U.S. Stem Cell, Inc. - Quarter Report: 2011 March (Form 10-Q)

The amount of interest expense on the principal amount of the BlueCrest Loan for the three months ended March 31, 2011 and 2010 totaled approximately $65,670 and $94,558, 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 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.

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

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capital and reflected as a component of debt discount and is being amortized as interest expense ratably over the term of the loan.

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.

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 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

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to file any registration statement with respect to the shares, except that the Lenders will have customary “piggyback” registration rights.

At March 31, 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 the three months ended March 31, 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 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 three months ended March 31, 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 $0.001 per share.

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 three months ended March 31, 2011, the Company amortized $6,250 to current period operations as interest expense.

Notes payable, related party

At March 31, 2011, the Company has outstanding two related party notes payable with interest at 8% per annum due at maturity. The two notes, $125,000 and $100,000 are due on October 22, 2012 and November 30, 2012, respectively, and are unsecured.

NOTE 9 – STOCKHOLDERS’ EQUITY

Preferred stock

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The Company is authorized to issue 5,000,000 shares of preferred stock with par value $.001 per share. As of March 31, 2011 and December 31, 2010, no shares of preferred stock were issued or outstanding.

Common stock

The Company is authorized to issue 75,000,000 shares of common stock with par value $.001 per share. As of March 31, 2011 and December 31, 2010, the Company had 42,443,169 shares and 37,545,865 shares of common stock issued and outstanding, respectively.

During the three months ended March 31, 2011, the Company issued an aggregate of 438,170 shares of its common stock on exercise of options.

During the three months ended March 31, 2011, the Company issued an aggregate of 959,934 shares of its common stock in exchange for outstanding notes payable.

NOTE 10 – STOCK OPTIONS AND WARRANTS

Stock Options

A summary of options at March 31, 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			312,167		$	0.001
Exercised			(312,167	)	$	0.001
Forfeited/Expired			(122,724	)	$	1.01
Options outstanding at March 31, 2011			1,902,820		$	2.90			6.5
Options exercisable at March 31, 2011			1,307,698		$	3.93			5.4
Available for grant at March 31, 2011			4,870,392

The following information applies to options outstanding and exercisable at March 31, 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			9.12		$	0.56			201,161		$	0.68
$0.71 – $1.28			324,780			7.05		$	0.77			267,107		$	0.76
$5.25 – $5.67			807,312			4.01		$	5.58			793,062		$	5.59
$7.69			39,572			5.42		$	7.69			39,572		$	7.69
$8.47			6,796			6.03		$	8.47			6,796		$	8.47
			1,902,820			6.51		$	2.90			1,307,698		$	3.93

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During the three months ended March 31, 2011, the Company granted an aggregate of 312,167 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 three months ended March 31, 2011 were determined using the Black Scholes option pricing model with the following assumptions: Dividend yield: 0%; Volatility: 146.17% to 147.71%; and Risk free rate: 3.30% to 3.48%.

The fair value of all options vesting during the three months ended March 31, 2011 and 2010 of $105,347 and $47,298, respectively, was charged to current period operations.

Warrants

A summary of warrants at March 31, 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			2,231,785		$	0.39
Exercised			—		$
Forfeited			—		$
Outstanding at March 31, 2011			16,152,514		$	1.73			5.2
Exercisable at March 31, 2011			8,402,494		$	1.78			5.1

During the three months ended March 31, 2011, the Company issued an aggregate of 1,951,785 warrants to purchase the Company’s common stock at $0.18 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 three months ended March 31, 2011, the Company issued an aggregate of 280,000 warrants to purchase the Company’s common stock from $1.44 per share expiring in February 2016 in connection with the sale of the Company’s common stock.

