RM2 INTERNATIONAL S.A.

Transcription

1 RM2 INTERNATIONAL S.A. Société Anonyme Registered Office : 5, rue de la Chapelle L-1325 LUXEMBOURG R.C.S. Luxembourg : B Stand-alone annual accounts for the year ended 31 December 2016

2 To the Shareholders of RM2 INTERNATIONAL S.A. 5, rue de la Chapelle L-1325 LUXEMBOURG Report on the annual accounts REPORT OF THE REVISEUR D'ENTREPRISES AGREE Grant Thornton Lux Audit S.A. 89A, Pafebruch L 8308 CAPELLEN (Luxembourg) T F We were engaged to audit the accompanying annual accounts of RM2 INTERNATIONAL S.A., which comprise the balance sheet as at December 31, 2016, and the profit and loss account for the year then ended, and a summary of significant accounting policies and other explanatory information. Board of Directors' responsibility for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as the Board of Directors determines is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error. Responsibility of the Réviseur d'entreprises Agréé Our responsibility is to express an opinion on these annual accounts based on conducting the audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Basis for Disclaimer of Opinion In seeking to form an opinion on the annual accounts, we considered the implications of the significant uncertainties disclosed in the annual accounts concerning the following matters: As explained in Note 18 Going concern, the Group RM2 INTERNATIONAL S.A. and its affiliates (hereafter the Group ) will have to secure rapidly important new sources of financing in order to meet its residual transition costs, its current running costs, as well as an important development plan of its pallet pool. This investment plan will have to continue beyond 2017, requiring additional external funding in order to build a pallet pool sufficient to reach a level of deployment enabling the Group to generate sufficient revenues to offset the estimated running costs of its structure. As of today, while we have been provided with evidence that the Directors are actively looking for new funding sources for this investment plan, this additional financing has not been secured and the outcome of the future negotiations between the Group and potential new investors is uncertain. The financing of the residual transition costs and current running costs relies on fundraising and disposals of certain assets, some of these ones are not yet concluded while being in negotiation. Réviseurs d Entreprises & Expert-Comptables Luxembourg member firm of Grant Thornton International Ltd R.C.S. Luxembourg B Identifiant TVA: LU

3 As explained in Note 18 Going concern, the ability of the Group to timely produce a sufficient number of pallets of an appropriate type is also an important source of uncertainty in relation with the going concern of the Group. This production is outsourced to two manufacturers, one of those (Zhenshi) having only recently received the manufacturing equipment and the other one (Jabil) being in ramp up stage and having not yet reached its nominal capacity of production. As explained in Note 18 Going concern, a new concept of pallets (ELIoT) key to meet the going concern plan is in its final stage of development but is not yet operational and is being tested on a low-scale level by some potential customers. The time necessary to bring this project to massproduction and large distribution level is uncertain while the demand for ELIoT pallets represents 62% of the current commercial pipeline. Shares in affiliated undertakings are composed of a participation held in a subsidiary shown for a net book value amounting to USD. This participation has been subject to an impairment test reposing among other factors on the net book value of certain tangible assets held by sub-subsidiaries. The valuation of these tangible assets is reposing on cash-flow forecasts including future revenues from the pallet pool to be produced per the above mentioned investment plan; these forecasts are based on the assumption that the Group will be able to successfully achieve its business plan. For this reason, the expected future cash-flows, hence the net valuation of the shares in affiliated undertakings, are subject to uncertainties. The ability of the Group to secure an adequate and timely source of important new financing, the actual concretisation of the commercial pipeline as well as the ability of the Group to match its outsourced production potential with the demand of the market represent multiple sources of uncertainties when it comes to consider the adequacy of the Group s, hence Company s resources to continue its operational existence and the appropriateness of the going concern as a basis for the preparation of these annual accounts as well as the net valuation of its Shares in affiliated undertakings. There is potential for the uncertainties to interact with one another such that we have been unable to obtain sufficient appropriate audit evidence regarding the possible effect of the uncertainties taken together. Would the annual accounts have been prepared on a non-going concern basis, many elements in the accompanying annual accounts would have been materially affected. The effects on the annual accounts of the fact that these accounts have not been prepared on a non-going concern basis have not been determined. Disclaimer of Opinion Because of the possible potential interaction of the uncertainties described in the Basis for Disclaimer of Opinion paragraph and their possible cumulative effect on the annual accounts, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these annual accounts. Luxembourg, 30 June 2017 Réviseurs d Entreprises & Expert-Comptables Luxembourg member firm of Grant Thornton International Ltd R.C.S. Luxembourg B Identifiant TVA: LU

