Hydrofix 1A

Type 1 – Project risk

1.      Risk associated with the team's knowledge of the market and correctness of forecasts

Risk: The HYDROFIX team might not have (proper) knowledge of the market and/or make incorrect forecasts. The following is to be considered:

Consequence: If the team does not have sufficient knowledge of the market, it could set incorrect targets. This could lead to a lower valuation in the event of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of the company, with partial or complete loss of the invested capital.

Note: The market size has been validated using available market reports (Euromonitor Passport) and publicly available data on similar companies operating in the water dispenser market. Several customers have confirmed their interest in the solution. Market tests were conducted in 2023 and 2024.

2.      Risk associated with the need for new financing

Risk: Given the stage of development that project owner is in, it is likely that there will be a need for new financing. 

Consequence: On the one hand, there is the risk that the company will not find investors, which would lead to the dissolution or bankruptcy of the company, causing the investor to lose part or all of his investment. On the other hand, there is the possibility that the company will find new investors, which will lead to dilution, which will be even greater if there is a lower valuation than the one currently used.

Note: Investors will have the opportunity to re-invest in new rounds, at the then current investment conditions.

3.           Risk associated with the level of management fees envisaged

Risk: For 2025, remuneration in the amount of €293,000 is planned for the board members and remuneration of €153,000 for a shareholder who is not a board member (but holds the position of Director ; IT/Digital at HYDROFIX).

Consequence: On the one hand, there is a risk that a large part of the funds raised will go purely to fees for the directors/managers. On the other hand, there is a risk that the fees will not be paid out in cash but converted into shares, as will happen during this capital increase for fees from 2024.

Note: While competitive salaries are necessary to attract and retain top talent, excessive salaries can affect investors' returns.

In general, the occurrence of the risks mentioned could lead to a lower valuation in the event of an exit, since the business plan could not be executed as planned. In this case, returns could be lower, or even non-existent. In the worst-case scenario, there could even be a liquidation and bankruptcy of HYDROFIX, with partial or total loss of invested capital.

1.      Risk associated with competition

Risk: The technology developed by HYDROFIX may not be unique and may be copied or possibly blocked by competing IP.

Consequence: Certain technology building blocks may have to be redesigned, delaying market launch and affecting financial results.

Note: The company has conducted an initial freedom-to-operate study and has not identified any blocking IP. A formal comprehensive freedom-to-operate and patentability study will be conducted once the final design is frozen. The current draft incorporates anti-counterfeiting technology to prevent copying.

2.      Risk associated with applicable legislation

Risk: New regulations on food safety, packaging or electrical appliances may lead to design changes.

Consequence: The company may have to redesign part of its solution or products, leading to higher R&D and supply chain costs.

Note: The company will conduct end-of-life and total carbon footprint assessments to comply with current and future regulations. HYDROFIX will participate in industry association meetings to keep abreast of new regulations.

Risk: The risk of insolvency means that the company does not have sufficient funds to meet its payment deadlines (cessation of payments). 

Consequence: If the company does not find alternative financing (shocked credit), it may go bankrupt. The insolvency or bankruptcy of HYDROFIX may lead to lower or non-existent returns and in the worst case to a partial or total loss of the invested capital. 

1.           Risk associated with the lack of guarantees.

Risk: Neither the shares of HYDROFIX nor the Participatory Notes of the HYDROFIX 1A compartment of Spreds Finance provide guarantees of a return or repayment of the invested capital. 

2.           Risk associated with the lack of a fixed return.

Risk: Participatory Notes do not offer a fixed return. The return of the Participatory Notes depends solely on the performance of the Underlying Asset, namely the shares of HYDROFIX. 

Consequence for both risks: If the project owner's predictions do not come true (within the predetermined timing), there is a risk of lower or non-existent returns and, in the worst case, partial or complete loss of the invested capital. 

Note for both risks: Investors in Participatory Notes bear the same economic risk as if they were investing directly as shareholders of HYDROFIX.

