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Empire of Carolina continues to report net losses, but signs of improvement have been apparent in recent earnings statements.  The drop in revenues continued in the 3rd quarter, but at a slower pace.  Third quarter revenues declined by 1% due to lower sales of the company's Real Bugs toys, seasonal products, and the sale of the steel-walled pool line.  The company reported a narrower net loss for the quarter, but reported operating income of $1.1 million.  The smaller loss was due to an improvement in the company's gross margins as a result of lower advertising and sales expenses, and lower interest expenses.  The company's revenues in future quarters will be boosted by Empire's recent deal with MTV Networks to license Rug Rats products.   The company will begin shipping toys and other products based on the popular Rug Rats characters in early 1999.  The introduction of these products will increase revenues in the year's first half and lessen the company's dependence on the Christmas shopping season. We believe that the acquisition of the Rug Rats license combined with the company's continuing efforts to lower expenses have planted the seeds for a turnaround to begin.  Empire must still take steps to lower its high debt load (Total Debt/Equity is 1.89 and the company's current ratio is just 0.91) before the company can return to profitability.  We continue to like these shares, now trading at a Price/Sales ratio of 0.17 and a Price/Book ratio of 0.72, as a speculative turnaround play. It is our belief that the success or failure of the new products will determine the company's future. A successful introduction of the Rug Rats products could boost these shares to the $2-$2 1/2 level. If the products are not a success however, questions about the company's future will once again surface.  (01/27/99)

ISCO continues to make steady progress in its transition from a development stage concern to a producer of actual products.  The company's 9 month revenues grew to $1.7 million from $756,000 the prior year.  The company expects gross shipments for the 4th quarter to exceed $1.5 million.  ISCO has undertaken an aggressive cost reduction program to make its products more price competitive with conventional filter products.  This has resulted in increased sales growth, but has had a negative effect on margins.  The company expects margins to remain under pressure as it continues to adjust its product pricing structure.  The company's cost of revenues continues to exceed its revenues--i.e., it costs ISCO more to make the products than it is able to sell them for.  This condition will persist until ISCO is able to manufacture and ship its products in larger quantities. The company took a step towards this goal of ramping up volume production with the signing of a deal with a major cellular system manufacturer.  ISCO's shares received a boost this week when it announced that it has, in the company's words, "become an approved vendor for one of the world's largest cellular system manufacturers...Being an approved vendor will allow cellular and PCS operators to order Illinois Superconductor's technology directly from the OEM."    We expect this week's rise in the share price to be only a short term move.    Actual sales and orders from the deal will be needed before ISCO's stock can make a sustained upward move.  This week's deal, combined with insider buying at the $0.81-$1.06 level in November and December, are encouraging signs for the company's future.   The company must continue to ramp up sales volume in the coming quarters for this week's good news to translate into higher long term  stock prices.    We look for these shares to rise to the $2-$3 level when (or if) actual significant revenues begin to be realized from the deal. (01/30/99)

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CRM (Corimon): See our opinion on the Venezuelan market. 

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UNR (Supermercados Unimarc): UNR is Chile's third largest grocer. The company also operates supermarkets in Buenos Aires, Argentina.   The company operates stores in two formats.  Its Unimarc stores target higher income shoppers and account for 67% of sales.  Its Multiaharro chain is geared towards a more value conscious consumer.  Net sales for the second quarter rose 15.4%, but net income fell 10.6% as price wars took their toll.  The supermarket sector in Chile, and elsewhere in South America, has been hit hard this year by an ultra competitive operating environment. Chains have expanded  rapidly in recent years, and have engaged in a bitter price war to lure customers from the competition.  UNR shares have fallen 88% from their 52 week high of 16 7/8 as fears about shrinking margins and profits have taken their toll.  The 50% fall in the Chilean stock index from its highs has further exacerbated the fall in Unimarc's shares.  We believe that the fall in UNR shares has been overdone and the shares are now deeply undervalued. The company is taking steps to cut costs and boost margins.  It is scaling back  its expansion in Argentina in order to concentrate on its core metro Santiago operations.  Other South American grocery chains are also announcing plans to cut back on the aggressive expansion that the industry has been engaged in in recent years.  We believe that these events will lead to a stabilization of profit margins in the industry, and to a partial recovery in stock prices.   Additionally, we expect the shares to be lifted along with the Chilean market later this year as Chile begins to recover from this year's economic slowdown.  We would be buyers of deeply oversold UNR shares at these levels.  Unimarc trades at just 4 times next year's expected earnings.  We look for the shares to trade up to the 4 to 5 level within the next six months.  Our 12 month price target for Supermercados Unimarc is 6 to 8 dollars a share.

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