my half yearly report

TEE – My half yearly Report
as @ 20 March, 2006

What is the reality of the Company:

Financial Performance
• $1.3m loss 2Q05/06better than the $1.6m expected as interim assessment in January.
• Remember, 1st Qtr operating loss of $1.1m on revenue of $2.2m but includes a number of one off costs relating to initial acquisition
• Therefore, 2nd Qtr operating loss of 200k on revenue of $3.8m but includes slow Xmas period and further one off costs relating to Beam and acquisition.
• So extrapolating to 1st qtr we should be seeing continued increase in revenue and now an operating profit. If budget is around $5.5m that would give us about $1.1M in operating profit+…
• Why was TEE slower than forecast - the ASIC interim stop order that came at the end of last year forcing a new prospectus and delays to operations. As the company said “this put us three months behind schedule” and cost them a lot of money!!!…(see below) that means the “new company” is really as though it’s end of 1st qtr and looking for Q2 to ramp up sales…pretty good result considering.
1. Additional Expenses:
• Significant expenses have been incurred for inventories for the integrated businesses which will facilitate order timing. $464k was mentioned in 1Q Report.
• Interest of $73k was also incurred in 1Q with this loan now paid out.
• ASIC Interim Stop Order – Resulted in new Prospectus being issued, Lawyers, Admin etc. estimated @ $100k plus.
• $100k was spent on Statasounde for R&D in 1Q which has now been divested
$450k annually has been knocked off expense line from 1 Jan 06 through employment reductions. I assume there was a retrenchment payout for these persons which would have been expensed in 2Q of 1H as well.
• Beam - Manufacture of iridium equipment was updated incurring further expenses. Delivery delays as result of the updates meant the new sales cycles had to be re-started but "since the upgrade some major contracts have been secured" (see prior announcements) further, we are talking cutting edge technology here with major sales upside.
2. Additonal Expenses: New Company & Strategic Positioning -
• We must remember TEE is building a new Company with a new strategic positioning in the market place. As a result, extra costs were incurred in the 1H from the integration and "A major program for staff training and accreditation with leading network equipment suppliers has been undertaken". This positions TEE strategically for "participation in larger more complex projects…with higher profit margin" They have set up an office in North Sydney which will position TEE for upcoming projects such as the "Medical Service Providers ($5m - $15m FH 06/07 as forecast in the investor report last year) and a number of major beam projects"
Expense Summary:
• From the above detail of “one off” expenses it is estimated approx $1.2m to $1.7m in additional expenses were recorded in the 1st Half 05/06.
• With sales effectively only recorded for 2Q for the integrated company (and a little slower due to Xmas period) and many “one off” expenses this has had understandably a significant impact on NPAT .



Cost Savings moving forward 2H06:
• Following integration and after 1/2 Yrly approx $450k annually has been removed from employment expenses due the synergy of the two new businesses.
Performance of Beam:
• A number of significant reseller agreements have been signed with major global satellite market players.

Auditors “Going Concern” statement and Cash Position:
• This was a madatory audit comment required possibly because the Cap Raising was recorded as at 31 Dec 05 as a liability ($2.3m) leading to a deficiency in current assets.
• The Cap Raising @ 4.5c ($2.3m) plus Stratsounde divestments ($1.1m) should add $3.4m to cash.
• Having satisfied major conditions for the sale, management is 95% confident the startasounde divestment will be successful.
• As a poster (who says he is an auditor) on hot copper said “To have this raised only as an emphasis of matter, rather than an adverse or qualified opinion, is the most positive way that this can be disclosed”.
• The 2Q was evidence that TEE is now profitable, expenses will have stabilized and sales are ramping up leading to profits and providing sufficient cash flow.

My Summary:
• Due to ASICC delays, effectively the Half Yearly represents 1Q of the merged new company with significant “one off” expenses associated with establishment.
• TEE is a company which has repositioned itself in the market place through synergistic acquisitions (Qld acquisition to come providing full Eastern seaboard presence) and cutting edge Beam Iridium satellite technology.
• The 2Q was evidence that TEE is now profitable, expenses will have stabilized and sales are ramping up providing sufficient cash flow.
• TEE has incurred many one off expenses as a result integration, excess staffing until integration was complete, inventory, upgrading Beam technology, interest, training, new strategic partners providing higher profit margins, new logos, offices in Sydney etc..
• TEE is building the foundation for a significant growth story over the coming year.
• If Management does convert the significant contracts in the pipeline (Medical, Beam etc.., TEE could very well surprise the market and hit the target $4.8m NPAT by 30 June 2006. That is, in 9mths rather than the forecasted 12mths.
• The upside is significant for share price appreciation from 3.8c to 15-20 cents but there is a corresponding level of risk.

Disclaimer: This is my own personal research and opinion and is not recommended as investment or financial advice of any kind. Caveat Emptor. Please do your own research.