Risk: Although each Spreds Finance compartment is ‘bankruptcy remote’ (meaning that no other creditor can claim a right on or against this compartment) in relation to the others and in relation to the ‘general’ liabilities of Spreds Finance itself, as a result of (i) the terms and conditions of the Notes, (ii) the articles of association of Spreds Finance and (iii)  Article 4 of the Law of 18 December 2016 on crowdfunding; there is a subsidiary risk of  insolvency of Spreds Finance. 

Consequence: Should such insolvency occur, Noteholders may be exposed to the risk of a significant delay in the recovery of their investment.

Note: The probability of this risk occurring is extremely low given the structure and organization of Spreds Finance, in particular the compartmentalization mechanism and the "bankruptcy-remoteness" described above. Each participation taken or loan granted to a project owner is recorded in a separate compartment and is appropriately accounted for in the accounts, taking into account the fact that the accounts are kept by compartment. As a result of (i) the conditions attached to the issue of Participatory Notes, (ii) the articles of association of Spreds Finance and (iii) article 10 of the law regulating the recognition and delimitation of crowdfunding and containing various provisions relating to finance and notwithstanding articles 7 and 8 of the Mortgage Law of 16 December 1851, the assets of a particular compartment serve exclusively to guarantee the rights of investors with respect to this compartment.

1.               Risk associated with the absence of an organized exchange market for Participatory Notes

Risk: Neither the project owner nor Spreds Finance organizes an exchange market for Participatory Notes. It is thus up to the investor himself to find a buyer for his Participating Notes. Given the absence of an exchange market for Participatory Notes, there is no way to adequately establish a comparative pricing methodology for Participatory Notes.

Consequence: A holder of Participatory Notes may not be able to find a buyer for the Participatory Notes it wishes to sell (at the price at which it wishes to sell).

Note: The intention is not to sell the Participatory Notes but to sell the Underlying Asset, often on the occasion of the sale of the Company itself.

2.           Risk associated with the vote by the general meeting of holders of Participatory Notes to sell

Risk: Any decision by Spreds Finance to sell shares of HYDROFIX is subject to the approval of the holders of Participatory Notes representing at least 75% of the outstanding Participatory Notes, unless Spreds Finance is required to sell them under a contractual or statutory provision. 

Consequence: Investors thus bear the risk that the general meeting of the holders of Participatory Notes may refuse to approve the sale of the participation, in which case all investors are bound by this decision and thus must wait to obtain redemption of the Participatory Notes.

3.           Risk associated with an investment in a young company

Risk: Investing in shares of young companies entails the risk that a buyer for the shares will not be found, or not at a fair price yielding a market return, or that a buyer will not be found within a reasonable period of time. 

Consequence: If no buyer is found for the holding, redemption of the Participatory Notes is not possible.

Note: Spreds Finance will make every effort within its powers to obtain the best possible price.

1.               Risk associated with the absence of analysis by Spreds Finance

Risk: Spreds Finance has not conducted an analysis of the proposed project or of the financial situation of the Company.

Consequence: Any investor considering subscribing to Participatory Notes should make its own analysis of HYDROFIX's solvency, activity, financial situation and prospects.

Note: Any decision to invest in Participatory Notes should be based on a comprehensive analysis of the project and of this sheet of essential investment information. Spreds Finance's model does not provide for the presentation of analyzed projects to investors but allows investors to invest based on the information made available to them, after making their own analyses.

2.               Risk associated with the lack of (periodic) reporting

Risk: There is no obligation for periodic reporting in unlisted companies (except for the cases provided by law, such as the annual general meeting of shareholders and an alarm bell procedure). While some entrepreneurs proactively communicate good and bad news (with a certain periodicity), others do not. As a (minority) shareholder, one cannot enforce reporting (other than in cases provided by law).

Consequence: If an entrepreneur does not do (periodic) reporting, there can be long periods during which investors have no insight into the (financial) state of the company. The lack of reporting does not in itself change the (financial) state of the company but can create a sense of unease among investors. If at some point a company has to file a procedure of judicial reorganization or bankruptcy, this can be a (big) surprise for the investor. 

Note: Investors in Participatory Notes bear the same risk as if they invested directly in HYDROFIX and became shareholders. However, Spreds, as a crowdfunding service provider, tries to encourage each project owner to report at least 2x per year.

To the best of the project owner's knowledge, there are no other material risks associated with its activities.