ELSIGHT LIMITED ACN 616 435 753 SUPPLEMENTARY PROSPECTUS IMPORTANT INFORMATION This is a supplementary prospectus (Supplementary Prospectus) intended to be read with the replacement prospectus dated 27 April 2017 (Prospectus) replacing a prospectus dated 13 April 2017, issued by Elsight Limited (ACN 616 435 753) (Company). This Supplementary Prospectus is dated 22 May 2017 and was lodged with the ASIC on that date. The ASIC and ASX and their respective officers take no responsibility for the contents of this Supplementary Prospectus. Other than as set out below, all details in relation to the Prospectus remain unchanged. Terms and abbreviations defined in the Prospectus have the same meaning in this Supplementary Prospectus. If there is a conflict between the Prospectus and this Supplementary Prospectus, this Supplementary Prospectus will prevail. This Supplementary Prospectus will be issued with the Prospectus as an electronic prospectus and may be accessed on the internet at www.el-sight.com/investor-relations. The Company will send a copy of this Supplementary Prospectus to all Applicants who have subscribed for Shares in the Prospectus to the date of this Supplementary Prospectus. This is an important document and should be read in its entirety. If you do not understand it you should consult your professional advisers without delay.
1. DEFINITION Defined terms used in this Supplementary Prospectus have the same meaning given to those terms in the Prospectus, unless otherwise stated. 2. BACKGROUND Under the Corporations Act, the Company has an obligation to update a disclosure document if it becomes aware of new information that is material to investors. This Supplementary Prospectus has been prepared to provide additional information to investors on items that the Company considers may be material. Following the lodgement of the original prospectus by the Company on 13 April 2017, the Company lodged an application for quotation of the Company with ASX in accordance with Section 5.4 of the Prospectus (Application). Following that Application, the Company has needed to vary the terms of the agreement to acquire 100% of the shares in El-Sight Israel, as follows: (a) (b) (c) cancelling the requirement to pay US$400,000 cash to Learnicon LLC (Learnicon) pursuant to its preferred shares held in El-Sight Israel; agreeing to pay Learnicon US$400,000 cash as partial repayment of its outstanding converting loan provided to El-Sight Israel as shown in the audited accounts of El-Sight Israel contained in the Investigating Accountant s Report in Section 8 of the Prospectus; and agreeing to issue 7,166,667 Shares to Learnicon as payment for the outstanding balance of the converting loan and the settlement of its rights attaching to its preferred shares in El-Sight Israel. The effect of these changes to the Agreement is that Learnicon will receive the same consideration for all its shares in El-Sight Israel and the repayment of its outstanding loan to El-Sight Israel as was previously disclosed in the Prospectus. The capital structure of the Company as shown in Section 4.10 of the Prospectus (assuming full subscription) remains accurate. However, the changes require certain amendments to the Prospectus as set out below. 3. AMENDMENTS TO THE PROSPECTUS 3.1 Use of funds Section 4.9 of the Prospectus is amended to amend the reference to the payment to Learnicon in the use of funds table to note that approximately $530,000 (US$400,000) will be paid to Learnicon as partial repayment of the outstanding loan balance owing from El-Sight Israel to Learnicon as recorded in the audited accounts for El-Sight Israel as at 31 December 2016 shown in Section 8 of the Prospectus. Since 2011, Learnicon has made a series of loans to EL-Sight Israel to assist with its working capital requirements. There is no further changes to the use of funds table. This Supplementary Prospectus is intended to be read with the replacement prospectus dated 27 April 2017 issued by Elsight Limited (ACN 616 435 753). 2
3.2 Capital structure Section 4.10 of the Prospectus is amended to amend the reference relating to the issue of the 7,166,667 Shares to Learnicon. These 7,166,667 Shares will be issued for the partial repayment of the balance of the outstanding loan balance owing from El-Sight Israel to Learnicon as recorded in the audited accounts for El-Sight Israel as at 31 December 2016 after the cash payment referred to in Section 3.1 above and for the payment for the preferences relating to the 4,445 preferred shares in El-Sight Israel held by Learnicon, for which Learnicon was entitled to be repaid pursuant to the Articles of Association of El-Sight Israel. Learnicon has accepted the receipt of these Shares as full and final settlement of its rights relating to its preferred Shares. There is no change to the number of Shares or Options on issue in Section 4.10. 3.3 Investigating Accountant s Report The changes to the Prospectus set out in Section 3.1 and 3.2 above have necessitated minor amendments to disclosures in the Investigating Accountant s Report in Section 8 of the Prospectus, although no changes to the pro forma balance sheet is required. A copy of the revised Investigating Accountant s Report is contained in the Annexure to this Supplementary Prospectus. 