Covalon Technology Limited (COV)

[zenvesting]

Hey Frank,

I have spoken with Brian a couple of times over the past year or so and asked about some of these same issues. The best way to get in-touch with Brian is to e-mail him a request for a phone meeting and he will get back to you with a date and time, he may take a while to respond as he said he's been very busy lately.

1.) Regarding the August 2011 announcement of the distribution agreement to the middle east, Brian said that agreement was renegotiated, they are not an exclusive distributor in any territory, and Covalon has other distributors in the middle east. I asked specifically who distributed to the Rashid Centre for Diabetes & Research that was highlighted in Middle East Health Magazine in 1/2014 and he said that was through a different distributor. FYI, here's the write-up, The Use of ColActive and ColActive Plus in Chronic Wounds: http://www.rcdr.ae/documents/Files/Middle_East_Health_Magazine_Jan_2014.pdf

2.) Regarding the October 2011 distribution agreement for ColActive Plus in China, Brian indicated that this distribution agreement is still active; but the product has not been approved in China yet. China usually takes 2-3 years to review foreign company products for approval and it has been about three years, so they are hopeful they will be getting notice of the approval soon. I did not specifically ask about the agreement for antimicrobial catheters, but might guess that it has a similar status.

3.) Regarding Molnlycke, when I spoke with Brian in November 2013 I asked generally if he thought they would be able to achieve simiar gross margins selling through Molnlycke as they had in recent quarters (Q32013 was about 65% overall) and he indicated that the combination of the distribution agreement and royalties would allow them to remain pretty simila to what they were going through Covalon's network of smaller distributors.

Regarding the non disclosure of specific terms with Molnlycke, it's easy to understand that Molnlycke is a private company and seeks to keep this information private to preserve their competitive advantage. According to Brian, Molnlycke didn't even want to disclose what the upfront payment was, but he had to tell them it was a requirement for Covalon to disclose that as a public company.

I had also asked about the nature of the $462k they received for Specialty Medical Device coatings in Q2, weather it was for product sales of the catheters, or for R&D activities, Brian said it was a mixture of both.....but not to expect that to be a consistant and repeatable revenue stream....as Q3 obviously showed.

I would love to get some more insight here to be able to better predict their revenues, but I don't expect we will be getting that anytime soon, but will have to use Brian's general guidance to look at the 6 month or longer comparisons due to the lumpiness that can be caused by the timing of OEM orders.