By NZPA
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Wednesday 10th July 2002 |
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IT Capital shareholders will be asked at their annual meeting on July 23 to approve the plan to bring the three ventures into the IT Capital fold.
Under the plan, IT Capital executives David McKee Wright and Maurice Bryham, would receive around 41 percent stakeholding in the technology company, in return for selling their interests in the three ventures -- companies developing mobile phone applications, an electric motor and a boat with wheels.
They would also put up $1.2 million of their own money and bring in $2.5 million from other investors.
Equity would be raised through a 4c per share placement. IT Capital shares last traded at 5.7c, off a year high of 13c and a low of 4.2c.
Accounting firm Grant Samuel has found the plan to be fair and valued the pair's stakes at $5.5 million, although Mssrs McKee Wright and Bryham have only put $100,000 into the ventures so far.
But Shareholders Association chairman Bruce Sheppard says the start-ups are not worth $5.5 million, even with the energy of the two executives thrown in.
"What we're paying for is the twinkle in their eye and the fire in their belly and that is also worth something, but that's frankly what their option packages are for."
He challenged the pair to offer an alternative plan, which involved turning the deal into a mandatory capital notes issue. He said this would lessen the risk for IT Capital shareholders and provide greater incentives for the start-ups to meet their forecasts.
However, Mr McKee Wright said Mr Sheppard was not factoring in the intellectual property value of the three start-ups. Nor had he recognised the "sweat equity", the hours of unpaid work which people had put into the ventures.
"There's a lot of people working for free in those companies and have done for two years.
"It's naive to look at the transactions the way he is."
IT Capital recently reported a full-year loss of $21.4 million, compared with a $4.9 million loss the previous year.
After writedowns, the company is left with only Deep Video Imaging as its only strategic asset.
DVI, a 3D screen developer, has won a contract in the US but is not expected to be profitable for several years.
If shareholder approval is won, the new capital would be used to fund the new investments and support DVI, securing IT Capital's operational funding for the next 18 months under a recently reduced cost structure.
Shareholders will also vote on employing Mssrs McKee Wright and Bryham under a three year contract through their management company, Platinum Management.
But Mr Sheppard called two of the three proposed investments "foolish".
One venture, Conceptual Solutionz, was developing an electric motor design which Mr Sheppard had been told was basically a refined version of a very old design.
Another, Sealegs International, was developing a boat with retractable wheels, but the end result would cost about the same as buying a tractor, and would only suit people who lived close to a beach or boat ramp, he said.
The third start-up, mobile phone application company Datasquirt, had some customers and the potential to create a niche for itself, but was probably not worth what it had been valued at.
Although Conceptual Solutionz and Sealegs had recently won sizable research grants from Technology New Zealand, Mr Sheppard dismissed that as meaning little.
He also warned against measuring the proposals against Messrs McKee, Wright and Bryham's previous successes, which include PC Direct, the company which Mr Bryham co-founded in 1989.
The duo were also responsible for the commercialisation and globalisation of start-up e-business software company, Exo-net International.
"With Exo-net, IT Capital put the cash into the businesses," Mr Sheppard said.
"With these ventures, we're giving away our stock and not putting any cash in, so effectively it's a vendor placement, rather than a strategic placement."
Secondly, he said, Exo-net had been acquired before the IT bubble burst.
"So the values that you ascribed to lunatic products three or four years ago were dramatically different to the valuations you put on them now."
Mr Sheppard said Exo-net was "a bubbles for bubbles transaction. This is a bullshit for bubbles transaction."
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