Ekso Bionics Holdings (EKSO): Good Times Come To A Screeching Halt

by Sonya Colberg, Senior Editor - 10/19/2016 10:59:47 AM

Ekso Bionics Holdings (EKSO) has been involved with the colorful Adam S. Gottbetter, known for nimble PIPE financing, a quick song with British group Squeeze ...  or ...

(Source: YouTube video of Adam Gottbetter singing "Take Me, I'm Yours" with Squeeze)

... even a money raise for shock jock Howard Stern's favorite strip club.

Mr. Gottbetter became a key figure behind Ekso's private placement offering in January and February 2014. Mr. Gottbetter's entity and sub-agents received ~3 million warrants exercisable at $1 per share, plus $3.03 million in commissions for handling the private placement.

But the good times came to a screeching halt.

About seven months after Ekso's PIPE, Mr. Gottbetter was sentenced to 1 1/2 years for stock fraud.

His guilty plea was in connection with schemes to manipulate three other companies' stock "with a view to selling his own shares at a profit." He's reportedly been involved with more than 160 companies but the  companies named in the SEC criminal complaint were Kentucky USA Energy (KYUS, bankruptcy), Dynastar Holdings (DYNA, now $0.05, little or no trading) and HBP Energy Corp. (HBPE, now $0.00).

(Source: SEC)

The Securities and Exchange Commission had this to say about Ekso's former investment banker:

"The SEC alleges that Adam S. Gottbetter orchestrated promotional campaigns that touted the prospects of microcap companies and enticed investors to buy their stock at inflated prices so he and his cohorts could sell shares they controlled and reap massive profits."

"During one meeting in New York City, Gottbetter complained about the difficulties of stock manipulation but conceded that robbing a bank was the only other way to make so much money so quickly."

When the trade publication QMed wrote about Mr. Gottbetter’s jail time for stock manipulation, the publication posted this comment from Ekso:

(Source: QMed)

But Ekso apparently did not break ties with Mr. Gottbetter's law firm.

In the company's April 2016 filing regarding Ekso's private offering, we see that Mr. Gottbetter's entity, Gottbetter & Partners, examined the validity of the stock offering.

(Source: Company SEC filing)

At that time, the SEC itself had already broken ties with the attorney due to the SEC complaint and Mr. Gottbetter's guilty plea. In a remedial action dated June 23, 2015, the SEC suspended Mr. Gottbetter from practicing before the commission as an attorney:

(Source: SEC litigation)

Investors may find other viewpoints here. Meanwhile, TheStreetSweeper presents an executive summary on the Ekso investment risks:

*The company went public via a reverse merger with a Chile-based shell, followed later by a reverse stock-split.

*Despite pleading guilty to criminal stock manipulation charges, Ekso's investment banker remained tied to the company through his law firm, an Ekso filing indicates.

*Potential dilution looms. In an August stock sale, Ekso greatly reduced the price of warrants and preferred shares, which may pose potential dilution following the Nov. 7 lockup release. Also, another 195,313 share unlock occurs on Dec. 1, 2016.

*Ekso partners are signing up with rivals.

*Ekso enjoys very little institutional interest and some institutions have sold or decreased their Ekso position.

*Professional stock promoters have tried to influence the stock price.

*Executive compensation exceeds $3 million.

*Sales are low and plunging to just $1.6 million last quarter, while operating losses hit $9.4 million.

*The cash burn rate is ~$7 million or 4 1/2 times sales last quarter, which we believe increases the potential for an imminent dilutive raise.

*Persistent negative cash flow.


Now we'll step back four years, when the investment risks were just beginning to form.

*1. Background: Building Risk

Everything began with PN Med Group, a company operating out of its president's home in Santiago, Chile.  PN Med initially sold shares for $0.02 in its May 2012 public offering. The two-person company planned to use the president's car to distribute medical supplies made in China to clinics in South America's Chile. But by the end of fiscal year 2013, it had landed nothing more than $16,949 in losses and zero revenue.

This sort of shell is just what companies look for when they're planning the cheap, fast alternative to going public.

So on Jan. 15, 2014, the companies conducted a reverse merger into Ekso Bionics, with plans to develop and sell "bionic human exoskeletons." Concurrently, the company completed a complicated deal involving bridge notes and the Gottbetter-managed private placement resulting in a $1 per unit alternative public offering.

But the new Ekso stock didn't catch investors' imaginations and by early 2016 fetched only about $0.85 per share. So the company pulled a 1-for-7 reverse stock split on May 4, 2016, pushing the post-split price to $5.44 per share on June 1.

The share price plugged along at ~$6 through the terrible July 28 quarterly earnings report that revealed eight sales to rehab centers and a $10 million ($-0.61/share) loss.

Then the stock price got predictably hammered in the Aug. 9 follow-on public offering of 3.75 million shares at $4 per share. Ekso tried to soften the blow by leading the press release with news that the stock had been uplisted, but the stock that traded for ~$6.22 one day plunged 37% to $3.94 the next day.


                                                                                                 (Source: Yahoo Finance)


Now this Richmond, California exoskeleton maker continues to heap risk on top of risk...

*2. Adjusted Prices Favor Insiders, Dilution Looms For Average Shareholders

That August raise generated about $14 million but came stacked with preferential treatment for some shareholders.

The company greatly lowered the price at which both warrants and preferred shares can be converted to common stock.

"Holders of our Series A preferred stock will be entitled to an anti-dilution adjustment as a result of this offering, which will result in dilution to the holders of our common stock, including the shares issued in this offering “ and “— The exercise price of certain of our outstanding warrants may adjust as a result of this offering, and the exercise of such warrants would result in dilution to our stockholders.”

