Rapid Technology Group, the Dublin-based hi-tech company, whose shares will be quoted on the fledgling Developing Companies Market (DCM) on Friday, is unusual. Founding shareholders of new companies usually take the opportunity of a flotation to partly cash in by selling some of their shares, or they keep all their shares and allow the injection to fund expansion or repay borrowing. They rarely agree to subscribe for some of the new shares. Yet this is precisely what some of the director shareholders of Rapid Technology have agreed to do, albeit for small amounts. On top of that Mr Patrick McDonogh, chairman and chief executive, has, in effect, underwritten part of the placing of new shares.
Does this represent an expression of confidence in the company by the directors, or just an outward display to ensure a successful placing? It is probably a bit of both. Institutions like to see a financial commitment by the main beneficiaries. And industry sources say they liked what they have seen and have already given a provisional commitment to take up more than £3.5 million of the £4.5 million issue. With the need to reserve some of the shares for private investors, it now appears unlikely that Mr McDonogh will be called on to buy his full commitment of 1.26 million shares at 107p per share. Indeed, if the interest in the issue continues, he will not have to buy any. Mr McDonogh was a director of Datacode Electronics when it was the subject of an insolvent liquidation in 1991. Two further directors, Mr Roger Bannon and Mr James Barry were directors of Trufax Holdings which was the subject of an insolvent liquidation and receivership in 1988 and a fourth director, Mr John Caldwell was a director of Knight Software and Kallab which went into voluntary solvent liquidations.
All the directors have had plenty of valuable experience in the hi-tech business. Mr McDonogh, for example, was a founder of the business now owned by the highly successful CBT Group of which he is a major shareholder and director. Mr Bannon and Mr Barry founded Feltscope, the original Rapid Technology. Mr Caldwell became a non-executive of Feltscope in 1988. The latter three have agreed to take up shares in the placing. And the directors have shown their commitment to the company by funding the development of Rapid Technology through loans and bank guarantees. Rapid Technology will be the third company to be listed on the DCM (it is also going on London's AIM). A further technology company is expected to be listed before the end of the year.
Greenfield operations cannot go for a listing on the DCM as one year's trading is a pre-requisite. But Rapid Technology has been around much longer as it was established in 1988 to develop PC-based peripheral products and software management systems for the EPOS (electronic point of sale) market. It is said to have traded profitably up to 1993 when it went on to develop a keyboard product incorporating its DataCat technology. The first sales were made last June and so far 3,000 units have been delivered, mainly to supermarket retailers in the US.
The development has been funded by the directors and shareholders in form of equity, loans and bank guarantees. If the placing is successful, the loans and guarantees will be extinguished. The company's accounts, published in the listing document, are academic and reflect the developments to date. It has incurred losses at an increasing rate over the past three and a half years with losses of over £1 million in the 10 months to June 30th 1997. Accumulated losses amounted to £3.2 million indicating the urgent need for fresh funding. A pro forma balance sheet (after the funding) shows net assets of £4.6 million.
The company does not see competition coming from touch screens - because they are much more expensive - nor from voice recognition systems - because they are still in their infancy. It does list the obvious risks such as its products which are at an early stage of development, its suppliers which are confined to a limited number (these are to be broadened). And many potential customers have yet to formally accept the products. Further risks could involve patents and competition.
The US is to be the main focus of its marketing and most of the 1.57 million share options will be available to the sales staff. These are at an option price of 85p per share and will be directly linked to sales.
It is not possible to assess the merits of the placing price of 107p because Rapid Technology is at the development stage and projections at this stage would be ill advised. One thing is certain; there will not be any p/e this year. It could be next year, or beyond, before that comes into the equation.
If it succeeds, Rapid Technology would be quoted on the NASDAQ where today's shareholders could expect to benefit appreciably. But that prospect is not around the corner, just yet.
