US Stem Cell Inc (USRM)

[Dragon Lady]

"Paper profit" or REAL "loss from operations" and negative cash flow? A "net income" due to a one-time "bookkeeping" entry (via walking away from/discharging a bad debt), Beaumont hospital, on which they were not paying anything anyways- has zero impact on their "liquidity problems", IMO. (Mgt's own words, "liquidity problems").

Cash flow, and positive "cash from operations" is far, far, far more important to a "cash poor", nearly insolvent company, than any, paper reported "net income" profit line entry, IMO and most likely that of many commentators who would most likely be considered "experts" such as accountants, CPA firms, stock analysts,etc.
http://www.investopedia.com/articles/analyst/03/122203.asp

Quoting from the article:
"Operating cash flow is the lifeblood of a company and the most important barometer that investors have. Although many investors gravitate toward net income, operating cash flow is a better metric of a company's financial health for two main reasons. First, cash flow is harder to manipulate under GAAP than net income (although it can be done to a certain degree). Second, "cash is king" and a company that does not generate cash over the long term is on its deathbed."

That "positive" net income, is only there because of the "gain on settlement of debt" entry on the balance sheet (the discharge of the Beaumont hospital debt) and is a "paper" entry only. No money or cash actually landed in a BHRT bank account because of it. If you were to back-out that $2,093,632 (ONE TIME, "paper gain") out of that balance sheet- the net income "loss" would have been as great, if not greater than same period last yr, because of their major increase in their expense line.

And the mgt's own statements, IMO, align with this sentiment (importance of cash flow/liquidity problems, versus a one-time "net income" line being a "positive" number)- as they included another, very specific "going concern" warning, despite the 10-K, containing a warning that covered all the way up through March of 2104. Mgt, apparently felt the need to add this one, to cover the period now to May, when the 10-Q was filed. 10-Q, PAGEs 11/12:

"NOTE 2 – GOING CONCERN MATTERS

The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed financial statements, during three months ended March 31, 2014, the Company incurred an operating loss of $620,923 and used $257,762 in cash for operating activities. As of March 31, 2014, the Company had a working capital deficit (current liabilities in excess of current assets) of approximately $11.1 million. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern."

That is mgt speaking in their own words- and they specifically chose to use the term, "liquidity problems". In business (as in life at home, or any loan, etc), "liquidity problems" will often lead to "insolvency" or the ability to have enough cash arriving (or a "liquid" asset, that can be converted to cash in a timely enough manner), on time, when needed, to PAY THE BILLS as they are due, w/o going into default, eventually leading to possible BK. That's what that means, IMO, and as far as I know, any generally accepted business, accounting, or similar terminology/understanding.

The loss from operations was actually larger this Q-1 period, than same period last year, despite the "revenues", due to a huge increase in their expense line. (10-Q, PAGE 5, balance sheet)
Net LOSS from operations Q-1, 2014: (620,923)
Net LOSS from operations Q-1, 2013: (531,084)

Also, quoting:
"Actually... It wasn't released at markets close... BHRT released the 10K that shows revenue of over 300K and cash balance over 200K an hour before close. Nice try. This is an extremely positive 10Q"

NICE TRY??
1) It was released, essentially "at market close" (about 1 hour prior to close, essentially no time to read the document and make a trade/decision based on it, IMO), about as close as one can get, ON A FRIDAY, and still make sure it got "accepted/uploaded" to the EDGAR system,East Coast time, IMO. Else, it would have been no biggy, IMO, to just wait and put it out on Monday or Tuesday before market open, or after market open, etc.

2) The "revenue" was $322,572. But that is not what goes "in the bank". Revenue comes with a "cost of sales". The "cost of sales" entry is $94,446.00. Thus, the most they "grossed" was: 322,572-94,446 = $228,126. $228,126 /3 = about $72K a month "gross" in revenue. Their SG&A "expense line" grew by more than that, off-setting any "gain" in revenue.
SG&A expense line, Q-1, 2014: $838,329 /3 = $279,443
SG&A expense line, Q-1, 2013: $370,533 /3 = $123,511

Thus, just the growth in the SG&A expenses (exploding- as in doubling essentially), negated/off-set any "revenue" gain brought in, that I can see and IMO. Spending/expenses grew by over $100K a month, and gross revenue only brought in about $72K per month. This is a common, common problem in companies that fail to control expenses: "sales/revenues" come at a cost, if that cost exceeds what the "sales/revenue" brings in- then you didn't gain a thing in the end. Happens all the time in businesses. Cost control, especially when cash tight, is mega important. Run-away costs, will wipe-out, in a blink IMO, any "revenue" from sales (let alone a chance at actual profits)- if those sales "cost too much", or costs are allowed to go out of control for any number of various other reasons.