The following information applies to warrants outstanding and exercisable at March 31, 2011:

		Warrants Outstanding									Warrants Exercisable
		Shares			Weighted- Average Remaining Contractual Term			Weighted- Average Exercise Price			Shares			Weighted- Average Exercise Price
0.01 - $0.50			6,375,750			2.8		$	0.18			170,180			0.18
0.52 - $0.68			3,776,909			6.3		$	0.59			3,776,909		$	0.59
0.70 - $1.62			2,649,454			4.0		$	0.79			2,649,454		$	0.79
1.81 – $2.61			427,119			0.6		$	2.07			427,119		$	2.07
3.60 – $4.93			105,000			2.4		$	4.87			105,000		$	4.87
5.67 – $7.69			2,818,282			11.2		$	7.50			1,273,832		$	7.26
			16,152,514			5.2		$	1.73			8,402,494		$	1.78

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NOTE 11 – 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 12 – 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 March 31, 2011, the Company has not made any payments other than the initial payment to acquire the license. At March 31, 2011 and December 31, 2010, the Company’s liability under this agreement was $1,333,370 and $1,090,000, respectively, which is reflected as a component of accrued expenses on the consolidated balance sheets. In the three months ended March 31, 2011, 2010 and for the cumulative period from August 12, 1999 (date of inception) to March 31, 2011, the Company incurred expenses of $52,500, $52,500 and $1,333,370, respectively. 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 $190,870 in accrued expenses as of March 31, 2011.

          Approximate annual future minimum obligations under this agreement as of March 31, 2011 are as follows:

Year Ending December 31,

2011		$	157,500
2012			210,000
2013			210,000
2014 — 2015			420,000
Total		$	997,500

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 March 31, 2011 or December 31, 2010.

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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 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.

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          The Company is subject to other legal proceedings that arise in the ordinary course of business. In the opinion of management, as of March 31, 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 13 – SUBSEQUENT EVENTS

Subscription Agreements

          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.

          On April 18, 2011 the Company delivered a written notice of default and termination to each of Anc Bio Holdings, Inc., a South Korean biomedical company, and one of its U.S. agents, Bioheart Florida, LLC, in respect of the Subscription Agreements dated January 23, 2011. 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.

Issuance of Options and Warrants

          Between April 1, 2011 and May 23, 2011, the Company issued options to purchase an aggregate of 145,000 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 May 23, 2011 an aggregate of 145,000 shares of common stock have been issued upon the exercise of the aforementioned options.

          Between April 1, 2011 and May 23, 2011, the Company issued warrants to purchase an aggregate of 82,790 shares of its common stock at a weighted average exercise price of $0.15 per share. These warrants were issued in connection with Subscription agreement discussed above. The warrant vests six months following issuance and expires on the third year anniversary of the date of issuance.

Loan Agreement Amendment

               On May 16, 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 May 1, 2011 was $1,807,675.34. On May 16, 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 $34,750 convertible note from the Company (the “Convertible Note”).

               The loan evidenced by the New Note is 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 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.

               The loan evidenced by the Convertible 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 lowest three (3) closing prices for the Company’s shares for the ten (10) days prior to the Lenders’ election to exercise its conversion right.

Issuance of Shares

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          Between April 1, 2011 and May 23, 2011, the Company issued an aggregate of 300,000 shares of common stock to Consultants.

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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 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 March 31, 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

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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

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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

          On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS No. 123R”) using the modified prospective transition method. SFAS No. 123R requires us to measure all share-based payment awards granted after January 1, 2006, including those with employees, at fair value. Under SFAS No. 123R, the fair value of stock options and other share-based compensation must be recognized as expense in the statements of operations over the requisite service period of each award.

          The fair value of share-based awards granted subsequent to January 1, 2006 is determined using the Black-Scholes valuation model and compensation expense is recognized on a straight-line basis over the vesting period of the awards. Beginning January 1, 2006, we also began recognizing compensation expense under SFAS No. 123R for the unvested portions of outstanding share-based awards previously granted under our stock option plans, over the periods these awards continue to vest. Our future share-based compensation expense will depend on the number of equity instruments granted and the estimated value of the underlying common stock at the date of grant.

          We account for certain share-based awards, including warrants, with non-employees in accordance with SFAS No. 123R and related guidance, including EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. We estimate the fair value of such awards

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using the Black-Scholes valuation model at each reporting period and expense the fair value over the vesting period of the share-based award, which is generally the period in which services are provided.

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.

               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.

               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.

               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.

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 March 31, 2011 and 2010

Revenues

          We recognized revenues of $0.00 in the three month period ended March 31, 2011 compared to revenues of $29,800 in the three month period ended March 31, 2010. The revenue in the three month period ended March 31, 2010 was generated mainly from the sale of MyoCath catheters.

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Cost of Sales

          Cost of sales was $0.00 in the three month period ended March 31, 2011 compared to $14,404 in the three month period ended March 31, 2010.

