##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 to
 Commission File Number: 001-33718
 
 BIOHEART, INC.
  
 Florida
(State or other jurisdiction of 
incorporation or organization)
    
    65-0945967
(I.R.S. Employer Identification No.)
 13794
NW
4 th Street, Suite 212, Sunrise, Florida 33325
 (954) 835-1500
 
 x o
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer o (Do not check if a smaller reporting company)
    
    Smaller reporting company x
 o x




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##### 



BIOHEART, INC.
 INDEX
  
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    31)
    
    Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
    
    
    32)
    
    Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2008 and 2007 (unaudited)
    
    
    43)
    
    Consolidated Statement of Shareholders Deficit for the nine-month period ended September 30, 2008 (unaudited)
    
    
    54)
    
    Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2008 and 2007 (unaudited)
    
    
    65)
    
    Notes to Consolidated Interim Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4T.
    
    Controls and Procedures
    
    
    40PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    43Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    47Item 6.
    
    Exhibits
    
    
    47Signatures
    
    
    49Index to Exhibits
    
    
    50EX-10.28EX-10.29EX-31.1EX-31.2EX-32.1EX-32.2
   
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    327,551
    
    
    $
    5,492,157Receivables
    
    
    60,922
    
    
    
    52,642Inventory
    
    
    406,263
    
    
    
    372,054Prepaid expenses and other current assets
    
    
    1,370,180
    
    
    
    261,030Total current assets
    
    
    2,164,916
    
    
    
    6,177,883Property and equipment, net
    
    
    325,084
    
    
    
    444,506Deferred offering costs
    
    
    
    
    
    
    3,484,070Deferred loan costs, net
    
    
    468,404
    
    
    
    1,146,716Other assets
    
    
    68,854
    
    
    
    71,148Total assets
    
    $
    3,027,258
    
    
    $
    11,324,323LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilitiesAccounts payable
    
    $
    2,155,946
    
    
    $
    2,134,256Accrued expenses
    
    
    4,840,619
    
    
    
    4,511,775Deferred revenue
    
    
    465,286
    
    
    
    547,286Notes payable  current
    
    
    7,839,239
    
    
    
    6,671,112Total current liabilities
    
    
    15,301,090
    
    
    
    13,864,429Deferred rent
    
    
    13,713
    
    
    
    21,426Note payable  long term
    
    
    1,542,203
    
    
    
    2,943,432Total liabilities
    
    
    16,857,006
    
    
    
    16,829,287Commitments and contingenciesShareholders deficitPreferred stock ($0.001 par value) 5,000,000
shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock ($0.001 par value) 75,000,000
shares authorized; 14,508,916 and 13,347,138
shares issued and outstanding as of September
30, 2008 and December 31, 2007, respectively
    
    
    14,509
    
    
    
    13,347Additional paid-in capital
    
    
    80,293,505
    
    
    
    77,061,296Deficit accumulated during the development stage
    
    
    (94,137,762
    )
    
    
    (82,579,607
    )Total shareholders deficit
    
    
    (13,829,748
    )
    
    
    (5,504,964
    )Total liabilities and shareholders deficit
    
    $
    3,027,258
    
    
    $
    11,324,323
  3




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Consolidated Statements of Operations
 CumulativePeriod fromAugust 12,1999 (date ofFor the Three-Month Period
    
    
    For the Nine-Month Period
    
    
    inception) toEnded September 30,
    
    
    Ended September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    6,990
    
    
    $
    46,550
    
    
    $
    49,771
    
    
    $
    254,964
    
    
    $
    777,593Cost of sales
    
    
    3,316
    
    
    
    17,797
    
    
    
    10,962
    
    
    
    51,818
    
    
    
    325,361Gross profit
    
    
    3,674
    
    
    
    28,753
    
    
    
    38,809
    
    
    
    203,146
    
    
    
    452,232Development revenues
    
    
    20,500
    
    
    
    20,500
    
    
    
    97,000
    
    
    
    20,500
    
    
    
    117,500Expenses:Research and development
    
    
    2,158,861
    
    
    
