SPRINTEX LIMITED — Capital/Financing Update 2020

Aug 30, 2020

SPRINTEX LIMITED ABN: 38 106 337 599

ASX Code: SIX

ASX RELEASE: 31 August 2020

Update on Reinstatement to Official Quotation

Sprintex Limited (ASX: SIX) ("Sprintex" or "the Company") is pleased to advise shareholders that on 28 August 2020, the Company dispatched its notice of meeting in respect of the recapitalisation of the Company ("Recapitalisation") to shareholders ("Notice") and as set out in the Notice, has received a letter from the ASX detailing the conditions to be satisfied for reinstatement of the Company's securities to trading on the official list of the ASX (Reinstatement Letter) (refer to Schedule 1 of the Notice for the conditions).

As set out in the Notice, the Company has until 29 September 2020 to satisfy the conditions set out in the Reinstatement Letter. Where the conditions are not satisfied by 29 September 2020, the Company will be removed from the official list of the ASX. This is by virtue of the Company being a long term suspended entity.

Binding Agreements for Recapitalisation

As previously announced to shareholders, the Company is undertaking a recapitalisation (Recapitalisation) which is conditional upon the following:

• ASX confirming the conditions to be satisfied in order for the Company's securities to be reinstated to trading on the official list of the ASX and the Company determining that it is able to satisfy such conditions;
• the Company obtaining shareholder and other approvals required in order to give effect to the Recapitalisation under ASX Listing Rules 7.1 and 10.11; and
• all current directors of the Company agreeing to resign from the Board upon completion of the Recapitalisation, the issue of new shares under the Recapitalisation and relisting of the Company's securities on the official list of the ASX.

As set out in the Notice, since entering into the terms sheet in respect of the Recapitalisation, the Company has entered into the following definitive agreements:

• Lidx Loan: The Company has entered into a loan agreement with Lidx Technology Limited, (Lidx) under which Lidx has agreed to provide an interest free loan of $550,000 to the Company for general working capital purposes (Loan). Subject to shareholder approval, the Loan is to be repaid via an issue of Shares at a deemed issue price of $0.086 per Share on the reinstatement of the Company's securities to trading on the official list. Where shareholder approval is not obtained, or reinstatement does not occur on or before 31 October 2020, the Loan will be repaid in cash on 1 April 2021. In addition, the Company has agreed, subject to Shareholder approval, to issue Lidx 639,535 Shares in consideration

for providing the Loan at a deemed issue price of $0.086 per Share. Where shareholder approval is not obtained, or reinstatement does not occur on or before 31 October 2020, the consideration for providing the Loan (being, $55,000) will be satisfied in cash on 1 April 2021. Accordingly, the total number of Shares to be issued to Lidx, assuming shareholder approval is obtained, is 7,034,883 Shares. The Loan is secured by a general security charge over the assets of the Company.

The Company notes that following entry into the Loan in May 2020 (at which time Lidx was an unrelated party of the Company), Lidx has subsequently become a related party of the Company by virtue of the Company proposing to appoint Mr Li Chen (who controls Lidx) as a director of the Company upon completion of the Recapitalisation;

