US Stem Cell Inc (USRM)

[Dragon Lady]

8-K, looks like more TOXIC CONVERTIBLE DEBT "financing" and the terms on this one are stunningly horrible IMO, even worse than the past ASHER or similar toxic/convertible firm, deals. Maybe ASHER isn't even doing deals with these guys anymore? So now they're tapping this firm "Magna" for about $300K of survival cash at extremely dilutive terms. Plus a 12% interest rate (beyond junk bond status) when interest rates are at historic lows. A share conversion price of $0.01035 . And a 55% discount- on conversion, WOW. Mega dilutive. This one even includes a "default provision", not anything I ever see or remember seeing in a ASHER or similar note in the past- with an 18% interest rate kick-up and then the note face value goes to 140% of outstanding- holy moly, that is wild IMO. Worse than the worst of even pay-day loan money. They must be really struggling to bring in any kind of "financing" IMHO, to accept or need to get terms like these. It's even stranger as it looks like BHRT only receives about $200K in cash, but the face value owed is $300K?? Got read this about 50 times to figure this one out- or find a forum that explains deals similar to this?? Wow again.

Also very interesting IMO, is why now is this "deal" full of a bunch of specific language about "Needing SEC approval of registration statement..blah, blah, blah" and involves upfront discounts and such tied to that? Remember the prior 8-K in which Tomas indicated that they had "questions" from the DTC about "eligibility" of shares or something to that effect? I wonder if that is all related to that?


http://www.sec.gov/Archives/edgar/data/1388319/000114544314000932/d31492.htm

"In addition, the Company has received a request from The Depository Trust Company (“DTC”) to confirm that shares of common stock deposited at DTC were eligible under the Rules and Procedures of DTC for deposit. The Company has responded to this request."

Not only is the their the traditional "death spiral" conversion provisions- the "reset" and all, but this one even carries a steep, up-front discount to Magna? Once again, where's the "big financing" so called "deal? All there is are these continued convertible, toxic note/debt deals trickling in- the reason IMO they needed to boost available shares to 2 BILLION, from 970 million- given the dilution rates, I'd guess they're gonna be bumping up against that 970 million real soon.

Look at some of the details in the 8-K disclosure, how bad these terms are:
"On October 7, 2014 (the "Closing Date"), Bioheart, Inc., a Florida corporation (the "Company"), entered into a securities purchase agreement dated as of the Closing Date (the "Purchase Agreement") with Magna Equities II, LLC, a New York limited liability company ("Magna"). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, Magna shall purchase from the Company on the Closing Date a senior convertible note with an initial principal amount of $307,500 (the "Convertible Note") for a purchase price of $205,000 (an approximately 33.33% original issue discount). Pursuant to the Purchase Agreement, on the Closing Date, the Company issued the Convertible Note to Magna.

$40,000 of the outstanding principal amount of the Convertible Note (together with any accrued and unpaid interest with respect to such portion of the principal amount) shall be automatically extinguished (without any cash payment by the Company) if (i) the Company has properly filed a registration statement with the Securities and Exchange Commission ("SEC") on or prior to the Filing Deadline (defined below) covering the resale by Magna of all of the shares of Common Stock issued or issuable upon conversion of the Convertible Note and (ii) no event of default or an event that with the passage of time or giving of notice would constitute an event of default has occurred on or prior to such date. Moreover, $62,500 of the outstanding principal amount of the Convertible Note (together with any accrued and unpaid interest with respect to such portion of the principal amount) shall be automatically extinguished (without any cash payment by the Company) if (i) the Company has filed a registration statement with the SEC that has been declared effective by the SEC on or prior to the Effectiveness Deadline (defined below) and the prospectus contained therein is available for use by Magna for the resale by Magna of all of the shares of Common Stock issued or issuable upon conversion of the Convertible Note and (ii) no event of default or an event that with the passage of time or giving of notice would constitute an event of default has occurred on or prior to such date.

The Convertible Note matures on August 7, 2015 and, in addition to the approximately 33.33% original issue discount, accrues interest at the rate of 12% per annum. The Convertible Note is convertible at any time, in whole or in part, at Magna's option into shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), at a fixed conversion price of $0.01035 per share (subject to adjustment). This conversion price represents a discount of approximately 55% from the lowest trading price of the Common Stock during the five trading days prior to the Closing Date. If the Company has not properly filed a registration statement with the SEC on or prior to the date that is 70 calendar days after the Closing Date covering the resale by Magna of all of the shares of Common Stock issued or issuable upon conversion of the Convertible Note, then, from and after such date, the Convertible Note will be convertible at any time, in whole or in part, at Magna's option into Common Stock at a conversion price equal to a 55% discount from the lowest trading price of the Common Stock during the five consecutive trading days ending and including the trading day immediately preceding the applicable date of conversion. At no time will Magna be entitled to convert any portion of the Convertible Note to the extent that after such conversion, Magna (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of Common Stock as of such date. The Convertible Note includes "full ratchet" and standard anti-dilution protection.

The Convertible Note includes customary event of default provisions, and provides for a default interest rate of 18%. Upon the occurrence of an event of default, Magna may require the Company to pay in cash the "Event of Default Redemption Price" which is defined in the Convertible Note to mean the greater of (i) the product of (A) the amount to be redeemed multiplied by (B) 140% (or 100% if an insolvency related event of default) and (ii) the product of (X) the conversion price in effect at that time multiplied by (Y) the product of (1) 140% (or 100% if an insolvency related event of default) multiplied by (2) the greatest closing sale price of the Common Stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment required to be made under this provision.

The Company has the right at any time to redeem all, but not less than all, of the total outstanding amount then remaining under the Convertible Note in cash at a price equal to 140% of the total amount of the Convertible Note then outstanding."

Look at the dilution- at a minimum it's about $300K at .01 cents or so, I think it's actually even worse given the 55% discount- I'll have to read/study it more. But lets just say $300K at .01, that would be 33 MILLION shares at a minimum, but again, w/ the 55% discount and "reset"- the part where the language says, " price equal to a 55% discount from the lowest trading price of the Common Stock during the five consecutive trading days..." I believe will make it even more than 33 MILLION shares. Man, for just $300K, a few month's cash to hang on IMO. 33 MILLION shares at 1 cent or lower hitting the market whenever Magna wants? That's gonna be a share price crusher to the common shares, again, IMHO.

Man, you talk about desperation terms- I'll have to look up this Magna, but this is like as steep a desperation finance terms I think I've ever read? It's amazing IMO. And only for about $300K- what, maybe a few months or so of survival cash- not anything even remotely close to funding a phase II or phase III trial or anything- it doesn't even cover the recent bonuses and salary increases to the "two" and other basic overhead- given their burn rate, IMO.

Interesting, I found this I-HUB page someone has built about firms/companies who deal with "Toxic Magna Group"- Bioheart's on the list.
http://investorshub.advfn.com/Clients-of-Magna-Group-and-Hanover-Holdings-25550/