US Stem Cell Inc (USRM)

[Dragon Lady]

Why Northstar exists and isn't just gonna walk away from their preferred shares and give up their forebearance agreement, etc IMO.

One has to understand who/what Northstar is and why they hold 20 MILLION preferred shares, each of which has 25 votes, voting power per common share, giving Northstar 500 million votes, aka total vote control over the company. Why they were given a lien on pretty much everything BHRT owns, could own, might invent, market, etc. Why?

Because Northstar was formed when a key BHRT loan went into default, like potentially putting BHRT in BK type default. Read the history of the SEC filings. In return for bailing BHRT out of that situation, Northstar was formed and stepped in as "guarantors" of the defaulted loan. Meaning these members of the LLC (BOD members Hart, Ahn, Murphy and some mystery "guarantors) they had to put up some kind of collateral to the bank holding/calling the defaulted loan- most likely they might of pledged their homes, or business assets they personally own, maybe had to put some cash in an escrow type account that the loan company/bank still sits on, etc. It's their, Northstar's skin in the game now. NO WAY IMO, the walk away from their guarantee- which is those preferred shares and lien and all- until 100% of the underlying loan they're guaranteeing is cleared up and paid in full, etc.

http://www.bizjournals.com/southflorida/stories/2010/07/26/daily1.html
Bioheart defaults on the B of A loan in 2010 which starts the ball rolling that eventually ends up in Northstar.

The also existing Bluecrest loan goes into deep trouble, default (aka BK potentially) around the same time period- and is secured by the intellectual property and assets of BHRT
http://www.bizjournals.com/southflorida/stories/2009/04/06/daily54.html

From 10-K filing 2010, page 34:
"In March of 2009, the former Chairman of the Board and his former spouse paid directly to Bank of America the $3 million that he had been guaranteeing, thus reducing Bioheart’s obligation to Bank of America to $2 million plus interest. In March 2009, these individuals repaid $3.0 million of principal and a pro rata portion of accrued interest on behalf of the Company. The Company now owes this $3.0 million to the Company's former Chairman and his former spouse. This liability is reflected on the Company’s consolidated balance sheet on a separate line titled “Subordinated related party loan.” This amount will also accrue interest at an annual rate of the prime rate plus 5.0%.

In March of 2010, one of the Guarantors paid directly to Bank of America the $672,000 of the loan that he had been guaranteeing, and a pro rata portion of accrued interest on behalf of the Company. That Guarantor agreed to accept from the Company the equivalent of his payment to Bank of America in restricted common stock and warrants. With his acceptance of the restricted common stock and warrants, the former Guarantor owns 8% of the Company.

Thus, the outstanding obligation to Bank of America was reduced to $1.3 million plus interest.

In addition to the limitations imposed on our operational flexibility by the BlueCrest Loan as described above, the BlueCrest Loan, our obligations to the Guarantors, and any other indebtedness incurred by us could have significant additional negative consequences, including, without limitation:"

So BHRT is in deep, deep financial trouble clear back at that point, multiple loans going in default, etc.
The B of A loan is partially paid by insiders and the mystery "guarantor" it appears and then gets refied eventually into today's $980K "Seaside Bank Loan" on which BHRT has never made a single principal payment- it appears only interest is paid, by Northstar it appears (not sure) and the loan balance so far is never paid down, not by one penny.

Around 2011, Northstar is formed and the Bluecrest loan, in default is "assigned" to them.
http://biz.yahoo.com/e/120404/bhrt8-k.html

http://www.bizjournals.com/southflorida/stories/2009/01/12/daily50.html?page=all
BK possible Bluecrest loan

Meaning they put up collateral and personal guarantees for it- and thus in turn demanded preferred shares, a lien, etc. They're now on the hook for that debt. BHRT could go BK, belly up tomorrow, and from the way the documents read, Northstar and those members would be personally on the hook still for a lot of debt.

2011, 10-K filing, page 24:
"We have a substantial amount of debt and may incur substantial additional debt, which could adversely affect our ability to pursue certain business objectives, obtain financing in the future and/or react to changes in our business.

As of December 31, 2011, we had an aggregate of $5.8 million in principal amount of outstanding indebtedness, excluding accounts payable and accruals. This amount includes approximately $712,000 outstanding pursuant to a loan and security agreement formerly held by BlueCrest Venture Master Fund Limited (and now held by NorthStar Biotech Group, LLC, or Northstar, which is owned in part by certain of our existing directors and shareholders, including Dr. William P. Murphy Jr., Dr. Samuel Ahn and Charles Hart), approximately $980,000 outstanding pursuant to a Loan Agreement with Seaside National Bank, and approximately $1.5 million outstanding to the Guarantors in respect of payments made by them on our behalf in connection with our original loan with Bank of America.

