Wednesday, April 14, 2010

Notable financing, of the crippling sort (RPC)


As we always say, the manner in which a company raises money says a lot about their prospects....

Radient Pharmaceuticals (RPC) announced a financing transaction last night, just a few days after announcing that they will embark on a national sales effort for their Onko-Sure cancer diagnostic test. Shares are down 24%, but on the bright side, that's only 42cents!

From last Thursday:
"the company is currently spooling up a nationwide sales effort to get the test in labs around the country. "They should be available in major metropolitan areas by June. By year end, we expect to be in all the major labs in the United States," says MacLellan.
"Now, in the U.S. we can, through a CLIA laboratory program, offer a general cancer screen; which we expect to be doing by mid-year, but when it comes to the commercialization and selling to laboratories, we have to continue to sell the FDA approved test, so you can look at it as two products. One is the testing service and the other is actually selling the test kits."
So in order to get this effort going, they need some money. That came by way of a ridiculous series of Convertible Promissory note financings.

From last night:
TUSTIN, CA -- April 13, 2010 -- US-based pharmaceutical company Radient Pharmaceuticals Corporation (AMEX:RPC - News) announced today the second closing of a 12% Convertible Promissory Note ("Note") and Warrant ("Warrant") financing for the sale of additional Notes in the aggregate principal amount of $5,524,425. The first financing, which closed on March 26, 2010, included one Note in the original principal amount of $925,000 and Warrants to purchase up to 1,100,000 shares of RPC common stock. Net proceeds for the first financing were approximately $540,000.
The second Convertible Promissory Note financing was offered to 25 accredited investors with similar discount terms and lender fees to that of the first financing. Net proceeds from the sale of Notes in second closing after payment of fees and discounts were approximately $3,225,000. Warrants to purchase 6,569,585 shares of RPC common stock were also issued as a part of the second closing.
Under the terms of the second financing agreement, lenders have the option to convert the Notes in whole or in part into shares of RPC common stock at a conversion price equal to 80% of volume-weighted average price for the five trading days ending on the business day immediately preceding the applicable date of conversion with a floor price initially equal to $0.28 per share. The Notes are subject to adjustment upon the occurrence of certain events, including recapitalization, stock splits, and similar corporate actions. The Warrants have a term of five years and are initially exercisable at $.28 per share. The exercise price is subject to adjustment upon the occurrence of certain events, including capital adjustments and reorganizations.
Radient Pharmaceuticals intends to use net proceeds from the first and second finance closings for general corporate purposes. Finder fees aggregating approximately $419,250 were issued at the closing for this transaction.
So the investors in this robbery deal bought notes that pay them 12% interest annually, along with warrants that enable them to purchase common stock at 28cents per share anytime over the next five years. Oh and for those wondering what the shares trade at now, that would be $1.29, about 361% above the warrant price. That's a GIVEAWAY, even before considering the $420k "finder fees" involved.

Why engage in this kind of financing? One reason is lack of options. Traditional lending is out of the question for a company like this that is fighting for survival. So an option is what I call SYA ("Save Your A$$") Financing, which is hugely dilutive but gives investors the chance to live another day. If you own common stock, wouldn't you rather see some huge dilution with a small chance of big future upside, as opposed to the possibility of losing everything in the near term?

This deal will hopefully relive Radient of some of the pressure from the New York Stock Exchange, who recently threatened to kick them off the exchange due to horrible financial results and serious doubts about the company's future:
As previously reported on January 26, 2010, Radient Pharmaceuticals received notification from the staff of its current listing exchange indicating the Company was considered to be non-compliant with certain listing requirements of the NYSE Amex. Based on the Company's quarterly report on Form 10Q for the period ending September30, 2009, the Exchange staff indicated that RPC had sustained losses too substantial in relation to its overall operations or existing financial resources; or the Company's financial condition has become so impaired it appears questionable as to whether RPC will be able to continue operations and/or meet our obligations as they mature. This notification had no immediate effect on the listing of RPC shares on the exchange. Rather, the Company was afforded the opportunity to submit a compliance plan in response to such notification.
RPC's accepted compliance plan outlines various high-priority initiatives the Company will undertake to become complaint with NYSE Amex listing standards. This includes, but is not limited to, securing additional capital through equity financing and an equity line of credit; securing shareholder approval for various debt for equity transactions to eliminate the majority of RPC's near- and long-term debt; monetizing RPC's ownership in its China-based subsidiary Jade Pharmaceuticals Inc.; advancing the international commercialization of the Company's Onko-Sure™ cancer test kits, Onko-Care cancer test services; and instituting a new investor relations program to promote investor buying in RPC.
Good luck to everyone involved here, you shall need it!
Copyright 2010 AlphaNinja

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