US Stem Cell Inc (USRM)

[Dragon Lady]

Thanks Carl, I'll check that out. BHRT has a pretty long history of using "ASHER" and their ilk, aka lenders of "last resort" as they're commonly known on the street. Some get offended when one uses "toxic financing" or "death spiral", but it's a 100% legit term and is even used by the SEC (U.S. Securities and Exchange Commission) when referring to these "Convertible debt w/ reset provision" type financing deals.

Here's a link to a previous I-HUB post I made that had some real good links in it (my opinion), there's an entire I-HUB group page dedicated to "ASHER" and the toxic debt type "death spiral" and tracking what's it's done to many penny firms who went down that road.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=100412828

http://www.sec.gov/answers/convertibles.htm

The SEC refers to "toxic" and "death spiral" and "ratchet" type financing in their write-up.

A traditional financier or lender typically wants a company to succeed and/or its stock to go up, in which case they benefit. In a "death spiral" convertible debt deal, a firm like ASHER can care less what happens to a company - and in fact stands to gain more, the lower the share price goes, as they get more shares on the "conversion", and that's in addition to the already steep share discount they get at the initiation of the deal. Many don't realize that ASHER and those like them, they aren't out to make 10% or even 25% or even 50% interest/return on the money they "loan" on these convertible "notes"- they often make 100% or 200% or more on their money and crush the common shares via massive dilution and downward selling pressure.

From this most recent BHRT 10-Q, here's a couple of these deals they did:
Page 14 and 15: ( you can see they've used at least qty-3 of these "death spiral" type lenders, ASHER, Daniel James and one called Fourth Man) The way one knows these are "toxic", from some well written articles I've read- including on the SEC website is to look for the following key words: interest on a note that's higher than typical going rates of interest, a steep share discount, a "reset" provision, pricing worded such as "based on the lowest of the 3 trading days...." and "convertible". You see that wording and it's pretty much a "toxic" deal per my understanding. Look at how small the cash amounts are in these deals, meaning IMO, that BHRT is desperate for survival cash, else why would they take these horrible financing terms and deals? Yet, they still end the qtr with about a total of $92K cash on their books, a pittance IMO, compared to just their short term bills due.

From pages 14 to 15 most recent 10-Q-
"Asher Notes (During this year)

During the six months ended June 30, 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 $183,000 (the “Asher Notes”).

The Asher Notes bear interest at the rate of 8% per annum. As of the quarter ended June 30, 2014 all interest and principal must be repaid nine months from the issuance date, with the last note being due February 16, 2015. 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 of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Asher Notes.

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 Asher Notes and to fair value as of each subsequent reporting date, which at June 30, 2014 was $278,495. At the inception of the Asher Notes, the Company determined the aggregate fair value of $355,447 of the embedded derivatives

Daniel James Management

During the six months ended June 30, 2014, the Company entered into a Securities Purchase Agreements with Daniel James Management (“Daniel”) for the sale of 8% to 9.5% convertible note in aggregate principal amount of $60,000 (the “Daniel Notes”).

The Daniel Notes bear interest at the rate of 8% to 9.5% per annum. As of the quarter ended June 30, 2014, all interest and principal must be repaid one year from the issuance dated, with the last note being due May 29, 2015. The Daniel Notes are convertible into common stock, at holder’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 Daniel 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 Daniel Notes and to fair value as of each subsequent reporting date which at June 30, 2014 was $105,778. At the inception of the Daniel Note, the Company determined the aggregate fair value of $126,337 of the embedded derivatives.

Fourth Man, LLC

During the six months ended June 30, 2014, the Company entered into a Securities Purchase Agreements with Fourth Man, LLC. (“Fourth Man”), for the sale of an 8% to 9.5% convertible note in the aggregate principal amount of $50,000 (the “Note”).

The Notes bears interest at the rate of 8% to 9.5% per annum. As of the quarter ended June 30, 2014, all interest and principal must be repaid one year from the issuance dated, with the last note being due June 26, 2015. The Notes are convertible into common stock, at Fourth Man’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 Notes. 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 Notes and to fair value as of each subsequent reporting date which at June 30, 2014 was $89,051. At the inception of the Fourth Man Notes, the Company determined the aggregate fair value of $87,090 of the embedded derivatives.

The fair value of the embedded derivatives of the Asher, Daniel and Fourth Man Notes, was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 169.92% to 171.91%, (3) weighted average risk-free interest rate of 0.10% to 0.11%, (4) expected lives of 0.76 to 1.00 years, and (5) estimated fair value of the Company’s common stock from $0.024 to $0.0486 per share. The initial fair value of the embedded debt derivative of $568,876 was allocated as a debt discount up to the proceeds of the note ($288,000) with the remainder ($280,876) charged to current period operations as interest expense. For the three and six months ended June 30, 2014, the Company amortized an aggregate of $108,011 and $201,615 of debt discounts to current period operations as interest expense, respectively. For the three and six months ended June 30, 2013 , the Company amortized $52,485 and $242,635 of debt discount to operations as interest expense, respectively."

Those are "toxic" financing deals IMO. Classic according to all that I've read about them. They will result in large amounts of dilution when these firms convert those "notes" to common shares, as BHRT almost certainly won't have any cash to pay the notes off before they are due. I don't think they've paid one off yet that I'm aware of, they always get converted to free trading, common shares, resulting in just more dilution to the common shareholders.