Shoot for the moon and you will land among the stars, or at the very least, you will contribute to existing space junk then go bankrupt—much to the agony of shareholders, especially the eco-conscious ones. This is the case with defence and space tech company Kleos (ASX: KSS), which has declared bankruptcy as loan facilities dry out and its satellites get damaged.
The Company said that its mandated broker has been unable to secure the required commitments to progress the converting note facility worth $10 million. The four-year debt facility with its financier, Pure Asset Management, was set to fund the Company’s satellite constellation expansion and growing operational team.
Now, Pure has informed the Company that it will no longer extend forbearance on the loan facility terms or provide additional credit, and called the loans and other accrued amounts immediately due and payable.
In Q1 2023, ending in March, Kleos reported a cash outflow of $2.4 million and used up over $6 million in loan facilities, leaving nothing to be used for the future. What’s more, this bankruptcy seems like it had been a long time coming.
In H1 CY22 ending June, the Company incurred a loss of $5.8 million, compared to a revenue of $170k. It spent about $5 million on asset impairments. Plus, it struggled with capital raises because it had little proof that its satellite clusters were operational and thriving.
In CY22, its operating loss increased from $8.9 million in 2021 to $18.2 million. It had all its hopes pegged on potential funding and the $2 million cash in hand.
Kleos specialises in detecting and geolocating RF (radio frequency) transmissions from space to identify hidden and illegal activity. Despite its US and UK Government contracts (and other agreements, partnerships and awards), the Company remained surprisingly reliant on debt facilities to see it through. However, likely mismanagement of funds coupled with poor technology left it in turmoil.
Kleos had three clusters (data collecting missions) in orbit. “Vigilance Mission (KSF1) is operational, Patrol Mission (KSF2) is completing commissioning and expected to be operational in Q423, and Observer Mission (KSF3) is completing commissioning and expected to be operational in Q323”, it had reported.
But, a technical review revealed that two of its satellites—one each from KFS2 cluster and KSF3 cluster—was impaired, and its chance of successfully addressing the technical issues affecting operational value was low (≤50%). The impairments resulted in a non-cash expense of $2.4 million in the Company’s accounts.
Considering its circumstances overall, the Company’s Board has had no alternative but to acknowledge that the Company cannot meet pay its loans as they fall due, and that there is no way out, i.e. “prospect of viable alternative financial accommodation”. So, it will petition the relevant commercial district court in Luxembourg for a bankruptcy adjudication.
Kleos is getting the paperwork ready to support its request, and it is to be submitted within 30 days. Once (and if) it is approved, the Company will provide further details to shareholders.
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