US Stem Cell Inc (USRM)

[Dragon Lady]

Regarding use of what's known as "toxic debt" to finance high risk, cash poor penny stocks such as Bioheart (aka Magna, Asher, etc)-

Unfortunately, the Sr Mgt of these companies such as Bioheart willingly and knowingly do the "convertible debt" (floorless, toxic debt) deals knowing full well there is a high probability that it will have an extremely negative effect on the common share price and thus common shareholders. They want the cash the toxic lender has to offer and thus willingly sign on the dotted line of each deal. That's the bottom line IMO.

This Bloomberg piece on Magna, who Bioheart just used for "toxic" type financing (along with Asher, Daniel James, KBM Worldide, Fourth Man and now a latest firm called Vis Vires group, among the many they, BHRT use for on-going financing)- gives very specific examples of how the CEO's or BOD etc knew full well that these deals were "toxic" , as the SEC calls them, but they willingly take and sign for the money anyways.

If these lenders of last resort were banned- a company such as BHRT would have gone BK a long, long, long time ago IMO. As no regular lender of any type is going to loan to a asset poor, cash poor, no positive cash flow, debt laden, 3 person, extremely high risk, going concern warning company. By the time a BHRT penny firm gets to the end of the line cash sources such as the Ashers and Magnas of the world- they've already exhausted all attempts typically at "regular" or "conventional" financing, etc

The ONLY reason a toxic lender is even willing to lend to a BHRT type penny stock (or sub penny) - is that the "convertible debt" type loan is "floorless" and thus provides near perfect down-side protection to the lender. In fact- the lower the share price goes and the more desperate the company gets- most of these lenders make even more money. That's the real incredible part of the "toxic" or "death spiral" type of cash-for-shares convertible loan type product.

The Bloomberg journalistic write up and video profiling Magna explains this in great detail- how it "works" when "toxic" convertible debt is used. They, Bloomberg called these hedge fund type lending firms- the desperation loan firms or lenders of last resort to penny stocks and said they're like the "pawn shops" to the penny stock world- the last ditch effort at cash at pretty much any cost for penny firms, including wiping out the common shares in many, many cases. They even interviewed a CEO of a firm that used Magna and saw his firms stock eventually hit the 1000ths' of a penny level. He said firms like Asher and similar were still calling him willing to lend more to his penny stock firm. They didn't even care what business he was in, if they had a product or not, etc As long as the shares still traded with some decent liquidity- the "toxic" lenders would give him the cash, no questions asked pretty much.

http://www.bloomberg.com/news/articles/2015-03-12/josh-sason-made-millions-from-penny-stock-financing

It's all explained in that excellent piece of financial journalism by Bloomberg IMO. If BHRT didn't go to Magna and Asher and Daniel James and similar- just look at the last 10-K, they'd be BK already IMO. They lost a tremendous amount of money in 2014 and that's despite numerous, numerous use of these "convertible debt" lenders and loan "notes" that carry the right to be converted to common shares. W/O that cash coming in, they'd of more than likely gone BK- and the "going concern" warning from their auditor and Sr Mgt pretty much spells that out. They state that w/o "substantial, continual, additional financing" they'd end up ceasing operations, cutting head count, cancelling all business plans and/or filing BK most likely and rendering the common stock shares worthless (That's Sr Mgt's words (paraphrasing) see PAGE 27 just filed 10-K, it's all spelled out there in detail)

Thus "banning them", these "toxic" type lenders- I don't know. The company's that typically rely on this money of last resort would all go BK in short order IMO. Not that their common stock isn't eventually, often, going to decline to near worthless anyways eventually, based on the staggering dilution that takes place- reaching a BILLION or more shares typically as a stock's price goes to less than ONE CENT. And w/o the floorless "toxic" conversion features built in- then the lenders would never do the deals in the first place- as company's like BHRT are just way past too high risk to lend money to. They have no real assets, no real estate, no plant and equipment, etc which is the typical "collateral" for a more conventional loan. The common stock of firms like BHRT is so near worthless at SUB ONE CENT or the ONE CENT range and their market caps so low (BHRT about $6 million or less right now) that they can't sell stock in typical stock offerings- as no one's going to buy it in bulk unless given the tremendous share discounts such as these toxic lenders are getting (45% or more to market price).

So the only reason these lenders still touch these penny, or SUB PENNY stocks- is the down-side protection provided by the "toxic" floorless conversion formula built into these types of loan deals and the initial, up front mega steep share discounts and fairly high interest on the "note" itself- all insuring they, the toxic lender almost can't lose and in fact can make enormous amounts of profit in very short periods of time via selling and dumping the stock on the open market as fast as they get it typically.

My .009 or so cents worth.

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