Acquisition & Placing etc.
Cube8 Group PLC
12 December 2001
THE CUBE8 GROUP PLC ('the Company')
Acquisition Of Room Service (UK) Limited, Capital Reconstruction, Capital
Reduction, Change Of Name, Placing & Admission To Trading On The Alternative
Investment Market
INTRODUCTION
It was announced on 17 October 2001 that your Board was in discussions
regarding a possible acquisition and that consequently trading in the
Company's shares on AIM was suspended. Your Board is now pleased to announce
that it has conditionally agreed to acquire the whole of the issued share
capital of Room Service (UK) Limited ('Room Service') (not already owned by
it) from the Vendors, for a consideration of £1,465,950 to be satisfied by the
issue of 69,807,145 Shares in Cube8.
The company is also seeking to raise approximately £250,000 (before expenses)
by way of a placing of 11,904,760 Placing Shares at 2.1p per share.
The Board are also proposing to change the Company's name to Room Service
Group plc to reflect the change of business of the Company following the
Acquisition.
The Acquisition and other proposals are conditional on shareholder approval of
the Resolutions at the EGM to be held on 4 January 2002 and on Admission.
Completion of the Acquisition and other proposals is expected to take place
immediately following the EGM. Application has been made for the admission of
the enlarged issued share capital to trading on AIM and it is expected that
admission will take place on 7 January 2002.
BACKGROUND TO AND REASONS FOR THE ACQUISITION
The Company was formed in January 2000 as an incubator for investments in
internet, telecoms, media and other technology companies and the provision of
e-business consultancy services.
Since the downturn in the market and the shift in sentiment of the investment
community away from internet incubators and technology investment companies
generally, the Board has been considering ways in which it can maintain
shareholder value and has been looking at various acquisition opportunities.
The Group's portfolio of investments is not currently producing any income and
the cash position of the Group, which as at 30 June this year was £1.82
million, continues to be eroded by administrative costs. As at 30 November
2001, the latest practicable date prior to publication of this document, cash
at bank and in hand stood at £811,320.30.
Cube8 initially invested in Room Service in November 200, when it bought a
2.27% stake at a cost of £75,000 the consideration for which was satisfied by
the issue of 2,000,000 Existing Ordinary Shares. Room Service, which is
principally a supplier of food and drink delivery services, is an established
business with a loyal customer base in the London area and in the opinion of
the Directors of Room Service is in an excellent position to increase its
market penetration in London, expand its range of services and widen its
geographic coverage.
INFORMATION ON ROOM SERVICE
Background and Development
Room Service's principal business is the provision of food and drink delivery
services to homes and offices in the London area. It also provides additional
services including dry cleaning and chauffeur driven cars.
Room Service was founded by Ronnie Pearl and Gerald Gold. Ronnie Pearl had
seen similar services in the United States and became convinced that there was
a market in London for a convenient delivery service offering a varied choice
of food and wine for delivery to homes and offices. Gerald Gold already had
experience in the catering and restaurant business. Together, Ronnie Pearl and
Gerald gold launched the central London delivery service in February 1993,
initially with 13 restaurant partners.
Room Service distributes brochures with menus from its partner restaurants.
The customers place their orders, which can be from one or more of the
restaurants, with the Room Service call centre. Room Service then relays the
order to the relevant restaurant(s) and arranges for the food to be collected
and delivered to the customer's home or office by smartly dressed drivers.
In 1993 the North West London and City delivery zones were launched, adding a
further 32 restaurants. In late 1993, Room Service Catering service was
launched to provide kitchen prepared light lunches and dinners, for meetings
and events in the corporate sector. In 1997 the Room Service wine and beer
delivery service was launched. The company has a non-wholesale licence which
allows it to deliver alcoholic drinks by the bottle or case, anywhere in the
country from a mobile drinks store.
Today there are 98 restaurants which work exclusively with Room Service. Room
Service receives on average over 2,000 orders for food and/or drink delivery
every week in 3 London delivery zones.
Additional Services
With a database of over 200,000 potential customers in London, the Proposed
Directors believe that Room Service is well positioned to extend its range of
services providing a one-stop-shop for various services to suit different
customer requirements.
In June this year, Room Service launched a dry cleaning service with free
collection and delivery of customers' dry cleaning between 7.00am and 11.00pm
within the London delivery zones. In early 2001 Room Service also launched
their entertainment service allowing customers to purchase videos, DVDs and
CDs for home delivery; it is also intended in the future to offer a rental
service. In July 2001 Room Service acquired Bluebird Cars, an executive car
hire service which is now being integrated into the main Room Service
operations centre.
