Premier Biomedical (OTCMKTS:BIEI) and its $1.6 million financing raises plenty of questions. In the press release, CEO William Hartman said:
“We are pleased to be able to get our financing needs for the coming year behind us via non-toxic means so we can concentrate on moving the company forward, growing our technology, and expanding our reach globally, facilitating revenue generation and mid-term self-funding.”
Notice that he specifically went out of his way to say that the financing is non-toxic. However, in the 8-K filing with the SEC, BIEI stated:
On December 28, 2015, we entered into a Securities Purchase Agreement with Redwood Management, LLC ("Redwood"), pursuant to which we agreed to sell, and Redwood agreed to purchase, One Million Six Hundred Thousand Dollars ($1,600,000) in 10% Convertible Promissory Notes. The Notes have an original issue discount of five percent (5%). The first note was issued in the face amount of One Hundred Fifty Seven Thousand Five Hundred Dollars ($157,500), with subsequent Notes to be issued in connection with fundings throughout 2016. Each note will have a maturity date of nine months after its issuance, and thus the first Note has a maturity date of September 28, 2016. Each note will be convertible after ninety (90) days into our common stock at a conversion price equal to 60% of the lowest traded price of the Common Stock in the fifteen (15) Trading Days prior to the Conversion Date. The shares of common stock issuable upon conversion of the notes will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The notes can be prepaid by us at any time upon ten (10) days written notice to Redwood for a cash amount equal to the sum of the then outstanding principal amount of the note and interest multiplied by 130%. Pursuant to a Registration Rights Agreement, we agreed to register the shares underlying conversion of the notes. The purchase and sale of the initial Note closed on December 28, 2015, the date that the purchase price was delivered to us.
Anytime a company does a convertible financing, it is toxic. The only way this deal would not be toxic would be if BIEI ends up paying Redwood back its money with 10 days written notice and then paying Redwood a cash amount equal to the sum of the then outstanding principal amount of the note and interest multiplied by 130%. Folks, these are loan shark terms.What about the joint ventures that will deliver revenues? Shareholders have been told that there are a number of joint ventures in the works in Central and South America and Asia that will produce revenues. If these deals are imminent, why engage in the deal with Redwood?The fact remains that the deal with Redwood will most likely not be paid back and they will convert their shares. After all, this is the pattern for BIEI. As of November 20, 2015, there were 60,518,737 shares outstanding. One year earlier, on November 14, 2014, there were only 21,757,175 shares outstanding. This is shareholder dilution at its finest and a text book case in destroying shareholder value.What about the upside? We understand how a small cap like BIEI needs money and caves in to desperately get its hands on money to fund its operations. We're not blaming BIEI or CEO William Hoffman. It's vultures like Redwood Capital that take advantage of companies like BIEI. A company like Redwood has nothing to lose. If the company fails, it converts its shares at a discount and still makes money. It's the small shareholders that get hurt. Then if the company is successful, they get paid back their money with interest.What about the company's claims? I always get nervous when I see press releases stating "Premier Believes This May Lead To Cancer Cure." Big pharma, universities, cancer institutes and research hospitals have spent untold billions trying to cure cancer. It hasn't happened yet. Furthermore, a company that has to go to a loan shark like Redwood for $1.6 million in funding certainly doesn't have it. However, CEO William Hartman does believe. He said:
"Between this sequential extracorporeal therapy patent just granted, and the previously granted patent Utilization of Stents for the Treatment of Blood Borne Carcinomas (US Patent 8,758,287: 6/24/14), I believe that we have a clear roadmap for potentially curing cancer, possibly at any stage, and even after extensive metastasis. These patents support our on-going experimentation and plans to present our stunning results to the American Association for Cancer Research (AACR) in December.”
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We at Insider Financial are trying to find some positives on BIEI, but we're not finding any currently. The company is not passing the smell test, especially when there are so many other biotechs doing so much more and not doing deals with the likes of Redwood. To find out about the biotechs we do like, sign up below and get our latest picks and alerts. Good luck to all!
Disclosure: We have no position in BIEI either long or short. We have not been compensated for this article.
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