Ann: $100M Lasers & Ultrasound business sale to Lumibird Group, page-44

Apologies for the lengthy post but its to set out a detailed review

I don't agree with your financial number. I provided $11.6 million as company tax. I don't believe that you will be able to utilise the Japan tax losses. I also didn't take any benefit from the USA loss as I could not see how these would not be part of iTrack and 2RT. Someone else on this forum suggested that tax could be $15 million ( if memory serves to be correct) - I had to draw conclusions about a carrying value for iTrack and 2RT and that ended up at in my model at $17.6 million. My tax result may well be because I utilised the carry forward R&D offset of $5,5 million that was unclaimed.

So I took the $97 million less tax and came to a rough conclusion that NTA was around 72c to 75c after tax. The biggest issue was how much money the two products needed to complete the process to profitability. I ended up that you could get a fully franked dividend of around 25c (after paying the tax) A return of capital could be around 20.2c and that would leave $20 million in cash in the business to fund the R&D and development.

So I would have around 30c riding on the successful completion of the 2 projects.

That took me into a review of what was the best way to develop these projects. My first huge question mark was that the best way to develop products was to use taxable profits as the ATO funds 30% of the funding required. This company minimized its tax payable in that it in fact spent all of it EBITDA on development and made no taxable income. So what happened, why consider selling the profitable part of the business? The CEO left. The company was in breach of its facility rules. The new CEO was to be the CFO. The company has incurred losses since 2017. That's a huge spend but if the result was future profits that would be good.

In the end, I concluded that staying the same and raising capital was the best way forward. The $10 million EBITDA was saving you tax except that your spend was running $5 million more than taxable income but of that $4 million is depreciation so only around $1,7 million in cash flow loss.

The reality for me was that the cheapest way forward was to raise money to get the balance sheet rebuilt.

Then I looked to the 2RT trial conclusion:

"Conclusions: In participants with iAMD without MMI-detected signs of late AMD, no significant difference in
the overall progression rate to late AMD between those receiving SNL and sham treatment were observed.
However, SNL treatment may have a role in slowing progression for those without coexistent RPD and may be
inappropriate in those with RPD, warranting caution when considering treatment in clinical phenotypes with RPD."

That was also concerning having had a long term investment in a few biotechs and trials that don't get to a positive conclusion have a huge uphill battle. Then I read an article about the fact that eye surgeon are capitalists as well and that iTrack takes a bit longer than the stent but those using iTrack seem to stick with it.

Then I looked at corporate overhead and that would remain I presumed as I could not see how it could be reduced. Yet I could not see it as a valid cost for a development company.

All in all, I would have considered an investment in Ellex if it had come to raise capital. I didn't think that selling the existing business made sense unless a number of shareholders wanted to stop dilution and liquidate some of their investment. Look to some of the holder's ages and time and I concluded that this was their time to sell as risk appetite reduces with age. Deferring successful conclusion is always a risk for younger or more risk type players.

There is a great article about the "father of Ellex" my words.

https://www.mivision.com.au/2016/06/shooting-at-stars-the-story-of-victor-previn/

So at the end - No I am not a short term investor. Much longer term than most but all the pieces have to fit for me.

No, I don't have enough understanding of how the company will look after this deal but don't blame me I think the company could have made a much more detailed announcement about the future (especially costs to complete the remaining projects) and the financial balance sheet after the completion. So I have done my best in the circumstances.