Investing in Nano Antibiotics
In many previous articles, we have discussed the dangers of OTC stocks that investors should be aware of; mainly that in a majority of cases, buy-and-hold investors will lose all their hard-earned dollars investing in them. One company which began trading this week on the OTC market is Nanoantibiotics (OTCBB:NNAB). Already the message boards are starting to fill up with posters talking about what entry point they should consider prior to NNAB going “to the moon”. Since it is as important to highlight what is not a worthwhile investment as it is to highlight what is a worthwhile investment, we will take a look at NNAB’s latest filings.
Nanoantibiotics originally filed their S-1 in August of last year with trading commencing just several days ago. As of the last closing price, the company commands a market cap of around $21 million. Their latest 10-Q filed in January 2014 shows asset of $406 thousand in cash and liabilities of just $16 thousand. The Company’s business plan is to develop antibiotics that target the most difficult-to-treat Multi Drug-Resistant Bacteria, also called “Superbugs.”
The SEC Letters
Filing documents with the SEC is, fortunately, a heavily scrutinized process and often times the SEC will send letters in response to company filings that demonstrate a great deal of insight into points of contention that may exist in said filings. While oftentimes, critics of OTC companies are met with the accusation of being “manipulative shorts”, points of contention raised by the SEC do not fall under this category. In three separate letters over the past 8 months, the SEC has raised 30 points of contention, some of which can be seen below (our comments in bold):
In addition, it appears that certain of your disclosure, such as the disclosure under “Bacterial Efflux Pump” on page 28, is directly from internet sources such as Wikipedia or About.com, but you have not attributed the text to such sources. This shows a great level of due diligence on the part of the SEC, and copy-paste statements hardly constitute original contributions to the topic. In discussing Elliot Ehrlich’s biographical background, please add disclosure indicating that, although you title him as ‘Dr. Ehrlich,” he does not possess a Doctor of Medicine degree. Being 27 years old, Elliot Ehrlich does not seem to have the experience necessary to proxy himself as a doctor. We further note your disclosure on page 30 that you are currently engaged in pre-clinical testing. Based on your disclosure on page 30 it does not appear that you have any employees aside from your two officers and do not have any properties aside from a home office. Many OTC companies are a one or two man show. While an entrepreneurial spirit is admirable, the ability to execute with next to no human capital should be strongly questioned by investors. Please disclose whether Mr. Menon is currently employed at Markit. According to his LinkedIn profile today, Mr. Menon who is one of the two Company officers, is currently employed at Markit. We also note conflicting disclosure throughout your prospectus. For example, your disclosure on page three states that your drug candidates have been studied in vitro, your disclosure on pages 24 says that research and development has started and you have engaged a third party vendor for pre-clinical testing, but your disclosure on page 30 says that you have spent $0 on research and development activities. As of the latest 10-Q filing, for the three months ending December 31, 2013, the Company spent just around $19 thousand in R&D.
As with most OTC companies, so many red flags exist that it becomes difficult to find even the most remote piece of information about Nanoantibiotics to be compelling to an investor. For a $21 million market cap company to have spent so much time and energy addressing the questions posed by the SEC over the past 8 months, investors in Nanoantibiotics (OTCBB:NNAB) should be asking, just what do I want my Company’s leadership to be focused on? Answering questions posed by the SEC or creating shareholder value?
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