Shareholder frost blights QPod's fresh food vision

Friday 9th August 2002

When Shoeshine's speculative investments disappear down the S-bend it's some consolation to share the pain with a whole heap of prominent sharebrokers and public company directors.

And so it has been with QPod Systems, a technology developer that once showed high promise but now looks destined for the knacker's yard.

QPod's "invention" is a "controlled molecular atmosphere system" consisting of pallet-sized base control units able to regulate temperature and humidity. Produce would be stacked on these in its factory wrapping and airtight panels would be sealed around the whole creating a "pod."

The pods were designed to fit neatly into sea containers. The idea was to extend the length of time fresh produce could be stored and transported in refrigerated conditions.

By 1996 the company reckoned it had established the pods' technical viability and was ready to go to the commercialisation phase. Those interested included Affco and Turners & Growers.

To raise the necessary funds it offered 1.8 million shares to the public at $1.75 a share. Shoeshine, with visions of New Zealand asparagus turning up garden-fresh on New York diners' tables, made a modest investment.

Managing director Paul Bosher kept a controlling shareholding and brought in experienced directors Basil Logan, Tony Frankham and Ian Jennings. Also on the board was Nick Smart, an Australian technology and agri-processing consultant.

QPod planned to generate revenue from selling licences to manufacture and market its pods.

The prospectus forecast positive cashflow in the March 1998 year and sales to North America, Europe, and Asia during the 1999 year.

It forecast net profits of $1.2 million in 1999, $4.3 million in 2000 and $6.5 million in 2001.

Sadly, things didn't go quite according to plan. The share issue raised only $1.1 million of the $3.2 million the company had sought. The money was spent or committed in just three months.

In April 1997 Logan, Jennings and Frankham resigned, citing "important philosophical differences of opinion" with Bosher.

Shoeshine understands the issue was Bosher's controlling shareholding.

The outgoing trio argued the company had no choice but to raise more capital but Bosher would not agree to a rights issue or placements that would dilute him to less than control.

The trio outvoted Bosher and Smart at board level but, with a controlling shareholding, Bosher could simply have booted them off the board.

As far as the outside shareholders were concerned the company then just disappeared.

Notwithstanding the provisions of the Companies and Financial Reporting Acts, they received no annual accounts for the years 1997, 1998, 1999, or 2000. Nor were any annual meetings held.

During 2001 a group of Tauranga-based shareholders decided to take Bosher to task. They wrote to fellow shareholders detailing their concerns and soliciting a fighting fund.

Bosher and Smart reacted defensively but they did finally start communicating.

They issued a book of financial statements for the 1997, 1998, 1999, and 2000 years - surely a document unique in New Zealand business history.

Bosher explained no financials had been sent, and no meetings held, to conserve scarce funds - although he has paid himself, on average, $132,000 a year for managing a company that has no staff and no sales and by 2001 had accumulated a $4.6 million deficit (the March 2002 financials have yet to be issued).

At the company's first annual meeting on January 31 this year all did not go well and Bosher and Smart walked out - almost certainly another first for company directors.

A replacement meeting was held on May 28. Shareholders barracked the two directors over an amended constitution enabling them to issue unlimited shares and options.

The resolution was passed but four holders voted against: Stuart Johnstone, a former Buttle Wilson sharebroker who is now chairman of GDC Communications and a director of Briscoe Group; sharebroker John Reuhmann of nzij.co.nz; Tony Frankham, a director of Auckland Airport and a former Securities Commission member; and a Mr and Mrs Marshall.

These holders invoked the provision of the Companies Act requiring the company to buy back their shares. Excluding Johnstone, they have only 4800 shares between them. Frankham says he is simply fed up with QPod and wants to end his involvement.

Johnstone, with 232,276 shares, is another matter. The price the objectors are asking is $1.75, the price at which QPods values its shares, so to buy Johnstone out would cost $406,000, a sum he must know the company doesn't have.

Johnstone is out of the country so Shoeshine hasn't been able to inquire after his game plan.

Bosher has asked the High Court for an exemption from the act.

Should this not be forthcoming the end is nigh for QPod in its present form unless Bosher can spirit $406,000 out of the hat. Shoeshine will miss the high drama it has occasionally afforded but this need not be the end of the road for the technology.

Judging by the constant stream of shareholder loans the company has subsisted on, many still believe the technology can be successfully commercialised with the right management and financial backing.

So there may be some interest in buying the patents and trademarks from the receiver. Might Johnstone be interested?

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