What you need to know about Radient Pharmaceuticals’ late filing and pending news Print
By M.E.Garza   
Wednesday, 25 May 2011 05:21

Trading of Radient Pharmaceuticals (AMEX:RPC) was halted “pending news” after company officials notified AMEX exchange officials on Monday that they were planning to file their Annual Report on Form 10-K for the year ended December 31, 2010 after the market on Tuesday

and that they anticipate filing its Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 on or before the close of business on Tuesday, June 7, 2011 (update: The Form 10-K has now been filed by Radient Officials and we are told that the company will be filing their 10-Q within a few days given that they do not want to remain deficient on that note).

Key Questions: Were shares halted because Radient is disclosing something negative? Are they being delisted? Are they headed to bankruptcy?

What we were told:


No. Nothing in the 10-K should be surprising or unexpected except perhaps that the information contained in the report covers a time period prior to the debt-to-equity swaps which did not take place until after January 1, 2011.  The company is not headed to bankruptcy in any way shape or form.  On the contrary, officials continue to work and are in the process of negotiating a settlement with note holders who are entitled to payments as part of the publicly disclosed defaults.

In addition, as RPC publicly announced in its April 21, 2011 press release, the Exchange’s Listing Qualifications Panel (the “Panel”) granted RPC’s request for additional time (until June 23, 2011) to demonstrate and regain compliance with the Exchange’s continued listing requirements; one of the requirements to regaining compliance was that RPC file the Form 10K on or before June 23, 2011. As previously disclosed, the Company had been diligently working toward filing the Form 10K, although it did have until June 23, 2011 to file same to regain compliance with the Exchange’s continued listing standards.

What we found out:

Amex officials insisted that the company issue a press release about their intentions to file the 10-K and that the press release be filed with Amex officials a full twenty-four hours before any dissemination or filings took place.  When the Amex officials were notified on Monday that Radient was ready to file their Form 10K, they decided that they would halt trading on the stock pending further news on Tuesday morning. The stock did not resume trading for the rest of the day.

Amex officials will, no doubt, look at and carefully study the documents submitted by the company, however it is important to note that these documents are historical in nature and many of the current events and plans (which have been in play) since Jan. 1, 2011 including the debt-for-equity swaps which greatly increased shareholder equity will not be shown until the 1st quater filings are complete (within days). In addition, Amex officials will not render any actions or make any decisions on RPC until the previously announced hearing June 23, 2011. At that point they will review all balance sheets, debts and equity as well as any outstanding items.

Advisors familiar with the filings by the company feel the company is well positioned to meet all compliance and exchange rules which should enable the company to continue listing on the big board exchange by the time the meeting is scheduled. We have also learned that while no formal settlement has been reached in the issue regarding the default on outstanding notes, it appears the company has several options at hand which should bring a favorable settlement and close to the matter.  In fact, several funds have offered to buy (in writing and presented to Amex officials) the debts in exchange for equity in the company.  One person close to those negotiations who is not officially authorized to speak for the company insists the matter "will be completely settled very shortly." 

Key takeaways:

We have been told for weeks that the company’s primary focus has been to address these filings and outstanding debt issues.  While some saw or read the presentation given to a large group of brokers and wealth management experts during the main evening reception at the Aegis Capital Emerging Growth Conference last month in Las Vegas, CEO Douglas MacLellan and his board of directors have clearly kept focus on these issues and have not yet begun to disclose or reveal any of the positive developments which were hinted about during that conference. These issues must, obviously, be put to bed in order for the good news to flow and deliver real traction and sticky buying to the stock.


Question: Why have there been so many delays with these filings?

What we were told:

Until its 10K is filed, the Company cannot complete or file its 10Q. The delay in filing its 2010 10K and subsequent 2011 first quarter 10Q is due in part to the lack of timely responses from the Company's deconsolidated subsidiary, Jade Pharmaceuticals Inc.  

What we found out:

Given the trouble that Wall Street auditors have seen lately with Chinese companies, audit firms involved in filings that involve any Chinese based companies with ties to American exchanges have been unwilling to sign-off on financial reports and have, in-fact, grown very cautious.  In Radient’s case with their deconsolidated China-based subsidiary, the auditors have reportedly instructed the company to simply write-off any the activities of the company as losses (at least for now) rather than continuing to wait for answers to some of the outstanding issues involving the acquisition and merger of (JPI) Jade Pharmaceuticals and (BaoTai) Shanxi BaoTai Pharmaceutical Company which was announced in mid-December of 2010.

Key takeaways:

All companies listed on major stock exchanges must have an audit opinion. Audit firms are meant to be shareholders’ first line of defense and a gatekeeper -- an advocate for the shareholders. Their true client is not the executive who contracts with them and pays the bill.

If the publicly traded spinoff of JPI and BaoTai (which had been previously announced) is ever going to be successfully executed, the auditors and companies involved must ensure that every detail is in order. Any equity and financial revenues from JPI must be allocated to RPC shareholders, but even in a "worse case scenario" we are told that auditors believe that the company will still have enough equity and focus on delivering their business plan to continue forward as per the requirements made clear during their AMEX hearing.

Update from 10-K: In the 10-K filing, the company paints a scenario which appears to indicate that the JPI spin-off is no longer set to happen. We are told that a plan to go forward with that spin-off and/or to simply sell the company (given all the problems facing Chinese reverse-mergers on Wall Street these days) is still very much in play.  One person familiar who has been working with the company on that issue told us not be surprised to see some major activity regarding those developments once auditors feel comfortable that all outstanding issues regarding China operations are in order, since progress- albeit slow- has been made.

Here is the language the company used in the filing which again, covers events prior to January 1, 2011.

 

  • "A merger partner has been identified however, JPI was unable to complete the transaction prior to the expiration of the letter of intent. A bridge loan was secured for $900,000 to fund valuation, legal and accounting expenses related to the merger; however, JPI management has not authorized these actions.

  • Accordingly, the Company decided to impair its investment to zero, and thereby recognized an impairment charge of $20,500,000 on the investment in the accompanying consolidated statement of operations as of December 31, 2010. The Company will, however, pursue an action plan to recover a portion or all of its investment.
An official announcement about the previously reported NuVax Therapeutics spin-off should follow as planned, according to the same source.




Disclosure: Long RPC



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