Teleconnect: Out of “Hibernation” and Making News After appearing dormant for nearly a year, not releasing a single press release regarding anything other than financial reports, Teleconnect (OTCBB: TLCO) released news in the past two days that drove shares up 33 percent, or 2 cents, to 10 cents by mid-afternoon today. Volume was more than 20 times the average daily trading volume of the past three months. Not only did the company announce a strategic acquisition, but also announced a reduction in its corporate debt by 46 percent and a return to profitability.Founded in 1999, Teleconnect has established itself as the first landline telephone operator specializing in the islands and coasts of Spain. The company targets the tourist and immigration population, consumers who may require multicultural and multilingual assistance. Until now, the company has remained silent for nearly a year, releasing only regulatory filings to remain on the OTCBB.
“It’s becoming pretty clear that this company has gone from appearing to be doing nothing and not talking about what the company was working on, to really reconstructing their balance sheet and breaking into profitability,” said Rick Lutz of the LC Group, and investor relations for Teleconnect. “This is their coming-out party.”
Climbing out of what Lutz refers to as a one-year “hibernation,” Teleconnect updated its shareholders regarding its recent 10Q on June 19, 2007, – the first news since August of last year.
“You had hardly any trading volume, people were probably questioning whether or not the company was even going to survive, the only things that were going on were the financial filings. But it is clear now that the company has a plan for substantial growth through acquisitions that expand their operational reach with newly developed products and have the backing of significant investors,” said Lutz.
The company reported net income of $327, 000 for the three-month period ended March 31, 2007. For the six-month period ended March 31, 2007, accounts payables have been reduced from $2.67 million to $1.8 million, a 56 percent decrease.
But the big news was in the debt reduction. With the aid of majority shareholders, Teleconnect was able to drop its long-term debt by $1.49 million. It was exchange for equity at a conversion price of 10 cents a share, a 100 percent premium to current market price at the time of debt payoff.
“That’s positive to know — that investors that know what’s going on in the future for the company – accepted a valuation of 10 cents per share for the shares received in return for paying off 46 percent of the debt,” said Lutz.
Today the company announced its acquisition of Netherlands-based MediaWizz. Teleconnect previously only offered its rechargeable pre-paid calling card and communication services in Spain and Portugal, but with the acquisition of MediaWizz, the company can now offer its services throughout Europe and Netherlands. Calling cards may not be such a big deal in the states – but travel to Europe and try to use your cellphone, and you’ll weep over your heavy phone bill the next month.
“Pre-paid calling cards are really still a very viable, economical alternative,” said Rick Lutz. “You buy it locally and you use it locally.”
Lutz noted that long-distance, overseas rates can be as much as 30 to 40 cents per minute – calling cards offer rates at about 3 to 5 cents per minute.
According to the company, the acquisition of MediaWizz will enhance the convenience of using and recharging calling cards with its proprietary multimedia kiosks, which feature real-time, online transactions such as phone recharges, ring tone downloads and photo printing.
MediaWizz also brings cash to the table. The company projected its revenues for 2007 and 2008 to exceed US$1.5 million and US$4 million respectively. Last year Teleconnect generated $4.6 million in revenue, so the revenue growth expected is significant.
Teleconnect paid $562,500 in restricted shares valued at 10 cents each, also contributing $325,000 in working capital, to be paid in 20 monthly installments.
“The acquisition of this technology company allows Teleconnect to position itself quickly to enter other European countries with state-of-the-art Kiosks supporting online transaction capabilities. This will greatly facilitate the distribution of Teleconnect rechargeable communications products into new markets,” said Teleconnect President Gustavo Gomez in the press release.
The recent acquisition, paired with the fact that so many investors were willing to purchase shares at 10 cents, supports Gomez’s hints of future activities.
“As mentioned in our press release of June 19th, 2007, the company continues to develop new products and is well advanced in the negotiations for other potential acquisitions,” stated Gomez.
Before the company’s recent press, the company has been “under the radar,” with shares moving on very little volume and a stagnant news file – leaving investors questioning whether to buy or sell.
“Now all the sudden you have news, and it happens to be positive news, things that indicate there’s a future there,” concluded Lutz. “Now you’re starting to [see] volume … the company will now start getting on [investor’s] radars.”