    2,069,208
    
    
    
    4,994,552
    
    
    
    5,255,459
    
    
    
    61,695,159Marketing, general and
administrative
    
    
    1,735,352
    
    
    
    770,873
    
    
    
    4,684,063
    
    
    
    2,521,549
    
    
    
    27,544,951Depreciation and amortization
    
    
    45,432
    
    
    
    46,878
    
    
    
    136,981
    
    
    
    139,104
    
    
    
    571,658Total expenses
    
    
    3,939,645
    
    
    
    2,886,959
    
    
    
    9,815,596
    
    
    
    7,916,112
    
    
    
    89,811,768Loss from operations
    
    
    (3,915,471
    )
    
    
    (2,837,706
    )
    
    
    (9,679,787
    )
    
    
    (7,692,466
    )
    
    
    (89,242,036
    )Interest income
    
    
    2,195
    
    
    
    134,089
    
    
    
    44,397
    
    
    
    249,870
    
    
    
    760,918Interest expense
    
    
    (492,480
    )
    
    
    (1,461,043
    )
    
    
    (1,922,765
    )
    
    
    (1,762,405
    )
    
    
    (5,656,644
    )Net interest expense
    
    
    (490,285
    )
    
    
    (1,326,954
    )
    
    
    (1,878,368
    )
    
    
    (1,512,535
    )
    
    
    (4,895,726
    )Loss before income taxes
    
    
    (4,405,756
    )
    
    
    (4,164,660
    )
    
    
    (11,558,155
    )
    
    
    (9,205,001
    )
    
    
    (94,137,762
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (4,405,756
    )
    
    $
    (4,164,660
    )
    
    $
    (11,558,155
    )
    
    $
    (9,205,001
    )
    
    $
    (94,137,762
    )Loss per share  basic and diluted
    
    $
    (0.30
    )
    
    $
    (0.31
    )
    
    $
    (0.81
    )
    
    $
    (0.70
    )Weighted average shares
outstanding  basic and diluted
    
    
    14,459,897
    
    
    
    13,332,637
    
    
    
    14,254,707
    
    
    
    13,164,249
  4




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Consolidated Statement of Shareholders Deficit
(Unaudited)
 DeficitAccumulatedAdditional
    
    
    During theCommon Stock
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    TotalBalance as of December 31, 2007
    
    
    13,347,138
    
    
    $
    13,347
    
    
    $
    77,061,296
    
    
    $
    (82,579,607
    )
    
    $
    (5,504,964
    )Initial public offering of
common stock (net of
offering costs of
$4,327,171)
    
    
    1,100,000
    
    
    
    1,100
    
    
    
    1,446,729
    
    
    
    
    
    
    
    1,447,829Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,199,029
    
    
    
    
    
    
    
    1,199,029Warrants
issued in exchange for services
    
    
    
    
    
    
    
    
    
    
    251,850
    
    
    
    
    
    
    
    251,850Warrants issued in
connection with notes
payable
    
    
    
    
    
    
    
    
    
    
    168,387
    
    
    
    
    
    
    
    168,387Warrant issued in connection
with settlement agreement
    
    
    
    
    
    
    
    
    
    
    87,200
    
    
    
    
    
    
    
    87,200Exercise of stock options
    
    
    61,778
    
    
    
    62
    
    
    
    79,014
    
    
    
    
    
    
    
    79,076Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,558,155
    )
    
    
    (11,558,155
    )Balance as of September 30, 2008
    
    
    14,508,916
    
    
    $
    14,509
    
    
    $
    80,293,505
    
    
    $
    (94,137,762
    )
    
    $
    (13,829,748
    )
  5




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Consolidated Statements of Cash Flows
 CumulativePeriod fromAugust 12, 1999For the Nine-Month Period Ended
    
    
    (date of inception)September 30,
    
    
    to September 30,2008
    
    
    2007
    
    
    2008(Unaudited)
    
    
    (Unaudited)Cash flows from operating activitiesNet loss
    
    $
    (11,558,155
    )
    
    $
    (9,205,001
    )
    
