The promoters of “mesh network” company IndraNet have adopted a new approach to raise yet more capital for the six-year-old company.
A new company, IT Mainland, is seeking to raise $5 million “to secure the commercial advantages [its investors] see in the IndraNet Fractal Mesh Network Technology (FraMe)”, says IT Mainland chairman Geoffrey Samuels in a letter to investors.
An agreement has been negotiated with IndraNet for the exclusive use of its technology in the South Island and then with first rights to the North Island.
IT Mainland was incorporated last August. IT Mainland currently has 8.804,143 shares, 6 million of which are in the name of IndraNet and several hundred thousand of which are in the names of directors and other investors common to the two companies. The shares issued to IndraNet are ‘B’ class and granted for a development and commercialisation licence.
IT Mainland’s issue is for 12,500,000 ‘A’ class shares at 40 cents. If the issue is fully subscribed, 59% of the company will be held publicly, 28% by IndraNet, and 13% by the founding investors.
IT Mainland is listed as a non-active subsidiary of another subsidiary, Momentum IT, in the 2004 IndraNet accounts. IndraNet earlier announced a joint venture with Sydney company Corporate Momentum Providers. However, IndraNet chairman Russell Fitts says the 2004 subsidaries were just holding companies, some of which no longer exist. There is no relationship with Momentum, he says. “IT Mainland is a new company.”
IT Mainland has outlined plans for the first half of this year to complete IndraNet’s present pilot network project in Christchurch, then roll out a skeleton public network and to expand its Ashburton private network. In the second half of the year, it plans to expand the Christchurch project and turn the Ashburton network into public infrastructure.
It is contracted to pay IndraNet for the pilot projects and to help it negotiate with potential customers.
Projected cash flow to January 22, 2007, shows a net $58,000 after receipts and less payments to suppliers. Of those payments totalling $5,691,000, $5,553,000 will be paid to IndraNet. The $5 million to be raised makes up by far the bulk of the cash flow.
PriceWaterhouseCooper is the auditor for IT Mainland. It notes under a heading of “Going Concern” that it has considered the adequacy of disclosure regarding the ability of the company to continue operations into the foreseeable future based on a need for additional capital and for generating operational cash flow surpluses. “The outcome of these matters is uncertain,” the auditor says.
IndraNet seems to have had trouble getting traction since it was launched in 1998, then describing what it said was a startling new way of building computer and communications networks using a mesh of wireless devices.
The approach uses a multilayered, self-organising network to which users add and remove devices arbitrarily. Each node “knows” how to communicate with its nearest neighbours and finds the most direct route.
Electricity Ashburton appears to be the only customer signed in New Zealand, though IndraNet said at various times it had a joint-venture agreement for a roll-out in Fiji, was at the planning stage for a five-year project in association with investors in South Australia, and had signed a letter of agreement with French company Sigma Technologies.
The only significant positive cash flow for IndraNet in its past two company office filings is from the issue of share capital, and loans from directors. In the fiscal year to December 31, 2003, the company posted a loss of $2.997 million; in the year to December 2004, a loss of $2.620 million.
The company has issued three prospectuses to raise funds since its initial capitalisation. In August 2003, it sought $5 million through 6.25 million shares at 80 cents; August 2004, it sought $5 million through the issue of 10 million shares at 50 cents; December 2004, it sought $5 million through issuing 5 million $1 shares.
Fitts says there are a number of opportunities to develop, and a large void where potential customers are not being served by existing telecommunications suppliers.
He says IndraNet has successfully raised $16 million so far but withdrew the prospectus for its last capital raising when it was clear it wasn’t going to raise sufficient finance. He positions the company as a successful technology developer whose active business will be done through subsidiaries.
“It is a practical way of deploying technology at an arm’s length business relationship,” he says.
IndraNet claims to have successfully defended a legal suit by two US investors, he said, though the investors had appealed. They had claimed misrepresentation and had sought $300,000 repayment, plus interest and damages.