3.4 Material Contracts Section 10.1 of the Prospectus is amended to insert the following paragraph at the end of Section 10.1: On 16 May 2017, the parties to the Agreement entered into a Deed of Variation pursuant to which the parties agreed to pay to Learnicon US$400,000 as partial repayment of the outstanding loan balance owing from El-Sight Israel to Learnicon (as recorded in the audited accounts of El-Sight Israel as at 31 December 2016) and to issue Learnicon 7,166,667 Shares for the repayment of the balance of those outstanding loans and the final repayment of rights under the preferred shares that are held by Learnicon in El-Sight Israel and which will be acquired by the Company. Learnicon also confirmed that the cash and Shares issued represent the full repayment of the outstanding loan and the final repayment for all rights under the preferred shares. 4. LEARNICON LLC Learnicon is a company incorporated in the United States and was an investor in EL-Sight Israel. Mr Bahram Nour-Omid, the controller of Learnicon, was a director of El-Sight Israel until 13 December 2016. Pursuant to Section 228 of the Corporations Act, a former director of a company, and any company that former director controls, is considered a related party for a period of 6 months after they cease to be a director. The Prospectus stated that Learnicon was not a related party of El-Sight Israel, when in fact Learnicon will be considered a related party of the Company after the Acquisition for a period of 6 months commencing from 13 December 2016. Neither Learnicon nor Mr Nour-Omid have any ongoing involvement with the Company, other than as a security holder, after the listing of the Company. This Supplementary Prospectus is intended to be read with the replacement prospectus dated 27 April 2017 issued by Elsight Limited (ACN 616 435 753). 3
5. ACTION BY INVESTORS As the content of this Supplementary Prospectus is not considered to be materially adverse to investors, no action is needed to be taken by investors. 6. DIRECTORS AUTHORISATION This Supplementary Prospectus is issued by the Company and its issue has been authorised by a resolution of the Directors. In accordance with Section 720 of the Corporations Act, each Director has consented to the lodgement of this Supplementary Prospectus with the ASIC. Howard Digby Chairman For and on behalf of ELSIGHT LIMITED This Supplementary Prospectus is intended to be read with the replacement prospectus dated 27 April 2017 issued by Elsight Limited (ACN 616 435 753). 4
A N N E X U R E U P D A T E D I N V E S T I G A T I N G A C C O U N T A N T S R E P O R T This Supplementary Prospectus is intended to be read with the replacement prospectus dated 27 April 2017 issued by Elsight Limited (ACN 616 435 753). 5
ELSIGHT LIMITED Investigating Accountant s Report 17 May 2017
17 May 2017 The Directors Elsight Limited Level 2, 46-50 Kings Park Road WEST PERTH WA 6005 Dear Directors INVESTIGATING ACCOUNTANT S REPORT 1. Introduction BDO Corporate Finance (WA) Pty Ltd ( BDO ) has been engaged by Elsight Limited, a company incorporated in Australia ( Elsight Aust or the Company ) to prepare this Investigating Accountant's Report ( Report ) in relation to certain financial information for inclusion in a prospectus ( Prospectus ) to be issued by the Company in respect of the proposed initial public offering ( IPO ) and listing on the Australian Securities Exchange ( ASX ). Broadly, the Prospectus will offer up to 32.5 million Shares at an issue price of A$0.20 each to raise up to A$6.5 million before costs ( the Offer ). The minimum subscription of the Offer is A$4.5 million, before costs. In preparation for listing on the ASX an internal restructure will take place resulting in the newly incorporated Australian company, being the Company, becoming the legal parent of the group subject to the issue of shares under the Offer. As such, the historical financial information of the Company will be presented as a continuation of the pre-existing accounting values of Elsight Ltd, an Israeli incorporated entity which conducts the business ( Elsight Israel ). Expressions defined in the Prospectus have the same meaning in this Report. BDO Corporate Finance (WA) Pty Ltd ( BDO ) holds an Australian Financial Services Licence (AFS Licence Number 316158). This Report has been prepared for inclusion in the Prospectus. We disclaim any assumption of responsibility for any reliance on this Report or on the Financial Information to which it relates for any purpose other than that for which it was prepared. 2. Scope You have requested BDO to perform a review engagement in relation to the historical and pro forma historical financial information described below and disclosed in the Prospectus. BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 2
The historical and pro forma historical financial information is presented in the Prospectus in an abbreviated form, insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act 2001. The Company was incorporated on 13 December 2016 and has limited financial history. As such, the historical financial information of the Company will be presented as a continuation of the pre-existing accounting values of Elsight Israel. The Company has requested BDO to review the following historical financial information of the Company and Elsight Israel (together the Historical Financial Information ) included as appendices to our Report: the audited Statements of Financial Position, Performance and Cash Flows of Elsight Israel for the years ended 31 December 2014, 31 December 2015 and 31 December 2016; and the audited Statement of Financial Position as at 28 February 2017 and Statements of Financial Performance and Cash Flows of the Company for the period from 13 December 2016 (incorporation) to 28 February 2017. The Historical Financial Information has been prepared in accordance with the stated basis of preparation, being the recognition and measurement principles contained in Australian Accounting Standards and the Company s adopted accounting policies. The Historical