Echo Automotive Inc. manufactures cost reduction technology (EchoDrive) for converting fleet vehicles into highly fuel efficient plug-in hybrids. The company was incorporated in 2008 and is based in Auckland, New Zealand.
ECAU has recently been silent. All their news has come in the first half of the year regarding securing capital for operations and increasing production facilities (The Company stated that it continues to see positive response and increasing demand for its EchoDrive™ product. In preparation for order fulfillment in the coming year, Echo recently signed a lease for an additional 40,000 square feet of production space at its Anderson, Indiana facility).
Having worked with City, State and Federal contracts for software acquisitions I know a little about how things work in the public sector. Most new contracts are released once a new fiscal year turns over. With ECAU selling into this arena, their sweet spot should be about to happen since most city and state governments turned over their fiscal year July 1st.
I questioned why they have yet to post revenue news prior to July 1st and now understand that since government fiscal years started this month, they may still be in the process of securing the necessary governmental purchase orders and paperwork to start providing their services.
On the financing front, this news bodes well for investors (Securing Capital) and warrants a closer look at the overall picture of the company. Why anyone would extend financing to a company that has basically nil revenue is a good question to ask yourself. The answer lies in opening the books. Lenders will want to see potential contracts not yet booked. The answer lies with the new fiscal year. United Fleet Financing, LLC and Emerald Private Equity Fund LLC both would need to see positives in order to invest in the company. Although both are getting sweet deals to provide capital, this was necessary to have operating capital to meet the demand that they know is coming. See below for details on the agreements
Emerald - Per the agreement, Echo will receive $200,000 in funding through a five (5) year note with accrued interest at an annual rate of eight percent (8%). The agreement further states that Emerald will receive conversion features and warrant rights.
United Fleet Financing - The Company authorized the sale and issuance of up to 2,727,273 units of Company securities to United Fleet in a private placement for the purpose of raising working capital to accelerate the Company's business plan. Each unit consists of one share of the Company's common stock at $0.55 per share and one warrant exercisable to purchase one and one-quarter (1.25) shares of common stock at an exercise price per share of $0.65. The proceeds will be provided by United Fleet on a tranche basis with monthly installments for nine (9) months starting June 2013.
Many would argue that a company with no revenue is a risky proposition. I do not disagree, however to find a diamond in the rough we have to dig further. We have to see why they are attracting the attention of these financing companies. ECAU needs this much needed infusion of cash. Additionally, the company is trading at just below the 50 Day moving average. I see a company just getting ready to breakout to the upside. The start of booking revenue will make this stock soar. I am just looking for those government contracts to start coming in.
Be careful out there. Bears everywhere.
Disclosure: I am long OTCPK:ECAU.
Additional disclosure: Disclosure – I am long ECAU with a 3 month price target of $0.71 and full year of $1.35.