brw article not afr article, page-2

Thanks to SOB.

ENGINEERS TREAD WATER - from BRW dated February 7.

An Acquisition spree and a strategy realignment may finally start to pay dividends for one tech startup.

NMS listed in March 2004 at 15.5c with a high wow factor based on an underwater dry welding technology.

The Technology had a cost advantage over conventional underwater repair methods with patents pending, the prospectus said. Neptune, icncorporated in July 2003, had acquired the intellectual property rights from its West Australian inventor, who became its chief executive as well.

Neptune patiently built a track record of small successes in ship repairs over the next few years, first in Australia then overseas through a series of representation agreements. Typical of most Australian technology startups, it continued losing money during 2004 &
2005 as it sought market entry. But by 2006, losses doubled to $1.67m despite turnover doubling. With the stock at 20c in November 2006, alarm bells were well and truly ringing.

The board replaced the founding chief executive with a corporate heavyweight and relevant industry experience and embarked on a turnaround strategy based on providing integrated engineering services.

Under its new strategy, Neptune has spent more than $52m acquiring several businesses and built revenue to $15.5m in fiscal 2007, resulting in a share price fillip to $1 at the end of 2007. Another share issue is in process at 95c to raise additional working capital; that offer is currently underwater, with the shares drifting down to about 75c.

Concurrently with the management change, BRW Rich 200 member Richard Pratts Thornley Investments sold its substantial holding. This left Macquarie Bank and the founder as the remaining large shareholders with a combined 50% shareholding between them - and some strategic and liquidity challenges for the board.

The race is on for Neptune to create sufficient revenue (and project
backlog) as a small engineering contractor to meet its earnings targets and cover its rapidly increasing cost structure, but also to provide sufficient cash flow for its future growth.

The question remains whether the revised strategy will be successful.
Neptune's markets are highly price conscious and dominated by large, mature companies with established long term customer relationships (including engineering firms servicing the industry).

These large firms outsource maintenance and repair under rolling annual contracts that are managed by purchasing people rather than technical or operational staff.

Such buyers are conservative and relatively uneducated about welding technology. They buy on price and ease of purchase factors rather than sticking their necks out for new, unique or innovative technology with limited history and few leading client testimonials.

There is a real execution risk in serving many regional markets. This is quite aside from the cultural challenges of incorporating the bolt-ons into a single corporate strategy while building and protecting incremental revenues, and hanging on to existing management talent. The board will also have to provide sufficient comfort to its substantial investors, including a displaced founder and an investment bank looking to cash out in a bear market.

Neptune is some six years down the path to the typical 10 year lifecycle of an Australian technology startup. In combination with big changes in business strategy, income model and leadership, is on track to take three times as long and certainly spend more than twice the prospectus funding to get over the line - a trusim of early stage investing.

'what followed was a 12 month graph showing the price move compated to the small ords index'