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Applabs Technologies selling part of Fee for Service division
Applabs Technologies (ASX:ALA) has executed a binding term sheet to sell part of its Fee for Service division to Dapper Apps Pty Ltd, allowing it to continue its core focus of maturing its strategic investments.
While the company will retain all branding, domain names and trademarks, the sale will greatly reduce its operational losses.
It has also suspended its Home Open real estate portal rollout until a new business plan and strategy can be developed. Discussions are also underway to licence out the technology.
Applabs is well positioned for new opportunities in the technology sector with about $4 million in cash and listed securities.
It expects the restructure to reduce operational and corporate overheads to about $700,000 per annum from 1st July 2015.
“The sale of part of the Fee for Service division greatly reduces the operational costs of the company going forward and will allow us to focus on maturing our current strategic investments,” managing director Patrick Glovac said.
“The board is committed to restoring shareholder value and firmly believes the company is now in a stronger position moving forward under the restructure, allowing the company to capitalise on new opportunities in the technology sector as they arise.”
Sale Details
Under the Agreement, Applabs will receive $50,000 cash upfront and a 5% equity interest in Dapper in consideration for the majority of the company’s current Fee for Service client contracts.
This also provides for the transfer of certain source code, local employees and offshore contractors relating to the Fee for Service contracts.
The effective settlement date under the agreement is 4th June 2015.
Dapper is a newly established entity, which has secured $500,000 in capital to fund the purchase of the assets and working capital going forward. No director of Applabs is a related party of, or otherwise involved with, Dapper.
While the Fee for Service division has seen strong growth in contracted wins over the past year, it has continually been trading at a loss since inception given the high labour costs relative to the broader industry.
This loss increased considerably over the past few months, leading the company to take several steps to reduce operational overheads.
However, given the large number of Fee for Service contracts, it became apparent that the company would be unable to meet the ongoing development obligations under those contracts in a timely manner under the operational restructure.
A sale of part of the Fee for Service division, namely its low margin contracts, allows the company to be released from its obligations under the contracts and the subsequent cost burden of maintaining a large local and offshore workforce.
Applabs will be free to continue to service some existing high margin contracts and will continue to review the long-term future of the Fee for Service division.
Home Open
As part of the restructure, the Home Open rollout will also be suspended until a further review of the long-term viability of the portal can be determined.
The industry has seen several new competitors emerge in the past six months and the company is undertaking a review to ensure that, before incurring costs to rollout the portal, Home Open will have a point of difference to its competitors in the current marketplace.
Applabs is currently in discussions to licence out the technology behind the portal to third parties to develop independently, as a way of extracting value from the platform.
Analysis
The sale of part of its Fee for Service division, namely its low margin contracts, allows Applabs to focus on maturing its strategic investments.
Along with the suspension of the Home Open rollout, this is expected to reduce operational and corporate overheads to about $700,000 per annum from 1st July 2015.
Some of its investments include xTV Networks Limited (ASX:XTV) and Liberty Resources (ASX:LBY), which is progressing its transition into a revenue generating tech company with the acquisition of Cirrus Networks Pty Ltd.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.
Story by ProactiveInvestors
Source: http://www.proactiveinvestors.com/companies/news/61856/applabs-technologies-selling-part-of-fee-for-service-division-61856.html
