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Sofame Technologies (SDW.V) - bridge financing discussions
Comment by Objective Capital , Aug 31, 2009
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A letter of intent has been signed between Sofame and Township Capital, for bridging loans in the sum of between C$1m and C$2m in order to fund current working capital needs and to support its continuing sales and marketing initiatives.
As predicted in our most recent company update, Sofame will need further finance if it is to meet its working capital requirements and sales projections. As an interim measure, this may provide a bridge while evaluating other medium term finance options.
We understand that the cost will be a 10% arrangement fee of the capital sum, with interest set at 15% per annum.
Objective's view:
Although Sofame withdrew its C$5m prospectus filing on 23 July 2009, the company nevertheless continued with its aggressive recruitment in sales and marketing in an attempt to boost revenues.
Because sales have still badly lagged, the effects have been two-fold. First, the company is now saddled with a mis-matched cost structure and secondly, it does not have the necessary working capital to fulfill the bids it was about to win.
It is imperative this funding issue is settled quickly, otherwise Sofame’s manufacturing representatives will not feel confident that the company will be able to deliver on any orders they do win and so will defer. If this happened, this situation could become dire.
Until this issue is resolved, the share price is going to remain weak. Furthermore, as we pointed out in our update note, any hint that sales are going to be materially lower than our core projection will severely punish the core valuation.
The extra capital is now essential for the company, if it is to capitalize on its project pipeline, in whatever form it takes – be it bridging finance, or conceivably, a trade partner taking a majority stake in an enlarged business.
