Today, on 7th May 2019, K2fly Limited (ASX: K2F) announced that it has entered into a binding HOA (Heads of Agreement) for K2fly RCubed Pty Ltd (its subsidiary), to acquire the assets of a South African company, Prodmark Pty Ltd and associated entities, relating to the RCubed Resources and Reserve Reporting software. The acquisition, prima facie, is complementary to K2fly, strengthening its SaaS (Software as a Service) solution targeting the Resources sector.
Transaction Metrics: K2F will make an upfront payment of $450,000 to buy the assets of Prodmark Ltd and associated entities. The assets include all the Intellectual Property of the RCubed software. The deal comprises performance incentives to ensure the retainment and performance of key operational employees over the next three years.
The structure of the payment is mentioned as follow:
Year 1: Total revenue (Annual recurring licence revenue) – A$715k – Maximum incentive payment A$600k to be paid in two instalments.
Year 2: Total revenue (Annual recurring licence revenue) – A$1,215k – Maximum incentive payment of A$400k over two instalments.
Year 3: Total revenue (Annual recurring licence revenue) – A$1,715k – Maximum incentive payment of A$200k over two instalments.
Performance Incentives are payable in two instalments.
Let’s understand RCubed software a bit more. It generates resource and reserve reports, which support reporting codes such as JORC, NI43101 and SAMREC across the major stock exchanges like LSE, NYSE, ASX, TSX, and JSE. RCubed assists companies engaged in Mining and Resource to comply with their regulatory reporting obligations, hence, complements the Infoscope enterprise land management software. With this acquisition, major customers, such as Teck Resource and Anglo Gold Ashanti and also, Impala Platinum will be brought into the K2fly business. The development will act as a catalyst for K2fly to generate higher revenues from high margin SaaS sales. K2fly will now be in a position to increase its SaaS solution on the geographical front, comprising 22 countries across four continents, resource type, including 33 commodities and 65 plus site locations.
Infoscope and RCubed in combination, are expected to provide a fascinating offering across Land Management, Natural and Mineral Resource Governance and Social License to operate. Reporting on resources and reserves for all the listed mining companies are mandatory with increased reporting on Sustainability as well. A standardised single source of truth for both reports will be provided by K2fly combined technology, while supporting the transparency of companies’ environmental, social and governance initiatives and ultimately their social license to operate.
Placement of 8,000,000 Shares at 10 cents to Fund Acquisition: K2F has received strong commitments from professional investors to place 8,000,000 fully paid ordinary shares @ 10 cents per share to raise funds for this acquisition. The issue price of 10 cents is a 16% discount on VWAP over the 15 trading days prior to the date of the company’s trading halt.
Use of Placement Funds
Purchase of assets of Prodmark including RCubed Software $450,000
RCubed Working Capital for Six Months $200,000
Due Diligence Costs $100,000
Legal Costs $50,000
Total Funds Raised Under Placement $800,000
The shares of K2F were trading at $0.125 on ASX (as at AEST: 3:30 PM, 07 May 2019), up by 4.167% as compared to its previous day’s close.
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