Lendified Announces Adverse Effects of COVID-19, Application for Management Cease Trade Order
Toronto, Ontario--(Newsfile Corp. - June 25, 2020) - Lendified Holdings Inc. (formerly, Hampton Bay Capital Inc.) (TSXV: LHI) (the "Company" or "Lendified") today announced that the outbreak of the Coronavirus (COVID-19) has had an adverse effect on the Company's business, financial condition and results of operations. The Company had hoped that the effect of COVID-19 on its business and operations would not be overly severe. However, the COVID-19 pandemic has resulted in defaults, disruptions and delays under its loans to Lendified borrowers that have been affected by COVID-19. In addition, the concern that the COVID-19 pandemic might adversely affect the economy and financial markets has had an adverse effect on Lendified's ability to obtain financing for its business and operations.
Lendified has a history of losses and negative operating cashflows since inception. Its plans are to generate profit and positive operating cashflows; however, it has not yet done so. Lendified relies on debt to fund its ongoing operations and as a result, Lendified continues to carry significant debt. The Company's ability to operate is dependent on its ability to service that debt. The impact on revenues from the COVID-19 pandemic has had a material negative impact on Lendified's ability to do so. Lendified is in default in respect of credit facilities with its secured lenders. Forbearance and standstill agreements are being discussed with these senior lenders, with none indicating to date that any enforcement action is expected although each is in a position to do so. However, no formal agreements in this regard have been concluded as of the date hereof. In addition, the COVID-19 pandemic and the Company's current financial state has caused at least one of its lenders to pause in funding new loans, indicating a desire to reduce its exposure to Lendified in an orderly wind-down of its loan collateral which has also had a negative effect on the Company's ability to generate revenue. In general, loan funding from third party lenders is expected to be negatively affected by the COVID-19 pandemic and the uncertainty it has created.
The pandemic has also had an adverse effect on the originations aspect of new loans for the Company as a result of the reduced activity of small businesses across Canada. The current environment with businesses reopening and starting to operate again provides an opportunity for the origination activity of new loans to begin to recover. At the same time, the existing loan portfolio of the Company is experiencing increased pressure on repayment of loans by small businesses that have been negatively impacted by the COVID-19 pandemic increasing the likelihood of additional loan loss provisions.
In addition, the Company's wholly owned subsidiary, Lendified PrivCo Holding Corporation ("Subco"), a wholly-owned subsidiary of the Company acquired through the Company's qualifying transaction announced on December 24, 2019 (the "Qualifying Transaction") which, through Lendified Technologies Inc., carries on an automated underwriting and credit risk assessment business based in Vancouver, British Columbia which does business as "Judi.ai" (the "Business"), is not yet cash positive and continues to require cash infusions in the amount of approximately $100,000 per month in order to maintain operations. Its cash reserves at this time are approximately $80,000. At this time, the Company is not in a position to continue to fund the Business and there can be no assurances that it will be able to do so in the future.
As a result, the COVID-19 pandemic has had a disproportionate impact on the Company's plans for profitability and has resulted in the Company's current situation where, without finalizing agreements with its lenders to forbear on Lendified's defaults and an immediate infusion of capital to fund its operations, Lendified will be unable to continue operations. The Company continues to seek financing required to continue operations, but there is no assurance that such financing will be secured. In addition, there can be no assurances that Lendified's lenders will continue to forbear on enforcing such lenders' security or otherwise vindicating any legal rights they may have due to such loans being in default, including commencing enforcement proceedings (whether statutory or pursuant to rights to enforce set out in the Company's credit facilities).
In the event the Company is unable to secure additional financing (please see below) or otherwise increase its revenues, there is significant doubt as to whether the Company can continue as a going concern. The Board of Directors is considering various courses of action to address this problem, including obtaining financing as discussed below, or the sale of assets including the Business in order to raise revenue or to cut costs. There can be no assurances that the Company will be able to secure financing or to find purchasers for its assets which in any case are subject to security interests in favour of its secured lenders as set out above, or be able to avail itself of any other financing options. There can be no assurance that any such actions, if available, will be successful in avoiding insolvency proceedings. There can be no assurance that the steps the Company is considering taking will be successful. Investors are cautioned to consider carefully the Company's liquidity situation when considering trading in the Company's securities.
As disclosed in the Company's press release dated May 19, 2020, the Company announced that it intended to rely on the temporary blanket relief granted by the Ontario Securities Commission in connection with the COVID-19 pandemic pursuant to Ontario Instrument 51 -502 - Temporary Exemption from Certain Corporate Finance Requirements and Ontario Instrument 51-504 - Temporary Exemptions from Certain Requirements to File or Send Securityholder Materials and similar exemptions provided by the other Canadian Securities Regulators due to the challenges the COVID-19 pandemic presents for market participants (the "Temporary Relief").
