Acquisition and Financing

RNS Number : 0533I

Iconic Labs PLC

06 August 2019

 

6 August 2019

Iconic Labs Plc ("Iconic Labs" or the "Company")

Acquisition and Funding

Iconic Labs Plc (LSE:ICON), a multi-divisional new media and technology business is pleased to announce that it has agreed Heads of Terms to acquire social media agency Social Alchemist Limited ("Social Alchemist"), which will bolster Iconic Labs' offering, build critical mass within its social media consultancy division, enhance content generation and importantly provide proprietary distribution channels (the "Acquisition").  The Company is also pleased to announce that it has secured further financing for a gross amount of up to £1.375 million ("the Financing"), to provide capital to continue to resolve the outstanding legacy issues associated with the previous operating stem cell business, fund the cash consideration element of the Acquisition, as well as for general working capital purposes.

Social Alchemist is a social media focussed agency with three primary divisions which will complement and expand Iconic Labs' current services.  Firstly, it provides social media consultancy, content production strategy and creation, primarily for white label branded campaigns, with clients including ITV and student focused platform TOTUM.  Secondly, it operates multiple targeted social media-based platforms such as football focussed Stray Offside which cumulatively have over 12 million followers and provide extensive distribution for Social Alchemists' clients.  The team provides access on these social media platforms to brands including TikTok and Vodafone and offers creative strategies for marketing campaigns to reach their target market/demographic.  Thirdly, Social Alchemist creates original social video production for brands with clients including talent agency YM&U Group and brand agency Chekd Media.

Social Alchemist was founded by Jono Yates, ex Creative Lead at LADbible and Head of Influencer Marketing at Red Bull.  He has worked with brands including McDonald's, Pepsi and Sony and has led award winning creative campaigns, both branded and editorial, receiving awards at Cannes and the Drum Awards for Digital Industries ('DADI's).  Social Alchemist was started in October 2018 and has yet to produce or file any statutory accounts, however at this time it is revenue generative, cash flow positive and profitable.  The consideration, which is undisclosed for commercial sensitivities, is to be satisfied in cash and the issue of ordinary shares of £0.0025 each in the capital of the Company.

The process to resolve the legacy debt issues attached to the previous stem cell business is nearing completion, which means the team can focus all its energy on building a multi-divisional new media and technology business, as set out in its initial strategy.  The full extent of these issues was significantly more than anticipated and, as a result, has taken considerably more of the key management's time to identify and resolve, as well as cash reserved for working capital.  In particular, it became evident that, despite assurances made by the previous management, a significant amount of debt ascribed to the subsidiaries of the Group were in fact liabilities of the Company.

The Company now believes there are approximately £600,000 of legacy debts still owing, including to HMRC, which the Company intends settling and have been accounted for in its cash-flow forecasts. In addition, there is approximately £400,000 of creditors with whom the Company is in dispute that these are creditors of the Company.   Whilst a contingency for this has been made in the cash-flow forecasts, the Company does not anticipate settling these.  To date, the Company has spent approximately £900,000 on legacy issues and the Board is confident that this further financing will finally result in all legacy debts, which the Company is certain are debts of the Company, being resolved.

The Financing has been secured with the European High Growth Opportunities Securitization Fund (the "Investor"). Under the terms of the financing agreement ("Financing Agreement") the Investor has agreed to provide finance to the Company over a six month period, with six monthly tranches (a "Tranche") for the following amounts: (i) on entering into the Financing Agreement, a net amount of £225,000 is to be made available to the Company, such amount being after having deducted a commitment fee of £75,000 and also other fees and costs; (ii) on the first business day falling one month after the date of entering into the Financing Agreement, a net amount of £275,000 is to be made available to the Company; (iii) on the first business day falling two months after the date of entering into the Financing Agreement, a net amount of £250,000 is to be made available to the Company; (iv) on the first business day falling three months after the date of entering into the Financing Agreement, a net amount of £175,000 is to be made available to the Company; (v) on the first business day falling four months after the date of entering into the Financing Agreement, a net amount of £175,000 is to be made available to the Company; and (vi) on the first business day falling five months after the date of entering into the Financing Agreement a net amount of £175,000 is to be made available to the Company.

The Company has agreed to certain covenants and undertakings which it has given to the Investor. This includes, but is not limited to, satisfying the Warrant Conditions (as defined below), which involves the Company within three months of the date of entering into the Financing Agreement lodging with the UKLA for its comments a prospectus which is to then be finalised and circulated to the Company's shareholders within six months of the date of entering into the Financing Agreement. Provided the Company has lodged the Prospectus with the UKLA for its comments within three months of the date of entering into the Financing Agreement, the Company can continue to draw down the Tranches.  In return for the draw-down of each Tranche, the Company will issue notes ("Notes") to the Investor which will attract interest at the rate of 5% per annum and each Note will have a duration of 12 months from the date of its issue. The Notes can be freely transferred but will not be listed on any financial market. 

