection with the conversion of $40,000 of the convertible note.

Issuance of Shares of Common Stock

In May 2011, the Company issued an aggregate of 300,000 shares of our common stock in connection with Consulting Agreements.

Item 6.

Exhibits


Exhibit No.		Exhibit Description
3.1(6)		Amended and Restated Articles of Incorporation of the registrant, as amended
3.2(9)		Articles of Amendment to the Articles of Incorporation of the registrant
3.3(8)		Amended and Restated Bylaws
4.1(5)		Loan and Security Agreement, dated as of May 31, 2007 by and between BlueCrest Capital Finance, L.P. and the registrant
4.2(12)		Notice of Event of Default, from BlueCrest Venture Finance Master Fund Limited to the Company, dated January 28, 2009
4.3(12)		Notice of Acceleration, from BlueCrest Venture Finance Master Fund Limited to the Company, dated February 2, 2009
4.4(13)		Amendment to Loan and Security Agreement, between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009
4.5(13)		Grant of Security Interest (Patents), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009
4.6(13)		Security Agreement (Intellectual Property), between the Company and BlueCrest Venture Finance Master Fund Limited, dated as of April 2, 2009
4.7(13)		Subordination Agreement, by Hunton & Williams, LLP in favor of BlueCrest Venture Finance Master Fund Limited, entered into and effective April 2, 2009
4.8(13)		Amended and Restated Promissory Note, dated April 2, 2009, by the Company to BlueCrest Venture Finance Master Fund Limited
4.9(13)		Warrant to purchase 1,315,542 shares of the registrant’s common stock, dated April 2, 2009, issued to BlueCrest Venture Finance Master Fund Limited
4.10(14)		Warrant to purchase 451,043 shares of the registrant’s common stock, dated April 2, 2009, issued to Rogers Telecommunications Limited
4.11(14)		Warrant to purchase 173,638 shares of the registrant’s common stock, dated April 2, 2009, issued to Hunton & Williams, LLP
10.1**(1)		1999 Officers and Employees Stock Option Plan
10.2**(1)		1999 Directors and Consultants Stock Option Plan
10.2(a)
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.
10.12(4)		Warrant to purchase shares of the registrant's common stock issued to Howard J. Leonhardt and Brenda Leonhardt
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.
10.15(4)		Warrant to purchase shares of the registrant's common stock issued to the R&A Spencer Family Limited Partnership


10.16(4)		Supply and License Agreement, dated June 7, 2007, by and between the registrant and BioLife Solutions, Inc.***
10.17(5)		Warrant to purchase shares of the registrant's common stock issued to BlueCrest Capital Finance, L.P.
10.18(6)		Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Samuel S. Ahn, M.D.
10.19(6)		Loan Guarantee, Payment and Security Agreement, dated as of September 12, 2007, by and between the registrant and Dan Marino
10.20(6)		Warrant to purchase shares of the registrant's common stock issued to Samuel S. Ahn, M.D.
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
10.23(7)		Warrant to purchase shares of the registrant's common stock issued to 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
10.27(11)		Form of Warrant Agreement for October 2008 Private Placement
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
10.30(19)		10% Convertible Promissory Note Due July 23, 2010, in the amount of $100,000, payable to Bruce Meyers
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)		Letter of Intent 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.
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 on February 13, 2007
(2)		Reserved
(3)		Incorporated by reference to Amendment No. 2 to the Company’s Form S-1 filed with the Securities and Exchange Commission on July 12, 2007
(4)		Incorporated by reference to Amendment No. 3 to the Company’s Form S-1 filed with the Securities and Exchange
		Commission on August 9, 2007
(5)		Incorporated by reference to Amendment No. 4 to the Company’s Form S-1 filed with the Securities and Exchange Commission on September 6, 2007
(6)		Incorporated by reference to Amendment No. 5 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 1, 2007
(7)		Incorporated by reference to Post-effective Amendment No. 1 to the Company’s Form S-1 filed with the Securities and Exchange Commission on October 11, 2007
(8)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2008
(9)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2008
(10)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2008
(11)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2008
(12)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 3, 2009
(13)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2009
(14)		Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2009
(15)		Incorporated by reference to the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on April 30, 2009
(16)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2009
(17)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 20, 2009
(18)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 9, 2009
(19)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2009
(20)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2009
(21)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2009
(22)		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 Securities and Exchange Commission on April 28, 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’s Current Report on Form 8-K filed with the SEC on May 25, 2011.
(26)		Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2011.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Bioheart, Inc.

Date: August 15, 2011	By:	/s/Mike Tomas
		Mike Tomas
		Chief Executive Officer & President

U.S. Stem Cell, Inc. - FORM 10-Q - August 15, 2011

Attached files

U.S. Stem Cell, Inc. Reports