Research and Development

          Research and development expenses were approximately $170,100 in the three month period ended in March 31, 2011, a decrease of approximately $245,800 from research and development expenses of $415,900 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 $490,500 in the three month period ended March 31 2011, an increase of $63,200 from marketing, general and administrative expenses of approximately $427,300 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.

Interest Income

          Interest income consists of interest earned on our cash and cash equivalents. Interest income was $0.03 in the three month period ended March 31, 2011 compared to interest income of $0.83 in 2010..The decrease in interest income was primarily attributable to lower cash balances in the three month period ended March 31, 2011 compared to 2010.

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 $409,720 in the three month period ended March 31, 2011 compared to interest expense of $399,206 in 2010. Interest incurred on the principal amount of our outstanding loans and interest and fees earned by the guarantors totaled $178,253 in the three month period ended March 31, 2011 and $299,755 in 2010. Amortization of debt discounts and amortization of the fair value of warrants issued in connection with the Note payable totaled $95,212 in the three month period ended March 31, 2011 compared to $97,354 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 three month period ended March 31, 2011, we continued to finance our considerable operational cash needs with cash generated from financing activities.

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Operating Activities

          Net cash used in operating activities was $306,556 in the three month period ended March 31, 2011 as compared to $503,718 of cash used in 2010.

          Our use of cash for operations in the three months ended March 31, 2011 reflected a net loss generated during the period of approximately $1.2 million, adjusted for non-cash items such as stock-based compensation of $105,347, amortization of the fair value of warrants granted in connection with the Note payable of $92,158, amortization of debt discounts incurred in connection with the BlueCrest Loan and Bank of America Loan of $3,054. A increase in prepaid and other current assets of $50,761 contributed to our use of operating cash in the three months ended March 31, 2011. The increase in prepaid expenses and other current assets was due mainly to the increase in prepaid insurance. Partially offsetting these uses of cash was an increase in accrued expenses of $109,531 and accounts payable of $363,511.

          Our use of cash for operations in the three month period ended March 31, 2010 reflected a net loss generated during the period of approximately $1.3 million. However, our net loss was significantly offset by a decrease in prepaid expenses and other current assets of $18,943, an increase in accounts payable of $37,789 and an increase in accrued expenses of $194,851. The decrease in prepaid expenses was due to the refund of upfront payments under an agreement with the contract research organization that we were utilizing for the MARVEL trial. Accounts payable increased as we have sought to conserve cash until significant additional financing was obtained.

Investing Activities

          Net cash used in investing activities was $0 in the three month period ended March 31, 2011 and $0 in 2010.

Financing Activities

          Net cash provided by financing activities was $473,258 in the three month period ended March 31, 2011 as compared to $478,000 in 2010.

          In the three month period ended March 31, 2011 we sold, in a private placement, shares of common stock for aggregate net cash proceeds of approximately $514,501.

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 March 31, 2011 we had cash and cash equivalents totaling $170,000 however, our working capital deficit as of such date was approximately $11.95 million. 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.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

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

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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.

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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 January 2011, the Company sold, in a private placement, an aggregate of 102,780 shares of the Company’s common stock and warrants to purchase 51,390 shares of the Company’s common stock for aggregate gross cash proceeds of $18,500. The warrants are (i) exercisable solely for cash at an exercise price of $0.22 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 January 2011, the Company sold an aggregate of 318,750 shares of the Company’s common stock and warrants to purchase 159,375 shares of the Company’s common stock for aggregate gross cash proceeds of $51,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.19 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 March 2011, the Company sold an aggregate of 577,670 shares of the Company’s common stock and warrants to purchase 491,020 shares of the Company’s common stock for aggregate gross cash proceeds of $85,000. The warrants are (i) exercisable solely for cash at an exercise price of $0.14 to $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 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.

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:

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          (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

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          In February 2011, the Board of Directors approved the issuance of stock options to purchase an aggregate of 210,000 shares of common stock at an exercise price of $0.21 per share issued to certain members of the Company’s Board of Directors. The options will vest immediately upon issuance 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.

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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.

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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.
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

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(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.

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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: May 23, 2011	By:	/s/Mike Tomas
		Mike Tomas
		Chief Executive Officer & President

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