So the conversion price of the preferred stock has been adjusted down from $7.07 to $3.74 per share."

The warrants that would have carried an $8.75 exercise price were adjusted down to the bargain basement price of just $3.74 per share.

The filing includes this ominous note:

"In addition, each of our directors and executive officers have agreed that for a period of 90 days from the effective date of this offering, they will be subject to a lock-up prohibiting certain sales, transfers or hedging transactions in our securities held by them. Sales by our officers and directors after the expiration of their lock-up agreements could impair the ability of a shareholder to sell our common stock in the amount and at the price and time such holder desires."

We believe these shares may pose dilution potential for average shareholders when the 90-day lock-up expires about Nov. 7. Also, on Dec. 1, 2016 about 195,313 shares will unlock from the phased buyout of Equipois in 2015.

*3. Partners Switch To Rival Technologies

On February 14, 2012, then-private Ekso delivered its first commercial exoskeleton to the Craig Hospital in Englewood, Colorado.

The Craig hospital was among 11 hospitals and clinics that partnered with Ekso in those early days:

(Source: Yahoo, Marketwire, Ekso)

But over the past four years, the competition appears to be gaining acceptance among Ekso's partners:

*TIRR Memorial Hermann - The rival ReWalk exoskeleton currently receives top billing on the TIRR Memorial research page.

              (Source: TIRR Memorial Hermann)


*Craig Hospital - March 2014, Craig announces participation in a clinical trial for a rival exoskeleton, Indego by Parker Hannifin Corp.

*Craig Hospital - October 2014, Craig debuts Indego exoskeleton.

*Kessler Foundation - October 2014, joins a national multi-center study focused on the Indego robotic exoskeleton.

*Spaulding Rehabilitation - December 2014, Spaulding announces ReWalk Robotics exoskeleton training for spinal cord injury patients.

* Kessler Foundation - May 2015, Kessler acquires ZeroG robotic system from rival Aretech to advance rehabilitation research.

*Shepherd Center - June 2015, Shepherd announces final trials continue for Indego.

*Shepherd Center - October 2015, announces Indego trials show the exoskeleton is safe and effective for some people with paralysis.

Meanwhile, additional rivals include: Cyberdyne, Hocoma, AlterG, Reha Technology, Rex Bionics, and various companies with commercialization plans including Bionik Laboratories, U.S. Bionics and ExoAtlet.

So growing competition is pressuring Ekso, as pressures in other areas build ...

*4. Sales Drop 82%, Negative Cash Flow Persists

Competitive pressures have helped plunge sales figures to the lowest level in five quarters. Indeed, sales dropped 81.71% from the prior quarter:

The earnings before interest, taxes, depreciation and amortization reached a low point of nearly $-7 million:

And Ekso's earnings per share last quarter fell to one of the lowest levels at $-0.61:

(Source: MarketWatch)

Yet another very worrisome measurement is Ekso's operating cash flow. Cash flow is consistently negative, quarter after quarter:

And operating cash flow is negative and worsening year after year since 2013:

(Source: The Wall Street Journal)

*5. Cash Burn Foretells Another Dilutive Raise

Meanwhile, the company only spends a few thousand - $141,000 last quarter - on lifeblood costs of research and development. Indeed, cash burn is already ferocious and will grow significantly greater if it wants to even come close to keeping up with the competition.

The company rakes through about $7 million in cash each quarter. So the $14 million raise on August 9 may allow Ekso to squeak through January.

As cash needs grow, they must continue to plan for an endless number of stock offerings or debt financings brimming with dilution. The next such capital raise will likely occur ... very soon. We believe the raise will occur within four months or even sooner if Ekso managers are wise enough to take advantage of the current ridiculous valuation.

*6. Company Withers, Executives Thrive

While the company is scrambling to keep the doors open, executive compensation has risen to more than $3 million.

(Source: Company SEC filing)

CEO Thomas Looby's compensation jumped by 16% in one year to nearly $1 million, while Ekso investors watched the total stock return fall by 25%.

The current and former executives are also holding cheap stock. As of the end of December, they owned more than 2 million stock options. The vast majority of options are exercisable under $1, with 457,000 of the CFO's options exercisable at just $0.39.

*7. Promoted Stock

Meanwhile, Ekso has been the subject of at least four promotional campaigns over the years. The most recent red-flag promotion came from emailed promos blasted last February by Secret Stock Promoter.

(Source: stockpromoters.com)

Solid companies with potential for solid growth just don't need to be hyped by stock promoters.

*8. Paltry Institutional Interest, Some Institutions Back Out

Investors are typically encouraged when big banks have an interest in their stock. But that's not the case with Ekso. With the exception of Ada, Oklahoma-based CNI Commercial, the stock has attracted virtually no institutional interest and certainly no interest from top tier institutions.

(Source: Nasdaq)

Worse yet, the only two investors with over $1 billion in market value have narrowed or eliminated their position in Ekso. Indeed, Glenmede Trust and Williams Jones & Associates apparently decided the stock is just too risky.

(Source: Nasdaq, TheStreetSweeper)


Ekso is a little like legendary bad singer Florence Foster Jenkins ... all off-key with the braying stock promotions, plus cheap warrants, insatiable cash needs, looming potential stock dilution, paltry institutional interest, high executive compensation, plunging sales, consistently negative earnings, massive operating losses and partners signing up with rivals. The involvement of an admitted stock manipulator/exuberant baritone/investment banker adds yet another layer to the enormous hazards offered by Ekso.

Altogether we think this terrible stock is trading for about five times more than what it's really worth. So we expect Ekso to get battered back to ~$1.20 per share.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in EKSO and stand to profit on any future declines in the stock price.

  • Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

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