Ann: Half Year Accounts, page-26

I am sure there are many better professionals in accountancy than me, but I will try to make sense of this Goodwill impairment situation.

US$58m of Goodwill appeared in page 36 of the Independent Report by PPB Advisory on 6 June 2017 at the Adjustments column in item 7.9 Pro forma financial position.

Goodwill arises when a company makes an acquisition with a higher value to the acquired company's net assets. In this case, EMC issued 100.5m shares at A$0.85 (or US$0.648) to acquire 100% of RWL, valuing RWL at A$85.4m (US$65.1m). In the books, Net Equity (or Net Assets) of RWL was US$11.3m, so the difference between the acquisition value and book value plus some adjustments came up to our current Goodwill figure. Being an EPC or tech company, much of the tangible assets in the books are a lot lower, like many other engineering and service companies.

I recall few discussions in the forum here mentioned the actual cost RSL put into RWL in this share exchange was A$1.50 per share, without any write down in RWL, would have put a value of A$150.7m or US$114.3m.

All these will not mean very much to attribute a value to a Tech and EPC company like FLC as they are all sunk cost. What matters, I my opinion, is the cash in hand, contracts in hand, pipelines, the commercialization of our innovations and the traction of gaining new and repeat customers, and hence future cash flows.

It would be more meaningful to value a company like FLC in terms of NPV than book value. (Granted, NPV is derived from many assumptions and can be full of fun and games).

To me, this impairment of goodwill from the merger is not an issue.