Ann: Business Update, page-110

The dog that did not bark in the night.

That is a great question MrGraphite2. Are you saying that our official Chinese clients do not have the money to pay for work done last year, but we can expect to start work shortly (once the floods have subsided of course) on our ongoing projects? They are champing at the bit for us to start work again. If you have not been paid for past work I suggest it might be a little unwise to start doing new work for the same client, whether they have the money or not. Perhaps I am just overcautious.

However, a more interesting issue is why shareholders were not told earlier than the quarterly on 30 July about the lack of payment for over half the work done in China in 2019.

The PET Board provided a detailed response to the ASX on 25 June about why their revenue forecasts were revised down.

It is repeated several times in that response that the GM China reported that business in China was getting back to normal after covid. See his reports for March, April and May. In fact he reported in April "that all major projects were on track, albeit with some small delays in commencement dates." It was only in June that the GM China "advised of delays in finalising orders for Shilongba and Xingyun projects."

He advised that "government officials were reprioritising some short-term emergency resources away from projects such as lake restoration toward immediate health resources (ie for the potential of a second Covid-19 outbreak)." Because of what were referred to as "timing delays" the Board therefore revised down 2020 revenue forecasts.

The interesting thing is that the Board failed to tell us in those detailed answers to the ASX that the company had not yet been paid for over half the work the company did and invoiced in China in 2019. I am sure that was just an oversight. If they had mentioned it, might it have raised a question as to whether the timing delays in restarting work were just temporary? Note the Board did not say our clients were unable to pay their overdue bills (as you seem to assume). They said officials were just "reprioritising some short term emergency resources" from lakes to heath. In other words they were choosing to spend emergency money on health rather than lakes in future. What they did not say was that officials were unable or unwilling to pay for work done previously. Does it really matter which it was?

Now we do not know when the invoices from 2019 became overdue. However, we do know from the Annual Report published in April 2020 from footnote 10 that even at 31 December 2019 there were at least $1 million in receivables overdue and that Chinese entities have up to 150 days to pay. I wonder what the value of receivables overdue was when the company raised money from shareholders in April and again when the AGM was held in May. Obviously again this was not important enough to tell shareholders about at the time. By 25 June (when the reply to the ASX was published) all the receivables that were lodged in 2019 and were still unpaid were presumably overdue, as that is more than 150 days after 31 December. Still nothing was said.

Unfortunately the half yearly accounts that will be published at the end of August do not contain footnote 10 on impairments, as that would tell us how long overdue these receivables were at 30 June. You would hope the auditors might inform shareholders of the position. Otherwise shareholders may need to rely on the ASX seeking clarification if there is nothing in the directors' report at the time on whether any of these bills have been paid, or how long they have been overdue.

I would have hoped Phoslock shareholders might have been kept better informed than this history suggests. It seems you do not get any answers unless you know the right questions to ask. As I have said previously I have sold all my shares because I do not feel I know what is happening in China. I hope you do. I will stop posting on Phoslock as I have better companies to research.

Kingkev, Phoslock is not "essentially very much a Chinese company". It is an ASX listed Australian company with a majority of Australian shareholders. You may hope the Chinese government thinks we are a Chinese company, but I would not rely on it.