The Financing Agreement also provides for warrants to be attached to the Notes, but these can only be attached once the Company has issued a prospectus to its shareholders, convened a general meeting and its shareholders having passed the necessary resolutions to enable the Company to issue the warrants to the Investor (the "Warrant Conditions"). Once the Warrant Conditions have been satisfied, warrants ("Warrants") will automatically attach to the Notes. The number of Warrants to be attached to the Notes shall be calculated as follows: for each Note the number of Warrants shall be 5,000 divided by 90% of the lowest closing volume-weighted average price of Ordinary Shares ("VWAP") during the five trading days immediately preceding the date of issue of the Warrants.

All Warrants are freely exercisable for a period of five years from their date of issue and are freely transferable. The exercise price of the Warrants will be equal to the higher of the value price ("Value Price") (calculated as 90% of the lowest daily VWAPs of the Ordinary Shares during the five trading days immediately preceding the exercise of the Warrants) and the nominal value of the Ordinary Shares on the date of exercise of the Warrants. Should the Value Price be lower than the nominal value of the Ordinary Shares, the Company shall pay a fee to the Investor based on the difference between the two and which can be settled by the issue of further Ordinary Shares.

In addition, the Company has also today agreed to settle with the Investor the remaining amounts due that were outstanding under the previous financing agreement entered into with the Investor, by entering into a deed of settlement ("Deed of Settlement"). This will involve the issue of Ordinary Shares to the Investor on the following basis:

·     237,827,207 Ordinary Shares are to be issued to the Investor on the sixth trading day following the entering into of the Deed of Settlement;

·     Further Ordinary Shares are to be issued to the Investor once the Warrant Conditions have been satisfied.  The number of Ordinary Shares to be issued will be calculated on the basis of 80% of the lowest daily VWAPs of the Ordinary Shares during a five trading days period relating to the relevant date and then multiplied by the relevant amounts, which can only be determined once the VWAPs are calculated and so it is not possible at this point in time to determine the dilutive effect this will have.

The Company recognises that there is frustration amongst shareholders regarding the timeline of Iconic Labs formal launch and the financing being utilised by the Company.  However, in order to resolve the legacy issues attached to the stem cells business and ensure that the new business strategy is implemented, the Board has had to facilitate the historic and most recent financing structures which has also taken considerable management time and focus.  There is considerable excitement within the Company and with a high margin offering being delivered, the Board is confident that it can rapidly grow revenue and build a cash generative business that rewards shareholders for their loyalty and patience. 

Iconic Labs Plc is pleased to announce that it has appointed Crowe U.K. LLP as auditor to the Company with immediate effect. There are no circumstances connected with the resignation of the previous auditors which the Company considers should be brought to the attention of shareholders or creditors of Iconic Labs.

Chief Executive Officer, John Quinlan, said: "We have an aggressive growth strategy and Social Alchemist, our maiden acquisition, represents a classic example of a growing and innovative business that will add value to our offering.  The divisional structure offers online media consultancy and content generation, but importantly distribution through its established platforms which already connect with over 12 million people.  Social Alchemist, which has an established client list, is highly complementary and we will benefit from synergies and scale as we pitch for new business and look to capitalise on the huge opportunities that both parties recognise are available in the online digital space. 

"With the additional capital we are able to focus all our efforts on building a successful business both organically and through selective, value accretive acquisitions.  The legacy issues attached to the old business have been greater than we anticipated and extremely frustrating for all parties and stakeholders.  We have uncovered unforeseen subsidiary debts that are attributed to the Company which has created significant work to solve and this has meant that we have had to prioritise this over fully launching the new business of Iconic Labs.  However, now, with a clean slate, we can utilise our wide industry contact base and build a profitable business, taking advantage of a fragmented market.

"To give some clarity for shareholders, the issue and subsequent exercise of the warrants resulting from this loan financing and the issuance of subsequent shares attached to the warrants cannot take place until the Company has issued an approved prospectus, convened a general meeting and its shareholders have passed the necessary resolutions. The anticipated timeline for obtaining an approved prospectus and issuing it to the shareholders is within six months of the date of the Financing Agreement and we anticipate being no shorter than three months from that date.

"I am excited about the future and look forward to announcing regular developments to the market.  We have a number of live client leads, as well as additional niche acquisition targets which, once executed, will assist us in delivering our strategy of building Iconic Labs and creating shareholder value."

Social Alchemy CEO Jono Yates said, "Iconic Labs is building a platform that will gain critical mass and service.  We know how successful the Iconic Lab team has been in rapidly growing social media-based business and I am delighted to bring my team to widen the offering and pool resources to maximise on the huge opportunities in our sector.  We believe in the model set out by the Iconic team underlined by our commitment to take equity in the business.  This is a nascent company with big ideas, and I look forward to building a business with John and his team."

**ENDS**

For further information, please visit the Company's website www.iconiclabs.co.uk or contact:

John Quinlan	Iconic Labs Plc	c/o SBP Tel: [phone]
Damon Heath	Shard Capital Partners LLP	Tel: [phone]
Erik Woolgar	Shard Capital Partners LLP	Tel: [phone]
Melissa Hancock	St Brides Partners Limited	Tel: [phone]
Juliet Earl	St Brides Partners Limited	Tel: [phone]

 

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