A2 Corp plans to fund growth with share issue

Biotech dairy entrepreneur A2 Corporation says interests associated with two of its directors will underwrite plans to issue 100 million 5c shares to fund the company.

A2 Corp today announced a loss of $9.02 million for the year to March 31, ($2.2m the previous year). Its A2 Corp's total operating revenue for the year was up 2.2 per cent to $449,000.

The share issue will be underwritten by Mountain Investments Ltd, which involves two A2 Corp directors, Cliff Cook, a major shareholder in Metlifecare Care, and Mr Cook's business partner, Greg Hinton.

The 2-for-1 pro-rata renounceable rights issue will provide new shares at a discounted price of 5c each, adding $5 million to the company's capital, and an extra 100,725,000 shares. A2's shares last traded at 16c -- a new low. They have fallen from a peak of 64c in the last year.

The company previously restructured its shares in a 5:1 consolidation, with a record date of May 2 2005.

The company's business strategy for the next 3-5 years involves restructuring and consolidation, as well as new ventures.

"It is envisaged that year two will be primarily dedicated to growth and support of established businesses, with profits anticipated to be realised in year three," the company said.

Cash raised from its rights issue will be used "to fund the business and to implement the revised strategy", the company said.

Shareholder permission at the June 29 annual meeting for the rights issue will need to be matched by an exemption from the NZX Takeovers Panel.

An offer document will be provided to shareholders and the market following shareholder approval at the annual meeting.

A2 Corp said revision of licence agreements had given greater control of product and brands in marketing, and it had appointed Mark Verster as chief financial officer.

The company said that cash receipts from customers had dropped because it had written off as a bad debt money owed for herd testing by Australian company A2 Dairy Marketers, which went into receivership.

A Queensland licensee, A2 Dairy Marketers voluntarily appointed an administrator after being convicted and fined for making misleading health claims over their product A2 milk.

A2 Corp said today it had written off bad debts of $108,000 and an additional $161,000 has also been raised in provision for amounts the company considered doubtful.

During the year, A2 changed its accounting policy for intangible assets, writing down the book value of its patents and trademarks to zero.

"The policy was adopted mainly due to the difficulty in assessing reliably the timing of future revenue arising from these patents and trademarks," it said.

The adjustment led to an " exceptional entry" of $6,687,000.

The company's losses included $201,000 from the sale of its stake in A2 Australia Pty Ltd -- which it used to run Australian operations after the collapse of A2 Dairy Marketers -- to a Singaporean based multi-national, Fraser and Neave in January 2005. In December, the Singaporean company offered A$1.1m ($1.2m) for A2 Australia and the right to export A2 milk products in Asia.

A2 Corp -- which said in January that it was "surprised but not alarmed" that an American associate, Ideasphere Inc, had so far only handed over US$100,000 of its US$500,000 licensing fee for the September 2003 to October 2004 period -- today said sales to that company had been reversed as part of a "new revised agreement.

The two companies had now formed a joint initiative to control production and the marketing of A2 Milk in North America, with Ideasphere's previous obligations taken into consideration in a deal expected to be finalised later this year.

In Europe and Asia, the company has talked to prospective partners about the sale of A2 Milk, and expects formal deals over the next 12 months.

In New Zealand, the supply and distribution of A2 Milk had been consolidated to two licensees -- Ridge Group based in Te Rapa, and Fresha Valley located in Puhoi -- with milk available in major supermarkets in the upper North Island and to a limited number of retailers in the lower North Island and South Island.

* So what is this 'A2 Milk'?


"A2 Milk is milk in which the content of a natural variant of a protein, beta casein A2 (A2), has been increased. This is done by selectively milking only those cows that naturally produce milk containing A2. In this way, it is believed that the health benefits of drinking milk may be further realised.

This inclusion would ensure that any potential or perceived benefit associated with the consumption of A2 is maximised, and thereby raises its value for discerning consumers. Numerous scientific studies have been undertaken relating to a range of potential benefits associated with this protein.

In 2004 the New Zealand Food Safety Authority released a review of such research.

As a result of the extensive research done on the connection between the consumption of this protein and putative health benefits, A2 Milk may be regarded as a premium, value-added product with the potential to benefit the dairy industry as well as consumers." SOURCE: A2 CORPORATION

- NZPA