Platinum Partners is the largest investor in Echo Therapeutics (common, warrants, pref and debt). Below is the author’s take on the stock itself, but it raises some bigger questions regarding Platinum such as:
why was platinum (a $1 billion fund) repeatedly investing in such a micro cap stock. How did Platinum value its investment in the warrants and preferred as there is no “market” for these illiquid investments. As you know there were some questions about how Platinum valued some of its other investments. Did Platinum invest in ECTE while at the same time preventing Platinum investors from withdrawing from the fund (aka failing to honor redemption requests).
Echo Therapeutics Inc (ECTE) – An Overvalued Stock
Echo Therapeutics (ECTE) has no revenue, is losing money, is facing delisting from the Nasdaq exchange, needs capital, recently filed a shelf offering (very late in the day on a Friday!) and faces competition from much larger industry competitors. According to the latest 10Q, the company had only $42k of unrestricted cash (not much cushion for a company that burns over $1mm per quarter) yet boasts an equity market cap of almost $35 million (using the 20 million shares, which includes convert pref,…most data sources like yahoo and Bloomberg use only 11 million shares outstanding). The company also expects to have negative cash flows for the foreseeable future as it funds its operating losses and capital expenditures. Echo Therapeutics is up 25% YTD and up 100% from its 52 week low.
To make it an even more attractive short candidate, consider that its largest shareholder is Platinum Partners, the fund that one of its executives has been accused of paying bribes to a union boss in exchange for an investment and the same fund that yesterday the FBI raided on reportedly as part of an investigation into Platinum’s valuation of its hard to value illiquid assets. It has also been reported that Platinum will be liquidating some or all of its funds (which makes the short even more interesting). Finally, it has been reported that Platinum failed to honor redemption requests from investors and that Platinum has defaulted on a $30 million loan from New Mountain Capital…in other words, Platinum appears to have some very serious problems and their future is uncertain.
Furthermore, Platinum’s investment (and ECTE’s market cap) are larger than it might initially appear as most of Platinum’s investment is in the form of convertible Preferred stock, so the number of shares outstanding is, theoretically larger than it appears on the cover of the 10q. In addition there are Blockers limiting the number of shares that the preferred can be converted into, so the ownership table in the proxy table understates Platinum’s true ownership, although the footnotes give more accurate information.
Echo Therapeutics is trying to develop a non-invasive (aka no needles), wireless, continuous glucose monitoring system. You can see the latest presentation at http://echotx.com/investors/investor-relations/ . The company has been developing its products for several years now but still has no commercially viable product. It probably doesn’t help that they spend more on SG&A than they do on R&D and that they compete with companies with significantly greater resources. ECTE does talk about getting approval from the Chinese FDA (we have our doubts) and the company does put out press releases on things that we believe are of limited real value.
To avoid delisting from the Nasdaq, by the July 5, 2016 ECTE will need stockholders’ equity above $2.5 million (last quarter it was negative $4.7 million) and to provide projections that it can maintain that amount through June 30, 2017 (remember the company loses money and lost $2.6 million last quarter). ECTE could, theoretically meet the Nasdaq requirements by doing one of 2 things, neither of which would be good for current shareholders: 1) Raise equity through a recently filed (but not yet effective) $25 million shelf, although it is unclear if ECTE has enough time to pursue this option and who would buy the stock or 2) Have Platinum convert some/all of its preferred stock into common stock, although given Platinum’s other problems I’m not sure how focused they are on ECTE at the moment.
In addition to being ECTE’s largest shareholder, Platinum has the right to nominate one director to ECTE’s Board. Platinum’s designee is ECTE’s Chairman, Michael M. Goldberg. Goldberg’s previous biographies indicate he used to work for Platinum. However his employment by Platinum is not mentioned in the bio listed in ECTE’s SEC filings and we wonder why. (Note: Mr. Goldberg is also Board Director for ticker NAVB, another Platinum related company whose stock has cratered recently.)
Besides Michael Goldberg, Echo Therapeutics has 2 other non-employee directors, one of whom is Mr. Goldberg’s first cousin. Couldn’t ECTE find a qualified director who was not related to an existing Board member? To be clear, we don’t know either of the Goldbergs nor are we suggesting they have done anything wrong. However, their ties to Platinum (and each other) are red flags for us.
