Ann: Appendix 4C - quarterly, page-18

Hi bluebush

They have a tad over $3m in the bank and $450k in a line of credit and expect it to last for 12 months.
So forget about the credit line and lets assume that this means they could function on a cash outflow of $750k per quarter for 4 periods to exhaust the $3m in the bank.

Well lets take the $900k from the most recent quarter and see what we can do with it to drop it by $150k to get to the $750k required

Customer receipts were $1.927m and this has been growing by over 20%. Lets assume the growth rate halves for the next 4 quarters and sales grow by only 10% a year. I think this is conservative given the penetration of the new product range has only just started and also the east coast which the company has said could add $3-4m in revenues.

$1.927m becomes $2.12m at the end of the next quarter, an increase of $190k
$2.12m then becomes $2.33m and an increase of $210k
$2.33m then becomes $2.56m – an increase of $230k
$2.56m then becomes $2.82m – an increase of $260k

So if we “need” an extra $600k (4x$150k) and this demonstrates that we will receive an extra $890k in revenue before costs. Not enough to meet the target.

So lets do it on a 20% growth rate:

$1.927 becomes $2.31m – an increase of $380k
$2.31m becomes $2.77m – an increase of $460k
$2.77m becomes $3.33m – an increase of $560k
$3.33m becomes $4m – an increase of $670k

So a total increase of $2.07m in revenue

What margin do we apply?
Well I recall reading some time ago that the margin on this business was around 10-15%. So 15% gets us net $300k. I would think that the sunk costs in inventory build-up for the east coast centre in Brisbane, plus the fact there will be some operating leverage given the fixed costs that already exist in the business means that you could boost this by another 15%.
So another $300k gives us the $600k that I mentioned earlier and the affirmation of the 12 month target.

This is all very crude and I know not complete and there are plenty of assumptions, and this does not include a) any use of the credit lines b) any exercise of options and c) any capital injection from a deal that the company signs in the whole of this year.

I feel very comfortable that based on what we know now about the company’s plans and strategy that there wont be any capital raising.