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AFR article

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    Adultshop figures sold 'before revision'
    Sep 13
    Peter Klinger

    Two key figures in the erotic entertainment business sold substantial parcels of shares in the lead-up to a major revision of the embattled company's future profitability.

    Adultshop co-founder Rod Smith and a vendor of the company's cash cow, Today's Success, Dean Shannon, have sold a combined 20million shares since May 13, the day the company stunned the market by forecasting an $11.6 million interim profit.

    The positive outlook propelled Adultshop's stock, which had been trading around 21¢, as high as 43.5¢ before it gradually eased over the ensuing weeks.

    The share price crashed last week to below 10¢ when Adultshop told the market a change in its billing system meant it would fail to reach the $11.6million target, and record a loss instead. Its forecast cash position at December 31 was to drop from $30million to as low as $10 million.

    The circumstances surrounding Adultshop's market disclosure are the subject of an Australian Stock Exchange inquiry and the matter has been referred to the Australian Securities and Investments Commission.

    Neither Mr Smith nor Mr Shannon is an Adultshop director but both were substantial shareholders.

    Mr Smith, a director until January, informed the market yesterday that he had sold 11.4 million shares around July 15, realising proceeds of $3.7 million. His average sales price was 32.5¢.

    And late on Wednesday, Mr Shannon informed the market that since May 18, he had gradually sold 8.5 million shares, generating proceeds of $2.8 million.



    Adultshop shares closed at 12¢ yesterday, almost a third the average price Mr Shannon and Mr Smith received.

    Included in Mr Shannon's sales were about 3 million shares sold only days after Adultshop's May profit forecast declaration.

    Mr Shannon, who in November started the selldown of a substantial portion of the stake he received for his share of Today's Success, would not comment yesterday and Mr Smith could not be contacted. The performance of Today's Success was a key driver in both the May profit upgrade and last week's shock news.

    A spokesman for the ASX would only say "we are certainly very aware" of the notices detailing the changed shareholdings.

    Adultshop managing director Malcolm Day could not be reached for comment but said earlier that directors became aware of the changed financial position only early last week.

    Since acquiring Today's Success from Mr Shannon and Steven Jones just over a year ago, Adultshop's online entertainment service subscriber base has recorded phenomenal growth.

    But with it came an increasing number of rejected or disputed transactions, forcing Adultshop to seek a more stringent subscriber validation process.

    Adultshop decided late last month to outsource its billing requirements

    The stricter validation process has seen Adultshop's paying subscriber numbers cut by 60 per cent to 115,000 members, substantially affecting cash flows.
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