3) "and cash balance over 200K". The cash balance was $218,984.00. At their cash burn/cash use rate- just the SG&A expense line alone, that's not even a month's worth of cash left at the end of Q-1. And that, after MASSIVE dilution, and also tapping "ASHER" for about $100K, which, if that $100K hadn't come in, that $218K, would have been about $100K- not even a few weeks, "survival" cash left. So, they ended the qtr, in pretty "typical" IMO, fashion, of essentially having a month or so cash left, meaning they need "financing deals" ASAP to remain able to pay even their most basic bills, IMO.
Just SG&A expenses alone consume 838,329/3 = $279,443 A MONTH.
Add in INTEREST expense, a biggie, as if you don't pay that, your loans can go into default. Interest expense entry on balance sheet:
(305,898)/3 = $101,966 JUST interest on their debt.
So, just the SG&A + interest = 279K + 100K = approx. $379K needed a MONTH, or they are in trouble, IMO. (which explains, IMO, why they end up each time with cash deficits, with "paying people" for all kinds of stuff using "shares of stock", as they simply don't have the cash, etc). A lot of the time, it appears IMO, they can't even make some of these "minimum payments" and thus you see the "deferrals" and "shares were issued as payment for", etc. They do not even generate enough cash, from "financing" activities (Asher,, etc) and now "revenue" to even cover what they're spending each month, IMO- and I believe the documents clearly show that.

Asher deal- done very recently, to bolster that $218K cash, shown as "remaining" end of Q-1. 10-Q, PAGE 14
(and it came with "stiff" terms, look at the share discount, it's B A D, BAD IMO, it's a "toxic" convertible, i.e. "floorless" with "reset" provisions)
"Asher Notes (During this year)

During the three months ended March 31, 2014, the Company entered into a Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”) or affiliates, for the sale of 8% convertible notes in aggregate principal amount of $97,500 (the “Asher Notes”).

The Asher Notes bear interest at the rate of 8% per annum. As of the quarter ended March 31, 2014 all interest and principal must be repaid nine months from the issuance date, the last note due December 26, 2014. The Notes are convertible into common stock, at Asher’s option, at a 45% discount to the average of the three lowest closing bid prices "

Look at this list of "share issued as payment" for a whole "wash list" of "stuff": a "liquid" and "solvent" company WITH CASH, typically pays people/obligations IN CASH, NOT in "shares", IMHO: 10-Q, PAGE 18:
"During the three months ended March 31, 2014, the Company issued an aggregate of 6,750,781 shares of its common stock in settlement of outstanding accounts payable. In connection with the issuance, the Company incurred a loss on settlement of debt of $65,548.

During the three months ended March 31, 2014, the Company issued an aggregate of 7,166,214 shares of its common stock for the conversion of $57,500 of convertible notes payable and related accrued interest of $2,300." (SEE THAT ONE- settlement of "convertibles"- that IMO, is an "ASHER" type note. That's 7 MILLION shares that will land for sale, at some point here down the line, that will have a huge impact on share price- just one example, IMO).
More, 10-Q, PAGE 24 (these all occurred in APRIL, recently- shares pouring out like water IMO- wait till all these shares go on the selling block. Good for the common share price?)
In April 2014, the Company issued 5,263,315 shares of its common stock in settlement of related party advances of $100,000.

In April, 2014, the Company issued 1,002,808 shares of its common stock in settlement of common stock subscriptions of $50,000

In April 2014, the Company issued 274,681 shares of its common stock as settlement of six months accrued interest on the Northstar note obligation.

In April 2014, the Company issued 18,383,774 shares of its common stock for service rendered valued at $180,511. (18 MILLION SHARES- wow, IMO !)

In April 2014, the Company issued an aggregate of 4,793,268 shares of its common stock in settlement of $67,500 convertible notes payable and $2,700 accrued interest.