Financial Information has been extracted from the audited financial reports of Elsight Israel for the years ended 31 December 2014, 31 December 2015 and 31 December 2016 and the Company for the period from 13 December 2016 (incorporation) to 28 February 2017. The financial reports for Elsight Israel for the years ended 31 December 2014, 31 December 2015 and 31 December 2016 were audited by KPMG Somekh Chaikin (Israel) ( KPMG ) in accordance with the International Financial Reporting Standards ( IFRS ). KPMG issued unmodified audit opinions on the financial reports for these periods, however did include an emphasis of matter noting Elsight Israel has limited capital resources, loss from operations, and accumulated deficit, all of which raise substantial doubt about its ability to continue as a going concern. Management s plan in regard to these matters include continued development and marketing as well as seeking additional financing arrangements. The financial report for the Company for the period 13 December 2016 (incorporation) to 28 February 2017 was audited by BDO Audit (WA) Pty Ltd in accordance with the IFRS. BDO Audit (WA) Pty Ltd issued an unmodified audit opinion on the financial report, however did include an emphasis of matter noting that the ability of the Company to continue as a going concern is dependent upon the future successful raising of necessary funding through equity and debt. The Historical Financial Information is presented in an abbreviated form, insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act 2001. Pro Forma Historical Financial Information You have requested BDO to review the following pro forma historical financial information (the Pro Forma Historical Financial Information ) of the Company included in this Report: the Pro forma Historical Consolidated Statement of Financial Position as at 28 February 2017 which includes: o the subsequent events outlined in section 6 of our Report; and 3
o the pro forma adjustments for the events outlined in section 7 of our Report. The stated basis of preparation is the recognition and measurement principles contained in Australian Accounting Standards applied to the Historical Financial Information and the events or transactions to which the pro forma adjustments relate, as described in section 6 and section 7 of this Report, as if those events or transactions had occurred as at the date of the Historical Financial Information. Due to its nature, the Pro Forma Historical Financial Information does not represent the Company s actual or prospective financial position or financial performance. The Pro Forma Historical Financial Information has been compiled by the Company to illustrate the impact of the events or transactions described in section 6 and section 7 of this Report on the Company s financial position as at 28 February 2017. As part of this process, information about the Company s financial position has been extracted by the Company from its financial statements for the period ended 28 February 2017. 3. Directors responsibility The directors of the Company are responsible for the preparation and presentation of the Historical Financial Information and Pro Forma Historical Financial Information, including the selection and determination of pro forma adjustments made to the Historical Financial Information and included in the Pro Forma Historical Financial Information. This includes responsibility for such internal controls as the directors determine are necessary to enable the preparation of Historical Financial Information and Pro Forma Historical Financial Information are free from material misstatement, whether due to fraud or error. 4. Our responsibility Our responsibility is to express limited assurance conclusions on the Historical Financial Information and the Pro Forma Historical Financial Information. We have conducted our engagement in accordance with the Standard on Assurance Engagement ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information. Our review procedures consisted of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A limited assurance engagement is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain reasonable assurance that we would become aware of all significant matters that might be identified in a reasonable assurance engagement. Accordingly, we do not express an audit opinion. Our engagement did not involve updating or re-issuing any previously issued audit or limited assurance reports on any financial information used as a source of the financial information. 5. Conclusion Historical Financial Information Based on our review engagement, which is not an audit, nothing has come to our attention that causes us to believe that the Historical Financial Information, as described in the Appendices to this Report, and comprising: the audited Statements of Financial Position, Performance and Cash Flows of Elsight Israel for the years ended 31 December 2014, 31 December 2015 and 31 December 2016; and 4
