facts - balanced view for potential investors

In light of the posts recently, both negative and positive I thought it would be good to start a new thread based on straight facts with limited opinions to create some perspective for any potential investors in SMA and give them a clear picture of where this company is at present. This is not meant to be a upramp or downramp, just some perspective. I am annoyed at where the sp is at present as with everyone else, but to say that management have not achieved anything in 2 years is not justified. I have tried to start a summary below and there is plenty more that could be added so feel free to make additions or corrections. I hold and still believe in the companies massive potential in a market that is difficult to enter but for which SMA is beginning to take a position, however as per below there are aspects which need to be considered on both sides.

Positives -
1. SmartTrans have secured the exclusive right to provide the VODOne Lottery Application to China Mobile’s 650 million subscibers in China (source – www.chinamobileltd.com) and the non-exclusive right to provide the Lottery Application to other subscibers in China. SMA will receive royalty payments on all amounts wagered on the lottery application. As of the last quarterly SmartTrans was registering a growing number of downloads and lottery ticket purchases via VODOne mobile lottery and SmartTrans receives a royalty on all amounts wagered with those lottery tickets.

2. SmartTrans has signed an agreement with Beijing Digitone Telecom Co. Ltd, “D.Phone” (www.dixintong.com), for it to install the MyLife software on mobile phones it sells with an initial target of 1,000,000 units. The number of phones on which the software is to be installed may be extended with SmartTrans’ authorization, which is highly anticipated given that, according to D.Phone, up to 55% of the seven million phones that it sells each year are smartphones.

3. Billing arrangements are in place with the following - China Mobile CMPay; China UnionPay; AliPay; and China Mobile’s Mobile Market. Positive for maximising take up of mobile services

4. SmartTrans has also been granted the right to bill its China Mobile customers directly through their phone bills – this will enable immediate and easy transactions. The payment platform will be fully implemented in the MyLife system in the coming weeks. Direct-to-phone billing requires no customer pre-registration and no new mobile software in order to make a purchase. This makes it the easiest way for mobile phone users to make transactions. SmartTrans will now be able to bill its monthly CNY30 (A$5) subscription service and its other products direct to customers’ mobile phone accounts. This provides a nationwide solution to payments via UMPay (an entity directly sponsored and founded by China Mobile and China UnionPay with a customer base of 500 million mobile users) as per commentary by Brian Carr – “We started out dealing in one province and have now secured a very significant nationwide deal”.

5. SmartTrans have been working with Zhenya Group of Companies to complete the development of the www.MyLifeOnline Website as a platform focussed to deliver innovative mobile and internet in China. Zhenya Tsevetnenko purchased an equity share into SMA last year worth at that time $500k at 1.7c. SMA have entered into an agreement with Zhenya Group of Companies to establish a company in Hong Kong which will be owned equally and which will provide internet and mobile software services to consumers in the Peoples Republic of China. This website is fully operational and works with integrated payment services allowing consumers to pay for applications, content and services and to purchase and receive lottery tickets using the V1 Mobile lottery application. Under the arrangement, Mr Tsventnenko will provide his innovative internet marketing techniques and industry experience to maximise take up of the mylifeonline product.

6. SmartTrans is also in advanced negotiations with VODOne to fund marketing campaigns and incentive based offers to maximise the takeup and usage of the V1 Lottery application

7. SmartTrans shareholder ownership is heavily weighted in the top 20 holders (63.36% as at June 2011) with a very significant proportion of shares held by Directors. At 30 June 2011 of 1,120m shares, of which 571m were owned directly or indirectly by Parent Entity Directors and Key Management Personnel. This does not include the 26.7m shares which are owned by Lydian Enterprises which has been noted within a previous thread to be highly likely the shareholding owned by Zhenya.

8. SmartTrans presented its project credentials to relevant members of the FIFA World Cup Organizing Committee and to the Rio de Janeiro Olympic Organizing Committee for the Olympic Games and the Ministry of Sport in Brazil and SmartTrans has selected a partner with which to deliver its products in Brazil.

