election of director - gerry pauley , page-3

Well we are just about at the end of the road with the story I set out to tell. On the weekend we start on a new journey as Gerry makes his way East for the AGM with meetings at all the capital cities along the way.

Just to summarise where we are at:

Ray Catelan joined the Board in 2007 and together with his nominees has had total control of the Board since then. In the four annual reports produced since he arrived the company has written down the assets by a total of $71.6 million. Since the market cap of the company is only $36.2 million you would think that this company is performing very badly. But this could not be further from the truth. In that same four year period the operating cash flows have totalled a positive $49.8 million.

Because of this unusual combination and the non-payment of dividends since Catelan arrived, the company is in an extremely strong position. Total debt in the latest available figures is a miniscule $588,000 while cash was $9m. The company also has a vendor loan worth $17m and due to be repaid in April next year but of course there is another story there as well which I won't go into again at this point. But I am confident that the write-down of the vendor loan is unfinished business and will be held up to scrutiny in coming months.

This method of running the company has enabled our Managing Director to buy shares at much cheaper prices than he paid for his original holding. He paid $1.90 for the shares he bought from Hofmeister, the previous chairman, but of course he only has to pay 70c these days.

Class A shareholders have seen their shares fall from around $1.30 when he arrived to 45c now and they have fallen as low as 29c during the period of Catelan's reign. They have missed out on 11 quarterly dividends totalling 38.5 cents during this period. The Company has attempted two unsuccessful buybacks of the Class A's during that time. The last of which was for 63 cents. The constitution says that Class A shareholders are entitled to a dividend of at least 14c fully franked but it also says that the dividend is at the director's discretion.

The questions that need to be answered are these: Are we going to allow Catelan to come in, cancel the dividend, destroy the share price and then buy for himself, or buyback through the company, all of our shares at a massive discount to what they would be if this company was run as we expected it to be? And if not, what can minority shareholders do about a situation such as this?

We are about to get on the road to find out.

Thanks for reading and I hope I can give you answers to those questions when I get back.

GPASAS