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0px; text-align: justify;">Bioheart, Inc. (the &#8220;Company&#8221;) was incorporated under the laws of the State of Florida in August, 1999. The Company is in the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. Our business includes the development of proprietary cell therapy products as well as revenue generating physician and patient based regenerative medicine / cell therapy training services, cell collection and cell storage services, the sale of cell collection and treatment kits for humans and animals, and the operation of a cell therapy clinic. To date, the Company has not generated significant sales revenues to cover costs, incurred expenses, and as a result has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a research and development business enterprise.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Estimates</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, revenues and expenses and certain disclosures. The most significant estimates are those used in determination of derivative liabilities and stock compensation. Accordingly, actual results could differ from those estimates.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Revenue Recognition</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (&#8220;ASC 605-10&#8221;) 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&#8217;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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">At the time of each transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Revenues for test kits and equipment sold are not recorded until test kits are delivered. The Company has revenue sharing arrangements for the sale of goods whereby the Company is the primary obligor, sets pricing with the customers and bears all associated credit risks with the customers. Sales under revenue share arrangements are recorded as gross sales and any portion shared with third parties under such arrangements are classified as selling expense due to the nature of the marketing activities performed by the third party. Revenues from trainings are not recorded until the completion of the training. Any cash received as a deposit for trainings are recorded by the company as a liability.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Patent treatments and laboratory services revenue are recognized when those services have been completed or satisfied.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Revenues for bank sales are accounted for as Multiple-Element Arrangements under ASC 605-10 which incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (&#8220;ASC 605-25&#8221;). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Cash</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;"><u>Accounts Receivable</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;"><u>Allowance for Doubtful Accounts</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Any changes to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of December 31, 2014 and 2013, allowance for doubtful accounts was $-0-.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;"><u>Long-Lived Assets</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company follows FASB ASC 360-10-15-3, &#8220;Impairment or Disposal of Long-lived Assets,&#8221; which established a &#8220;primary asset&#8221; approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The Company determined that there was no impairment on its long-lived assets during 2014 and 2013.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;"><u>Property and Equipment</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;"><u>Income Taxes</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (&#8220;ASC 740-10&#8221;) 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. 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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. 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For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. &#160;Stock-based compensation expense is recorded by the Company in the same expense classifications in the statements of operations, as if such amounts were paid in cash. As of December 31, 2014, there were outstanding stock options to purchase 66,925,209 shares of common stock, 24,814,222 shares of which were vested.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Concentrations of Credit Risk</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company&#8217;s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, the Company&#8217;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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">As of December 31, 2014, two customers represented 38% and 17%, aggregate of 55% of the Company&#8217;s accounts receivable. As of December 31, 2013, three customers represented 36%, 20% and 20%, aggregate of 76%, of the Company&#8217;s accounts receivable.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company&#8217;s revenues earned from sale of products and services for the year ended December 31, 2014 included 10% of the Company&#8217;s total revenues from one customer. For the year ended December 31, 2013, Company&#8217;s revenues earned from sale of products and services included 20% of the Company&#8217;s total revenues from one customer.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Reliance on Key Personnel and Consultants</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company has three full-time employees and no part-time employees. The Company is heavily dependent on the continued active participation of its two current executive officers, one employee and key consultants. The loss of any of the senior management or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Research and Development</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (&#8220;ASC 730-10&#8221;). 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 $66,420 and $626,983 for the years ended December 31, 2014 and 2013, respectively.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Derivative Instrument Liability</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2014 and 2013, the Company did not have any derivative instruments that were designated as hedges.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">At December 31, 2014, the Company had outstanding convertible notes that contained embedded derivatives. These embedded derivatives include certain conversion features and reset provisions. (See Note 10)</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Fair Value</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Accounting Standards Codification subtopic 825-10, Financial Instruments (&#8220;ASC 825-10&#8221;) requires disclosure of the fair value of certain financial instruments. 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These embedded derivatives included certain conversion features and reset provision.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date. 