Covalon Technology Limited (COV)

[zenvesting]

I am holding to see what Q4 & Q1 will bring, I'm not really sure how much to expect for Q4 due to uncertain timing of Saudi contracts, but am definitely looking for that to ramp-up in Q1 with "product revenues" of at least exceed $3.5 million.

I am not pleased by the apparent drop in legacy sales (possibly domestic) in Q2 either, but I do have a high level of confidence in the Saudi Ministry of Health contracts and have confirmed with outside sources that the Ministry of Health is in fact quite impressed with Covalon's products and distribution partner.

Frankly, if all the promising statements in PRs from the summer are actually material, as I tried to confirm in one of the CCs, I expect to see substantially more than $3.5M in Q1 to demonstrate the "materiality" of all the statements the company has made in PRs about recent sales expansion including:

This from 5/19/2016:
Covalon's products are now immediately available in Argentina, Chile, Guatemala, Honduras, Nicaragua, El Salvador, Costa Rica, Panama and Puerto Rico.

Covalon expects to have its products cleared in Mexico, Colombia, Peru, Venezuela, Ecuador, Dominican Republic, Paraguay and Uruguay by the end of 2016. Regulatory clearance in Brazil is expected in 2017.

This from 5/24/2016:
"Covalon employed an aggressive brand awareness campaign in Saudi Arabia which resulted in our IV Clear, SurgiClear and ColActive Plus products achieving top brand recognition in their categories in major hospitals associated with the Ministry of Health", said Hamed Abbasian, Covalon's Vice President of Business Development. "IV Clear has been selected as the exclusive antimicrobial vascular access dressing in the Intensive Care Unit of one of the most influential hospitals in Saudi Arabia. The Diabetic Foot Department of King Fahd General Hospital in Jeddah, which is the reference hospital for the Saudi Arabian Ministry of Health for patients with diabetic foot conditions, considers ColActive Plus as the most advanced collagen dressing available in the market for treating chronic wounds. ColActive Plus and SurgiClear have been selected as winners of their respective categories in a major tender. These successes have resulted in Covalon growing its market share rapidly over the past year, while most other international wound care companies have seen declines in their business in Saudi Arabia."

Covalon has also been winning business in the private hospital market in Saudi Arabia. Covalon is the exclusive supplier of wound care products to the Health Oasis Hospital in Riyadh, a major private hospital in Saudi Arabia, considered as one of the most advanced long term care hospital in the Middle East. Because of the success of ColActive Plus in preventing the need for limb amputations on diabetic patients with chronic wounds, Covalon became one of the main suppliers of wound care products to the International Medical Centre hospital in Jeddah.

This from 5/31/2016:
Covalon has been awarded a tender for both IV Clear and SurgiClear products at the prestigious King Abdullah Medical City in Mecca, Saudi Arabia.

This from 6/15/2016:
"Hospital and clinic demand for IV Clear and SurgiClear has largely been the driver behind this opportunity with Medline," said Brian Pedlar, Covalon's Chief Executive Officer. "We expect to see increased sales of our products through this channel in the United States, and fully expect to grow our customer base of leading cancer treatment centers, pediatric hospitals, and wound care clinics because of our products' improved availability."

This from 9/13/2016:
“As we have consistently stated, Mexico is key to accelerating our business as Covalon enters the vast Latin American market,” said John R. Hands, Covalon’s Executive Vice President. “Covalon's products are uniquely positioned to address many of the product gaps currently found in the Latin American medical market, especially when one considers the explosion of diabetic-related wounds in the region”.

Covalon has already signed distribution agreements and commenced sales of its products in:

Argentina
Chile
Guatemala
Honduras
Nicaragua
El Salvador
Costa Rica
Panama
Puerto Rico
Covalon expects to have its products cleared by the end of 2016 in:

Colombia
Peru
Venezuela
Ecuador
Dominican Republic
Paraguay
Uruguay

So as I see it, when those Q1 numbers are released by the end of February, the company had better put up a really impressive top line results, or they will have stretched my patience too thin and lost my trust......but I am optimistic that won't be the case.