attempt to unlock value

Okay, so latest cashflow shows they now have $6.2m in cash vs market cap of $3.3m. This should be a bargain... except that the history of disclosure and of use of shareholder funds appears to be somewhere between incompetent and downright dodgy.

Most notably, the last annual report, contains a puzzle in regard to their lending activities. Under note 11, these loans are described as "secured short-term loans to unrelated parties". In addition, under "credit risk" in note 4, the accounts note (as would be expected) that "There are no significant concentrations of credit risk within the group and loans extended are spread amongst a number of borrowers to minimise the risk of default of counterparties". However, buried in item 25d - transactions with key personnel - a slightly different picture emerges...

It seems that $5.5m of the financial assets is a loan to a property fund in which the Managing Director/Chairman is a significant beneficiary. Even though this loan represented 75% of financial assets and has links to the Chairman/MD, apparently it was not disclosed in 2009 and 2010 annual reports due to an "oversight". This seems more than a little careless! According to another shareholder, the entity to which the loan was made is now under administration and it appears that CLS has only second mortgage security. This has not been disclosed to the market.

Meantime, they've entered a new line of business with the "my247deals" website. This could be an interesting development, although the latest cashflow statement shows no more likelihood that it is operating profitably than any of the previous activities they have pursued.

The latest cashflow statement shows a big receipt of $4.7m from sale of assets that has boosted cash holdings, yet the source of this has not been disclosed. It is possible that $3.6m of it relates to the Waratah land sale announced in late 2011 and for which settlement was later delayed until June. However, this does not explain the other $1.1m - an amount that is significant in itself and material enough to warrant disclosure under the "5% of assets" guideline of listing rule 3.1

There remains a stack of value in CLS, with cash holdings alone (net of liabilities) worth nearly twice the current share price. But disclosure seems to be at abominable levels and the actions of directors to date are not reassuring. Therefore it is pleasing to note that a group of minority shareholders appear to be leaning on them. If their actions can lead to improvements in governance and disclosure then perhaps some of the value here can be unlocked.