The parent of SoftWave Media Exchange had to go to a hedge fund for a loan, but didn't raise new equity by the July 1st deadline. Now SWMX is paying a higher rate, had to pay a forbearance fee and gave the lender a security right in its patents and trademarks – and still has to raise 10 million in new equity by the end of the month. Is that just emblematic of the problems faced by a start-up company, or does it run deeper?
Speaking with RBR/TVBR yesterday, SWMX CFO Jim Caci characterized the situation as a "technical default," with BlueCrest Capital Finance LP, a US associate of the London-based BlueCrest hedge fund, moving to protect its legal interests. Caci confirmed our calculation that SWMX is now paying about 12.5% on the three million bucks it borrowed in March from BlueCrest, with two percentage points tacked onto the original 10.5% as the default rate. SWMX has not drawn on a revolving line of credit established at the same time and cannot while the term loan is in default.
To cure that default, SWMX has to find 10 million in new equity capital by August 1st. Is that going to happen? "We believe it will," said Caci, noting that negotiations are currently in process.
Caci refused to comment on the company's current cash position or how long it can continue operating without a cash infusion, saying SWMX has always refrained from giving any financial guidance.
SmartMedia observation: Wall Street reaction to the latest filing with the SEC was erratic. SWMX's stock, which is truly a penny stock, fell three cents early yesterday, then recovered two cents, but fell eight cents in later trading and ended the day down six cents. That's a drop of 18% for the day, to 27 cents, but the stock remains above its all-time low of nine cents set on July 18th. BlueCrest may have a vested interest now in keeping SWMX afloat, given that the patents and trademarks may not be worth much if the company stops operating.
SWMX has had some success with its online platform for selling radio ad time, but its cable TV project is far behind schedule. During the last election cycle it brought in some extra revenue handling ad placement for political campaigns, so that could again be a source of much-needed cash as the new election cycle heats up. But that is still a few months away and SWMX CEO Josh Wexler has to deal with financial issues that are facing him right now – especially that August 1st deadline to find 10 million in new equity investment. SWMX still has a market cap of around 60 million, but even with a stock price that won't cover a cup of coffee it is proving difficult to find someone to write that check.