• Conversion of GICL Loan: The Company has entered into a debt conversion agreement with Ganado Investments Corporation Ltd (GICL), an unrelated party of the Company, under which the total amount of US$1,110,000 (being, AU$1,606,6001 ) owing to GICL is to be converted into Shares at a deemed issue price of $0.086 per Share, subject to the Company obtaining shareholder approval and completion of the Placement (defined below). Accordingly, the total number of Shares to be issued to GICL, subject to shareholder approval, is 18,681,395 Shares;
• Forgiveness of CAHL Loan: The Company has entered into a deed of debt forgiveness with China Automotive Holdings Limited (a related party by virtue of being an entity controlled by Director, Mr Richard Siemens) (CAHL) under which the total amount owing to CAHL of US$1,950,000 will be forgiven as part of the Recapitalisation;
• Conversion of WPF Loan: The Company has entered into an agreement with Wilson's Pipe Fabrications Pty Ltd (a related party by virtue of being an entity controlled by Director, Mr Michael Wilson) (WPF) under which the Company has agreed, subject to shareholder approval and completion of the Placement (defined below), to convert approximately $1,472,624 of the total amount owing to WPF to Shares at a deemed price of $0.086 per Share, resulting in the issue of 10,146,790 Shares, and the balance of the amount owing to WPF of $600,000, will be repaid by the Company in cash from proceeds of the Placement.
• AutoV Acquisition Agreement: The Company has also entered into and is in the process of completing the acquisition of the remaining interest in the Malaysian joint venture, Proreka Sprintex Sdn. Bhd. (Sprintex Malaysia) that it does not already own, being a 50% interest held by AutoV Corporation Sdn. Bhd. (AutoV) (Acquisition) pursuant to a share sale agreement between the parties (Acquisition Agreement). The Company has agreed, subject to Shareholder approval, to issue to AutoV US$250,000 (approximately $348,2752 ) worth of Shares at a deemed issue price of $0.086 per Share in consideration for, and at completion of, the Acquisition. Completion of the Acquisition is conditional upon:

1 Being, the amount agreed between the parties pursuant to the debt conversion agreement.

2 Using a foreign exchange rate of 1.3931 as at 24 August 2020.

• o AutoV and Sprintex Malaysia obtaining all required shareholder and regulatory approvals necessary to completion the Acquisition;
• o the Company obtaining all required shareholder approvals necessary to complete the Acquisition (which shareholder approvals are detailed in Resolution 1 of the Notice);
• o the Company undertaking the Placement (defined below) and receiving valid subscription amounts under the Placement for the minimum amount required to satisfy the ASX reinstatement conditions (as determined by the Company in its sole discretion); and
• o the Company receiving the conditional approval from ASX for the securities of the Company to be reinstated to trading on the official list of the ASX.

Placement

Following receipt of the Reinstatement Letter, the Company has determined that the amount to be raised under the capital raising to be undertaken as part of the Recapitalisation is a minimum of $5,000,000 and a maximum of $6,000,000 at an issue price of $0.086 per Share (Placement). The Company is seeking shareholder approval to issue a maximum of 69,767,442 Shares under the Placement at an issue price of $0.086 per Share pursuant to Resolution 5 of the Notice. Further details regarding the Placement are set out in the Notice of General Meeting (refer to Sections 1 and 6 of the Notice).

Lead Manager to Placement

As part of the Recapitalisation, the Company has appointed Indian Ocean Corporate Pty Ltd (IOC) (an unrelated party of the Company) as lead manager to the Placement. IOC will receive a fee of 6% of the total amount raised under the Placement (being, up to $360,000) in cash at completion of the Recapitalisation.

Proposed Board Changes

Pursuant to the terms of the Recapitalisation, it is proposed that all current Directors will resign and that Mr Wayne Knight be nominated as the Chairman of the Board, Mr Jude (Jay) Upton as the Managing Director and Messrs Li Chen and Steve Apedaile as Non-Executive Directors of the Company upon completion of the Recapitalisation (together, the "Proposed Directors").

As part of Mr Wayne Knight's appointment as Chairman of the Company on completion of the Recapitalisation, it is proposed that Mr Knight will receive 5,000,000 options in the capital of the Company ("Options") subject to shareholder approval The Options are exercisable at $0.086 each on or before the date that is three years from the date of issue of the Options. The Company is seeking shareholder approval for issue of the Options under Resolution 11 of the Notice. Please refer to section 9 and Schedule 3 of the Notice for further detail regarding the appointment of Mr Wayne Knight and the issue of Options.

Further detail regarding the Proposed Directors, their experience, qualifications and current directorships, is included in section 7 of the Notice.

Withdrawal of Consolidation

Sprintex confirms that the proposed 5 to 1 equity consolidation previously announced by the Company on ASX on 29 April 2019 has been withdrawn and is not being undertaken as part of the Recapitalisation.

