Bizarre legacy of dotcom dozen

IT sounds like an investor's dream. Pay out one pound and in return you get £1.57 in cash. Too good to be true? Not necessarily. The bursting of the internet shares bubble has created a bizarre situation where a dozen former technology high-flyers have stock market values that are less than their bank balances.

They raised cash from investors at the peak of the City's infatuation with technology. Their share prices later collapsed - but not before they had banked the funds from their backers.

A study by independent research firm Equity Investigator uncovered a dozen technology companies whose stock market values are lower than their estimated cash balances at the end of the financial year.

The 12 companies had a combined stock market value of £179.5 million last week. Yet even after spending cash in the current financial year, they will be left with a total cash pile of £281 million. This means they sell at an average 36% discount.

Discounts across the dozen include online business directories company Scoot, whose shares trade at 77% below its cash holdings. And computer chip maker Zen Research's stock market value is 58% less than the money in its bank account.

The dozen underline the fall from grace of shares that were boom stocks just a few years ago and which took advantage of strong markets to raise hundreds of millions of pounds.

Max Thowless-Reeves, an analyst with Equity Investigator, said: 'This situation with companies valued at less than their cash began to emerge in the third-quarter of last year and has gathered pace. It is a legacy of the tech boom and because it has not happened on this scale before, there is no precedent for what companies should do.'

Inevitably, some companies have chosen to break up. Others have faced pressure from shareholders to return cash. If those shareholders bought into the companies at their peak, they would still face a loss, but at least it would not be as great as the paper loss that they are now showing on their shares.

Last year, internet firm J2C returned £34 million to shareholders a few months after its share price slumped, valuing the group at just £21.9 million.

And another internet company, Izodia, which Equity Investigator reckons will end this year with £30.2 million in cash after starting it with £55.7 million, has seen its market value rise from a lowly £16 million to £32.7 million. Last week it was put up for sale.

So who are the cash-rich dozen? And what are the chances of some or all of their cash being returned to shareholders, either through management action or shareholder pressure?

Read our guide below to find out.

Tales of online woe for technology investors

Scoot
Market value: £4m. Cash pile: £17.6m. Discount: 77%. Scoot, in which French media giant Vivendi Universal has a 19% stake, will report delayed annual results shortly. Analysts doubt it has a future. Cash return odds: 2/10

Nettec
Market value: £7m. Cash pile: £20.3m. Discount: 66%. Last year, takeover talks for the e-business consultancy came to nothing. Ex-chairman Jeremy White increased his stake and supported a cash return. Cash return odds: 6/10

Ffastfill
Market value: £1.7m. Cash pile: £4.8m. Discount: 65%. The provider of software for financial brokers changed its management last year and restructured its business plan. Cash return odds: 2/10

Zen Research
Market value: £17.6m. Cash pile: £41.9m. Discount: 58%. Chairman Davidi Gilo's plan to take the company private at a cost to him of £13m is opposed by leading shareholders. Cash return odds: 10/10

TEAMtalk Media
Market value: £8.5m. Cash pile: £18.3m. Discount: 54%. TEAMtalk 252 radio station and internet sports news group faces demands from rebel shareholder Paul Scott to break itself up and return cash. Cash return odds: 4/10

Knowledge Support Systems
Market value: £11.1m. Cash pile: £21.5m. Discount: 48%. The firm designs software to help other companies price their products. It was recently bullish about its prospects. Cash return odds: 7/10

Actinic
Market value: £6.8m. Cash pile: £10m. Discount: 32%. The e-commerce software firm has already returned £5m to shareholders, but investors are expected to demand further returns. Cash return odds: 10/10

Netstore
Market value: £14.5m. Cash pile: £17.8m. Discount: 19%. Earlier this year directors increased their stakes in the web software provider. It aims to break even in 2003. Cash return odds: 4/10

ARC International
Market value: £81.5m. Cash pile: £99.4m. Discount: 18%. Shares in the chip designer founded by games whizkid Jez San, the largest shareholder, are at their lowest level since its stock market debut in 2000. Cash return odds: 7/10

Protagona
Market value: £9.6m. Cash pile: £11m. Discount: 13%. This month the software company, which had a rights issue last year, said its last six months had been in line with expectations and it would end its first half with £14m cash. Cash return odds: 3/10

Patsystems
Market value: £12.3m. Cash pile: £13m. Discount: Five%. The software vendor saw off a revolt by shareholders last month, but there is speculation that opposition may return. Cash return odds: 2/10

Raft International
Market value: £4.9m. Cash pile: £5.1m. Discount: 4%. The financial software firm lost £826,000 last year and plans £600,000 savings this year. Cash return odds: 3/10.