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  • Elephant Talk - An Undiscovered Bitcoin Company

    By now everyone has heard of the meteoric rise of Bitcoin over the last few weeks. Today the digital currency hit a new all time high of $950. The wild fluctuations in the price, and dreams of riches, have driven average people into the currency. Investors and traders have searched high and low for ways to get in on the action with companies involved in digital currency. Today we bring you Elephant talk Communications Corporation (NYSEMKT:ETAK) as an undiscovered play on Bitcoin and the burgeoning digital currency rage.

    Background:

    Most investors know ETAK as a mobile play. ETAK is a leading international provider of proprietary mobile Software DNA™ platforms for the telecommunications industry that empower Mobile Network Operators. ETAK's customers include several of the world's leading Mobile Operators such as Vodafone, T-Mobile, Zain and Iusacell. Virtually all business is focused on tier 1 and tier 2 operators worldwide. What most investors are not aware of is the gem of the ETAK portfolio,
    ValidSoft Limited.

    ValidSoft Limited

    From the companies website we see that this company provides solutions to counter electronic fraud relating to a variety of bank, card, internet and telephone channels. ValidSoft's solutions are used to verify the authenticity of both parties to a transaction (Mutual Authentication), the security of the relevant telecommunication channel used (Secure Communications), and the integrity of transactions itself (Transaction Verification).

    This brings us to the meat of the argument that ETAK is a stock that could get interest from Bitcoin. On October 9, ETAK announced a partnership with Ven, www.vencurrency.com, a leading global virtual currency managed by the Hub Culture Group, www.hubculture.com. ValidSoft was selected by Ven for its state-of-the-art, specialized purpose security architecture SMART™ (Secure Mobile Architecture for Real-Time Transactions™) to underpin its own advanced consumer offerings in social networking and virtual exchange. Ven is the premier digital currency, first appearing in 2007 and the first virtual currency to be used for 'real-world' transactions at physical Hub Pavilions, online Hub stores and as a tool for exchange among the global network of Hub Culture members. After reading all this information we see that VEN is a digital currency. ETAK is now partnered with them making it a play on digital currency. So far this makes ETAK and VEN sympathy plays on the move in Bitcoin. That in itself is very bullish for the stock of ETAK right now but there is more to this story.

    To summarize the new ETAK partner:

    • Bitcoin "bank"
    • Bitcoin fund
    • Bitcoin asset miner (make your own bitcoins)

    Stan Stalnaker - founder of Hub Culture in an interview in May of this year stated this, "These days we manage bitcoin assets through Hub Culture and have developed assets in Ven that our community can access to hold bitcoin without all the hassle. In fact, we just launched a Ven Fund that allows users to hold both Ven and bitcoin together." So now we see that VEN, ETAK's new partner, is a Bitcoin "bank" and also runs a Bitcoin Fund. The story now gets very interesting. If we look around the Ven website we also see that Ven last month launched its very own Bitcoin asset miner. For those unfamiliar with how Bitcoins are created here is a very quick run down.

    Bitcoins 101:

    New bitcoins are distributed as payment to transaction processors known as miners. Bitcoins are not physical, like dollars, they are produced by people running computers all around the world solving mathematical questions. Because creating (or "mining") blocks is so crucial to the Bitcoin network and very difficult, the Bitcoin protocol includes a mechanism to encourage people to mine: every time a block is added, the miner who found the block is given 50 Bitcoins as a reward. The Bitcoins are stored electronically. The total number of Bitcoins ever created will be 21,000,000, and the current money supply of Bitcoins recently passed 11,000,000. It is for this reason that the value of Bitcoins continues to explode higher. They were made to do this. When bitcoin was first created in January 2009, each 10 minute block paid 50 Bitcoins, and this number will halve every 4 years until the last coin is created in 2140. The first halving is expected to occur on Wednesday Novemeber 27, 2013, so the current creation rate is 25 bitcoins every 10 minutes. Bitcoins has, to put it mildly, reached a fever pitch in the media and it this reason we are looking for ways to invest on this hot item.

    This brings us back to the partnership deal ETAK signed with Ven and the underlying reason for it - SECURITY. With all this Bitcoin wealth flowing around, and the currency existing only in digital format, security is a major issue. ETAK's SMART, is aimed specifically at addressing inherent security needs in virtual currencies - subscription, management, administration - and ensuring the integrity of transactions resulting from the global usage of virtual currencies where authentication, privacy and/or data integrity is paramount. Ven will debut platform extensions featuring scalable security solutions later this year with an expanded set of consumer offerings with corporate partners. This is the 1st stage on the adoption of the Bitcoin currency in average life and could make ETAK a major player in the Bitcoin market in the coming years. According to Pat Carroll, CEO of ValidSoft, "We have customized our SMARTvc™ architecture for authenticating mobile payments utilizing virtual currencies transactions and we intend to become the industry leader in securing the virtual currency space."

    Looking at the financials of ETAK we find the following:

    • During the third quarter of 2013, Elephant Talk's margins grew to 79%.
    • This monthly recurring revenue mobile and security business now accounts for approximately 96% of Elephant Talk's revenue base.
    • Year-over-Year Adjusted EBITDA improved $2 million to a loss of $85,000 when compared to a $2.1 million loss during the third quarter of 2012

    The chart below shows the transition of ETAK from its unprofitable business lines to the new profitable digital security market. Margins are up. The company is now at breakeven. Over the last five quarters ETAK has turned in 13% average revenue growth per quarter. If we assume this growth continues for the current quarter, as noted in the chart below, we obtain $5.65m in revenue. Based on the 79% gross profit margin the company reported for the last quarter we obtain a profit estimate of $513,500.