The Company is relying on the Temporary Relief in respect of the following requirements (the "Required Filings") for the Company and Subco:
- the requirement to file Subco's audited annual financial statements for the year ended December 31, 2019 (the "Subco Annual Financial Statements") on or before the later of 20 days after the date of the completion of the Qualifying Transaction and 120 days after the end of its financial year as required by National Instrument 51-102 - Continuous Disclosure Obligations ("NI 51-102");
- the requirement to file Subco's interim financial report for the three months ended March 31, 2020 (the "Subco Interim Financial Report") on or before the later of 10 days after the date of the completion of the Qualifying Transaction and 60 days after the end of the interim period as required by NI 51-102;
- the requirement to file the Company's interim financial report for the three months ended March 31, 2020 (the "Interim Financial Report") within 60 days after the end of the interim period as required by NI 51-102;
- the requirement to file the Company's management's discussion and analysis (the "MD&A") for the period covered by the Interim Financial Report within 60 days after the end of the interim period as required by NI 51-102; and
- the requirement to file certifications of the Interim Financial Report (collectively with the Interim Financial Report and the MD&A, the "Interim Filings") pursuant to National Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings.
As at the date of such press release announcing reliance on the Temporary Relief, the Company expected to complete the Subco Annual Financial Statements on or before July 2, 2020, and the Subco Interim Financial Report and Interim Filings on or before July 14, 2020. However, the Company no longer believes it will be able to meet these timelines and the filing of the Required Filings will be further delayed.
As a result, in connection with the anticipated delay in filing, Lendified intends to apply the applicable Canadian securities regulators for the issuance of a management cease trade order (the "MCTO") which would restrict all trading in securities of the Company by the Company's Chief Executive Officer and Chief Financial Officer (see below) and any other person identified by the securities regulators. The Company is continuing to work through the outstanding items to complete the Required Filings and expects to file them by July 31, 2020.
Lendified intends to satisfy the provisions of the alternative information guidelines set out in sections 4.3 and 4.4 of National Policy 12-203 Cease Trade Orders for Continuous Disclosure Defaults so long as the Required Filings remain outstanding. The Company confirms as of the date of this news release that there is no formal insolvency or security enforcement proceeding against it and there is no other material information concerning the affairs of the Company that has not been generally disclosed. There can be no assurances that the Company will be able to file the Required Filings within the time required by the securities regulators, and if the Company is unable to do so, the securities regulators may undertake enforcement proceedings under applicable securities laws which could include a general cease trade order, among other things.
Lendified further announces that each of Mr. Edward (Ted) Kelterborn and Mr. Benjy Katchen has informed the Company of their resignation from the Company's board of directors effective immediately. Lendified wishes to express its appreciation to Mr. Kelterborn and Mr. Katchen for their services to the Company and wishes them the best in their future endeavours. In addition, Kevin Clark has notified the Company that he intends to resign effective July 3, 2020. He remains a board member and the President of the Company until that date. The Company is currently searching for qualified replacements for these gentlemen.
Lendified also announces that due to the resignation of Norman Tan as Chief Financial Officer, the Company continues to search for a replacement and will disclose once a suitable person has been retained to fill this role.
The Company is also announcing that Gravitas Securities Inc. has been retained to conduct a brokered private placement for gross proceeds of up to $3m (the "Financing") on a "best-efforts" basis. The Financing will be comprised of Units consisting of one common share (a "Share") of the Company (the "Units") and one half of one common share purchase warrant (each whole warrant, a "Warrant") with each whole Warrant being exercisable to acquire one Share for a period of three years from the date of issuance. The price of the Units and the exercise price of the Warrants will be priced in context of the market in accordance with applicable TSX Venture Exchange ("TSXV") policies.
There can be no assurances that the Financing will be completed on the terms set out herein, or at all, or that the proceeds of the Financing will be sufficient for the purposes of the Company or its turnaround efforts. The Financing is subject to the receipt of all regulatory approvals including the approval of the TSXV.
ABOUT LENDIFIED HOLDINGS INC.
Lendified, a company located in Ontario, Canada, is a leading Canadian FinTech company operating both a lending platform which provides working capital loans to small businesses across Canada through its wholly-owned subsidiary, Lendified Inc., as well as a software as a service technology platform providing AI-enabled credit origination and analytics to financial institutions across Canada through its wholly-owned subsidiary, JUDI.AI.
For further information regarding Lendified, please contact:
Troy Wright, Chief Executive Officer and Director
Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.
This news release may contain forward-looking statements which reflect the Company's current expectations regarding future events. The forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan, "estimate", "expect", "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions. These forward-looking statements involve risk and uncertainties, including the difficulty in predicting whether any existing lenders will continue to forbear and consequently cause such lenders to exercise default remedies under their respective credit facilities, whether the Company will be successful in implementing its strategies to place the Company on a better financial footing, whether the securities regulators will grant an MCTO, whether the Financing will be approved or if the proceeds of the Financing will be sufficient for the Company's purposes, whether the effects of the COVID-19 pandemic will be even more severe than it has been to date, any of which could cause results, performance, or achievements to differ materially from the results discussed or implied in the forward-looking statements. Many risks are inherent in the industries in which the Company participates; others are more specific to the Company. The Company's ongoing quarterly filings should be consulted for additional information on risks and uncertainties relating to these forward-looking statements. Investors should not place undue reliance on any forward-looking statements. Management assumes no obligation to update or alter any forward-looking statements whether as a result of new information, further events or otherwise.
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