Signature Brands Ltd has announced a delay in its proposed merger with Kahala Corp. The delay has impacted on SBL's profitability and cash flow in recent months, the company said today (4 May).

"Through the past few months, our relationship with Kahala has continued to strengthen and develop," Signature said in a statement. "Delays in obtaining certain complex documentation relating to the Australian operations have caused the legal advisers' and independent expert's assessments of the transactions to fall behind the planned schedule.

"All relevant documentation has now been received, and due diligence largely complete. At this juncture, we anticipate sending the notice of meeting to shareholders in May for a General Meeting to be held prior to 30 June."

A filing with the Australian Stock Exchange earlier this week showed an operating cash outflow for the three months to 31 March of A$984,000 during the period. "This cash outflow was effectively funded by equity injections," Signature said.

"In the coming three months, projected cash outflows are expected to be funded by: proceeds from the sale of the company's wine assets; highly selective sale of company owned juice bar outlets; and a revised placement to Kahala which will supplant that component of the Kahala Transaction," the company said.

The withdrawal from the wine business is proceeding to plan, with the winery ceasing operations at the end of last month.

"The delay in completion of the Kahala Transaction has necessitated that the placement component be brought forward to facilitate the smooth operation of SBL until completion," Signature said. "This has also resulted in amendments to the placement price."

The board of SBL has agreed to the immediate placement of 3,636,364 shares to Kahala Corp at a price of A$0.11 to raise A$400,000. This will increase the number of SBL shares on issue to just less than 68m and will give Kahala an undiluted 5.4% shareholding in SBL. A further A$200,000 of equity will be injected on the completion of the Kahala Transaction at the same price of A$0.11 per share. Kahala will also be entitled to one option exercisable at A$0.20 by 31 December 2008, for every two SBL shares subscribed, subject to shareholder approval.