Not surprisingly, ECTE has failed to attract much interest from institutional investors. If ECTE is such an interesting investment, why have so many sophisticated investors avoided it?
Based on the latest proxy as of April 2016 we estimate Platinum’s investment to consist of 783k common shares, 5.6 mm shares (theorectically convertible from preferred stock) and 2.8 million warrants. Clearly exiting its position will be challenging considering the company needs to sell shares too to raise cash and the trading volume is limited.
Echo Therapeutics is an overvalued stock where we believe both insiders and the company will need to sell large numbers of shares and we don’t see how either can occur at these prices.
Echo Therapeutics Inc (ECTE) - Short Case
Echo Therapeutics has no revenue, losing money, is facing delisting from the Nasdaq exchange, needs capital, recently filed a shelf offering
As previously reported, due to the financial condition of Echo Therapeutics, Inc. (the “Company”), the Company was unable to make payment on $1,787,000 of the 10% senior secured convertible notes of the Company due on January 28, 2017 (the “January Notes”). An additional $3,361,620 in principal amount of 10% senior secured convertible notes of the Company matures on May 3, 2017 (the “May Notes” and together with the January Notes, the “Notes”). The Company has been engaged in prolonged discussions to obtain new financing and obtain appropriate forbearance and/or waivers from the investors holding Notes. To date, the Company has been unsuccessful in raising financing and, while the Investors have not taken any action against the Company, the Company has not yet received any formal forbearance and/or waiver from the Investors.
The Company has been forced to reduce its staff down to one employee, Alan Schoenbart, the Company’s Chief Executive and Chief Financial Officer, who has been working without pay. Further, the Company has been unable to pay rent at its corporate and research facilities, which will more than likely result shortly in eviction proceedings. Additionally, the Company’s patents are at risk. While the Company continues to pursue financing, there can be no assurance that it will be able to do so on acceptable terms or at all, which may result in foreclosure upon the assets of the Company by the Investors.
Thanks for the tip, I did some research and found more information about $ECTE on http://yugestocks.com/?s=ECTE Day trading investing. Clarke's third law: any sufficiently advanced technology is indistinguishable from magic.
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X axis : Stocks Price Correlation Coefficient Y axis : Quantity of stocks May-2016 1,000 Day Parameter 2,830 NASDAQ Stocks Price Analysis This stock mode of correlation coefficient is -0.8 In other words, the correlation coefficient of the other stoc
Did anyone else see $ECTE report from http://monstastocks.com/?s=ECTE ? It had some interesting information. Maire's law (in the u.s. Investing day trading.
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Has anyone received any class action info on this pig??
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Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
As previously reported, on January 29, 2016, Echo Therapeutics, Inc. (the “Company”) issued $1,787,000 principal amount of 10% senior secured convertible notes of the Company (the “Notes”) to certain institutional and other accredited investors (the “Investors”). The Company’s obligation to repay amounts due under the Notes is secured by a security interest and lien on substantially all of the assets of the Company. The principal amount of the Notes plus $38,086 of accrued but unpaid interest was due and payable on January 28, 2017. Due to the financial condition of the Company, the Company was unable to make payment. As a result, the interest rate on the Notes increased from 10% to 15%. The Company is attempting to negotiate a resolution with the Investors to obtain appropriate forbearance and/or waivers in order to allow the Company additional time to consummate one or more financings sufficient to capitalize the Company. There can be no assurance that the Company will be successful in obtaining such forbearance and/or waivers or consummating any financing. Failure to obtain such forbearance and/or waivers and consummate an acceptable financing may result in the Company’s inability to continue as a going concern and could lead to foreclosure upon the Company’s assets by the collateral agent for the Investors.
So....does Echo have a chance?
Isn't there a Court date set for today? Major shareholder trying to wrestle away control of compant?
So it's a good thing that management prevailed? What's left after management gives up trade secrets?
NEW YORK Platinum Partners hedge fund founder Mark Nordlicht and four others with ties to the New York City-based hedge fund were charged Monday in a $1 billion securities fraud indictment, one of the largest alleged scams since Bernard Madoff's noto