    $
    (94,137,762
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    136,981
    
    
    
    139,104
    
    
    
    571,658Bad debt expense
    
    
    
    
    
    
    
    
    
    
    165,000Amortization of warrants issued in exchange for
licenses and intellectual property
    
    
    
    
    
    
    48,289
    
    
    
    5,413,156Amortization of warrants issued in connection with
notes payable
    
    
    664,734
    
    
    
    1,063,655
    
    
    
    3,072,411Amortization of loan costs
    
    
    351,639
    
    
    
    226,191
    
    
    
    838,178Warrants issued in exchange for services
    
    
    251,850
    
    
    
    30,559
    
    
    
    282,409Equity instruments issued in connection with settlement
agreement
    
    
    87,200
    
    
    
    
    
    
    
    3,381,629Common stock issued in exchange for services
    
    
    
    
    
    
    
    
    
    
    1,277,017Common stock issued in exchange for distribution rights
and intellectual property
    
    
    
    
    
    
    
    
    
    
    99,997Stock-based compensation
    
    
    1,199,029
    
    
    
    684,768
    
    
    
    8,801,000Changes in assets and liabilitiesReceivables
    
    
    (8,280
    )
    
    
    16,036
    
    
    
    (60,922
    )Inventory
    
    
    (34,209
    )
    
    
    (232,953
    )
    
    
    (406,263
    )Prepaid expenses and other current assets
    
    
    (1,109,150
    )
    
    
    (318,206
    )
    
    
    (1,370,180
    )Other assets
    
    
    2,294
    
    
    
    
    
    
    
    (68,854
    )Accounts payable
    
    
    270,320
    
    
    
    547,469
    
    
    
    2,144,079Accrued expenses and deferred rent
    
    
    803,130
    
    
    
    251,903
    
    
    
    5,232,118Deferred revenue
    
    
    (82,000
    )
    
    
    (109,214
    )
    
    
    465,287Net cash used in operating activities
    
    
    (9,024,617
    )
    
    
    (6,857,400
    )
    
    
    (64,300,042
    )Cash flows from investing activitiesAcquisitions of property and equipment
    
    
    (17,560
    )
    
    
    (60,794
    )
    
    
    (896,742
    )Net cash used in investing activities
    
    
    (17,560
    )
    
    
    (60,794
    )
    
    
    (896,742
    )Cash flows from financing activitiesProceeds from (payments for) initial public offering
of common stock, net
    
    
    4,236,653
    
    
    
    (1,880,034
    )
    
    
    1,447,829Proceeds from private placements of common stock, net
    
    
    
    
    
    
    3,920,716
    
    
    
    55,494,048Proceeds from exercise of stock options
    
    
    79,076
    
    
    
    93,541
    
    
    
    260,116Proceeds from notes payable
    
    
    1,000,000
    
    
    
    10,000,000
    
    
    
    11,200,000Repayment of notes payable
    
    
    (1,233,101
    )
    
    
    
    
    
    
    (1,818,557
    )Payment of loan costs
    
    
    (205,057
    )
    
    
    (775,187
    )
    
    
    (1,059,101
    )Net cash provided by financing activities
    
    
    3,877,571
    
    
    
    11,359,036
    
    
    
    65,524,335Net
(decrease) increase in cash and cash equivalents
    
    
    (5,164,606
    )
    
    
    4,440,842
    
    
    
    327,551Cash and cash equivalents, beginning of period
    
    
    5,492,157
    
    
    
    5,025,383
    
    
    
    Cash and cash equivalents, end of period
    
    $
    327,551
    
    
    $
    9,466,225
    
    
    $
    327,551Disclosures of cash flow information:Interest paid
    
    $
    403,483
    
    
    $
    161,959
    
    
    $
    749,278Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    
  6




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements
(Unaudited)
 1. Organization and Summary of Significant Accounting Policies
 Organization and Business
 ® ®
 Development Stage
 Accounting and Reporting by Development Stage
Enterprises ,
  Interim Financial Statements
  7




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
  Basis of Presentation
   Reverse Stock Split
  Initial Public Offering
 Subsequent Events
  8




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
   Use of Estimates
  Prepaid Expenses and Other Current Assets
  Deferred Loan Costs
  9




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 Stock Options and Warrants
 Share-Based Payment
  Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling Goods or Services
 Loss Per Share
 Earnings per Share
 Recent Accounting Pronouncements
 Recently Adopted Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157
 10




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
  
    
    Level 1  Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
    
    Level 2  Inputs include quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for the asset or liability
and inputs that are derived principally from or corroborated by observable market data by
correlation or other means (market corroborated inputs).
    
