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This article first appeared in The Edge Malaysia Weekly, on November 30 - December 6, 2015.

 

The prolonged shareholder tussle for control of SCAN Associates Bhd has shown no sign of slowing down. With both factions stepping up the fight, one wonders what value the information security company has to offer.

SCAN (fundamental: 0; valuation: 0) does not have many assets, specialising in cybersecurity technology. Most of its prized assets are probably human capital and its listing status. It does not own land and as at June 30, its property, plant and equipment was worth RM637,000. It had RM490,00 cash with net debt amounting to RM1.9 million.

This is not much, even for a small-cap firm. The company had a market capitalisation of RM10 million as at last Tuesday’s close.

For founder and former chief executive Datuk Dr Norbik Bashah Idris, sentiment may be an important factor, as the company was essentially built on a research project with his students at Universiti Teknologi Malaysia in the mid-1990s.

Norbik’s attempts to remove four members from the board have been foiled, but he remains resolute. In July, he and shareholder Hussin Othman requisitioned an extraordinary general meeting to vote on the removal of four directors, including substantial shareholder Mak Siew Wei.

SCAN will have to hold an annual general meeting by year end, and there Norbik will again put forth his application to be appointed to the board of directors, he tells The Edge.

Three other parties aligned to him will also seek to be appointed to the board; ex-chief financial officer Nurul Huda Zaharol Natrar and two other long-time SCAN employees.

“I am fairly confident the shareholders will give us the opportunity because they know that we founded the company, we understand the business, we have good engagement with clients and, most importantly, we have a plan to turn it around,” he says.

If all goes as planned, Norbik wants to bring in new international partners to revive the group and give existing clients an assurance of SCAN’s ability to deliver.

But on the other side of the unfolding management tussle, when asked to comment, Mak says he is not willing to have Norbik back on the board. Mak held a direct 6.19% stake comprising 12.38 million shares as at March 27.

Norbik has a 5.89% stake in SCAN. Back in July, Patrick Yeoh Eng Kong and Hussin became substantial shareholders with 5.29% and 5.09% equity interest respectively.

Hussin is a co-founder, but the true swing vote belongs to Yeoh, who has raised his stake to 7.79%. It is not sure which faction Yeoh supports.

Since Norbik’s resignation in June 2015, the company led by Mak has made a slew of serious accusations of misconduct.

In early November, SCAN filed a lawsuit against Norbik and Nurul Huda with multiple claims, including a breach of duty that caused the company to incur at least RM3.6 million in losses, misuse of a company credit card for personal use to the tune of RM47,900 and Norbik’s failure to return a company laptop containing trade secrets.

“These are blatant accusations and I would not make them without proof. The way the company was being managed was [sending it] down the drain,” Mak tells The Edge.

He says the case will be heard in mid-December and it is all up to the courts now.

Norbik defended himself, saying the losses are part and parcel of business risk and decisions were made jointly by the board.

But while Norbik’s departure from the company may have looked suspicious ahead of Mak’s accusations, Norbik says he left because he did not think he could work with Mak and the parties aligned to him.

“In the last three years, the foreign and bumiputera ownership thresholds of the company were not in compliance with Ministry of Finance guidelines. This caused us to lose out on millions worth of government contracts, despite us being the preferred company technology-wise. It is not that we don’t have private sector clients, but let’s face the reality, the big info-security projects are always from the government,” he says.

According to Norbik, government ministries require foreign ownership to be less than 30% while bumiputera ownership must exceed 50% in companies like SCAN, which deal in critical sectors like information security.

But he says despite asking Mak and his associates to address the shareholding issue multiple times, no action was taken.

Norbik says he grew tired of seeming like the boy who cried wolf while SCAN lost out to competitors on the ownership criterion.

“SCAN is a public company and we cannot control who buys or sells shares. To be fair, there are other government-linked companies with substantial foreign ownerships getting contracts. So why should we be any different?” Mak says.

Whatever the case may be, SCAN’s losses have been widening over the years.

For the financial year ended Dec 31, 2014, (FY2014) net loss grew to RM7.1 million from RM2.6 million the year before on the back of higher impairments and operating expenses. Revenue also shrank 53% year on year to RM11.9 million in FY2014.

It is in the process of changing its financial year end to June 30, but in the meantime, its first half for calendar year 2015 was also disappointing. SCAN managed to double revenue to RM10 million from 1HFY2014, but net loss also doubled to RM12.2 million as high operating costs and impairments continued.

“With dwindling projects and revenue, some of our key staff have left as well,” Norbik says. “On top of that, SCAN is now a Guidance Note 3 company and it has yet to put forth a regularisation plan with just six months left.”

Without an approved regularisation plan, SCAN is at risk of being delisted from Bursa Malaysia.

“We are actively working closely with our advisers, Mercury [Securities Sdn Bhd] to form a regularisation plan,” Mak replies to The Edge, declining to provide details.

SCAN was classified as a GN3 company in May, as it had recorded aggregate full-year losses that exceeded its shareholders’ funds, according to Bursa.

The company filed a lawsuit against Bursa seeking damages, claiming that the stock exchange had made the classification without justification. The case was struck out.

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