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NZ govt gives up chasing NextWindow R&D grants

05 Jun 15

The New Zealand government has given up on trying to claw back $3.9 million in research and development grants paid to failed touchscreen developer NextWindow, though potential claims by former customers, staff, or suppliers remain a risk to its Canadian owner, Smart Technologies.

Calgary, Alberta-based Smart Technologies pulled the pin on NextWindow last year, which was once a New Zealand poster-child for local high-tech nous. Founded in 2000 in Auckland by John Newton, NextWindow's optical touchscreen technology was sold to manufacturers of PCs and other interactive displays.

Smart anticipates wrapping up the wind-down during the 2016 financial year, having initially targeted completion by the end of March this year at a cost of between US$30 million and US$35 million.

As a result of NextWindow's pending closure, Economic Development Minister Steven Joyce tasked Callaghan Innovation, the government-backed innovation commercialisation hub, to see whether it could recover research and developments grants paid to the firm, which pre-dated Callaghan's existence.

NextWindow was approved for $8.2 million in technology development and student funding grants, of which it drew down $2.6 million and $1.3 million respectively. The now-defunct Ministry of Science and Innovation defended its 2011 decision to award $5.9 million in grants after Smart's takeover, saying NextWindow's intellectual property remained in the country and other criteria had been met.  

Callaghan manager grants and risk assurance Ross Baker said in a statement the agency found it wouldn't be able to claw back any funds from the technology developments grants (TDGs), which have since been replaced with new subsidies.

"Due to the lack of any underlying asset value within NextWindow (the technology upon which their products were built had become rapidly obsolete resulting in the loss of two primary customers) it was determined that seeking repayment of funds from the company was not commercially viable," Baker said. "Callaghan Innovation did not have any security over Smart Technology PLC (this was not a requirement for TDGs) and as such, was not in a position to recover any value from them."

Callaghan's replacement growth grants include clauses requiring stakeholder guarantees to improve the chance of recovery of funding from foreign shareholders, and puts greater emphasis on intellectual property and benefits to New Zealand in its assessments, Baker said.

Smart wrote off all of the goodwill attached to the loss-making NextWindow, worth US$34.2 million, in the 2013 financial year, and has incurred US$33.2 million of restructuring costs over the past three years including US$21 million of inventory write-offs in 2013 and the mothballing of a plant in Ottawa. The company, best known for its Smart interactive whiteboard, is pinning its future on finding new ways to make money from the education whiteboard market and branching into new enterprise services.

"We may face potential liability from customers, suppliers, departed employees or other parties in connection with the wind-down," Smart said in its 2015 annual report. "If we are not able to secure an effective and efficient supply chain for optical sensors going forward, we may face disruptions in our operations that may have a material adverse effect on our business."

Smart bought NextWindow in April 2010 for US$82 million, ending a claim it filed against the New Zealand business claiming unspecified damages a year earlier for violating its Digital Vision Touch patent, preceding an initial public offering in July of that year. The acquisition coincided with the rise of touchscreen phones and the introduction of tablets, which undermined its market prompting the Canadian company to subsequently all but write off the value of NextWindow.

If the Canadian company is unable to negotiate settlements with suppliers, staff and customers, it has threatened to appoint a liquidator to NextWindow to take control of the wind-down process. A spokeswoman for Smart declined to comment on whether there were outstanding disputes relating to NextWindow's closure.

Smart's Toronto Stock Exchange-listed shares last traded at C$1.20, valuing the company at C$152.2 million.

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