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Most of the Inventory is flagged as in transit, so probable a...

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Pman

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07/11/19

20:39

Post #: 41307677
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Originally posted by HK1: ↑

Pretty much agree with most of this.

You say it is cash flow positive, but the Accounts Payable has increased $4.7m (+131%) in the six months to December 2018. Their Net Cash from Operating Activities was only $1.7m for the period. So there is a big question mark on this. There is a very real chance that they may not really be cash flow positive in the future. It appears that Nutrition Systems is a distributor only and not a producer of any product it sells. The margins not great, with COS at almost 80%. The OBJ Highlight statement that this is a "highly profitable" distributor is a statement that I cannot agree with.

The loans to the Director is definitely something that needs more information. The company appeared to have a very healthy cash balance. Instead of paying a dividend and getting the cash out, the cash has been transferred out as a loan. There are a heap of tax rules around all of this, but it is something that stands out as a huge query.

The accounts of the Nutrition Systems companies are a bit of a mess and should have been all cleaned up (ie. no Loans to Directors, etc) if they thought they were going public. A consolidated set of accounts for the group for the year ended 30 June 2019 is needed so a true financial position can be viewed. This really should be demanded before the AGM. Also, there is no visibility as to the likely collection of Trade Debtors.

Note that there are also fees payable of 5% and 1.75% for this all successfully going through.

Inventory is another question. Is this inventory all saleable? It shows inventory levels are about 40% of the annual sales. So, they have almost 5 months worth of inventory on hand and it has increased 25% in the six months since 30 June 2018, even though revenue has gone down by -16% when compared to the previous December half. (this is just in the main Australian company, NZ is different and possibly worse.)

The acquisition includes a $12m building. This is not great either, in my view. It is owned by "an entity associated with Export Corporation". My guess it is owned by Mr Pavlovich's Superfund, but it definitely is owned by Mr Pavlovich in some way. Why does OBJ want this? It is just a $12m investment (that needs to be financed with equity, so reducing the current OBJ shareholder value) that has nothing to add value to the business. A waste of capital, in my view.

Again, up to date accounts are very important here. OBJ will change its' name to Wellfully and its' business will be a Nutritional Supplements Distributor - a far cry from OBJ technologies.

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Most of the Inventory is flagged as in transit, so probable a bulk purchase and ties to creditors so I wouldn't worry to much on that.

It is hard to see the cross play here. Why would these manufacturers use obj facilities when they already make the stuff. Is the play to try and introduce the tech to them and then down sell???

OBJ Price at posting: 1.5¢ Sentiment: Buy Disclosure: Held
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