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Authentidate: Big Bet on a Small Company

|Includes: Authentidate Holding Corp. (ADAT), INTC, MKTSQ, PHG

Authentidate (NASDAQ:ADAT) is a New Jersey based company providing IT solutions for the Healthcare markets. Specifically, they handle electronic medical/health records. For more information, read this article, which covers the company as a whole more in depth.

On Tuesday, Authentidate announced $3.4M of capital being raised through the issuance of common stock and warrants, underwritten by Rodman and Renshaw (NYSEARCA:RODM). The warrants are only good for 90 days though, and exercisable at $1, with the stock recently trading right at $1. There is a clear bet from the investors that something will happen in the next 3 months, causing the stock price to go significantly above $1, making those warrants actually worth something. If the stock stays at its current level, these warrants could be worthless.

In the last quarterly report, we saw inventory for telehealth devices increase. These are sold through ExpressMD. The following image is directly from their quarterly report. For a company that has such little cash, had to raise $3.4M, get emergency financing for $3M from a board member’s family member, this is a significant move.

Inventory (in thousands)
   Sept. 30, 2009
 June 30, 2009
 Purchased Components
 $749  $312
 Finished Goods
 $181  --
 Total Inventory
 $930  $312

With investors putting money on the line for 90 day warrants, and Authentidate increasing inventory of a proprietary device, let’s take a look at some other signs pointing to something coming up:

First, they have a telemonitoring device with FDA approval that competes with Intel (NASDAQ:INTC) and Phillips (NYSE:PHG). They’re in a market that does not yet have an established leader, so they’re competing directly with larger established companies. For ADAT to be in this market alone is very valuable and should result in significant sales.

In the most recent conference call, management talked about hiring somewhere around 20 employees to support the rollout of these devices. With their limited amounts of cash, this is only going to happen if there is immediate work that is the result of a contract they have been awarded.  The fact that they’re talking about it is a strong sign.

Second, the manufacturer of these devices has been made a press release without Authentidate’s name, a clear sign that Authentidate is keeping things quiet.

1) Eurotech and Authentidate Enter into a Contract for Embedded Computer for Home-based Medical Device (March 31, 2009): http://www.eurotech-inc.com/news-2009/eurotech-authentidate-enter-contract.asp

Eurotech, a leading provider of embedded products and technologies, today announced that it has entered into a contract with Authentidate for design and delivery of the embedded computing engine for Authentidate's joint venture ExpressMD Solutions' remote patient health monitoring device.

2) Orders totaling 2.8 million dollars from medical device customer (September 28, 2009): http://www.eurotech.com/en/press+room/news/?389

Eurotech, a leading provider of embedded products and technologies, today announced that it has received orders totaling 2.8 million USD for the embedded computing platform of an OEM remote patient health monitoring device.

The second press release does not specifically state Authentidate, but the article mentions remote patient health monitoring, and later goes on to talk about FDA approval. With only a handful of companies in this space that have FDA approval, and the others being much larger, this is likely pointing to ADAT.

Overall, we’ve got investors putting $3.4M on the line, $3M from the family member of a board director, and 90 day warrants that are counting on a catalyst. We also have a manufacturer who has been announcing the manufacturing contracts without Authentidate’s name, and at the same time, Authentidate is looking to start hiring 20 employees to support the rollout of the ExpressMD products. Because of the warrants and all other evidence, it seems possible that something large may be right around the corner.

Disclosures: I own shares in ADAT. There is a degree of speculation with this stock, it is not necessarily a good capital preservation strategy.



Disclosure: Long ADAT