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The initial fair value of the embedded debt derivative of $335,089 was allocated as a debt discount up to the proceeds of the note ($255,500) with the remainder ($79,589) charged to current period operations as interest expense. For the years ended December 31, 2014 and 2013, the Company amortized $92,794 and $162,706 of debt discount to current period operations as interest expense, respectively. 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The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date, which at December 31, 2014 was $149,770. 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(&#8220;Fourth Man&#8221;), for the sale of an 8% convertible note in the principal amount of $35,000 (the &#8220;Note&#8221;).</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 10, 2014. The Note is convertible into common stock, at Fourth Man&#8217;s option, at a 47% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Fourth Man Note. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Fourth Man Note and to fair value as of each subsequent reporting date. At the inception of the Fourth Man Note, the Company determined the aggregate fair value of $52,894 of the embedded derivatives.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 164.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company&#8217;s common stock of $0.0121 per share. The initial fair value of the embedded debt derivative of $52,894 was allocated as a debt discount up to the proceeds of the note ($35,000) with the remainder ($17,894) charged to current period operations as interest expense. For the years ended December 31, 2014 and 2013, the Company amortized $19,337 and $15,663 of debt discount to current period operations as interest expense, respectively.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><i>2014 Notes</i></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><i>&#160;</i></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">During the year ended December 31, 2014, the Company entered into Securities Purchase Agreements with Fourth Man, LLC. (&#8220;Fourth Man&#8221;), for the sale of an 8% to 9.5% convertible notes in the aggregate principal amount of $100,000 (the &#8220;Note&#8221;).</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Notes bears interest at the rate of 8% to 9.5% per annum. 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These embedded derivatives included certain conversion features and reset provision.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Fourth Man Notes and to fair value as of each subsequent reporting date which at December 31, 2014 was $93,505. At the inception of the Fourth Man Notes, the Company determined the aggregate fair value of $168,501 of the embedded derivatives.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">For the year ended December 31, 2014, the Company amortized $50,549 of debt discount to current period operations as interest expense.</p> <p style="color: #000000; 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font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><i>2014 Notes</i></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><i>&#160;</i></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">During the year ended December 31, 2014, the Company entered into Securities Purchase Agreements with Daniel James Management (&#8220;Daniel&#8221;) for the sale of 8% to 9.5% convertible notes in aggregate principal amount of $135,000 (the &#8220;Daniel Notes&#8221;).</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; 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At the inception of the Daniel Notes, the Company determined the aggregate fair value of $236,211 of the embedded derivatives.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">For the year ended December 31, 2014, the Company amortized $76,758 of debt discount to current period operations as interest expense.</p> <p style="color: #000000; 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At the inception of the Magna Note, the Company determined the aggregate fair value of $472,702 of the embedded derivative. 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The initial fair value of the embedded debt derivative of $1,443,708 was allocated as a debt discount up to the proceeds of the notes ($768,000) with the remainder ($675,708) charged to current period operations as interest expense. 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Each share of preferred stock is convertible into equal number of common shares at the option of the holder; entitled to 20 votes on all matters presented to be voted by the holders of common stock; upon event of liquidation, entitled to amount equal to stated value plus any accrued and unpaid dividends or other fees before distribution to junior securities. 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and &#8220;Stem Cell Training&#8221;, respectively. In addition, each party will be responsible for selling equipment and kit to existing and previous customers. Profits are divided on a fifty/fifty basis with distribution within 10 days of the accounting for patients and physician training and 30 day with sales of equipment and kits. 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The term of the agreement is for the life of the patents, which expire in 2015. The Company did not use this license in any of our technologies. The Company had not made any payments to WBH other than the initial payment to acquire the license. The Company has received confirmation from WBH that it has no obligation under the patent license agreement and WBH agreed to terminate the patent license agreement. 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In addition, the Board of Directors will grant Mr. Tomas options to be determined on or before June 30, 2015. The Company&#8217;s Board of Directors approved a bonus of $500,000 and options to acquire 10,000,000 shares of the Company&#8217;s common stock for ten years with four year vesting and a cashless exercise provision at an exercise price equal to the five day average closing price of the Company&#8217;s common stock as of August 1, 2014. 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In addition, the Board of Directors will grant Ms. Comella options to be determined on or before June 30, 2015. The Company&#8217;s Board of Directors approved a bonus of $300,000 and options to acquire 5,000,000 shares of the Company&#8217;s common stock for ten years with four year vesting and a cashless exercise provision at an exercise price equal to the five day average closing price of the Company&#8217;s common stock as of August 1, 2014. 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In the opinion of management, as of December 31, 2014, 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&#8217;s business, financial position, results of operations or liquidity. 