Protagenic Therapeutics Inc. (PTIX)

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DD on Fong

Courtsey of Y boards

"Assume two things for a moment; the first of which is that you are Nathan Fong, Atrinsic’s CFO; a consummate Chinese-American ‘numbers-guy’. Prior to taking that position you’ve been the CFO with ___ other companies, and you’re only 47 years old. When it comes to reconciling a set of books and drilling down to a corporation’s bottom line it’s fair to say that you carry a very sharp pencil indeed. Let’s also say that immediately prior to your accepting the position with Atrinsic you were the CFO at a company that was just around the block and up the street from Atrinsic … The Orchard, Inc. (a company that was engaged in business pursuits closely mirroring those of Kaazaa, and once traded on the Nasdaq (under the ticker symbol ORCD) until, in July 2010, it was acquired by Dimensional Associates LLC, a New York-based private equity arm of JDS Capital Management, Inc. (a deep-pocket hedge fund)) and merged into it … going private.

Indeed, if you were Mr. Fong, you would have no doubt read in the financial press on July 29, 2010, the following: “Following the merger with Dimensional Associates—a strong associate for nearly a decade—The Orchard will continue to service its global clients and partners with the same diligence and positive results they’ve grown used to over the years,” said Brad Navin, CEO of The Orchard. “The company will remain focused on enhancing its delivery platform, expanding its digital business, and building products to make our clients more efficient marketers.” Under the terms of the merger agreement, The Orchard's stockholders are entitled to receive $2.05 in cash, without interest and less any applicable withholding taxes, for each share of common stock they owned immediately prior to the effective time of the merger. The Orchard's common stock will cease trading on the Nasdaq Stock Market at the opening of trading on July 30, 2010 and will be delisted from the Nasdaq Stock Market”. [Hmmmmm. That terrible word “delist” … but used here in the very pleasant context of $2.05 per share.]


But continuing: “Formerly Digital Music Group, The Orchard Enterprises is a leading digital distributor of audio and video recordings serving both digital downloading services and online retailers. The company boasts a catalog of more than 1.3 million music recordings from independent and major labels, as well as 4,000 titles of video programming. The Orchard supplies digital content to music and video providers such as Apple' iTunes, EMusic.com, and Netflix, and mobile carriers such as Verizon and Vodafone.”

In short, as Mr. Fong, you would have been VERY well versed in the digital music business and the dominant players therein … as well as the accounting/financial mechanics associated with delisting and a subsequent merger. Moreover (and perhaps ,most importantly, you would be on a first name basis with the principals of a large, NYC-based hedge fund that specialized in acquiring assets and companies similar to those of Atrinsic’s.

And lastly, I want you to pretend that it is April of last year when Atrinsic received notice from Nasdaq that it was subject to delisting. It’s now been established by very trusted posters here – beyond any reasonable doubt - that at some time prior to June 1st, when Goldfarb assumed the reins of Atrinsic, the company had concluded that Kaazaa had been a grievous mistake; and that a plan would have to be adopted in order to staunch the company’s hemmoraging of cash, and that a delist was going to be one of the components of that plan. It’s also been generally acknowledged that it would fall to Goldfarb, who became CEO on June 1st, to personally execute that plan, which also included (again on June 1st) the selling of $5.8M of the Company’s notes. Weird, but two diametrically opposed things both happen on June 1st: Goldfarb issues $5.8M in notes, at the same time KNOWING that he’s going to do a voluntary delist that will trigger a default on those notes.

On September 15th (the day on which ATRN was trading at the dismal price of $2.05) Fong is appointed CFO (no doubt at Goldfarb’s specific urging and a very thorough debriefing of Atrinsic’s then financially perilous situation) and receives an annual base salary of $250,000 plus the possibility of a $35,000 bonus in “the event certain financing criteria are satisfied.” (whatever that means … and it certainly means something … a finder’s fee perhaps???).

What we didn’t know at that time was that one year prior thereto, Fong was earning an annual salary of $187,775, together with a no-strings-attached bonus of $25,000 (see verification link at the bottom of this post). Thus, he was giving up the absolute assurance of receiving $212,755 per annum (from a highly-successful, well-respected company which was owned by a deep-pocket NYC hedge fund) to get a paltry $37,245 more per annum plus another $35,000 “in the event certain financing criteria [were] satisfied” from a company about to delist and thereby default on its notes and thus destroy its share value, all of which would surely make Fong’s job more difficult by several orders of magnitude; perhaps even ushering in the very real possibility of bankruptcy. And yet he assumed that terrible reality for a mere extra $37,245 in his annual pay envelope.

QUESTION: Would YOU if you were Fong? I think not … unless of course Goldfarb’s plan does not envision grinding-out the repayment of the notes over an extended period of time; but instead envisions some master stroke involving Dimensional Associates LLC, or JDS Capital Management, or even Fong’s old firm, Orchard.

Whatever the case, the intrigue here strongly suggests that ATRN will not be sub-$1.00 for very much longer. In their very brief tenure at the company’s helm Messrs. Goldfarb & Fong have thus far managed to calm debtors and avert a seizure of assets occasioned by the default; cull operating expenses; and simultaneously accelerate repayment of the notes. An amazing 5-month blur of concerted activity.

I day-traded ATRN back during the summer when it ranged from $6 to $7, and when I rediscovered it at $0.012 late last year there was no one on earth who hated its senior management more then me. I’ve since come full-circle from that mindset. These two guy are good. Damned good even. They’re going to make all of us a lot of money.
AIMO
http://www.hoovers.com/company/The_Orcha...";