The Loan and Security Agreement relating to the Northstar loan contains various provisions that restrict our operating flexibility. Pursuant to the agreement, we may not, among other things:

·
incur additional indebtedness, except for certain permitted indebtedness (generally, 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 Northstar that is subordinated to the rights of Northstar pursuant to a subordination agreement satisfactory to Northstar in its sole discretion);

·
make any principal, interest or other payments arising under or in connection with our loan from Seaside National Bank or any other debt subordinate to Northstar 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 Northstar 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 or our intellectual property related to product candidates other than MyoCell or MyoCell SDF-1 to a currently operating or newly formed wholly owned subsidiary;

·
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.

These provisions could have important consequences for us, including (i) making it more difficult for us to obtain additional debt financing from another lender, or obtain new debt financing on terms favorable to us, because such new lender will have to be willing to be subordinate to Northstar, (ii) causing us to use a portion of our available cash for debt repayment and service rather than other perceived needs and/or (iii) impacting our ability to take advantage of significant, perceived business opportunities. Our failure to timely repay our obligations under the Northstar loan or meet the covenants set forth in the Loan and Security Agreement could give rise to a default under the agreement. In the event of an uncured default, the agreement provides that all amounts owed to Northstar are immediately due and payable and that Northstar has the right to enforce its security interest in the assets securing the Northstar loan. In such event, Northstar could take possession of any or all of our assets in which they hold a security interest, and dispose of those assets to the extent necessary to pay off our debts, which would materially harm our business. On March 30, 2012, we entered into an extension and waiver with Northstar pursuant to which Northstar agreed to extend until May 1, 2012 the due date for any and all principal and interest payments that were due and payable with respect to the Northstar loan on March 1, 2012 and to waive any and all defaults and/or events of default with respect to such payments.

In addition to the limitations imposed on our operational flexibility by the Northstar loan as described above, the Northstar loan, the Seaside National Bank loan, our obligations to the Guarantors, and any other indebtedness incurred by us could have significant additional negative consequences, including, without limitation:

·
requiring the dedication of a portion of our available cash to service our indebtedness, thereby reducing the amount of our cash available for other purposes, including funding our research and development programs and other capital expenditures;
·
increasing our vulnerability to general adverse economic and industry conditions;
·
limiting our ability to obtain additional financing;
·
limiting our ability to react to changes in technology or our business; and
·
placing us at a possible competitive disadvantage to less leveraged competitors."

So now get to last 10-Q filing, Q-2, 2014- and how much is BHRT still involved with Northstar and what loan amounts are still involved- that IMO would need to be paid off IN FULL IMO, before you ever see Northstar just give up their security in those preferred shares and other provisions?

Latest 10-Q:
1) Hunton & Williams Notes

At June 30, 2014 and December 31, 2013, the Company has two outstanding notes payable with interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822 are payable in one balloon payment upon the date the Noteholder provides written demand, however the Company is not obligated to make payments until the Northstar (or successor) Loan is paid off.

2)Northstar "personal" loans still owed:
"On April 2, 2014, the Company issued 274,681 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,635 due April 1, 2014 per the forbearance agreement.

As of June 30, 2014 and December 31, 2013, the principle of this note was $362,000.

3) Amounts payable to the Guarantors of the Company’s loan agreement with Bank of America and Seaside Bank, including fees and interest
$1,454,772 (I believe this is Northstar or else the "mystery" guarantors?)

4)Seaside Bank note payable. $980,000 That's the one that Northstar is "on the hook" for I believe, as personally guaranteeing it- so IMO, until it's gone, paid in full, plus the personal loans, interest, etc to Northstar members, NO WAY they walk away from preferred shares or liens and forebearance protections. That's my opinon.

So, BHRT would have to pay off what looks like maybe at least $2 MILLION or so in debt, before Northstars gonna walk away free and clear and release their security that keeps um from getting shafted if the company went belly up or anything? That's my read on it.

That's sorta my best take on a long, convoluted story of financial deep troubles at Bioheart- but the key is that Northstar is personally on the hook, IMO, from all one can read- and NO WAY, again IMO, do they risk that they'd get stuck holding the bag. So unless "financing" can produce the kind of money to pay off a few $million in these debts, I don't see Northstar vanishing at this point. Let alone how they'd be "funding trials" when they still can't even pay off all this debts, loans to Northstar, recent loans continually given by Northstar and insiders, the $980K to Seaside (that's almost $1 MILLION right there),etc

Basically Northstar stepped in like Mom and Dad and co-signed, guaranteed the car loan or the student debt loan analogy- if the kid fails, or bails or whatever, Mom and Dad are STILL ON THE HOOK, PERSONALLY FOR THE DEBT(S).

So IMO, any "financing" would have to be enough to pay off all the loan(s) of which Northstar is acting as guarantor and is owed, before you ever see Northstar and their preferred shares step out of the picture. And, Northstar put up a large loan of their own money to pay off a portion of that defaulted loan- and that's still being paid back to them too w/ interest. (SEE SEC filings). So all that debt first has to be paid, then Northstar would have to be "released" from being on the hook as the guarantors of the larger, underlying loan (at least $980K Seaside that I can figure)- before they ever give up their stake and hold on preferred shares, their only guarantee that puts them in essentially "first position" to get paid back and get out from under holding the bag as the guarantor on a huge loan, that to date, BHRT has made no payments on, for years now.