Indicative Capital Structure following completion of the Recapitalisation

Upon completion of the Recapitalisation, the Company's capital structure will be as follows:

	Number of Shares(MinimumSubscription)	Number ofShares(MaximumSubscription)
Shares currently on issue	100,000,000	100,000,000
Issue of Shares pursuant to the Acquisition (Resolution 1)1	4,049,709	4,049,709
Issue of Shares to Loan Providers (Resolutions 2 and 3)	25,716,279	25,716,279
Issue of Shares to Related Party Loan Provider (Resolution 4)	10,146,790	10,146,790
Issue of Shares under Placement (Resolution 5)	58,139,535	69,767,442
Shares on issue on completion of the Recapitalisation	198,052,313	209,680,220

Notes:

1. Assuming 4,049,709 Shares are issued based on a foreign exchange rate of 1.3931 as at 24 August 2020 (refer to section 2.4 of the Notice for further detail regarding the maximum number of Shares which may be issued based on various foreign exchange rates and the dilutive effect on Shareholders).

The Company reminds shareholders that the reinstatement of the Company's securities to trading on the official list is at the discretion of the ASX. Accordingly, there is no guarantee that the securities of the Company will be reinstated, and if so when.

Pro-Forma Balance Sheet

The Company has prepared a pro-forma balance sheet as at 31 December 2019 which takes into account the effect of the Recapitalisation on the Company. This pro forma balance sheet is contained in Annexure A of this Announcement.

Indicative Timetable

The Company is endeavouring to satisfy all of the ASX conditions set out in the Reinstatement Letter by 29 September 2020. This will include lodgement of a full form prospectus in accordance with section 710 of the Corporations Act for the offer of Shares under the Placement to raise up to $6,000,000, which the in the coming weeks.

Business Overview

The Company manufactures and distributes its patented range of Sprintex® superchargers and supercharger systems. The Company carries out a continuous product improvement program, which recently included its re-design of the inlet pin and inlet plate on the S5-210 and S5-335 supercharger range, to improve pin location and retention characteristics when operating under extreme conditions. The revised parts improve the overall durability of the supercharger and increase the longevity of the unit when operating under these conditions. This new design has also been adapted on the new FE S5-335 supercharger. These new components were tested, and performed well under the testing, which has led to the implementation of changes to the Company's production components at its manufacturing and assembly facility in Malaysia.

In addition, the new JL Jeep Wrangler vehicle has been released with a new Powertrain Control Module ("PCM") from Chrysler for their 2019 – 2020 vehicles. This new PCM required development of a new "tune" from scratch, as the Company's previous engine calibration methods were not compatible with the new PCM and Transmission Control Modules. The tuning development program has been challenging and resulted in a re-evaluation of new calibration strategies that have been adapted by Chrysler to tune their vehicles. However, the Company has been successful in this area and is now achieving the desired performance requirements and overall driving experience of the vehicle in a safe and reliable method. The Company is continuing to the final stages of preparing the tune for final market release by the end of December 2020. This work was critical prior to releasing the new system to market.

Sprintex has established itself as a significant manufacturer in the Chrysler and Jeep performance market, building its sales footprint since 2012 in that market. A combination of the introduction of the new Chrysler and Jeep JL supercharger system (for 2019 and later vehicles) in the second half of 2020 and further development of the Company's distribution network, including expanding the network to more than 200 dealers in USA, and dealer coverage of major markets worldwide, including Australia and New Zealand, 8 Middle Eastern countries, South Africa, China, South Korea, South East Asia and South America, will help to increase the Company's aftermarket sales.

The Company is also in discussions with third parties regarding new business opportunities and projects, expected to commence following or as part of completion of the Recapitalisation. The Company will update shareholders in relation to these matters in due course and in accordance with the ASX Listing Rules.