Each additional service is handled by the same call centre team based at the
same Room Service offices as the logistics managers.
Growth Potential
Sales have grown consistently year on year in the 7 years to 31 December 2000.
Turnover in the year to 31 December 2000 on an annualised basis exceeded
turnover in the previous year by £556,833. Growth in the period from August
1997 to December 2000 has been achieved with relatively low expenditure on
marketing and sales.
Although Room Service is currently providing on average 10,000 meals a week,
the Proposed Directors believe that there is significant potential to increase
this number in London alone and further to exploit the dry cleaning, car hire,
drink delivery and entertainment services.
The Proposed Directors will seek to increase market penetration in London for
the current range of services by establishing a sales team, and by increasing
the distribution of menu booklets and other promotional materials. As well as
recruiting new customers, the sales team will seek to cross-sell additional
services to customers.
The Proposed Directors will also investigate the possibility of bringing some
or all of the services to other cities in the UK. A number of strategies,
including franchising, are being considered in order to achieve this
geographical expansion.
The Target Market
The Room Service target market is predominantly:
* ABC1's
* Those people who dine frequently at restaurants
* Business and professional people at their offices
* Special business targets - corporate, professional firms, institutions,
clinics, production and music studios.
The Competitors
The Proposed Directors do not believe that a directly comparable service for
food and drink delivery on the scale provided by Room Service is currently
being offered in the London area. Such competitors as exist are mainly in the
fast food delivery sector and retail off licences.
Current Trading and Prospects
The Proposed Directors believe that Room Service's trading has been affected
by certain events during the course of 2001. In particular the tragedy of
September 11th had a marked impact on sales in September and October. However,
the Proposed Directors consider that trading is improving and is currently
steady considering the current economic environment and consumer confidence.
By developing its market capacity the Proposed Directors believe it will be
possible to expand Room Service's existing business and introduce new products
thus better exploiting its potential customer base in London and elsewhere in
the UK. Expansion of Room Service's business can be handled by the Company's
existing call centre, which is established in West Hampstead, offering an
integrated and prompt service whilst achieving economies of scale.
CAPITAL RECONSTRUCTION & CAPITAL REDUCTION
The consideration of £1,465,950 for the Acquisition is to be satisfied by the
issue, credited as fully paid (and at a premium), of the Consideration Shares.
The Directors' current valuation of the Group results in a value of 0.21p per
Existing Ordinary Share, which is below the nominal or par value of 1p. As
shares cannot be issued at below the nominal value it is proposed to carry out
the Capital Reconstruction and Capital Reduction.
Capital Reconstruction
At present the authorised share capital of the Company is £8,000,000 divided
into 800,000,000 ordinary shares of 1p each of which 417,988,783 are currently
issued and fully paid. It is proposed that each Existing Ordinary Share of 1p
be subdivided into one Reconstruction Share of 0.1p and one Deferred Share of
0.9p.
It is then proposed to consolidate every ten of the Reconstruction Shares into
a single New ordinary Share with a nominal value of 1p.
The New Ordinary Shares will replace the Existing Ordinary Shares under the
Company's Articles of Association and will carry equivalent rights. The
Deferred Shares will have no rights to attend or vote at general meetings of
the Company and will not be transferable without the prior consent of the
Directors of the Company.
Share certificates in respect of Existing Ordinary Shares will be cancelled
and new certificates posted to Shareholders in due course. No share
certificates will be issued for the Deferred Shares.
Capital Reduction
The Company has from time to time issued shares at a premium and at 30 June
2001, the sum of £9,371,000 stood to the credit of the share premium account.
The Group's unaudited balance sheet as at 30 June 2001 showed an accumulated
deficit on its profit and loss account. The Company will be unable, under the
Act, to pay dividends or make any other distributions until this deficit is
eliminated. In view of the size of the deficit the Board believes that it is
unlikely that the deficit will be eliminated by the generation of earnings for
some years.
The Board therefore considers it appropriate (subject to Shareholders'
approval and confirmation by the Court) to cancel the Deferred Shares, which
will have rights attaching to them as referred to above, and to reduce the
share premium account of the Company for the purpose of enabling the Company
to reduce or eliminate the deficit on the Company's profit and loss account.
The document regarding these proposals has been sent to shareholders today.
For further information please contact:
The Cube8 Group plc 020 7479 2712
Tim Dean-Smith / Steve Masters
Steve@Cube8.com
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