4 RM2 INTERNATIONAL S.A. ABRIDGED BALANCE SHEET Financial year from 01/01/2016 to 31/12/2016 in USD ASSETS C.FFixed assets III. Financial assets (Note 3) D. Current assets II. Debtors (Note 4) a)becoming due and payable within one year III. Investments (Note 5) IV. Cash at bank and in hand E. Prepayments (Note 6) TOTAL (ASSETS) The accompanying notes from an integral part of these annual accounts.

5 RM2 INTERNATIONAL S.A. ABRIDGED BALANCE SHEET Financial year from 01/01/2016 to 31/12/2016 in USD CAPITAL, RESERVES AND LIABILITIES A. Capital and reserves I. Subscribed capital (Note 7) II. Share premium account (Note 8) IV. Reserves (Note 9) - - V. Profit or loss brought forward VI. Profit or loss for the financial year B. Provisions (Note 10) C. Creditors (Note 11) a)becoming due and payable within one year TOTAL (CAPITAL, RESERVES AND LIABILITIES) The accompanying notes from an integral part of these annual accounts.

6 RM2 INTERNATIONAL S.A. 5, rue de la Chapelle L-1325 Luxembourg R.C.S. Luxembourg B Notes to the accounts for the year ended 31 December 2016 Note 1 General Information RM2 INTERNATIONAL S.A. (previously known as Malvern S.A.) (hereafter the Company ) was incorporated on 23 October 2007 and organized under the laws of Luxembourg as a Société Anonyme for an unlimited period. The Company may hold participations, in any form whatsoever, in Luxembourg companies and foreign companies and carry out all other forms of investments, acquire by purchase, subscription, or in any other manner as well as transfer by sale, exchange or otherwise of stock, bonds, debentures, notes and other securities of any kind, as well as manage, control and develop such participations. The Company may participate in the establishment and development of any financial, industrial or commercial enterprises in Luxembourg and abroad and may render them every assistance whether by way of loans, guarantees or otherwise. The Company may enter into the following transactions: - To conclude and/or to get facilities in any form, and proceed to the issuance of bonds and debentures; - To advance, lend, deposit funds and/or grant facility to its subsidiaries and/or to companies in which the Company has a direct or indirect interest, even not substantial, and/or to companies belonging to the same group of companies than the Company (hereafter together the Affiliated Companies and each the Affiliated Company ); - To grant any guarantee, pledge or other form of security agreement, whether by personal covenant or by mortgage or charge upon all part of the Company s property assets (presents or futures), or by these two methods cumulatively, for the execution of any agreement or obligation of the Company or of Affiliated Companies and to render any assistance to Affiliated Companies within the limits authorized by Luxembourg law, being understood that the Company will not enter into any transaction which could cause it to be committed in any activity that would be considered as a banking activity. The Company may also carry out any other securities, financial, industrial or commercial activity, directly or indirectly connected with its objects and maintain a commercial establishment open to the public. It may also conduct all real estate transactions, such as buying, selling, developing and managing real estate. The Company may in general take any controlling and supervisory measures and carry out any operation which it may deem useful in the accomplishment and development of its purposes. The registered office of the Company is established in 5, rue de la Chapelle, L-1325 Luxembourg. The company financial year starts on 1 January and ends on 31 December of each year.