Currently, the Company licenses the rights to assemble and manufacture its patented supercharger products to Sprintex Malaysia. The facility in Malaysia has been built with the primary purpose of the manufacture of Sprintex superchargers and supercharger systems, and procurement of system parts. As an automotive manufacturing centre, Malaysia offers a wide choice of industry qualified suppliers, as well as a suitable pool of skilled workers at much lower cost than Australia.

This facility affords the Company a unique advantage in the supercharger industry, with the ability to manufacture medium volumes (up to 50,000 units p.a. with additional machines in the same facility) in high quality at OEM cost levels. In the past 5 years, Sprintex has been working with various OEM vehicle and engine manufacturers, with the goal of securing a manufacturing contract for OEM supercharger units. Increasing ownership of this facility provides full control over pricing of products manufactured and of the operation and expansion of the facility, allowing the Company to be more competitive as a potential supplier to OEM vehicle manufacturers.

In addition, Sprintex has been working on a manufacturing program for the development of a supercharger system for a 4-Cylinder vehicle that is intended for a seven-year production run beginning 2021. This opportunity is particularly suited to the Sprintex Malaysia facility, as it is the only screw supercharger facility in the world that is currently in operation and has sufficient capacity for this program. The facility also meets the quality assurance requirements of ISO 9001-2015, TS16949 automotive component standard and ISO 14001 environmental standard and has an export licence under the ASEANChina Free Trade Area (ACFTA) with China. Upon completion of the Acquisition summarised above, the Company will own 100% of Sprintex Malaysia and the supercharger facility.

COVID-19

The Company continues to monitor the evolving COVID-19 pandemic and the implications to its business but is pleased to announce that a promising increase in sales activity was identified towards the end of the June 2020 (refer to the Company's ASX announcement dated 31 July 2020). Whilst COVID-19 restrictions were beginning to be eased towards the end of the June 2020, the Company is well aware of the constantly evolving nature of this unprecedented pandemic.

The Company is a fortunate recipient of a number of assistance packages announced by the Australian Government and continues to monitor announcements on stimulus measures to support its ongoing work arrangements with its employees and will implement further responses as required. The health and safety of its staff remains a key priority.

OTHER MATTERS

The Company confirms that it is in compliance with Listing Rule 3.1.

ENDS

Further Enquiries Robert Molkenthin Company Secretary Phone: +61 8 9262 7277 Email: info@sprintex.com.au

This ASX announcement was authorised for release by the Board of Sprintex Limited.

The ASX takes no responsibility for the contents of this Announcement.

ANNEXURE A – PRO FORMA BALANCE SHEET AS AT 31 DECEMBER 2019

		Sprintex	ProrekaSprintex Sdn.Bhd.	Sprintex postRecapitalisation	Sprintex postRecapitalisation
		Audit Reviewed	Unaudited	UnauditedMin Subscription	UnauditedMax Subscription
		Actual	Actual	Pro-formaConsolidated	Pro-formaConsolidated
	Notes	31 Dec 2019	31 Dec 2019	31 Dec 2019	31 Dec 2019
		AU$	AU$	AU$	AU$
CURRENT ASSETS
Cash and cash equivalents	1	34,237	9,300	4,041,437	4,981,437
Pledged bank deposits		30,000	-	30,000	30,000
Trade and other receivables		91,777	109,570	201,347	201,347
Inventories		278,816	1,055,137	1,333,953	1,333,953
TOTAL CURRENT ASSETS		434,830	1,174,007	5,606,737	6,546,737
NON CURRENT ASSETS
Property, Plant and equipment		224,582	231,869	456,451	456,451
TOTAL NON CURRENT ASSETS		224,582	231,869	456,451	456,451
TOTAL ASSETS		659,412	1,405,876	6,063,188	7,003,188
CURRENT LIABILITIES
Trade and other payables		1,110,132	87,962	1,198,094	1,198,094
Borrowings	2	5,483,578	5,427,159	48,058	48,058
Provisions		130,266	-	130,266	130,266
TOTAL CURRENT LIABILITIES		6,723,976	5,515,121	1,376,418	1,376,418
NON CURRENT LIABILITIES
Borrowings		48,627	-	48,627	48,627
TOTAL NON CURRENT LIABILITIES		48,627	-	48,627	48,627
TOTAL LIABILITIES		6,772,603	5,515,121	1,425,045	1,425,045
NET ASSETS / (LIABILITIES)		(6,113,191)	(4,109,245)	4,638,143	5,578,143
EQUITY
Contributed equity	3	56,477,246	4,360,528	64,602,245	65,542,245
Reserves		93,159	(1,105,640)	93,159	93,159
Accumulated losses	4	(62,683,596)	(7,364,133)	(60,057,261)	(60,057,261)
TOTAL EQUITY		(6,113,191)	(4,109,245)	4,638,143	5,578,143