In April 2014, the Company issued 11,918,181 shares of its common stock in connection with the exercise of warrants. Proceeds received was $136,000, of which $6,000 during the three months ended March 31, 2014."
(12 MILLION more, WOW, IMO. And my guess- that's some of those 50 MILLION "in the money" warrants mentioned in the 10-K, strike price if I remember was like .016 per share. If whoever this is, decides to "flip/unload" um, that's 12 MILLION shares hitting the market- I'd bet they sell those into any strength, IMO. Which will keep the common share price range bound, or huge downward pressure- just IMO, speculating. But that's now 12 MILLION more common shares "hanging out there" and they will land somewhere, at some point.)Note also: to get $136K more of survival cash, it cost um 12 MILLION shares being sold. That is heavy dilution, for not even 1 month's worth of cash, IMO.

Companies that are even remotely "financially healthy", IMO, DO NOT "pay their bills" in shares of common stock. They use CASH, unless of course they do not have adequate cash, IMO.

Look at the "fully diluted" shares- it went to HALF A BILLION now- and that's in a large part, due to all these "shares/warrants" having to be "covered"- and they will crush the common share price IMO. They will, at some point, many soon IMO, go on the selling block- as many, are being granted/given "in the money" at prices below the current share price.
Fully diluted shares, 10-Q, page 10:
". Fully diluted shares outstanding were 498,696,292 and 222,688,816 for the three months ended March 31, 2014 and 2013, respectively."
The shares more than DOUBLED, in a one year period. Wondering why it's at sub 3 cents?

They also, page 20, issued another boat-load of warrants apparently:
"
In conjunction with the authorized issuance of common stock, the Company granted 24,292,783 common stock purchase warrants during the three months ended March 31, 2014."
Another 24 MILLION warrants. Wow. There's so many shares "floating around" out there- if even a fraction were to go on the selling block, IMO, the price will get crushed, IMO, if lower than sub 3 cents, is "getting crushed" even?

4) Quoting, "This is an extremely positive 10Q"??
Huh? Based on what criteria? What has changed in their cash, liquidity or "other" problems, IMO? Not to mention, the BIG ONE IMO, that "MIRROR" their "flagship", big product and "Phase III" trial just "vanished" for all intents and purposes IMHO?
Let alone, as their SG&A expenses ballooned (doubled), their R&D spending (think "trials"), essentially went to ZERO. $10K for 3 months of spending- for a "medical research and development" company? $10K in my neck of the woods, doesn't even pay the mortgage and property taxes on an "average" family home for 3 months?
A public traded company is supposedly running FDA type, phase II/III "trials" on about $3K a month AND doing "medical research" too? Huh? I'd find that fascinating beyond belief IMHO.
How far did the R&D spending "fall off the cliff"? 10-Q, PAGE 5:
Research and development for Q-1, year 2014: $9,857.00
Research and development for Q-1, year 2013: $163,974

HOW, could they realistically be doing FDA type "trials" or much of anything in terms of "medical research" with an R&D budget of about $10K for a 3 month period? HOW?

There "Notes Payable" (short term debt they need to service and pay interest on, or work-out "deals" to issue more shares/dilution to "cover interest payments", etc or they can put them into default, etc)- actually grew from the same period last yr. 10-Q, PAGE 13: (table)
Total notes payable net of unamortized debt discount:
Q-1 2013: $1,930,841
Q-1 2014: $1,966,946

I don't see anything "different", let alone "positive" in this 10-Q, IMO- just more of the same, as far as my opinion and what I'm reading. Shares being diluted so fast it's hard to keep track IMO, cash poor on any given month- needing "desperation financing" (ASHER and similar) to keep just month to month "survival" cash coming in, in trickles IMO, "general" expenses ballooning to twice their previous amount as R&D spending collapses, MIRROR not even mentioned- the word literally does not appear in the report, no advancement of any kind to any Myocell phase II/III trial(s)- despite the massive dilution and big increase in "general" expenses/spending, etc

What's the "positive"? Financially they're, IMO, in as bad a shape as when the 10-K was issued, there is just more and more share dilution; trials - the phase II/III are going nowhere, cash is poor, barely enough to service "survival mode" on an on-going, month to month basis? All looks like more of the same IMHO? Don't see a single thing that says it's a "extremely positive" anything, IMO? Oh, and mgt felt the need to insert a very specific, "additional" IMO, "going concern" warning, even though the one in the 10-K covered up to March of 2014 and is mentioned in the 10-Q, but mgt added additional wording, and specifically "liquidity problems" in their own words.

Nothing new here IMO. Nothing "extremely positive" IMO. Not seeing it. That's my 2 cents and opinions/analysis.

Good luck and happy trading of course.