The Authentidate Holding Corp. (NASDAQ: ADAT) rollercoaster has hurled investors along a teeth-jarring ride made all the more excruciating now that trading is expected to be shifted from the NASDAQ to the lowly OTCQB ...tomorrow!
The company announced today, Jan. 28, that ADAT has lost its NASDAQ listing.
Indeed, this crucial event has been in the works for years and was forewarned by numerous issues, including:
*Primary customer lost.
*62% drop in revenue to $398,000.
*Losses totaling almost $10 million in 2015 alone.
*Two stock promotion blitzes.
*Two reverse stock splits.
*Just one US patent and one patent pending.
And the warnings simply got worse:
*Auditors' substantial doubt that ADAT will continue as a going concern.
*Cash position drops to a fraction of $1 million.
*An SEC cease-and-desist order against ADAT's biggest shareholder, Lazarus Management, an investment company desperate enough to actually write about ADAT in a Seeking Alpha article.
Yet, even despite today's confirmation that ADAT has lost its NASDAQ listing, ADAT wants investors to sit tight in their coaster seats.
TheStreetSweeper has not gotten a response to a request for comment from the web-based software applications company but investors may find other viewpoints here.
Meanwhile, let's look at the grimy undercarriage of this rollercoaster.
*Cease-and-Desist Order Involves ADAT And Four Other Stock Issuers
ADAT is seriously obligated to two pairs of brothers. The SEC sanctioned entity is linked to the first pair.
Lazarus Management owns a 29 percent stake in ADAT and its related entity holds a recently extended $500,000 ADAT note with a searing 20 percent interest rate attached. Lazarus is managed by the brother of company director Todd Borus, who owns ~192,000 shares of stock and cheap options.
The US Securities and Exchange Commission saw fit in September 2014 to fine Lazarus Management $60,000 and order it to cease and desist securities violations. A portion of the litigation document is below. The full document is here.
The order specifically names violations revolving around five issuers, with ADAT listed first.
Incredibly, Lazarus Management promoted ADAT in 2013 through a management interview published on Seeking Alpha.
*Stock Promotion Blitz
Six months before the SEC order, a promotional campaign focusing on ADAT launched. This desperate first effort by professional stock promoters barely moved the stock price above the $1 per share range.
But a promotional blitz launched Aug. 26, 2015 succeeded in one respect, sending the stock up a blistering 18 percent:
This promotion came exactly one day after Authentidate announced plans to merge with the small private testing lab Aeon Clinical Labs. The double-digit stock rise helped push shares …
To 34 cents per share.
*A Few Cents Per Share Didn't Cut It
But ADAT's price rally didn't address the NASDAQ delisting notices that began Jan. 28, 2015.
With the bolts flying off the rollercoaster and NASDAQ delisting becoming more ominous with each passing month, ADAT successfully jacked up the stock price on Jan. 22, 2016 with a 1-to-9 reverse stock split.
The reverse split pushed the price to an acceptable $5 per share. But ADAT unfortunately still had negative shareholder equity, while the NASDAQ required $2.5 million equity. In addition to ADAT's inability to complete the merger by NASDAQ's deadline, the shareholder equity issue alone had doomed the stock's NASDAQ listing.
This ongoing experience has been ADAT's second painful ride with NASDAQ.
The company's first delist threat arrived at its Berkeley Heights, N.J. headquarters on September 19, 2011.
Even then, it may have caught people by surprise because the company had been benefiting from its biggest-ever contract and was still years away from the Veteran's Administration backing out of its lucrative contract option.
And ADAT benefited from the more than 7 million shares and warrants it tossed at lenders in private stock offerings. Those were primarily held by board member J. David Luce (he and his brother now hold warrants for ~3.8 million shares convertible beginning in July at $0.25 per share), then-board member John J. Waters, then-CEO O'Connell Benjamin and CFO Williams Marshall. And … Lazarus.
But that initial delisting threat pressured the company, so that ADAT sought to address it by implementing the desperate 2012 split - a 1-for-2 reverse split.
It worked. If only for a while.
*Pouring On The Debt
By 2015, the cash-starved, one-patent, going concern-burdened company's private offerings seemed to go on and on … simply fueling the rollercoaster to nowhere.
That year alone, the company went back to the money tree over a half-dozen times.
Incredibly, a $900,000 private offering happened in June without shareholder approval. Here's what the filing says:
"Due to our need to raise additional capital to enable us to continue funding our operations, we negotiated and entered into a securities purchase agreement ... on June 8, 2015 with selected institutional and accredited investors (the "Holders") to sell and issue up to $3.0 million of Debentures and Warrants in a private placement...
"In light of our need to raise these funds in a timely manner, we determined that seeking stockholder approval of the private placement prior to closing the transaction was not in the best interests of our company and our stockholders."
In connection with this offering, the company rushed out a proposal in January to allow over 3.6 million shares in convertible debt securities and warrants at $0.25 and $0.30 to be set free for sale by major investors.
This special meeting that sought to dilute the market with cheap stock is the same meeting where shareholders approved the recent stock split that leaders hoped would address the delist threat.
ADAT essentially held out the Aeon deal as bait.
*Desperate For Funding
In the days before the delisting threat became reality, ADAT filings warned that the company is desperate for more funding.
It may seek additional financing through means such as more dilutive stock offerings and debt from current holders who may see their 25 cent per share exercise and conversion prices go even lower, according to filings.
ADAT further warns: "If we are unable to raise additional capital when required, or on acceptable terms, we will need to reduce costs and operations substantially or potentially suspend operations…"
The company's merger announcement released today, Jan. 28, seems to plant the absurd suggestion that someday big earnings will happen … never mind that the company has been unable to make a penny's worth of earnings in 18 years.
ADAT's money struggles are nearly legendary. Indeed, losses have reached $208.7 million, ADAT's cash has trickled down to $282,000 and it burns ~$1.2 million per quarter.
Meanwhile, a solid company with earnings and cash would have released Aeon's financials months ago. And it would have clearly explained how it intended to pull off a merger.
But ADAT is a runaway rollercoaster that wants investors to believe it can conduct a merger, return to the NASDAQ and somehow do something it has never before experienced - positive earnings.
This is probably the worst company TheStreetSweeper has ever covered and we see no value whatsoever to owning a security like this.
Disclosure: I am/we are short ADAT.