A Wellington software company, with plans to distribute its $70 million worth of products in supermarkets and over the Internet, has launched a public share float.
HomeOFFICE Joint Venture which has issued a company prospectus offering 600 shares, valued at $12,500 each, hopes to raise $7.5 million by July 30. The joint venture will be made up of more than120 companies each with a maximum of five shareholders.
HomeOFFICE chief executive Andrew Ross says each company will have a special taxation status which allows initial losses on the software to be offset against other income. Known as loss attributing qualifying companies, by law they are only allowed five shareholders.
“It’s much like a forestry partnership where you get an initial tax loss and longer term gains,” he says.
“For tax purposes software depreciates over the first three years. In the first year because of IRD depreciation rules, investors who invest $12,500 will receive a certificate showing a loss of $33,600. They can then offset that against their other income. After year three when the anomaly of tax rules leaves us we can distribute our profits which are forecast to be $23,000 per share.
Formerly an independent software valuer, Ross says those projected profits are based on getting “x” amount of product into supermarkets and retail stores.
“After placing ads in the Wellington newspapers, interest has been high. While some investors acknowledge the importance of information technology stocks in adding balance to their portfolios, others are attracted by the initial tax losses as a means to fund a superannuation plan.”
The company has a portfolio of 34 software products, all except one developed in New Zealand, aimed at the small office and home markets. HomeOFFICE has been building up the product list, which includes asset management software, a building project manager, financial manager, a home maintenance log, and tax software, since it set up in October last year.
“The key is that they’re very small, simple and easy to use and will retail at around $39.95. One example is a package we bought from a tetrapelegic man who wrote something to keep track of his diet. We can also use the source code from current products. From the diet planner we’ve written a fitness planner.
“We’re going to market them through traditional retail outlets such as PC stores and we’re also aiming at supermarkets. In August we will start selling over the Internet for $US10.”
No supermarkets are signed yet but Ross expects to have HomeOFFICE software into a major supermarket by Christmas.
Chief financial officer Giorgio Can-derle says capital raised by the offer will be used to market the products internationally. Ross expects to enter the Australian market by the financial year March ’98 and go into the UK later in the year.
Relatively few New Zealand software companies have raised cash through public share floats. In 1992 Auckland-based Software of Excellence travelled that route, successfully listing on the stock exchange that same year.
Commenting on why so few software companies choose this option, general manager David Evans says there are many expenses including marketing, promotion, legal and auditing costs.
“I can’t give exact figures but we certainly didn’t raise as much as we hoped to and that put us under pressure because the costs were fairly fixed. When we issued our prospectus we went on a roadshow around New Zealand introducing the company to the market. I understand Marine Air Systems (MASTec), which is listing on NASDAQ, is doing a similar thing in the US.
“You also have to move fast to capture the market, otherwise you can miss the boat.”
James Koh, CEO of Contec Data and chairman of the NZ Software Exporters Association, says before a company issues a public share float it has to be able to show that its products are mature, stable and relatively bug-free, that the product has a market and some success in that market.
“In this case because the products are aimed at the general public they should be very simple and self-installing. There should also be some sort of help desk infrastructure and the literature should be simple.”
Koh says distributing through supermarkets would be groundbreaking for the software industry.
“It’s a new approach and it may well work. It’s different and that’s one of the ways you get spectacular success — by doing something different.
“I think the products would need a lot of promotion. When they’re at the supermarket people make compulsive and instinctive buys. There must be enough publicity to create that instinctive feeling when people see the products.
“Selling over the Internet is fine but you need an infrastructure to administer payment and the Internet is littered with companies.
“You need a way to point people to you, especially if you’re aiming at the general public who may not be as well versed in searching as corporate users.”