Ann: Technology Acquisition Update & Voluntary Suspension Exit, page-347

It is interesting to look back at some of Fozzards hotcopper comments from 2011, $300k p.a. certainly changes your perspective

I am now choosing not to comment on anything other than specifics.
That is, you ask me what colour the office walls are painted and I'll tell you red. If you ask me whether I think they should be painted another colour and I'll tell you to speak to the guys that have to work there.

I will be moving into a research based company in the next month under an AFSL, so my time for making comment on HC is limited.

My opinion is one of many.
My comments are likely to be subjective and thick with influence from my time in dealing with this company. But the ether trail cast by my past experiences may not be entirely relevant to what is happening today. Hence my caution.

Again, if you ask me whether the walls should be another colour, I say:
- Look at the price (the market always knows best)
- Find out what the status is of Tincom (remembering it was the company maker almost 12mths ago.
- Look at the price (the market knows best)
- Ask why they had to take the LJC note when the company was supposed to be in the best shape its ever been in.
- Find out what LJC's holding was at balance date 28th Feb (after being issued 43M shares).
- Ask why their cash burn has been increasing over the last 2 years in the absence of completed deals.
- Look at the shareprice.

I dont know what they are doing these days, so now I have to look at the company like any other fund manager would look at a company they are not intimate with - by viewing the publicly available information and tying together all the overt and circumstantial pieces of information to build an overall understanding of its investment grade status.

Mind you, this could all change with:
a) confirmation that Tincom has comitted to developing the project.
b) full feasibility of the plants
c) a (genuine) strategic investor offering them cash for equity (and not a sneaky takeover)
d) a genuine other binding deal (although this could be difficult until the 1st deal has been completed)

What in your view are the drivers for the discrepancy between the 18 month low, given the somewhat "derisked" position the company is supposedly in now, to when the valuation was provided by Intersuisse?
- Expectations missed
- Inability to raise quality capital to fund their program
- High cash burn
- Too much spend on consultants (reflecting not enough internal smarts)
- Increasing competition
- Realisation of logistical constraints to reach the export market
- Director (and major shareholder) being voted out

ESI are in the business of chasing cashflows through commercialising technology. They need to do this quickly and without burning up too much cash in the meantime.

1) Capex too high ($100ptonne)
2) Budget discipline and low-cost mindset being too low (I mean who speands almost 50% of their cash burn on advisory???)Not good enough.
3) Lack of balance sheet support. Couldnt get equity last time and now have a hedge fund's con note as the (possibly) only option.
4) Management performance - 3 years in the job with no deals completed and >$10M spent.
5) Biggest partner, Tincom, failing to commit within expected timeframe (the expectation that ESI set)(I also question its status as "binding" as per announcement)