the audited Statement of Financial Position as at 28 February 2017 and Statements of Financial Performance and Cash Flows of the Company for the period from 13 December 2016 (incorporation) to 28 February 2017, is not presented fairly, in all material respects, in accordance with the stated basis of preparation, as described in section 2 of this Report. Pro Forma Historical Financial Information Based on our review engagement, which is not an audit, nothing has come to our attention that causes us to believe that the Pro Forma Historical Financial Information as described in the Appendices to this Report, and comprising: the Pro forma Historical Consolidated Statement of Financial Position of the Company as at 28 February 2017 which include: o the subsequent events outlined in section 6 of our Report; and o the pro forma adjustments for the events outlined in section 7 of our Report, is not presented fairly, in all material respects, in accordance with the stated basis of preparation, as described in section 2 of this Report. 6. Subsequent Events The Pro forma Historical Consolidated Statement of Financial Position reflects the following events that have occurred subsequent to the period ended 31 December 2016 for Elsight Israel and subsequent to the period ended 28 February 2017 for the Company: During the months of January and February 2017, the Company loaned a total amount of A$499,900 to Elsight Israel to be used for working capital purposes and costs of the Offer. Apart from the matters dealt with in this Report, and having regard to the scope of this Report and the information provided by the Directors, to the best of our knowledge and belief no other material transaction or event outside of the ordinary business of the Company or Elsight Israel not described above, has come to our attention that would require comment on, or adjustment to, the information referred to in our Report or that would cause such information to be misleading or deceptive. 7. Assumptions Adopted in Compiling the Pro forma Historical Financial Information The Pro forma Historical Consolidated Statement of Financial Position is shown in Appendix 2. This has been prepared based on the financial statements of Elsight Israel as at 31 December 2016 and the Company as at 28 February 2017, the subsequent events set out in section 6, and the following transactions and events relating to the issue of Shares under this Prospectus: In preparation for listing on the ASX an internal restructure will take place resulting in the Company acquiring Elsight Israel under a Share Sale Agreement for the issue of 35,381,386 Shares to the Elsight Israel shareholders. For the purposes of this Report, the restructure has been accounted for as a capital re-organisation rather than a business combination; The issue of 32,500,000 Shares at an issue price of A$0.20 each to raise A$6,500,000 (before costs) based on the maximum subscription or the issue of 22,500,000 Shares at an issue price of A$0.20 each to raise A$4,500,000 (before costs) based on the minimum subscription, pursuant to the Prospectus; 5
Costs of the Offer are estimated to be A$749,993 based on the maximum subscription or A$619,878 based on the minimum subscription. The costs that relate to the issue of new shares under the Offer have been offset against contributed equity while the remaining costs have been expensed; The issue of 5,833,338 Shares upon conversion of the outstanding convertible loans of A$700,000 in the Company upon completion of the Offer. The conversion price was A$0.12 per Share; The payment of US$400,000 (A$553,557 at an exchange rate of A$1:US$0.7226) cash as partial repayment of the convertible loans from Learnicon LLC to Elsight Israel; The issue of 7,166,667 Shares to Learnicon LLC as payment for the outstanding balance of the convertible loans from Learnicon LLC to Elsight Israel and the settlement of its rights attaching to its preferred shares in Elsight Israel. This will extinguish the other payables amount of US$450,000 (A$622,751 at an exchange rate of A$1:US$0.7226) to Learnicon LLC; Following the Acquisition, the loan outstanding of A$499,900 between the Company and Elsight Israel will be eliminated upon consolidation; The issue of 7,000,000 Options (exercisable at A$0.30 on or before the date that is three years from the date of issue) to the lead manager and seed investors. The Options have been valued using the Black Scholes option pricing model. As these securities have been issued in consideration for capital raising services provided, the value of the Options has been offset against contributed equity; The issue of 8,608,000 Options to Mr Roee Kashi that are exercisable at A$0.20 within five years from the date of issue. These Options have been issued under the Employee Share Option Plan and have been valued using the Black Scholes option pricing model; and The issue of 30,000,000 Performance Options in three tranches. Performance Options are to be issued as part of the Acquisition. The Performance Options will be granted in three tranches and are exercisable at A$0.20 on or before the date that is five years after the date of issue of those Performance Options. Subject to the exceptions outlined below, the Performance Options will only be exercisable after the satisfaction of the following vesting milestones, each calculated for a given year: a) one third of the Performance Options will vest and become exercisable upon the Company achieving aggregate revenue of A$1,000,000 from the sale of products based on the Technology in a Year for broadcast or to consumers or to manufacturers of consumer or safety products or any business in the distribution chain of consumer or safety products ( Class A Performance Options ); b) one third of the Performance Options will vest and become exercisable upon the Company achieving aggregate revenue of A$4,000,000 from total sales of products based on the Technology in a Year ( Class B Performance Options ); and c) one third of the Performance Options will vest and become exercisable upon the Company achieving aggregate revenue of A$10,000,000 from total sale of products based on the Technology in a Year ( Class C Performance Options ). Refer Section 11.3 of the Prospectus for full terms the Performance Options. 6
