In setting the valuation the Directors took into account the sales history of the company, the investment to date, the forecasted 2016 sales from our new distributors, and the brand equity built up in terms of intellectual property and brand reputation, i.e. its products, reviews and artist list, and the ability of the company to turn these into future cash flows.
The directors are also aware that the majority of existing shareholders effectively have control of the business and any new shareholders could reasonably expect a discount off any valuation for their lack of control as new minority shareholders. Red Witch has also been through a period of refocus and refreshed its strategy after several years of under performance, and the Directors consider it important that incoming shareholders have the chance to come on board at an attractive valuation.
The Directors also took into consideration the likely shareholder expectations with a possible exit in a trade sale, and that any valuation methodology utilised would need to demonstrate an acceptable return to the incoming investors in the event of a future possible trade sale.
shareholder loan conversion
The most recent capital issue was at the end of March 2015. ISSL (the largest shareholder) converted its shareholder loan of $1.12m to the company (plus interest) into equity at price by agreement with other shareholders diluted by the restructuring, reflecting a post money valuation of the company of $2.66m.
The Directors have agreed to discount this value by 34% in pricing the shares for new investors taking up this offer.
Director Participation in Snowball Effect Crowd Funding Round
Bob King, David Jones and Geoff Matthews will be participating in the crowd funding round. Ben Fulton will be participating via the Executive Officer Share Options.