    Level 3  Unobservable inputs reflect the Companys judgments about the assumptions
market participants would use in pricing the asset or liability since limited market data
exists. The Company develops these inputs based on the best information available,
including the Companys own data.
  The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development Activities
 Share-Based
Payment Share-Based Payment
 11




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 Future Accounting Standards
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets Business Combinations,
 12




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 The Hierarchy of Generally Accepted Accounting
Principles, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles
  Reclassifications
  2. Going Concern
    13




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 3. Collaborative License and Research/Development Agreements
    
    
    The parties agreed that the Company would issue, and the Company did issue, to Cell
Transplants International a five-year warrant exercisable for 1.2 million shares of the
Companys common stock at an exercise price of $8.00 per share instead of, as originally
contemplated under the Original Law License Agreement, issuing to Cell Transplants
International or Dr. Law 600,000 shares of the Companys common stock and options to
purchase 600,000 shares of the Companys common stock at an exercise price of $1.80 per
share. These share amounts and exercise prices do not take into account any subsequent
recapitalizations or reverse stock splits.
    
    The parties agreed that the Companys obligation to pay Cell Transplants International a
$3 million milestone payment would be triggered upon the Companys commencement of a bona
fide U.S. Phase II human clinical trial that utilizes technology claimed under the Law IP
instead of, as originally contemplated under the Original Law License Agreement, upon
initiation of an FDA approved human clinical trial study of such technology in the United
States. This $3 million payment is included in accrued expenses as of September 30, 2008
and December 31, 2007.
   14




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 ®
  4. Notes Payable
  September 30,
    
    
    December 31,2008
    
    
    2007Bank of America note payable. Terms described below.
    
    $
    5,000,000
    
    
    $
    5,000,000BlueCrest Capital Finance note payable. Monthly
payments of principal and interest as described
below.
    
    
    3,381,442
    
    
    
    4,614,544Short-term note payable. Terms described below.
    
    
    1,000,000
    
    
    
    9,381,442
    
    
    
    9,614,544Less current portion
    
    
    (7,839,239
    )
    
    
    (6,671,112
    )Notes payable  long term
    
    $
    1,542,203
    
    
    $
    2,943,432
 15




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 Bank of America note payable
      16




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
      17




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
  BlueCrest Capital Finance note payable
     18




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 Short-term note payable
   5. Related Party Transactions
     19




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 6. Shareholders Equity
    7. Stock Options and Warrants
 Stock Options
   20




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term     (in years)
    
    
    ValueOutstanding at January 1, 2008
    
    
    2,160,199
    
    
    $
    5.34Granted
    
    
    310,500
    
    
    $
    5.21Exercised
    
    
    (61,778
    )
    
    $
    1.28Forfeited
    
    
    (156,343
    )
    
    $
    8.00Outstanding at September 30, 2008
    
    
    2,252,578
    
    
    $
    5.25
    
    
    
    5.9
    
    
    $
    359,977Exercisable at September 30, 2008
    
    
    2,029,576
    
    
    $
    5.09
    
    
    
    5.6
    
    
    $
    359,977
    Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards.
 21




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
  Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$1.28
    
    
    285,418
    
    
    
    1.3
    
    
    $
    1.28
    
    
    
    285,418
    
    
    $
    1.28$2.83- $4.11
    
    
    51,701
    
    
    
    3.0
    
    
    $
    3.08
    
    
    
    41,701
    
    
    $
    2.83$5.25 - $5.67
    
    
    1,691,345
    
    
    
