Ann: Trading Halt, page-81

Why do Retirees smile all the time? Because they can't hear a word you're saying!

Capital Raise vs Debt Financing

If a company requires a cash injection to expand existing operations, the company has two options - raise more equity or borrow the funds.

CAPITAL RAISE

One of the most common ways companies raise new equity is through a rights issue. This means offering existing shareholders the right to buy further shares, in proportion to their existing holdings. Naturally the issue price for the rights has to be less than the current share price to make the deal worthwhile. Unfortunately the current market share price tends to immediately get dragged down to meet the discounted issue price (eg) from 0.05 to 0.03 (sound familiar). Consequently shareholders theoretically lose as their original share price is now less.

Alternatively Companies can make a placement to an institution or small group of people. Placements disadvantage excluded shareholders by diluting their interests in the company earnings. You may be lucky enough to own 1% of SAS however if the company now decides to raise equity through a placement of 500 000 000 shares at the current market price and you have been excluded then your holding has obviously been diluted.

Don't get me wrong Capital Raising has done us extremely well to this point. Yes the share price has come down however we all know how hard it is to get finance especially if you don't make any money (ie) it doesn't happen! I don't think anyone is extremely rich at SAS however we have made it to this point where hopefully in approx two-three months 16 Pearls will be orbiting the earth and thats expensive.


DEBT FINANCING

Taking on debt requires the company's managers to have a reasonable expectation of steady cash flow to make regular interest payments. If SAS can secure a loan to finance the construction and deployment of the Pearls then it would surely confirm the purported annualised $10-12 million is genuine. Banks will obviously perform their due diligence and verify that SAS is a going concern, debts are paid and has capacity to pay its loan.

Ultimately securing a loan will alleviate the threat of a future capital raising, any speculation that debts are outstanding and or can't be paid. Price of shares should significantly increase and would be bolstered with every successful launch of additional Pearls after that.

The banks will require several criteria to be met of course prior to providing any funds. These will include but definitely not limited too:

* Surety for the loan (ie) Equity $58 Million - check
* Serviceability of the Loan (ie) $10-12 Million in purported annual income + MOUs - check
* Strong Business Plan - check
* Qualified Management Team - check
* Product Test and Analysis (ie) 3x Diamonds in Orbit + all the successful testing performed - check
*. Launch of Nano-Satellites with Virgin Orbit - NOT YET

If tomorrow is an announcement regarding the successful launch or test flight from Virgin Orbit that we currently don't know about then this would be a significant step in the right direction to securing a bank loan. I personally can't see many more obstacles to refuse the loan however I do not profess to be a financial broker by any means. We are all aware SAS are in advanced negotiations with US banks and I'm sure SAS are having to jump through hoops. Hopefully (only a guess of course) a successful launch by Virgin Orbit is one of only a few requirements still outstanding.

I personally hope we can secure a loan prior to June/July. We are apparently fully funded for the launch in June however there is minimal or no funds available as yet for the launch in September. The loan is very important to me as it means the shares will go up and not down as with a Capital Raising. Which ever way the company chooses to raise money I assume it would have to be completed by at least June/July in order to provide time to organise, collate and distribute to the likes of GOM SPACE etc.

I think if anyone is attending the shareholders meeting to be held shortly, it wouldn't be a silly question to ask how the loan negotiations are progressing.