Unique Solutions Design Ltd will cease operations if it doesn’t find $10 million in new investment. In fact, if the company doesn’t raise $4 million in the next six weeks, “assets will likely be liquidated to satisfy secured creditors and it is unlikely that there will be any residual value for shareholders.”
That’s the bleak assessment of the company’s future as explained by Tuoc Luong, Chief Executive Officer of the company, in a letter sent to shareholders Tuesday.
The letter did not ask existing shareholders to invest more money.
The Examiner sent Luong a detailed list of questions regarding the company; he responded to just one of the questions, which was about recent downsizing of the company’s staff. “There was small reduction in our workforce to match our strategic focus,” he wrote. “Three-quarters of the workforce continues to be employed in Nova Scotia.”
The history of a colossal flop
Readers will recall that Unique Solutions was a Dartmouth-based sewing-pattern company created by Tanya Shaw that morphed into a tech company, as it pursued a business model centred around its scanning booths.
While the company’s sales have been languid, Shaw has been extremely successful in attracting investment.
In 2005, Shaw created Unique CEDC, a community economic development investment fund, or CEDIF — an investment vehicle that takes advantage of provincial tax codes that encourage investment in Nova Scotia companies. Unique CEDC attracted nearly $2 million from 142 investors in its first offering.
The company also attracted considerable government financial assistance, including about a million dollars in loans from the federal Atlantic Canada Opportunities Agency and $5.6 million in direct investment from Nova Scotia Business Inc, the provincial economic development agency.
In 2010, Unique Solutions managed to attract a large investment — up to $30 million — from Toronto-based Northwater Capital’s Intellectual Property Fund. That investment funded the placement of 70 body scan kiosks in malls across the US, the first stage towards an expected 300 malls. The kiosks were rebranded as Me-Ality.
The idea was that people could go to the kiosk to be body-scanned, and the scans would identify clothing at nearby stores that fit the customers’ body size and shape. The customers would be spared the frustration of trying on clothes.
But, as the Halifax Examiner reported in October 2014, the mall kiosks were a complete flop. By 2013, the kiosks were removed from malls, and according to online postings, hundreds of people across the US lost their jobs.
In the wake of the failure, Unique Solutions had to revalue itself. In 2013, Unique CEDC, the CEDIF created to fund Unique Solutions, marked its $1,996,128 equity stake in the company down by 82 per cent, to just $349,332.
Nova Scotia Business Inc won’t say what it values its $5.6 million stake in the company at.
Company financial statements obtained by the Examiner show that for the first six months of 2013, Unique Solutions had just $15,000 in sales. Those sales came at a cost of $132,128.
In the same six months, the company had a whopping $11,153,379 in operating expenses, which included $3,617,71 in administrative expenses and $7,535,662 in costs related to “decommissioning” the mall kiosks.
As of June 30, 2013, Unique Solutions had a deficit of nearly $84 million.
Throughout this period, the Chronicle Herald uncritically praised the company as a rousing success. That praise included glowing reviews by business columnist Peter Moreira. Moreira was an investor in the company, and as such had access to the company’s financial statements. He knew that the company had nearly gone out of business in 2013, but failed to inform his readers.
It’s unclear if Moreira is still an investor. If so, he would have received Tuesday’s letter to shareholders. He has yet to tell his readers about it.
A new strategy
After the mall kiosk fiasco, however, the company soldiered on. In 2014, Shaw was removed as CEO, and Luong installed in her place. Luong is a former vice-president at Yahoo, and a Silicon Valley “angel” investor.
As the company explained in a press release, Luong’s appointment was “part of a strategic plan to position itself as the Go-To Experts on Body Data, and launch an aggressive online apparel sizing-matching campaign planned for Winter 2014… In his new role as company CEO, Mr. Luong will run the company from Silicon Valley — commuting to Halifax frequently. The plan is to build-out the company’s Silicon Valley presence.”
The press release claimed that as a result of its failed mall kiosks, Unique Solutions owns “the largest database of body measurements that accurately reflects the real size and shape of consumers.” The problem is, it hasn’t been able to sell that database.
More recently, with Luong at the helm, the company has attempted to develop a handheld body scanner. As Luong explained in the letter to shareholders:
The prototypes successfully take measurements of individuals who are clothed. The prototypes are not yet ready for commercial deployment, and still require further development but we are confident that we are on track to produce a commercially viable and competitively unique product. We have succeeded in the critical innovation needed to produce a handheld that can take measurements while an individual is clothed. No other company has handheld scanner technology that is capable of taking body measurements while an individual is clothed.
As we complete additional phases of development over the next two months, we will be demonstrating the handheld to prospective customers including uniform companies, select retailers and business in other industry verticals who are prospective customers. We are optimistic that we have “cracked the code” by developing a product that no one else has in the marketplace and for which we have secured the intellectual property.
The letter claims that all the company has to do is survive until the handheld scanner can be marketed:
During the last several weeks, we have held several meetings with existing and prospective investors. Although potential investors were impressed with our technology and strategic plans, we have not yet received commitments in sufficient amounts that will allow us to close a transaction and continue operations. We need to raise a minimum amount of $4 million by mid April in order to close a transaction that will allow us to continue fundraising and operations.
When speaking with prospective investors we use the analogy that we are like an airplane, with a new engine, that is ready to take off, but we need the financial runway to get the plane in the air. Without it, we will never get airborne.
The Examiner asked Luong if the company has a patent for the handheld scanner. He did not respond. An Examiner search of the US patent office registry could find no such patent.
As part of the plan to refocus the company, Unique Solutions recently created a US-based holding company called USCo. According to Luong’s letter, the point of the holding company is to:
(a) reduce unnecessary administrative complexity; (b) provide a “fresh start” to make it easier for new commercial and financial partners to understand the Company, exclusive of the history of former business activities that are unrelated to the current strategy; (c) increase proximity, access and visibility to organizations that can benefit from the Company; and (d) provide a better platform for future commercial growth and fund raising.
“We are doing everything practical to raise the needed capital,” wrote Luong. “We believe we are on the verge of a great, disruptive business solution, however, despite our best efforts, we cannot be certain of the outcome.”
The new strategy appears not to have raised much, if any, money, and the company appears not to be able to pay even relatively small debts. In December 2015, Boston-based Granite Telecommunications filed a claim against Unique Solutions with the Nova Scotia Supreme Court. The claim asserts that Unique Solutions has not paid for about $30,000 in telecommunications services provided by Granite between November 2013 and December 2014. The claim has not been tested in court.
Asked if Unique Solutions had settled the Granite debt, Luong did not respond.
N.S. Biz is in for 5.6 million, eh. Guess there will be more cuts to social assistance and actually useful NGOs sometime soon.
The calling card of new age conmen.