    Bitcoin may be a bubble or it may be the dawn if of the adoption of a new currency. As investors we are always looking for ways to invest in the what is the next growing trend. Until now there have been no other ways for investors to get a piece of the Bitcoin market. Through its recent deal with Ven, ETAK appears set to fill that void. To add to the investment thesis on ETAK we also looked at its financials and surprisingly they are also very attractive. Based on its current growth rate, ETAK is set to become profitable in the current quarter, making it a turnaround stock as well. ETAK's solutions are also being rolled out in UK banks right now so there is much more to this story that investors should look into. Bitcoin sympathy and a turnaround story make ETAK a very intriguing company right now!

    Disclosure: I am long ETAK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: ETAK, long-ideas
    Nov 27 12:45 PM | Link | 6 Comments
  • Rexahn Pharmaceuticals Looks Poised To Double

    Rexahn Pharmaceuticals (NYSEMKT:RNN) is a small cap cancer biotech that has seen its stock price decline in recent weeks to attractive levels . Its profile gives an idea of the key sectors it is involved in; Rexahn Pharmaceuticals, Inc., a development stage biopharmaceutical company, engages in the discovery and development of treatments for cancer and other disorders of central nervous system. The company’s product candidates include Archexin that is in Phase II clinical trials for the treatment of renal cell carcinoma, glioblastoma, ovarian cancer, stomach cancer, and pancreatic cancer; Serdaxin, which has completed Phase IIb clinical trial for the treatment of depression and Parkinson’s disease.

    The stock is down 50% over the last month on the heels of financing that was priced at 33c, raising $6m in proceeds and putting added selling pressure on the stock in an active tax selling season. However, at its current stock price of 29c for the patient investor some very nice upside can be seen in the coming months.

    In recent days we have started to a witness another buying frenzy again in small cap biotech stocks. Today YMI Biosciences (YMI) was bought out by Gilead (NASDAQ:GILD) and yesterday we saw Somaxon Pharmaceuticals bought out for double on its stock price, something we mentioned in our previous article last month, Why Somaxon Pharmacueticals Should Be A Double From Here. The same double potential clearly exists here too for Rexahn.

    Just last month Rexahn was trading in the 45-50c area and announced another financing deal with Teva Pharmaceuticals. Per the deal Teva will invest $750,000 to purchase Rexahn's common stock at 120% of closing price of common stock on the last trading day preceding the closing. This will complete the third closing agreed to by the parties in the Securities Purchase Agreement.

    Teva has agreed to commit additional research funding for development of RX-3117. Under a new amendment to the Research and Exclusive License Option Agreement, Teva will have the right to file the IND for RX-3117 with the FDA. Teva is funding research of RX-3117 AND will be responsible for filing with the FDA. That should give potential buyers in the stock some positive views.

    A quick look at the chart below shows that merely bouncing to last month's price level is a double. A bounce to the 200 day moving average at 45c would give a 50% move. Both of these are attainable in this market environment.

    (click to enlarge)

    We could go more into the Rexahn pipeline but the thing investors should look at it is this; Teva believes in Rexahn and is funding their drug research. Pay attention when large caps sniff around small cap biotechs. This is how YMI was bought out today.

    With eight drugs in its pipeline and a recent financing complete, Rexahn should be set up for a nice rebound into 2013. A mere 50% rebound in the stock price would take Rexahn back to the level it was at last month. A double, from these prices, with small cap biotech stocks being bought out lately, is not a stretch. Biotech stocks that trade under $1 carry high risk but with that risk comes high rewards. All it takes is one success with a drug indication, or a buyout to send these stocks soaring. Teva appears to be committed to Rexahn and at 29c that makes this a value play investors should look closely at. In recent days we have seen many small cap biotech stocks explode in price such as ABIO BioPharma (NASDAQ:ABIO) up 60% this week, and Cardiome Pharma (NASDAQ:CRME) up 40% this week. These are two small cap biotech stocks to whet the appetite for the potential in this price range. Like all small cap biotech stocks Rexahn has risks but at a price of 29c with financing complete the upside rewards are very attractive!

    Disclosure: I am long RNN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Dec 12 12:19 PM | Link | 3 Comments
  • Does Biogen Idec have a Buyout Offer on the Table?

    For the last year rumors of buyouts have been floated around on Biogen Idec, no surprise really given the constant pressure from corporate raider Carl Ichan.  Those rumors are likely pick up steam yet again after the earnings report from BIIB’s Tysabri partner ELN today.

     
    Tysabri, the multiple sclerosis drug shared 50/50 with Ireland’s Elan Corp has been a torn in the side of Biogen for the last few years with infrequent reports of PML hammering the stock every few weeks. Tysabri is only the second drug ever pulled from the market by the FDA that was allowed back to market.  The stock soared last year on an expected buyout that eventually turned soar after cases of PML were reported.

     

    Under the Tysabri agreement ELN has with BIIB should BIIB undergo a change of control (ie. merger or buyout) then ELN has the right to purchase BIIB’s 50% stake in Tysabri. In today’s Elan conference call ELN’s management team mentioned that Biogen Idec has approached them and offered $700m to purchase ELN’s right to the change of control clause. This large price tag for just the clause rights could suggest BIIB is about to merge or be bought and with Tysabri considered a lynchpin of any deal BIIB may be trying to tie up a potential deal breaker. Interestingly enough ELN mentioned that should there be a change of control at BIIB that JNJ has agreed to finance ELN’s purchase of Tysabri. The plot thickens. If news that BIIB has paid ELN surfaces you can bet a buyout of BIIB is just around the corner.

    Disclosure: Long ELN

    Tags: BIIB, ELN, JNJ
    Jul 21 11:15 AM | Link | 2 Comments
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