8. Independence BDO is a member of BDO International Ltd. BDO does not have any interest in the outcome of the proposed IPO other than in connection with the preparation of this Report and participation in due diligence procedures, for which professional fees will be received. BDO Audit (WA) Pty Ltd is the auditor of the Company and from time to time, BDO provides the Company with certain other professional services for which normal professional fees are received. 9. Disclosures This Report has been prepared, and included in the Prospectus, to provide investors with general information only and does not take into account the objectives, financial situation or needs of any specific investor. It is not intended to be a substitute for professional advice and potential investors should not make specific investment decisions in reliance on the information contained in this Report. Before acting or relying on any information, potential investors should consider whether it is appropriate for their objectives, financial situation or needs. Without modifying our conclusions, we draw attention to section 2 of this Report, which describes the purpose of the financial information, being for inclusion in the Prospectus. As a result, the financial information may not be suitable for use for another purpose. BDO has consented to the inclusion of this Report in the Prospectus in the form and context in which it is included. At the date of this Report this consent has not been withdrawn. However, BDO has not authorised the issue of the Prospectus. Accordingly, BDO makes no representation regarding, and takes no responsibility for, any other statements or material in or omissions from the Prospectus. Yours faithfully BDO Corporate Finance (WA) Pty Ltd Sherif Andrawes Director 7
APPENDIX 1 ELSIGHT LIMITED (ISRAEL) HISTORICAL STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Elsight Israel Elsight Israel Elsight Israel Historical Statement of Profit or Loss and Other Audited for the year Audited for the year Audited for the year Comprehensive Income ended 31-Dec-16 ended 31-Dec-15 ended 31-Dec-14 US$'000 US$'000 US$'000 Revenue 932 712 955 Cost of sales (105) (275) (417) Gross profit 827 437 538 Sales, general and administrative expenses (661) (842) (766) Other income 13 6 - Operating profit/(loss) 179 (399) (228) Financing expenses (81) (63) (70) Profit/(loss) for the year 98 (462) (298) Translation differences (20) 6 88 Total comprehensive loss for the period 78 (456) (210) ELSIGHT LIMITED (AUSTRALIA) HISTORICAL STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Historical Statement of Profit or Loss and Other Comprehensive Income Company Audited for the period 13-Dec-16 to 28-Feb-17 Revenue - Accounting fees (7,488) Audit fees (1,500) Company secretary fees (10,000) Corporate advisor fees (57,000) Legal fees (26,026) Other (94) Loss before income tax expense (102,108) Income tax expense Total comprehensive loss for the period (102,108) The Historical Statements of Profit or Loss and Other Comprehensive Income show the historical financial performance of the Company and Elsight Israel and are to be read in conjunction with the notes to and forming part of the Historical Financial Information set out in Appendix 5. Past performance is not a guide to future performance. A$ - 8
APPENDIX 2 ELSIGHT LIMITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company Elsight Israel Audited as at Audited as at Subsequent Pro forma adjustments Pro forma after Offer 28-Feb-17 31-Dec-16 events Min Max Min Max Notes A$ A$ A$ A$ A$ A$ A$ CURRENT ASSETS Cash and cash equivalents 2 151,345 9,687 499,900 3,326,565 5,196,450 3,987,497 5,857,382 Short term deposits - 47,052 - - - 47,052 47,052 Trade and other receivables 5,924 109,327 - - - 115,251 115,251 Loan receivable 3 499,900 - - (499,900) (499,900) - - Inventory - 429,006 - - 429,006 429,006 Other current assets - 51,204 - - - 51,204 51,204 Pledged deposits - 60,891 - - - 60,891 60,891 TOTAL CURRENT ASSETS 657,169 707,169 499,900 2,826,665 4,696,550 4,690,903 6,560,788 NON CURRENT ASSETS Fixed assets - 81,650 - - - 81,650 81,650 TOTAL NON CURRENT ASSETS - 81,650 - - - 81,650 81,650 TOTAL ASSETS 657,169 788,818 499,900 2,826,665 4,696,550 4,772,552 6,642,437 CURRENT LIABILITIES Loans and credit from banks - 152,228 - - - 152,228 152,228 Trade payables 59,276 466,371 - - - 525,647 525,647 Other payables 4-1,069,748 499,900 (1,122,651) (1,122,651) 446,997 446,997 Convertible loans 5 700,000 923,056 - (1,623,056) (1,623,056) - - TOTAL CURRENT LIABILITIES 759,276 2,611,403 499,900 (2,745,707) (2,745,707) 1,124,873 1,124,873 NON CURRENT LIABILITIES Employee provisions - 49,820 - - - 49,820 49,820 Loans from banks - 89,953 - - - 89,953 89,953 TOTAL NON CURRENT LIABILITIES - 139,773 - - - 139,773 139,773 TOTAL LIABILITIES 759,276 2,751,176 499,900 (2,745,707) (2,745,707) 1,264,646 1,264,646 NET ASSETS (102,107) (1,962,358) - 5,572,372 7,442,257 3,507,907 5,377,792 EQUITY Contributed equity 6 1 6,919-6,059,796 7,928,888 6,066,716 7,935,809 Reserves 7-44,285-1,696,973 1,696,973 1,741,258 1,741,258 Accumulated losses 8 (102,108) (2,013,562) - (2,184,397) (2,183,604) (4,300,067) (4,299,274) TOTAL EQUITY (102,107) (1,962,358) - 5,572,372 7,442,257 3,507,907 5,377,792 Elsight Israel balances have been converted at an exchange rate of A$1:US$0.7226. The Pro forma Historical Consolidated Statement of Financial Position after the Offer is as per the Consolidated Statement of Financial Position before the Offer adjusted for any subsequent events and the transactions relating to the issue of shares pursuant to this Prospectus. The Pro forma Consolidated Statement of Financial Position is to be read in conjunction with the notes to and forming part of the Historical Financial Information set out in Appendix 5. 9