    6.6
    
    
    $
    5.59
    
    
    
    1,569,918
    
    
    $
    5.59$7.69
    
    
    72,811
    
    
    
    7.9
    
    
    $
    7.69
    
    
    
    59,456
    
    
    $
    7.69$8.47
    
    
    151,303
    
    
    
    6.4
    
    
    $
    8.47
    
    
    
    73,083
    
    
    $
    8.472,252,578
    
    
    
    5.9
    
    
    $
    5.25
    
    
    
    2,029,576
    
    
    $
    5.09
   For the three-month periods ended
    
    For the nine-month periods endedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Expected dividend yield.
    
    
    00.0
    %
    
    
    00.0
    %
    
    
    00.0
    %
    
    
    00.0
    %Expected price volatility.
    
    
    75.0
    %
    
    
    100.0
    %
    
    
    75.0
    %
    
    
    100.0
    %Risk free interest rate.
    
    
    3.3
    %
    
    
    6.0
    %
    
    
    3.3
    %
    
    
    6.0
    %Expected life of options in years
    
    
    6.3
    
    
    
    5.0
    
    
    
    5.1
    
    
    
    5.0
 22




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 Warrants
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding at January 1, 2008
    
    
    2,251,836
    
    
    $
    7.52Issued
    
    
    300,773
    
    
    $
    6.19Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    2,552,609
    
    
    $
    7.36
    
    
    
    14.1
    
    
    $
    Exercisable at September 30, 2008
    
    
    803,839
    
    
    $
    6.78
    
    
    
    7.8
    
    
    $
    
    Warrants Outstanding
    
    Warrants ExercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageContractual
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Life
    
    Price
    
    Shares
    
    Price$3.60  $4.93
    
    
    105,000
    
    
    
    4.9
    
    
    $
    4.87
    
    
    
    100,000
    
    
    $
    4.93$5.67  $7.69
    
    
    2,447,609
    
    
    
    14.5
    
    
    $
    7.47
    
    
    
    703,839
    
    
    $
    7.042,552,609
    
    
    
    14.1
    
    
    $
    7.36
    
    
    
    803,839
    
    
    $
    6.78
  23




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
  For the three-month periods ended
    
    For the nine-month periods endedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Expected dividend yield
    
    
    00.0
    %
    
    
    00.0
    %
    
    
    00.0
    %
    
    
    00.0
    %Expected price volatility
    
    
    75.0
    %
    
    
    100.0
    %
    
    
    75.0
    %
    
    
    100.0
    %Risk free interest rate
    
    
    3.1
    %
    
    
    4.5
    %
    
    
    3.4
    %
    
    
    5.4
    %Expected life of
warrants in years
    
    
    5.0
    
    
    
    9.9
    
    
    
    6.5
    
    
    
    7.0
  8. Legal Proceedings
     24




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
     Other
  9. Contingency
  10. Supplemental Disclosure of Cash Flow Information
   25




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##### Table of Contents



Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
 Notes to Consolidated Interim Financial Statements  (Continued)
(Unaudited)
 11. Subsequent Events
 Private Placement
  NASDAQ Notice
     Termination of non-binding letter of intent to acquire Medicalgorithmics
  26




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Unless otherwise indicated, references in this quarterly report 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, 2007, as amended by Amendment No. 1 on Form 10-K/A filed with
the Securities and Exchange Commission.
 Cautionary Statement Regarding Forward-Looking Statements
   
    
    our ability to obtain additional financing;
    
    our ability to control and reduce our expenses;
    
    our ability to meet our obligations on our outstanding indebtedness, certain of which
indebtedness imposes restrictions on how we conduct our business and is secured by all of
our assets except our intellectual property;
    
    our ability to timely and successfully initiate and complete our clinical trials;
    
    the announcement of data concerning the results of clinical trials for MyoCell®;
    
    our ability to establish a distribution network for and commence distribution of certain
products for which we have acquired distribution rights;
    
    our ability to meet the minimum purchase commitments required under certain of our
distribution agreements;
    