7 The Company also prepares consolidated financial statements, which are published according to the provisions of the law. Note 2 Summary of significant accounting policies The Company maintains its books and records in US Dollars and presents its annual accounts in accordance with the amended law of 19 December 2002 as modified. Accounting policies and valuation rules are, besides the ones laid down by the said law, determined and applied by the Board of Directors. The provision of the law of 18 December 2015 on the annual accounts and the grand-ducal regulation of 18 December 2015 on the layout of balance sheet and profit and loss accounts, amending the law of 19 December 2002, have been transposed in this annual accounts. The layouts and the heading of certain balance sheet and profit and loss account captions have been modified accordingly. The following reclassification of the comparative figures for the year ended 31 December 2015 was brought to the annual accounts: - Extraordinary charges were reclassified on Gross profit or loss for USD Extraordinary income were reclassified on Gross profit or loss for USD The annual accounts of the Company include the following significant accounting policies: 2.1 Foreign currency translation The Company maintains its books in US Dollars ( USD ) and the annual accounts have been prepared in this currency. Transactions expressed in currencies other than USD are translated into USD at the exchange rate prevailing at the date of the transaction. Fixed assets are kept at normal rate. Assets and liabilities, other than fixed assets and cash at bank are translated separately respectively at the lower or at the higher of the value converted at the historical exchange rate or the value determined on the basis of the exchange rates prevailing at the balance sheet date. Realized exchange gains and realized and unrealized exchange losses are recorded in the profit and loss account of the year. Cash at bank is translated at the exchange rate effective at the balance sheet date. Exchange losses and gains are recorded in the profit and loss account of the year. 2.2 Financial assets Shares in affiliated undertakings and loans to these undertakings held as fixed assets are valued at purchase price including the expenses incidental thereto. In case of durable depreciation in value according to the opinion of the Board of Directors, value adjustments are made in respect of fixed assets, so that they are valued at the lower figure to be attributed to them at the balance sheet date. These value adjustments are not continued if the reason for which the value adjustments were made has ceased to apply. 2.3 Debtors Debtors are valued at their nominal value. They are subject to value adjustments where their recovery is compromised. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply.

8 2.4 Provisions Provisions for liabilities and charges are intended to cover losses or debts the nature of which is clearly defined and which, at the date of the balance sheet are either likely to be incurred or certain to be incurred but uncertain as to their amount or as to the date on which they will arise. 2.5 Debts Debts are recognized at their reimbursement value. 2.6 Prepayments This asset item includes expenditure incurred during the financial year but relating to a subsequent financial year. 2.7 Turnover The turnover comprises the amounts derived from the provision of services falling within the Company s ordinary activities, after deductions of sales rebates and value added tax and other taxes directly linked to the turnover. Note 3 Financial Assets During the year, movements in financial assets were as follows: Shares in affiliated undertakings Total Gross book value - Opening balance Additions for the year Disposals for the year - - Transfers for the year - - Gross book value - Closing balance Depreciation - Opening balance ( ) ( ) Depreciation for the year ( ) ( ) Reversals for the year - - Transfers for the year - - Depreciation - Closing balance ( ) ( ) Net book value - Opening balance Net book value - Closing balance

9 In October 2015, the Company contributed an amount of USD to RM2 Holding S.à r.l. s share premium account. In November 2016, the Company contributed an amount of USD to RM2 Holding S.à r.l. s share premium account. On 31 December 2016, the Company held the following subsidiaries: Company Registered office Ownership Last balance sheet date Net equity as at 31/12/2016 Profit or loss for the last financial year RM2 Holding S.à r.l. Luxembourg 100% 31/12/ ( ) Note 4 Debtors Debtors are mainly composed by the following: 31/12/ /12/2015 Amounts owed by affiliated undertakings becoming due and payable within one year Other debtors Becoming due and payable within one year Total Debtors Note 5 Investments On 31 December 2016, the Company owns own shares with a nominal value of USD 0.01 for an acquisition value amounting to USD (31 December 2015: USD 3.423), and representing % of the issued share capital of the Company. Note 6 Prepayments Prepayments are composed of prepaid expenses relating to operating expenses of the Company. 31/12/ /12/2015 Prepaid expenses relating to operating expenses Total prepaid expenses