Historical Statement of Financial Position CURRENT ASSETS APPENDIX 3 ELSIGHT LIMITED (ISRAEL) HISTORICAL STATEMENT OF FINANCIAL POSITION Elsight Israel Elsight Israel Elsight Israel Audited as at Audited as at Audited as at 31-Dec-16 31-Dec-15 31-Dec-14 US$'000 US$'000 US$'000 Cash and cash equivalents 7 5 92 Short-term deposits 34 34 - Trade receivables 79 52 133 Inventory 310 238 64 Other current assets 37 7 70 Pledged deposits 44 39 39 TOTAL CURRENT ASSETS 511 375 398 NON CURRENT ASSETS Prepaid expenses - - 12 Fixed assets 59 85 89 TOTAL NON CURRENT ASSETS 59 85 101 TOTAL ASSETS 570 460 499 CURRENT LIABILITIES Loans and credit from banks 110 180 114 Trade payables 337 292 233 Other payables 773 720 651 Convertible loans 667 635 509 TOTAL CURRENT LIABILITIES 1,887 1,827 1,507 NON CURRENT LIABILITIES Liabilities for employees severance benefits 36 32 32 Loans from banks 65 97 - TOTAL NON CURRENT LIABILITIES 101 129 32 TOTAL LIABILITIES 1,988 1,956 1,539 NET ASSETS (1,418) (1,496) (1,040) EQUITY Contributed equity 5 5 5 Reserves 32 52 46 Accumulated losses (1,455) (1,553) (1,091) TOTAL EQUITY (1,418) (1,496) (1,040) The Historical Statements of Financial Position show the historical financial position of Elsight Israel and are to be read in conjunction with the notes to and forming part of the Historical Financial Information set out in Appendix 5. 10
APPENDIX 4 ELSIGHT LIMITED (ISRAEL) HISTORICAL STATEMENTS OF CASH FLOWS Elsight Israel Elsight Israel Elsight Israel Historical Statement of Cash Flows Audited for the year Audited for the year Audited for the year ended 31-Dec-16 ended 31-Dec-15 ended 31-Dec-14 US$'000 US$'000 US$'000 Cash flows from operating activities: Profit/(loss) for the year 99 (462) (298) Adjustments for: Depreciation 15 20 24 Loss/(gain) on sae of fixed assets (2) - - Net financing expense/(income) 24 25 20 37 45 44 Change in trade and other receivables (57) 144 54 Change in trade and other payables 114 129 207 Change in employee benefits 4 - (9) Change in inventory (73) (176) (12) Change in prepaid expenses - 12 (12) Net cash flows provide by/(used in) operating activities 124 (308) (26) Cash flows from investing activities: Decrease/(increase) in pledged deposits (5) - 15 Interest received - - - Bank deposit - (34) - Acquisition of fixed assets (4) (16) (49) Disposal of fixed assets 17 - - Net cash flows provide by/(used in) investing activities 8 (50) (34) Cash flows from financing activities: Loans from banks (120) 119 14 Convertible loans 32 126 (34) Net cash flows provide by/(used in) financing activities (88) 245 (20) (Decrease)/increase in cash and cash equivalents 44 (113) (80) Cash and cash equivalents at the beginning of the period (20) 86 182 Effect of exchange rate fluctuations (36) 7 (16) Cash and cash equivalents at the end of the period (12) (20) 86 11
APPENDIX 4 (CONT) ELSIGHT LIMITED (AUSTRALIA) HISTORICAL STATEMENTS OF CASH FLOWS Company Audited for the Historical Statement of Cash Flows period 13 -Dec-16 to 28-Feb-17 A$ Cash flows from operating activities: Payments to suppliers (48,756) Net cash inflow/(outflow) from operating activities (48,756) Cash flows from financing activities: Proceeds from issue of shares 1 Proceeds from issue of convertible notes 700,000 Loan provided (499,900) Net cash inflow/(outflow) from financing activities 200,101 Net increase/(decrease) in cash and cash equivalents 151,345 Cash and cash equivalents at the beginning of the period - Cash and cash equivalents at the end of the period 151,345 The Historical Statements of Cash Flows show the historical cash flows of the Company and Elsight Israel and are to be read in conjunction with the notes to and forming part of the Historical Financial Information set out in Appendix 5. 12
APPENDIX 5 ELSIGHT LIMITED NOTES TO AND FORMING PART OF THE HISTORICAL FINANCIAL INFORMATION Basis of preparation of Historical Financial Information The Historical Financial Information has been prepared in accordance with the recognition and measurement, but not all the disclosure requirements of the Australian equivalents to International Financial Reporting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. Going Concern The Historical Financial Information has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The ability of the Company to continue as a going concern is dependent on the success of the fundraising under the Prospectus. The Directors believe that the Company will continue as a going concern. As a result, the Historical Financial Information has been prepared on a going concern basis. However, should the fundraising under the Prospectus be unsuccessful, the entity may not be able to continue as a going concern. No adjustments have been made relating to the recoverability and classification of liabilities that might be necessary should the Company not continue as a going concern. Reporting Basis and Conventions The Report is also prepared on an accrual basis and is based on historic costs and does not take into account changing money values or, except where specifically stated, current valuations of non-current assets. The following is a summary of the material accounting policies adopted by the Company in the preparation of the Historical Financial Information. The accounting policies have been consistently applied, unless otherwise stated. a) Capital Restructure In preparation for listing on the ASX, an internal restructure will take place resulting in the Company, becoming the legal parent of the group subject to the issue of shares under the Offer. For the purposes of this Report, the restructure has been accounted for as a capital reorganisation rather than a business combination. In the directors judgement, the continuation of the existing accounting values is consistent with the accounting that would have occurred if the assets and liabilities had already been in a structure suitable to the initial public offering of shares in the Company and most appropriately reflects the substance of the internal restructure. b) Cash and Cash Equivalents For the purpose of the Historical Statement of Cash Flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, high liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. 13
c) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the statement of comprehensive income within impairment losses financial assets. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against impairment losses financial assets in the statement of comprehensive income. d) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. e) Contributed Equity Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration. f) Trade and other payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Company. Interest, when charged by the lender, is recognised as an expense on an accrual basis. g) Financial liabilities Convertible notes are issued by the Company and automatic conversion is contingent on completion of an initial public offering and the Company s admission to the ASX s Official List. The number of shares to be issued does not vary with changes in their fair value. The liability component of the convertible note is recognised at the fair value of a similar liability that does not have an equity conversion option. 14
h) Revenue Revenue from sale of goods in the ordinary course of business is measured at fair value of the consideration received or receivable. When the credit period is short and constitutes the accepted credit in the industry, the future consideration is not discounted. Revenue is recognised when persuasive evidence exists (usually in the form of an executed sales agreement) that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Transfer of risks and rewards occurs when the goods are transferred to the customer. i) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the average principle and includes expenditure incurred in acquiring the inventories and the costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. j) Accounting estimates and judgements In the process of applying the accounting policies, management has made certain judgements or estimations which have an effect on the amounts recognised in the financial information. The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Valuation of share based payment transactions The valuation of share-based payment transactions is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using the Black Scholes option pricing model taking into account the terms and conditions upon which the instruments were granted. Options The fair value of options issued is determined using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. 15
Audited Pro forma after Offer 28-Feb-17 Min Max NOTE 2. CASH AND CASH EQUIVALENTS A$ A$ A$ Cash and cash equivalents 151,345 3,987,497 5,857,382 Audited balance of the Company as at 28 February 2017 151,345 151,345 Audited balance of Elsight Israel as at 31 December 2016 9,687 9,687 Subsequent events: Proceeds from the issue of the loan from the Company to Elsight Israel 499,900 499,900 499,900 499,900 Pro-forma adjustments: Proceeds from shares issued pursuant to the Offer 4,500,000 6,500,000 Costs of the Offer (619,878) (749,993) Payment to Learnicon LLC (553,557) (553,557) 3,326,565 5,196,450 Pro-forma Balance 3,987,497 5,857,382 Audited Pro forma 28-Feb-17 after Offer NOTE 3. LOAN RECEIVABLE A$ A$ Loan receivable 499,900 - Audited balance of the Company as at 28 February 2017 499,900 Audited balance of Elsight Israel as at 31 December 2016 - Pro-form a adjustments: Elimination of loan following Acquisition (499,900) (499,900) Pro-forma Balance - 16
Audited Pro forma 28-Feb-17 after Offer NOTE 4. OTHER PAYABLES A$ A$ Other payables - 446,997 Audited balance of the Company as at 28 February 2017 - Audited balance of Elsight Israel as at 31 December 2016 1,069,748 Subsequent events: Issue of the loan from the Company to Elsight Israel 499,900 499,900 Pro-forma adjustments: Elimination of loan following Acquisition (499,900) Issue of shares to Learnicon LLC (622,751) (1,122,651) Pro-forma Balance 446,997 Audited Pro forma 28-Feb-17 after Offer NOTE 5. CONVERTIBLE LOANS A$ A$ Convertible loans 700,000 - Audited balance of the Company as at 28 February 2017 700,000 Audited balance of Elsight Israel as at 31 December 2016 923,056 Pro-form a adjustments: Conversion of Company convertible loans (700,000) Conversion of Learnicon convertible loans (923,056) (1,623,056) Pro-forma Balance - 17
Audited Pro forma Pro forma 28-Feb-17 after Offer after Offer NOTE 6. CONTRIBUTED EQUITY A$ A$ A$ Contributed equity 1 6,066,716 7,935,809 Number of Number of shares (Min) shares (Max) A$ A$ Audited balance of the Company as at 28 February 2017 10,000,000 10,000,000 1 1 Audited balance of Elsight Israel as at 31 December 2016 - - 6,919 6,919 Pro-forma adjustments: Issue of Shares to Elsight Israel shareholders 35,381,386 35,381,386 - - Acquisition adjustment (Refer Note 9) - - (1) (1) Proceeds from shares issued pursuant to the Offer 22,500,000 32,500,000 4,500,000 6,500,000 Costs of the Offer - - (403,204) (534,112) Issue of Shares upon conversion of Company convertible loans 5,833,338 5,833,338 1,166,668 1,166,668 Issue of Shares upon conversion of Elsight Israel convertible loans 7,166,667 7,166,667 1,433,333 1,433,333 Issue of Options to lead manager and seed investors deemed cost of the - - (637,000) (637,000) Offer 70,881,391 80,881,391 6,059,796 7,928,888 Pro-forma Balance 80,881,391 90,881,391 6,066,716 7,935,809 *35,381,386 Shares will be issued to Elsight Israel shareholders as consideration for the Company's acquisition of the entire issued capital of Elsight Israel. On continuation accounting consolidated basis, no adjustments are required. Audited Pro forma 28-Feb-17 after Offer NOTE 7. RESERVES A$ A$ Reserves - 1,741,258 Audited balance of the Company as at 28 February 2017 - Audited balance of Elsight Israel as at 31 December 2016 44,285 Pro-form a adjustments: Acquisition adjustment (Refer Note 9) (102,107) Issue of Options to lead manager and seed investors 637,000 Issue of Options to Mr Roee Kashi 1,162,080 1,696,973 Pro-forma Balance 1,741,258 18