    our estimates regarding future revenues and timing thereof, expenses, capital
requirements and needsfor additional financing;
    
    our ongoing and planned discovery programs, preclinical studies and additional clinical
trials;
    
    the timing of and our ability to obtain and maintain regulatory approvals for our
product candidates;
    
    the rate and degree of market acceptance and clinical utility of our products;
    
    our ability to quickly and efficiently identify and develop product candidates;
    
    our ability to identify and acquire distribution rights for products that are
complementary to our biologic product candidates;
    
    our commercialization, marketing and manufacturing capabilities and strategy; and
    
    our intellectual property position.
 27




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##### Table of Contents



Our Ability To Continue as a Going Concern
  Existing Capital
Resources and Future Capital Requirements Risk Factors  We will need to secure
additional financing by the end of November 2008...
 Overview
  Biotechnology Product Candidates
  28




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®
 ®
 Intelligent Devices  Distribution Agreements
  29




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##### Table of Contents



Critical Accounting Policies
  Share-Based Compensation
 Share-Based Payment
 30




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##### Table of Contents



Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling Goods or Services
 Revenue Recognition
 Revenue Recognition in Financial Statements Revenue Recognition
   Research and Development Activities
  31




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##### Table of Contents



Results of Operations
 Revenues
   Development revenues
   Cost of Sales
  Research and Development
  32




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##### Table of Contents



Existing Capital Resources and Future Capital
Requirements Risk Factors  We will need to secure additional financing by the end
of November 2008...
 Marketing, General and Administrative
   Interest Income
  Interest Expense
   33




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##### Table of Contents



Liquidity and Capital Resources
       34




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Existing Capital Resources and Future Capital Requirements
    35




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##### Table of Contents




    
    curtail or abandon our existing business plan;
    
    reduce our headcount;
    
    default on our debt obligations under the BlueCrest Loan;
    
    file for bankruptcy;
 
    
    seek to sell some or all of our assets; and/or
    
    cease our operations.
      36




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##### Table of Contents



BlueCrest Loan
    
    
    incur additional indebtedness, except for certain permitted indebtedness. Permitted
indebtedness is defined to include accounts payable incurred in the ordinary course of
business, leases of equipment or property incurred in the ordinary course of business not
to exceed, in the aggregate, $250,000, any unsecured debt less than $20,000 or any debt not
secured by the collateral pledged to BlueCrest that is subordinated to the rights of
BlueCrest pursuant to a subordination agreement satisfactory to BlueCrest in its sole
discretion;
    
    make any principal, interest or other payments arising under or in connection with our
loan from Bank of America or any other debt subordinate to the BlueCrest Loan;
    
    incur additional liens on any of our assets, including any liens on our intellectual
property, except for certain permitted liens including but not limited to non-exclusive
licenses or sub-licenses of our intellectual property in the ordinary course of business
and licenses or sub-licenses of intellectual property in connection with joint ventures and
corporate collaborations (provided that any proceeds from such licenses be used to pay down
the BlueCrest Loan);
    
    voluntarily prepay any debt prior to maturity, except for accounts payable incurred in
the ordinary course of business, leases of equipment or property incurred in the ordinary
course of business not to exceed, in the aggregate, $250,000 and any unsecured debt less
than $20,000;
 
    
    convey, sell, transfer or otherwise dispose of property, except for sales of inventory
in the ordinary course of business, sales of obsolete or unneeded equipment and transfers
of our intellectual property related to product candidates other than MyoCell or MyoCell
SDF-1 to a currently operating or newly formed wholly owned subsidiary;
 37




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##### Table of Contents




    
    merge with or acquire any other entity if we would not be the surviving person following
such transaction;
    
    pay dividends (other than stock dividends) to our shareholders;
    
    redeem any outstanding shares of our common stock or any outstanding options or warrants
to purchase shares of our common stock except in connection with a share repurchase
pursuant to which we offer to pay our then existing shareholders not more than $250,000;
    
    enter into transactions with affiliates other than on arms-length terms; and
 
    
    make any change in any of our business objectives, purposes and operations which has or
could be reasonably expected to have a material adverse effect on our business.
   Bank of America Loan
  38