10 Note 7 Subscribed capital Transactions on capital On 1 January 2016, the issued share capital of the Company was set at USD divided into ordinary shares with a nominal value of USD 0.01 each and entirely paid in. On 8 July 2016, the Board of Directors decided to increase the share capital of the company by an amount of USD in order to raise it from its former amount of USD to the amount of USD In July 2016, the Company, in addition to the Ordinary Shares, issued 42,328,042 Convertible Preferred Shares (the Convertible Preferred Shares ) with a nominal value of USD 0.01 in order to increase the share capital of the company by an amount of USD with a total share premium of USD This leads to an increase of share capital from its former amount of USD to the amount of USD On 31 December 2016, the issued share capital of the Company is set at USD divided into ordinary shares with a nominal value of USD 0.01 each and entirely paid in and into Convertible Preferred Shares. The Convertible Preferred Shares can be converted at the option of the owner - into Ordinary shares of the Company any time after 30 June Any conversion is on a 1:1 basis, subject to any antidilution from further share issues. The shares are redeemable, if the Company has sufficient reserves after five years, if not converted or redeemed at year five then at the earliest of when the Company has sufficient distributable reserves or at year seven, whichever is earlier. The Company is also required to maintain a share premium to cover the amount of share premium paid in relation to the Convertible Preferred Shares. The holders of the Preferred Shares shall be entitled to receive for each Share cumulative dividends in preference to any dividend on Ordinary Shares at a rate of 9% of the Price per Share per annum whenever funds are legally available and when and as declared by the Board. The holders of the Preferred Shares shall also be entitled to participate pro rata in any dividends paid on Ordinary Shares on an as-converted to Ordinary Shares basis. No such dividends have been declared for the year. Authorised capital On 31 December 2016, the authorised share capital of the Company is set at USD divided into ordinary shares with a nominal value of USD 0.01 each and at USD divided into Convertible Preferred Shares with a nominal value of USD 0.01 each. Note 8 Share premium account The movements on the Share premium account item during the year are as follows: Currency Class A to I Total Share premium account - Opening balance USD Movements of the year USD Share premium account - Closing balance USD

11 In October 2015, The Shareholder of the company contributed an amount of USD to the Company s share premium account. In November 2016, The Shareholder of the company contributed an amount of USD to the Company s share premium account. Note 9 Reserve Legal reserve Under Luxembourg law an amount equal to at least 5% of the annual net profit must be appropriated to a legal reserve until such reserve equals 10% of the issued share capital. This reserve is not available for dividend distribution. Reserve for own shares or own corporate units The next General Meeting of Shareholders would constitute a reserve for own shares for an amount of USD corresponding to the special reserve for own shares related to the shares with a nominal value of USD 0.01 (Note 5). This reserve would not be available for distribution. Note 10 Provisions Provisions are made up as follows: 31/12/ /12/2015 Provisions for taxation Other provisions VAT Other provisions Audit and accounting fees Total Provisions Note 11 Creditors Creditors becoming due and payable within one year as of December 31, 2016 are composed as follows: 31/12/ /12/2015 Trade creditors Amounts owed to affiliated undertakings Total creditors

12 Note 12 Gross profit or loss The amount booked in the Net turnover account for the year is USD Nil (2015: USD ). The amount of USD booked in the Other external charges for the year (31 December 2015: USD ) is mainly due to legal fees and professional fees. Note 13 Taxes The Company is subject to all taxes relevant to commercial companies in Luxembourg. The taxes are composed as follows: 31/12/ /12/2015 Income tax Total Income Net wealth tax Withholding tax on benefits Fines and penalties Total Other taxes Note 14 Off balance sheet commitments On 31 December 2016, off balance sheet commitments of the Company arise from the grants of share options to employees, officers, directors, consultants and advisors of the RM2 Group. No provisions have been recorded in relation to these shares options. Note 15 Subsequent events The Company announced in February 2017 that its Non-Executive Directors are to receive ordinary shares of USD 0.01 each in the Company in lieu of cash payment of directors' fees for the 2017 calendar year. Pursuant to this arrangement, 657,500 restricted shares were granted to non-executive Directors on February 17, 2017 in lieu of cash compensation with respect to the first semester of 2017 fiscal year. Shares with respect to the second semester of 2017 are expected to be issued to the Non-Executive Directors following the Company's Annual General Meeting. A further 100,000 restricted shares were granted to Frédéric de Mevius on that same date in lieu of cash compensation following his appointed to the Board on July 18, In each case, the shares are restricted from trading until the relevant semiannual period has completed and the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP Convertible Preferred Shares. This leads to an increase of the share capital of the company by an amount of USD in order to raise it from its former amount of USD to the amount of USD On 22 June 2017, the Board of Directors decided to increase the share capital of the company by an amount of USD in order to raise it from its former amount of USD to the amount of USD with a total share premium of USD