	Sprintex	Proreka SprintexSdn. Bhd.	Sprintex postRecapitalisation	Sprintex postRecapitalisation
	Audit Reviewed	Unaudited	UnauditedMin Subscription	UnauditedMax Subscription
	Actual	Actual	Pro-formaConsolidated	Pro-formaConsolidated
	31 Dec 2019	31 Dec 2019	31 Dec 2019	31 Dec 2019
	AU$	AU$	AU$	AU$
Note 1: Cash and Cash Equivalents
Cash and cash equivalents	34,237	9,300	43,537	43,537
Repayment of WPF loan	-	-	(600,000)	(600,000)
Proceeds from Placement	-	-	5,000,000	6,000,000
Cost of Placement	-	-	(402,100)	(462,100)
	34,237	9,300	4,041,437	4,981,437
Note 2: Borrowings
Borrowings	5,483,578	5,427,159	10,910,737	10,910,737
GICL conversion of debt to equity	-	-	(1,579,053)	(1,579,053)
WPF loan received post 31 Dec 2019	-	-	390,169	390,169
WPF conversion of debt to equity	-	-	(872,624)	(872,624)
WPF loan re-payment	-	-	(600,000)	(600,000)
CAHL loan forgiven	-	-	(2,774,012)	(2,774,012)
Proreka Sprintex Sdn Bhd inter-company loanon acquisition	-	-	(5,427,159)	(5,427,159)
	5,483,578	5,427,159	48,058	48,058
Note 3: Contributed equity
Contributed equity	56,477,246	4,360,528	56,477,246	56,477,246
GICL conversion of debt to equity (net ofexchange rate loss)	-	-	1,606,600	1,606,600
WPF conversion of debt to equity	-	-	872,624	872,624
Issue of shares on acquisition of ProrekaSprintex Sdn Bhd	-	-	348,275	348,275
Loan conversion debt to equity and financecharge paid in shares	-	-	605,000	605,000
Placement shares issued	-	-	5,000,000	6,000,000
Share issue costs	-	-	(307,500)	(367,500)
			64,602,245	65,542,245

	Sprintex	Proreka SprintexSdn. Bhd.	Sprintex postRecapitalisation	Sprintex postRecapitalisation
	Audit Reviewed	Unaudited	UnauditedMin Subscription	UnauditedMax Subscription
	Actual	Actual	Pro-formaConsolidated	Pro-formaConsolidated
	31 Dec 2019	31 Dec 2019	31 Dec 2019	31 Dec 2019
	AU$	AU$	AU$	AU$
Note 4: Accumulated losses
Accumulated losses	(62,683,596)	(7,364,133)	(62,683,596)	(62,683,596)
GICL loan conversion foreign exchange rateloss	-	-	(27,547)	(27,547)
Expenses paid with WPF loan received post31 Dec 2019	-	-	(390,168)	(390,168)
Expenses paid with Loan received post 31Dec 2019	-	-	(550,000)	(550,000)
Finance charge in respect of the Loan			(55,000)	(55,000)
CAHL loan forgiven	-	-	2,774,012	2,774,012
Acquisition of Proreka Sprintex Sdn Bhd			969,638	969,638
Share issue costs	-	-	(94,600)	(94,600)
	(62,683,596)	(7,364,133)	(60,057,261)	(60,057,261)