Ann: Appendix 4C - quarterly, page-70

I do agree with this Berty Beetle. There does seem to be a lack of understanding on what these additional shares mean. A simpler way to look at it is on EPS and market cap.

As a simple example, if the company had 668mln shares (which they do now) and recorded earnings of A$10mln, then they would have an EPS of A$0.015 - that is 1.5cents per share.

Fast forward to September, and the company is split into approx 1 billion shares (actually more). So the A$10 mln earnings would be A$0.01 - or 1 cent per share.

Looking at this we can see now the company has a market cap of A$127mln. That is 668mln shares x A$0.19. In September the company - at todays share price would be A$190mln.

The question is - why would the company be worth A$63mln more in September JUST because we issued more shares?

The end result is a dilution of our holdings in the company. We will all own 30% less of the company for each share we own - and there are other negatives.

1. Huge dilution with No capital raising. When a company does a rights issue, or a palacement it raises capital. The raiusing may be done at a slight discount but they are raising capital. That capital is added to the equity valuation of the company, so the dilution is offset by increase in capital.

With performance shares that is not the case. Shares are given for free and existing holders pay for it by handing over 30% of their share.

2. With management holding so many shares there then becomes an overhang. Professional investors will know that these insiders will want to sell some shares to raise personal capital. With that knowledge it is more likely that any institutional investor will hold off and wait for the discounted block of shares to hit the market. Worse still, when they feel it is almost time to issue those shares hedge funds will short into the market, with the expectation they can buy back in the placement at the discounted price.

3. with so many shares on issue, and with insiders likely needing to sell at some stage we face the risk of further capital raisings being done at larger discounts to the market. The further dilution is off-set by capital raised in this instance, but discounts on the raising will likely need a larger discount, bringing in further dilution.

Lastly, it seems 'almost' incredible that the stars just happen to have aligned just in time to reach all three targets. It also seems quite amazing that the targets have been reached, but at just the same time 3rd parties had to be brought in to handle the mess and that all that business was done at close to zero margin - but targets were met...

I like John and I like the company - but I do fear that maybe the prospect of 300mln+ shares for free could induce decisions that may not be in the best interest of existing shareholders; and once credibility is lost it is near impossible to regain, especially with fund managers.

Sold some today and will keep selling above 20 if we manage to get back there