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##### Table of Contents




    
    a $3.3 million limited personal guarantee provided by Mr. Howard J. Leonhardt, our
Chairman, Chief Executive Officer and Chief Technology Officer, and his spouse, which
guarantee is secured by the Leonhardts pledge of securities accounts with Bank of
America;
    
    $750,000 of collateral provided by Dr. Samuel S. Ahn, who is a shareholder and was a
member of our Board of Directors until September 2008;
    
    $400,000 of collateral provided by Dr. William P. Murphy, Jr., who is a member of
our Board of Directors; and
    
    an aggregate of $1.1 million of collateral provided by two of our current
shareholders.
    Short-term note payable
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Organization and Summary of Significant Accounting Policies
 39




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
   
 Item 4T.
    
    Controls and Procedures
 Disclosure Controls and Procedures
   Changes In Internal Control Over Financial Reporting
  40




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
   
    
    The parties agreed that we would issue, and we did issue, to Cell Transplants
International a five-year warrant exercisable for 1.2 million shares of our common stock at
an exercise price of $8.00 per share instead of, as originally contemplated under the
Original Law License Agreement, issuing to Cell Transplants International or Dr. Law
600,000 shares of our common stock and options to purchase 600,000 shares of our common
stock at an exercise price of $1.80 per share. These share amounts and exercise prices do
not take into account any subsequent recapitalizations or reverse stock splits.
    
    The parties agreed that our obligation to pay Cell Transplants International a $3
million milestone payment would be triggered upon our commencement of a bona fide U.S.
Phase II human clinical trial that utilizes technology claimed under the Law IP instead of,
as originally contemplated under the Original Law License Agreement, upon initiation of an
FDA approved human clinical study of such technology in the United States. This $3 million
payment is included in accrued expenses as of September 30, 2008 and December 31, 2007.
    41




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##### Table of Contents



Our current cash reserves are not sufficient to satisfy a significant money judgment in favor of
Dr. Law and Cell Transplants; there is a risk that a court could award such a judgment.
  42




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##### Table of Contents



Item 1A.
    
    Risk Factors
    Risks Related to Our Financial Position and Potential Need for Additional Financing
 We will need to secure additional financing by the end of November 2008 in order to continue to
finance our operations. If we are unable to obtain additional financing on acceptable terms, we may
be forced to curtail or cease our operations.
    
    
    curtail or abandon our existing business plan,
    
    reduce our headcount;
    
    default on our debt obligations under the BlueCrest Loan;
    
    file for bankruptcy;
 
    
    seek to sell some or all of our assets; and/or
    
    cease our operations.
  43




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##### Table of Contents



We have a substantial
amount of debt Our outstanding indebtedness to BlueCrest Capital Finance, L.P. imposes
certain restrictions
   The Global Credit Crisis and Market Downturn has had a negative impact on our ability to obtain
additional financing. Our inability to obtain additional financing would have a significant adverse
effect on our operations.
  44




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##### Table of Contents



Our current cash reserves are not sufficient to satisfy a significant money judgment in favor of
the Dr. Law and Cell Transplants; there is a risk that a court could award such a judgment.
  Our common stock may be de-listed from the NASDAQ Capital Market.
    
    
    the liquidity of our common stock;
    
    the market price of our common stock;
    
    our ability to obtain financing for the continuation of our operations;
    
    the number of institutional investors that will consider investing in our common
stock;
    
    the number of investors in general that will consider investing in our common stock;
    
    the number of market makers in our common stock;
    
    the availability of information concerning the trading prices and volume of our
common stock; and
    
    the number of broker-dealers willing to execute trades in shares of our common
stock.
 45




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
      46




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 6.
    
    Exhibits
 Exhibit No.
    