13 Note 16 Related parties transactions The amount of USD booked in the Other external charges for the year is due to provision of services provided to Affiliated Companies (2015: USD booked in Net turnover ). Note 17 Emoluments granted to the members of the Management and supervisory bodies and commitments in respect of retirement pensions for former members of the bodies. The emoluments granted to members of the management and supervisory bodies in that capacity and the obligations arising or entered into respect of retirement pensions for former members of those bodies for the financial year are composed as follows: Director s emoluments Non executive Directors Ian Molson Jan Dekker Charles Duro Sir Stuart Rose Amaury de Seze Paul Walsh Frederic de Mevius - - Total Directors The Non-Executive fees were settled by the issue of ordinary shares in the Company on 8 July 2016 at a price of GBP 0.23 per share. The New Ordinary Shares are restricted from trading until volume weighted average quoted price of the Ordinary Shares for a consecutive 30 day period equals or exceeds GBP Of the holdings above 16,900,180 (2015: 15,625,180) consist of Restricted Shares set out below. A Director holding Restricted Shares shall not sell, transfer, mortgage, charge, encumber or otherwise dispose of any of his Restricted Shares as long as certain performance conditions are not fully satisfied (the Performance Conditions ). The Performance Conditions are linked to the volume weighted average quoted price of the Ordinary Shares (the Average Price ) for a consecutive 30 day period (the Relevant Period ). If the Average Price is 50% higher than the Placing Price (GBP 0.88) for the Relevant Period, the Performance Condition in respect of one third of the Director s Restricted Shares shall be fulfilled. If the Average Price is 75% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of a further one third of the Director s Restricted Shares shall be fulfilled. If the Average Price is 100% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of the final third of the Director s Restricted Shares shall be fulfilled. If any Performance Conditions are not fully satisfied by ten years after the date of the grant, the Director shall transfer any of his remaining Restricted Shares to the Company at a purchase price equal to the nominal value of the Restricted Shares, being USD 0.01 per share.

14 Number of restricted shares (only) at 31 December 2016 Number of restricted shares (only) at 31 December 2015 Ian Molson John Walsh Jean-François Blouvac Jan Dekker Charles Duro Sir Stuart Rose Amaury de Seze Paul Walsh Frederic de Mevius - - TOTAL Note 18 Going concern On 31 December 2016, the Company owes USD to both third and related parties, with no cash available. The Company is relying on the financial support provided by the group RM2 International S.A. and its subsidiaries (the Group) to ensure settlement in due time of its financial commitments. Financial situation of the Group The Group s financial result for the year ending December 31, 2016 is a loss of USD 52.8m (December 2015: loss of USD 58.8m ; June 2016: loss of USD 24.0m) of which USD 10.6m of impairment reflects major events occurring in the second semester, including equipment no longer suitable for the new production strategy (USD 3.3m), value corrections on raw material inventory (USD 1.9m), lower realization value of deployed pallets currently available for sale as these pallets generate a lower than expected positive free cash-flow (USD 5.0m) and goodwill impairment (USD 0.5m). The cash outflow in 2016 was USD 45.1m, composed of net cash outflows of USD 30.3m and USD 14.8m in the first and second semesters respectively, a reduction of over 50%. Net cash outflows were reduced by the receipt of USD 20.4m from the issuance of convertible preferred shares in the second semester, giving a total net cash outflow for the year of USD 24.7m. The Group s Canadian plant, which was in dismantling mode during much of 2016, generated a loss of USD 12.0m for the second semester which includes several non-cash items, such as equipment impairment (USD 3.2m) and depreciation (USD 1.6m). Running costs for the second semester 2016 in Canada amounted to USD 5.1m to be added to transition one-time-costs of USD 2.1m. Non-restricted Cash reserves at December 31, 2016 stood at USD 9.8m. Situation of the Group through December 2017 Non-restricted Cash reserves at May 31, 2017 stood at USD 2.6m. The business plan and cash flow forecast for the next 12-month period starting from December 31, 2016 (i.e., the going concern analysis period) have been updated by Management using the same conservative assumptions used in the going concern assessment for The forecasted cash burn for the second half of 2016 of USD 2m per month was recorded to be slightly lower at USD 1.9m per month, and was reduced to circa USD 1.4m per month for the first five months of The one-time-cost for the manufacturing transition forecasted to be USD 8.8m in the second half of 2016, was recorded at USD