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bgcolor="#e5ffff">&#160;</td> <td align="left" width="1%" nowrap="nowrap" style="border-bottom-color: #000000; border-bottom-width: 1pt; border-bottom-style: solid;" bgcolor="#e5ffff">&#160;</td> <td align="left" width="1%" nowrap="nowrap" bgcolor="#e5ffff">&#160;</td> <td align="left" width="1%" nowrap="nowrap" style="border-bottom-color: #000000; border-bottom-width: 1pt; border-bottom-style: solid;" bgcolor="#e5ffff">&#160;</td> <td align="right" width="6%" nowrap="nowrap" style="border-bottom-color: #000000; border-bottom-width: 1pt; border-bottom-style: solid;" bgcolor="#e5ffff"><font style="font-size: 10pt;">686</font></td> <td align="left" width="1%" nowrap="nowrap" style="border-bottom-color: #000000; border-bottom-width: 1pt; border-bottom-style: solid;" bgcolor="#e5ffff">&#160;</td> </tr> <tr valign="bottom"> <td align="left" width="82%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap"></td> <td align="left" width="1%" nowrap="nowrap" 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As of December 31, 2014 and December 31, 2013, the Company had net operating loss carryforwards for state income tax purposes of approximately $95.8 million and $94.2 million, respectively, which expire at various dates from 2019 through 2034.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">The Company has provided a full valuation allowance against its net deferred tax assets, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits of these assets will not be realized.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;"></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">The Company complies with the provisions of FASB ASC 740-10 in accounting for its uncertain tax positions. ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Management has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740-10.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">The Company is subject to income tax in the U.S., and certain state jurisdictions. The Company has not been audited by the U.S. Internal Revenue Service, or any states in connection with income taxes. The Company&#8217;s tax years generally remain open to examination for all federal and state tax matters until its net operating loss carryforwards are utilized and the applicable statutes of limitation have expired. 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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:</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">Level 1 &#8211; Quoted prices in active markets for identical assets or liabilities.</p> <p style="color: #000000; 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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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">Level 3 &#8211; Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">The carrying value of the Company&#8217;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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">As of December 31, 2014 or 2013, the Company did not have any items that would be classified as level 1 or 2 disclosures.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in notes 7 and 9. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Notes 8 and 10 are that of volatility and market price of the underlying common stock of the Company.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">As of December 31, 2014 and 2013, the Company did not have any derivative instruments that were designated as hedges.</p> <p style="color: #000000; 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(&#8220;KBM&#8221;), for the sale of an 8% convertible note in the principal amount of $38,000 (the &#8220;Note&#8221;).</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">The Note bears interest at the rate of 8% per annum. 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After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">On January 28, 2015, the Company entered into a Securities Purchase Agreement with Fourth Man, LLC., for the sale of an 9.5% convertible note in the principal amount of $25,000 (the &#8220;Note&#8221;).</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0pt 0px;">The Note bears interest at the rate of 9.5% per annum. All interest and principal must be repaid on January 27, 2016. The Note is convertible into common stock, at Asher&#8217;s option, at a 47% discount to the lowest daily closing trading price of the common stock during the 10 trading day period prior to conversion. 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All interest and principal must be repaid on November 23, 2015. The Note is convertible into common stock, at VIS&#8217;s option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 140% if prepaid during the period commencing on the closing date through 179 days thereafter. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Basis and business presentation</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Bioheart, Inc. (the &#8220;Company&#8221;) was incorporated under the laws of the State of Florida in August, 1999. The Company is in the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. Our business includes the development of proprietary cell therapy products as well as revenue generating physician and patient based regenerative medicine / cell therapy training services, cell collection and cell storage services, the sale of cell collection and treatment kits for humans and animals, and the operation of a cell therapy clinic. To date, the Company has not generated significant sales revenues to cover costs, incurred expenses, and as a result has sustained losses. 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The most significant estimates are those used in determination of derivative liabilities and stock compensation. Accordingly, actual results could differ from those estimates.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;"><u>Revenue Recognition</u></p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (&#8220;ASC 605-10&#8221;) 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&#8217;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.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">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. 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Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">&#160;</p> <p style="color: #000000; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; font-size: 10pt; font-family: 'times new roman', times, serif; margin: 0px; text-align: justify;">Revenues for test kits and equipment sold are not recorded until test kits are delivered. 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Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. 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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. 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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. 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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. 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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. 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