    Exhibit Description3.1
    (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 registrant3.3
    (8)
    
    Amended and Restated Bylaws4.1
    (5)
    
    Loan and Security Agreement, dated as of May 31, 2007 by and between BlueCrest
Capital Finance, L.P. and the registrant10.1**
    (1)
    
    1999 Officers and Employees Stock Option Plan10.2**
    (1)
    
    1999 Directors and Consultants Stock Option Plan10.3
    (1)
    
    Form of Option Agreement under 1999 Officers and Employees Stock Option Plan10.4
    (3)
    
    Form of Option Agreement under 1999 Directors and Consultants Stock Option Plan10.5**
    (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 Leonhardt10.10
    (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 Leonhardt10.13
    (4)
    
    Warrant to purchase shares of the registrants common stock issued to Howard
J. Leonhardt and Brenda Leonhardt10.14
    (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 Partnership10.16
    (4)
    
    Material Supply Agreement, dated May 10, 2007, by and between the registrant
and Biosense Webster10.17
    (4)
    
    Supply and License Agreement, dated June 7, 2007, by and between the
registrant and BioLife Solutions, Inc.***10.18
    (5)
    
    Warrant to purchase shares of the registrants common stock issued to
BlueCrest Capital Finance, L.P.10.19
    (6)
    
    Loan Guarantee, Payment and Security Agreement, dated as of September 12,
2007, by and between the registrant and Samuel S. Ahn, M.D.10.20
    (6)
    
    Loan Guarantee, Payment and Security Agreement, dated as of September 12,
2007, by and between the registrant and Dan Marino
 47




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##### Table of Contents



Exhibit No.
    
    Exhibit Description10.21
    (6)
    
    Warrant to purchase shares of the registrants common stock issued to Samuel
S. Ahn, M.D.10.22
    (6)
    
    Loan Guarantee, Payment and Security Agreement, dated as of September 19,
2007, by and between the registrant and Jason Taylor10.23
    (7)
    
    Loan Guarantee, Payment and Security Agreement, dated as of October 10, 2007,
by and between the registrant and Howard and Brenda Leonhardt10.24
    (7)
    
    Warrant to purchase shares of the registrants common stock issued to Howard
and Brenda Leonhardt10.25
    (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
Leonhardt10.26
    (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.10.27**
    (10)
    
    Bioheart, Inc. Omnibus Equity Compensation Plan10.28*
    
    
    Form of Warrant Agreement for October 2008 Private Placement10.29*
    
    
    Form of Registration Rights Agreement for October 2008 Private Placement31.1*
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
    
    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.***
    
    Portions of this document have been omitted and were filed separately with the SEC on August
9, 2007 pursuant to a request for confidential treatment.(1)
    
    Incorporated by reference to the Companys Form S-1 filed with the Securities and Exchange
Commission on February 13, 2007(2)
    
    Incorporated by reference to Amendment No. 1 to the Companys Form S-1 filed with the
Securities and Exchange Commission on June 5, 2007(3)
    
    Incorporated by reference to Amendment No. 2 to the Companys Form S-1 filed with the
Securities and Exchange Commission on July 12, 2007(4)
    
    Incorporated by reference to Amendment No. 3 to the Companys Form S-1 filed with the
Securities and Exchange Commission on August 9, 2007(5)
    
    Incorporated by reference to Amendment No. 4 to the Companys Form S-1 filed with the
Securities and Exchange Commission on September 6, 2007(6)
    
    Incorporated by reference to Amendment No. 5 to the Companys Form S-1 filed with the
Securities and Exchange Commission on October 1, 2007(7)
    
    Incorporated by reference to Post-effective Amendment No. 1 to the Companys Form S-1 filed
with the Securities and Exchange Commission on October 11, 2007(8)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 3, 2008(9)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 8, 2008(10)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 14, 2008 48




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SIGNATURES
  Bioheart, Inc.Date: November 14, 2008
    By:
    /s/ William H. KlineWilliam H. KlineChief Financial Officer and
Principal Financial Officer 49




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##### Table of Contents



INDEX OF EXHIBITS
 Exhibit No.
    
    Exhibit Description10.28
    
    
    Form of Warrant Agreement for October 2008 Private Placement10.29
    
    
    Form of Registration Rights Agreement for October 2008 Private Placement31.1
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 50