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Pierpont Article

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    I thought the Pierpont article from todays Aust Financial Review might provide some light relief to those that got burnt on Adultshop....

    C O M M E N T A N D O P I N I O N
    --------------------------------------------------------------------------------
    PIERPONT
    From porn to Ghana and back

    Sep 27




    Pierpont's vast army of fans (both of them) have been urging your correspondent to quill a few words about AdultShop.com.

    The trouble has been that Pierpont doesn't know how to make this dust-up over a porn peddler any funnier than it actually is. The statistic that most intrigued your correspondent was that a curvaceous wench named Bree Maddox collected $1.6 million for steering punters from her website onto AdultShop's.

    Now Pierpont's knowledge of the dot com world is almost as tiny as the amount of clothing Bree wears in some of her movies, but he knows that $1.6 million buys an awful lot of steering on the internet.

    In the interests of pure research, Pierpont tried to log into one of Bree's websites to find out just what sort of steering she does. Pierpont never actually located the lass's home page, although he read some stirring reviews of a movie called Secret Paris, which apparently stars Bree, two girlfriends and some therapeutic equipment with which the Pierpont household is not
    familiar.

    Fascinating, but Pierpont seemed to be getting a long way off track, so he turned to the annual report of AdultShop.com, where he noted one of the directors was Hans Rudolph Moser. This diverted Pierpont even further, because readers have recently been urging your correspondent to inspect the affairs of Southpointe Ltd. And by a staggering coincidence, Hans is also a director of Southpointe.

    Readers who don't recognise the name immediately are forgiven, because Southpointe has had rather a lot of names in a relatively short lifespan.

    It was born in 1986 as Cardinia Gold Mines, changed its name to AMX Resources in August 1999, then to Third Rail Ltd in September 2000 and was reincarnated yet again as Southpointe a few days before last Christmas. Shareholders who haven't been paying much attention for the past three years probably still think its name is Cardinia.

    AMX's switch out of mining was announced in January 2000 when the company said it had bought an outfit called Semaphore Communications for $3 million.

    To Pierpont, the phrase "semaphore communications" conjures up images of sailors waving flags at each other. But savvy readers will realise that was not the sort of communications that moribund mining companies bought at the start of the third millennium.

    Semaphore held a number of licences to operate wireless local loop and internet access equipment in the 3.4 GHz spectrum in Australia. The licences covered all capital cities and major regional areas. AMX announced it would use the licences to provide capital cities and major towns with high-speed internet access and data transfer at greatly reduced prices.

    That was the stuff to tell the market in early 2000. Until then, AMX shares had been on a steady downward track, but between January and March of 2000 the stock raced from 15¢ to $1.30. Then - surprise, surprise - the shares abruptly came back down again. Today, Southpointe shares are around 2.5¢, and there's a lot more of them than there were in 2000.

    The activity in AMX shares was somewhat aided by the fact that it had recently listed on the Berlin and Frankfurt stock exchanges. So German merchants were generously given the opportunity to speculate in Australian telcos. Any benighted Boche who bought AMX at $1.30 has now lost 98 per cent of his pfennigs, or whatever coinage they use in Euroland these days.

    In July 2000, AMX expanded again, this time buying a company called Third-Rail Wireless Services in New Hampshire and another called Amalgamated Network Systems in Ghana.


    An excited AMX release panted: "These acquisitions represent an important milestone in AMX's strategy to become a world leader in delivering last mile connectivity through broadband networks."

    This didn't quite happen.

    A glance at the 2002 annual report shows that the New Hampshire and Ghana companies were valued at $35 million. Fortunately, only $3 million of that was in cash.

    In the sober light that prevailed after the crash of the telco boom, even the $3 million looks a considerable overvaluation. Note 21(c) in the 2002 annual report shows the fair value of the net tangibles of the two companies as being a negative of $375,000. Given that these companies appear to have lost nearly $11million over the past two years, the fair valuation may have been an overstatement.

    So Third Rail, as the company was then, flogged the New Hampshire and Ghana companies in a management buyout. The deal appears to have involved little cash. The shares that were issued to take over the two companies have been cancelled and the new owners assumed Third Rail's obligations to fund them.

    So two companies that once had a $35 million valuation were fairly well given away at the finish. By last June, Southpointe had become a cashbox with $8.8 million in cash and receivables and nothing in particular to do.

    For masterminding this effort, Southpointe's half-a-dozen board members and three top executives collected a total of $630,000 last financial year. On top of that, director-related entities received another $388,000 for services rendered. So that's a million for a board and management that haven't really achieved anything for shareholders apart from giving them a chance to sell high a couple of years ago.

    Meanwhile, Pierpont notes that Southpointe's annual report describes Hans as "a prominent European investment banker with a track record in assisting emerging companies on the ASX". So far, Southpointe shares have been assisted to 2.5¢, so Pierpont can only assume that European bankers have a rather less demanding track record than Australians.

    At least the shareholders in AdultShop.com had Bree to contemplate. And if she is classified as a corporate asset, Pierpont can see some brisk bidding if there's ever a liquidator's auction. They might even get the $1.6 million back.
 
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