9. SmartTrans continues to work closely with China Mobile in further developing and forging a strong relationship. The Company received recognition at the recent China Mobile Partner Event. This is the latest update on dealings with China Mobile outside of the announcement re point 4 above.

10. Dr Geoff Raby, former Australian Ambassador to China jointed the SMA board in July 2011. He is also on the board of 4 other Australian companies including Fortescue Metals. He is an integral part in building strong relationships for SMA in China. One would not expect that he would join the Board of SMA without viewing the company as having significant potential in China.

11. The Chinese Mobile market is the largest in the world and growing rapidly. The mobile lottery market is also witnessing extremely solid growth in China and increases in regulations to stamp out illegal lotteries in China in Feb 2011 will further benefit SMA given that the V1 Lottery is one of only a few approved lotteries.

12. All indications from the launch of V1 Lottery and mylifeonline.cn are that some level of revenues should be reflected in the June quarterly, if not before via an update to the market


Negatives -
1. No increase in cashflows was demonstrated or update on take up was provided in the last quarterly announcement. Given that launch of V1 Lottery website was only completed in mid Feb 2012 and payments of royalties from V1 Lottery are on 30 day terms it was not expected that the company would have received much cash at that time, however there has been no update on revenues to date or take up levels since the V1 Lottery or mylifeonline.cn launch.

2. Management have not provided any clear information to allow shareholders to quantify the financial impact of the deals/agreements made in China to date. If details of agreements are not subject to confidentiality agreements (which management have not confirmed either way), then management have in some peoples opinion not provided an adequate level of information for people to make an informed investment decision on future cash flow value or this company. This has impacted share price in a market where cash is king and the company has still needed to raise capital through share placements.

3. Repeated small cap raisings have led to dilution of share value and this has been made worse by the share price declining significantly over the past 6-9 months due to numerous factors which include widespread negative share market movements, lack of updates on progress with Shanxi Province China Mobile following expiry of Heads of Agreement along with limited evidence of potential cashflows from the significant deals being signed with V1 Lottery, Dphone and other applications.

4. No clear update has been provided to the market regarding negotiations and agreements with China Mobile and Shanxi Province China Mobile outside of indications that the relationship is still progressing well. Given that the contract agreement has been with China Mobile for final approval since approx. Aug 2011, many long term holders have lost patience for an update on a formal contract with China Mobile. Whilst indications from management are that dealings with China Mobile continue to be positive and other achievements over recent months can be integrated into the propose agreement with China Mobile, the lack of clear update on this progress has tested long term holders. There has also been a lack of clear updates on Yamei and CHMC outside of quarterly reporting which combined have led to negative sentiment against management based on the assumption that nothing is progressing in these aspects of business.

5. Market announcements from company are generally brief and on many occasions could have been considered to lack detail around financial impacts on business.

6. In financial year ended 2011 company made a $3.826m loss which included a goodwill on consolidation write off of $1.2m. Salary Expense of $1.02m. 6 Months to Dec 2011 show a $1.072m loss. The company continues to turn a loss with minimal revenues as at 31 Dec 2011. Time will tell what revenues are flowing in from the V1 Lottery and mylifeonline.com.cn sites.

7. The company is currently in a position where cashflows need to be demonstrated on the back of recent achievements in order to put a clear value on this company. The potential market is huge, but this means little without demonstrated revenues, margins and cash in the bank. There is potential that the business will be cashflow positive in the near future if market penetration is good (which is why Zhenya is a key to driving a high penetration marketing campaign). Until these aspects become clear the value placed on this company’s future cashflows is anyones guess.

8. Current cash burn rate has meant that capital raisings of $500k-$700k in recent times have only supported the companys working capital and marketing campaign for periods of 4-5 months. This may be improved via marketing agreements with VODOne as noted above along with the much anticipated start to cashflows being generated from the now active websites and preinstalled software with Dphone.

Good luck to all. I hold and will continue to in the foreseeable future, however I am also expecting to have some good news come out before the SPP is finalised and also some updates on cashflows and take up over the coming months.