COMMON STOCK

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 8. COMMON STOCK

The Company has authorized 150,000,000 shares of Common Stock, of which 12,648,353 and 11,776,578 shares were issued and outstanding as of September 30, 2014 and December 31, 2013, respectively.

January 2013 Financing

On January 31, 2013 and February 1, 2013, the Company entered into underwriting agreements (collectively, the “Underwriting Agreements”) with Aegis Capital Corp. (“Aegis”), as a representative of several underwriters, with respect to the issuance and sale in an underwritten public offering by the Company of an aggregate of 1,567,855 shares of the Company’s Common Stock (including 204,500 shares sold pursuant to the over-allotment option), at a price to the public of $7.50 per share.  The net proceeds to the Company, after deducting the underwriting discount and other offering expenses payable by the Company, from the sale of the shares in the offering were approximately $10,626,000.  On March 1, 2013, the Company used a portion of the net proceeds of the offering to pay off the $3,113,366 balance under the note issued to Montaur in connection with the $20 million non-revolving draw credit facility (see Note 5).

December 2013 Financing

On December 10, 2013, in connection with a licensing transaction, the Company entered into (i) a Securities Purchase Agreement with Platinum Partners Value Arbitrage Fund L.P. (“Platinum Value”) and Platinum Partners Liquid Opportunity Master Fund L.P. (“Platinum Liquid”, and together with Platinum Value, the “Platinum Partners”) (the “Platinum Securities Purchase Agreement”) and (ii) a Securities Purchase Agreement with MTIA and Beijing Sino Tau Shang Pin Tech and Development Corp. (“MTIA Affiliate”, and together with MTIA, the “China Purchasers”) (the “MTIA Securities Purchase Agreement”, and together with the Platinum Securities Purchase Agreement, the “Securities Purchase Agreements”).

Pursuant to the Platinum Securities Purchase Agreement, the Platinum Partners purchased an aggregate of 1,818,182 of the Company’s Capital Stock.  Of that total, Platinum Partners purchased 69,569 shares of the Company’s Common Stock at $2.75 per share, being a premium to the NASDAQ closing price of $2.71 per share on December 9, 2013.  In addition, the Platinum Partners purchased a total of 1,748,613 shares of Series E Preferred Stock (“Preferred Stock”) at a purchase price of $2.75 per share, which, under certain conditions, are exchangeable into shares of the Company’s Common Stock on a one-for-one basis.  The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by the Platinum Partners and their affiliates at such time, the number of shares of Common Stock which would result in Platinum Partners and their affiliates beneficially owning in excess of 19.99% of all of the Company’s Common Stock outstanding at such time.  Under the terms of the Platinum Securities Purchase Agreement, the Platinum Partners also received 181,818 warrants, having a five-year term and an exercise price of $2.75 per Warrant.  The warrants are exercisable six months and one day following the issuance date thereof.  Under the terms of the Platinum Securities Purchase Agreement, the Company has, at the request of the Platinum Partners, agreed to prepare a Proxy Statement and seek stockholder approval of the issuance of the Common Stock underlying the Preferred Stock (see Note 15).  The Company received gross proceeds of $5,000,000 from the sale of the securities to the Platinum Partners on December 10, 2013 and incurred issuance costs of $100,000.

In connection with the issuance of this Series E Preferred Stock, the conversion feature of Series E Stock was considered beneficial, or “in the money”, at issuance due to a conversion rate that allows the investor to obtain the Common Stock at below market price.  The Company recorded a deemed dividend on the beneficial conversion feature equal to its relative fair value resulting from the offering of $371,140 in the fourth quarter of the year ended December 31, 2013.

Under the MTIA Securities Purchase Agreement, the China Purchasers agreed to purchase a total of 1,818,182 shares of the Company’s Common Stock at $2.75 per share along with 181,818 warrants, having a five-year term and an exercise price of $2.75 and exercisable six months and one day following the issue date.  As of September 30, 2014, the Company had not received the full proceeds of the sale of the securities from the MTIA after the parties had extended the due date for the receipt of all such proceeds to March 27, 2014, from the original closing date of December 12, 2013.  MTIA failed to provide funds in a timely manner, resulting in its material breach of the SPA, which has subsequently expired.  Due to the fact that the Company has not received the full proceeds from MTIA under the SPA, the Company has not issued all of the shares which it anticipated issuing under the MITA Securities Purchase nor has it recorded the complete MTIA transaction.  In addition, the Company has not transferred any information related to license, development or commercialization of Symphony to MTIA since, pursuant to the license agreement between the Company and MTIA, the Company is not obligated to transfer technology unless and until MTIA fulfills its funding obligations under the MTIA Securities Purchase Agreement.  The Company met with representatives of MTIA on October 22 and 23, 2014, regarding a MTIA’s possible investment in the Company.  At the conclusion of the meeting, MTIA proposed an offer with an approximate 24 hour lifespan that upon execution of a convertible note purchase agreement with a first stage financing amount of $1,500,000, Echo would be required to turn-over all relevant technical product information and samples of our Generation 1 Symphony product to MTIA as well as dedicate personnel to support their consumer based business plan.  As the MTIA offer did not include the previously agreed purchase of the additional $2,600,000 in Company securities as a prerequisite for the release and support of technical product information, the Company deemed the offer inadequate to warrant a response.   On October 24, 2014, the Managing Director of MTIA communicated to PwC that they “have no intention to provide any so-called better offer”.  Accordingly, the Company has ceasedpursuing funding from MTIA.  Through September 30, 2014, the Company has issued 872,728 shares of Common Stock and warrants to purchase 87,274 shares of Common Stock in exchange for $2,400,000 in gross proceeds, of which the last installment was paid to the Company on April 15, 2014.  The Company incurred issuance costs of $50,000.  The fair value of warrants issued to MTIA to purchase 87,274 shares of Common Stock was determined to be $174,396 and was recorded as a debit and a credit to Additional Paid in Capital in the second quarter of 2014.

Stock Issued in Exchange for Services

During the three months ended September 30, 2014 and 2013, the Company did not issue shares of Common Stock to vendors in exchange for their services.  During the nine months ended September 30, 2014 and 2013, the Company issued 2,636 and 7,450 shares, respectively, of Common Stock with a fair value of $8,404 and $89,970, respectively, to vendors in exchange for their services.  The Company recorded expense related to these issuances, which represents the fair value of the related stock at the time of issuance, to Selling, General and Administrative expense.