AuroMasters 1A

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

Risk: The AUROMASTERS team might not have (proper) knowledge of the market and/or make incorrect forecasts. For example, the subscription model uses a ‘pay-as-you-go’ pricing structure, which may deter some potential customers.

Consequence: If this risk occurs, growth in both customer base and revenue may not meet expectations. If wrong targets are set, 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 pay-as-you-go model has been successfully applied in other sectors, such as audiobooks, where leading platforms are effectively using this model in place of traditional monthly subscriptions. AUROMASTERS is confident that adoption will succeed with a well-drafted communications plan. Our marketing strategy emphasizes quality over price, appealing to audiophiles and music lovers by showing that Immersive Music on AUROMASTERS costs no more than lower-quality alternatives or is much more affordable than purchasing Blu-ray discs - the only alternative medium for this level of audio quality. In addition, record labels and artists will benefit significantly from streaming their music on AUROMASTERS, with potential revenues many times (50 to 100x) higher than on other platforms. This added incentive, combined with a 5% promotional bonus from AUROMASTERS, will encourage artists and their managers to actively promote the unique higher emotional experience. As content creators, artists have a say in where fans access their music, and AUROMASTERS offers them both superior audio quality and better earning potential, in line with their needs. Furthermore, AUROMASTERS introduces ‘Listen to Earn’, a pioneering business model in the music industry inspired by proven strategies from the gaming and sports industries. With this model, listeners earn rewards the more they enjoy music, creating a mutually beneficial relationship and strengthening customer loyalty.

2.      Risk associated with catalog size

Risk: The AUROMASTERS platform does not offer a comprehensive catalog like Spotify and other streaming services, which could potentially lead to disappointment for some customers.

Consequence: If this occurs, customers may be potentially less inclined to spend money to continue listening, potentially slowing the growth of the community and impacting revenue relative to the number of customers. 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 AUROMASTERS, with partial or complete loss of the invested capital.

Note: AUROMASTERS plans to use behavioral science techniques to create a feeling that makes listeners feel they are part of something beyond and much bigger than just a platform. In its initial phase, AUROMASTERS will emphasize quality, featuring legendary and Grammy-winning albums in the best Immersive Sound audio format, thus appealing directly to audiophiles and dedicated music lovers who have been waiting for this solution in the streaming market for some time. To increase engagement, AUROMASTERS will ask users for input on desired music additions. This will keep listeners actively involved and allow the team to prioritize popular requests for release on the platform. In addition, AUDIOMASTERS is introducing a ‘recommendation’ feature that allows users to explore Immersive Music in a way that goes beyond the traditional Stereo or Surround sound experience. This approach encourages listeners to discover new emotional dimensions in different genres and even of music they have long known, a reaction AUDIOMASTERS has already observed during demos of the platform with diverse audiences when playing re-mixes of very well-known songs. It is precisely this totally new emotional experience that makes people curious and encourages them to discover more of it.   

3.      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, especially if the targeted funding is not raised during this funding round.

Consequence: If the intended funding goals are not met during this funding round, this will affect planned activities, such as marketing and content creation. As a result, awareness of the AUROMASTERS brand will decrease, reaching fewer consumers and other content creators. Moreover, it will disappoint many consumers who are eagerly awaiting a streaming solution that offers immersive music, as AUROMASTERS offers. Thus, new investments will be sought. In doing so, 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: First, as many team activities as possible will be stopped immediately to avoid additional costs and prevent the company from becoming insolvent. Existing shareholders have already agreed to support the company in seeking new investors. By that time, when the AUROMASTERS application is operational, it will be easier to raise additional funds and attract key partners for financial support, ensuring the success of AUROMASTERS, which is in line with their interests. However, as long as this is not necessary, AUROMASTERS plans not to include artists or labels in the shareholder structure to avoid potential channel conflicts or conflicts of interest. Maintaining neutrality is essential and will encourage new investors. Existing investors will have the opportunity to reinvest in new rounds, at the then current investment terms.

1.       Risk associated with competition

Risk: A larger streaming platform with more marketing resources may decide to offer Auro-3D immersive music as part of their monthly subscription.

Consequence: If this risk occurs, the company could possibly not achieve its stated objectives. 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 AUROMASTERS, with partial or complete loss of the invested capital.

Note: For this risk to occur, the competing platform would already have to integrate similar technology from AUROMASTERS in the first place, which would likely infringe on AUROMASTERS' intellectual property. They would also need licenses from content owners to stream immersive music mixes, which is unlikely unless record labels and artists receive higher compensation than what AUROMASTERS already offers which is impossible within the existing revenue model of streaming services. Moreover, streaming high-quality immersive music could drive up operating costs, which could lead to large losses at these streaming services. In principle, artists and record labels will resist this, as the minimal royalties they currently receive would fall even further under a standard subscription model. In short, any attempt to match the quality of AUROMASTERS would further hurt the music industry financially, especially for artists and record labels. AUROMASTERS thus has a competitive advantage due to its deep knowledge of Immersive Music and established relationships with content owners, artists and sound engineers. AUROMASTERS will educate the industry about the risks that record companies and artists may face by accepting offers from major players that may ultimately hurt the entire music ecosystem. In addition, AUROMASTERS offers a higher royalty share for exclusive Auro-3D immersive music releases, encouraging artists and labels to choose only AUROMASTERS as their dedicated platform for the experience of their Immersive Music.

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 AUROMASTERS 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 AUROMASTERS nor the Participatory Notes of the AUROMASTERS 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 AUROMASTERS. 

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 AUROMASTERS.

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 AUROMASTERS 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 AUROMASTERS'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 AUROMASTERS 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.