15 3.5m over the period. A further USD 3.3m of one-time costs was paid out at the end of May 2017 and another USD 1.8m is anticipated for the remainder of In addition to the above-mentioned remaining one-time costs, management estimates the cost of business for the last seven months of the year will be circa USD 1.7m per month which includes wind-down costs in Canada, where the Company is actively seeking to terminate its lease obligations. A further conservative estimate of USD 0.6m may also be incurred in relation with Luxembourg VAT. In Mexico, the first production lines started operating in March of this year. Production capacities have been gradually activated. Through the end of May 2017, Jabil produced and assembled 38k pallets, with the end of June daily production rate nearing 1k pallets. In China, the manufacturing equipment shipped from Toronto is undergoing testing prior to being brought on-line. The lead time to clear customs in China has been significantly higher than expected. As a result, the final shipment was released from customs in April 2017, allowing Zhenshi to commence implementation. Purchase orders have been placed both in China (Zhenshi) and Mexico (Jabil) for an aggregated amount of 180k pallets to be produced and forecasts (to be confirmed) amount to 287k pallets. Should the manufacturers not achieve the target ramp up of production, the activity of the Group would be slowed down and its ability to generate future revenues and cash-inflows be restricted. Should the quantity of purchased pallets from Jabil be lower than those figuring in the manufacturing agreement, a pricing scheme mechanism will adjust the purchase price, subject to the agreement of both parties which ensures an alignment of interests of the different stakeholders. The manufacturing agreement with Zhenshi includes a commitment for the Group to acquire a minimal volume of pallets. The aggregate annual production for the first-year production with the new manufacturing set-up is expected to be 467k pallets, subject to the Group s capacity to implement adequate minimum funding of USD 34.0m to cover issued purchase orders (USD 12.7m) and forecasts (USD 20.3m). Should the Company not be able secure sufficient additional funding, it would not be able to face current liabilities generated by the issuance of the above mentioned purchase orders. The Company expects to announce imminently an equity issuance sufficient to meet its current cost of business through the end of the year excluding the acquisition of pallets from Mexican and Chinese suppliers mentioned above. The Company will shortly thereafter undertake negotiations to arrange a larger additional financing which is expected to amount to at least USD 65.0m. The outcome of the negotiations as well as the amount to be raised are subject to uncertainties. The commercial pipeline has been fine-tuned with a particular focus on the food industry where wooden pallets trigger issues such as bacterial contamination and ingression of wood into food products. In addition, high velocity capacity coupled with the ELIoT tracking technology create traction for blue chip customers operating across a broad spectrum of distribution channels. The actual deployment of pallets into the food industry (7k pallets), coupled with the commercial interest generated by the new tracking technology (ELIoT) in high velocity sectors such as bottle producers, give confidence that the Group will be able to deploy a significant number of pallets in the next 18 months, at which point the Company will have to raise more capital to finance further production. While the Management is very confident, the ability of the Group to deploy this significant number of pallets over such a period is also subject to some uncertainty. 1.6m pallet opportunities constitute the current commercial pipeline, of which 9% represent straight sales and 91% rentals (either flat fee or per trip) and of which 62% are ELIoT pallets and 38% are BLOCKpal pallets. The Group s ELIoT pallets are currently undergoing testing with three blue chip customers using 60 sample pallets, and initial feedback is highly positive. The current stage of development of the ELIoT technology is a first step, pending the availability of CAT-m technology and less expensive chipsets in Q However, suppliers of critical components have given the Group enough visibility on the sourcing lead-time (12 weeks from purchase orders to finished pallets) that the Group is able to deploy tens of thousands of units with the current more expensive chipset. The ability

16 of the Group to mature this new product and deliver a sufficient number of pallets to address market s needs is a key challenge and is subject to uncertainty. In the interim, the Group continues to work on monetizing its assets (inventory of pallets and raw material located in Toronto). These two deals, which remain in negotiation, would generate a cash inflow of up to $7.7m if successful, based on pending offers to potential buyers. Expected evolution of Group s financial position in January 2018 and beyond Once the Group is able to offset its current cost of business with the initial deployment, the Company will need to finance the production of pallets through external facilities until the revenues from deployed pallets cover production costs. Obtaining a sufficient level of financing is a source of uncertainty. Conclusion The Directors have analysed the Group s situation and applied their best estimates to assumptions of the future development of the business. The Group acknowledges that there are currently material uncertainties which may cast significant reservations on the Group's ability to continue as a going concern and it is possible that the Group may be unable to realize its assets and discharge its liabilities in the normal course of business. Nonetheless, subject to the uncertainty related to the coming fundraising, the Directors are confident: that the Group will have adequate resources to continue its operational existence for the 12 months period starting from December 31, 2016; Accordingly, that the Group will continue to support the Company; In order to ensure that the Company itself has adequate resources to continue its operational existence for the 12 months period starting from December 31, 2016; As a consequence, the Company adopts adequately the going concern as basis in preparing its standalone financial statements.