Using the Black Scholes option pricing model, the fair value of the Options to be issued to the lead manager and seed investors and Mr Roee Kashi has been calculated. The following inputs were used: Lead Manager and Seed Investors Options Performance Options are to be issued to management as part of an incentive scheme. The Performance Options will be granted in three tranches exercisable at A$0.20 on or before the date that is five years after the date of issue of those Performance Options. Subject to the exceptions outlined below, the Performance Options will only be exercisable after the satisfaction of the following vesting milestones, each calculated for a given year: a) one third of the Performance Options will vest and become exercisable upon the Company achieving aggregate revenue of A$1,000,000 from the sale of products based on the Technology in a Year for broadcast or to consumers or to manufacturers of consumer or safety products or any business in the distribution chain of consumer or safety products; b) one third of the Performance Options will vest and become exercisable upon the Company achieving aggregate revenue of A$4,000,000 from total sales of products based on the Technology in a Year; and c) one third of the Performance Options will vest and become exercisable upon the Company achieving aggregate revenue of A$10,000,000 from total sale of products based on the Technology in a Year. Refer Section 11.3 of the Prospectus for full terms the Performance Options. Mr Roee Kashi Options Number of Options 7,000,000 8,608,000 Exercise price $ 0.30 $ 0.20 Expected volatility 85% 85% Implied option life 3.00 5.00 Expected dividend yield nil nil Risk free rate 1.84% 2.14% We consider all tranches of Performance Options to have non-market based vesting conditions. For this reason, management has discretion to expense the value the Performance Options over an estimated vesting period. As the Pro forma Historical Consolidated Statement of Financial Position has been prepared at completion of the Offer and the Performance Options have not been issued as yet, no expense has been recorded. However, we have calculated the fair value of the Performance Options as if they vested at the date of this Report using the Black Scholes option pricing model and the following inputs: Performance Options Class A Class B Class C Number of Performance Options 10,000,000 10,000,000 10,000,000 Exercise price $ 0.20 $ 0.20 $ 0.20 Expected volatility 85% 85% 85% Implied option life 5.00 5.00 5.00 Expected dividend yield nil nil nil Risk free rate 2.14% 2.14% 2.14% Value per Performance Option $ 0.135 $ 0.135 $ 0.135 19
Audited Pro forma after Offer 28-Feb-17 Min Max NOTE 8. ACCUMULATED LOSSES A$ A$ A$ Accumulated losses (102,108) (4,300,067) (4,299,274) Audited balance of the Company as at 28 February 2017 (102,108) (102,108) Audited balance of Elsight Israel as at 31 December 2016 (2,013,562) (2,013,562) Pro-forma adjustments: Acquisition adjustment (Refer Note 9) 102,108 102,108 Costs of the Offer to be expensed (216,674) (215,881) Finance expense upon conversion of Company convertible notes (466,668) (466,668) Finance expense upon conversion of Learnicon convertible notes (441,083) (441,083) Issue of Options to Mr Roee Kashi (1,162,080) (1,162,080) (2,184,397) (2,183,604) Pro-forma Balance (4,300,067) (4,299,274) NOTE 9: ACQUISITION ACCOUNTING Under the Share Sale Agreement, the Company acquires all the shares in Elsight Israel for the issue of 35,381,386 Shares to the Elsight Israel shareholders, equating to a controlling interest in the combined entity. The acquisition of Elsight Israel by the Company is not to be deemed a business combination, as the Company is not considered to be a business under AASB 3 Business Combinations. As such the consolidation of these two companies is on the basis of the continuation of Elsight Israel with no fair value adjustments, whereby Elsight Israel is deemed to be the accounting parent. Therefore, the pre-acquisition equity balances of the Company (totalling A$1 of contributed equity and A$102,108 of accumulated losses) are eliminated against the reserves on consolidation. NOTE 10: RELATED PARTY DISCLOSURES Transactions with Related Parties and Directors Interests are disclosed in the Prospectus. NOTE 11: COMMITMENTS AND CONTINGENCIES Elsight Israel had a disputed debt with a certain vendor, who provided it certain products in the total amount of US$214,000. Both sides reached an agreement under which no later than 1 July 2017, Elsight Israel will pay 75% of the debt (US$160,000) as satisfaction of the entire debt. This amount has been provided for in the financial statements for Elsight Israel as at 31 December 2016. At the date of the Report no other material commitments or contingent liabilities exist that we are aware of, other than those disclosed in the Prospectus. 20