Innovation Beverage Group Ltd F-1/A, filed Sep 15, 2022
Innovation Beverage Group Ltd (IBG)
As filed with the Securities and Exchange Commission on September 15, 2022
Registration No. 333-266965
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to
FORM
F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INNOVATION BEVERAGE GROUP LIMITED
(Exact Name of Registrant as Specified in its Charter)
| Australia | 2080 | Not applicable | ||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
INNOVATION BEVERAGE GROUP LIMITED
29 Anvil Road
Seven Hills, NSW 2147
Australia
Tel: +61 (02) 9620 4574
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31th Floor
New York, NY 10036
Tel: (212) 930-9700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all correspondence to:
Darrin Ocasio, Esq. Glenn Burlingame, Esq. Sichenzia Ross Ference LLP 1185 Avenue of the Americas, 31th Floor New York, NY 10036 Tel: (212) 930-9700 Fax: (212) 930 9725 |
Ross Carmel, Esq. Jeffrey P. Wofford, Esq. Carmel, Milazzo & Feil LLP 55 W. 39th Street, 18th Floor New York, NY 10018 Tel: (212) 658-0458 Fax: (646) 838-1314 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
| Emerging growth company ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act ☐
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement is filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED SEPTEMBER 15, 2022 |
2,125,000 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
This is an initial public offering of up to 2,125,000 ordinary shares of Innovation Beverage Group Limited. Prior to this offering, there has been no public market for our ordinary shares. We anticipate that the initial public offering price of our ordinary shares will be $5.00, the midpoint between the assumed offering range of $4.00 and $6.00 per ordinary share.
We have applied to list the ordinary shares under the symbol “IBG”. No assurance can be given that our application will be approved or that a trading market will develop. The offering will not proceed unless our ordinary shares are accepted for listing on the Nasdaq Capital Market.
We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company” and “Prospectus Summary — Implications of Being a Foreign Private Issuer.”
An investment in our securities is highly speculative, involves a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 15 of this prospectus.
| Per Share | Total
Without Over-Allotment Option | Total
With Over-Allotment Option | ||||||||||
| Initial public offering price | $ | $ | $ | |||||||||
| Underwriting discounts and commissions(1) | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ |
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| (1) | We have also agreed to pay a non-accountable expense allowance to EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) as representative of the underwriters, of one percent (1%) of the gross proceeds received in this offering and to reimburse the underwriters for other out-of-pocket expenses related to the offering. In addition, EF Hutton will receive warrants to purchase up to a total of 106,250 ordinary shares (equal to five percent (5%) of the ordinary shares sold in this offering, or 122,188 ordinary shares if the underwriter exercises its over-allotment option in full) and exercisable at a price per share equal to 120% of the offering price (the “Underwriter’s Warrants”), which are also being registered under this registration statement. For a description of compensation to be received by the underwriters, see “Underwriting.” |
We have granted the underwriters an option, exercisable for forty-five (45) days from the date of this prospectus, to purchase up to an additional 318,750 ordinary shares (15% of the total number of ordinary shares offered in this offering). For a description of the other compensation to be received by the underwriters, see “Underwriting.”
The underwriters expect to deliver the ordinary shares against payment in U.S. dollars on or about [ ], 2022.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Sole Book Running Manager
EF HUTTON,
division of Benchmark Investments, LLC
The date of this prospectus is [ ], 2022
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TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we, nor the underwriters have authorized anyone to provide you with different information. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or any free writing prospectus, as the case may be, or any sale of ordinary shares in our company.
For investors outside the United States: Neither we, nor the underwriters, have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ordinary shares and the distribution of this prospectus outside the United States.
Innovation Beverage Group Limited was incorporated in Australia on April 20, 2018, as “Australian Boutique Spirits PTY LTD” and on May 2, 2022, the name changed to “Innovation Beverage Group PTY Limited”. Subsequently, on June 11, 2022, the company’s converted from a proprietary company to a public limited company and is now named “Innovation Beverage Group Limited.” Except where indicated or where the context otherwise requires, the terms “Innovation Beverage Group,” “IBG,” “we,” “us,” “our,” the “Company,” and “our business” refer to Innovation Beverage Group Limited, an Australian public limited company together with its subsidiaries.
All references to “shares” in this prospectus refer to ordinary shares of Innovation Beverage Group Limited, no par value per share.
INDUSTRY AND MARKET DATA
This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable. Although we are responsible for all of the disclosures contained in this prospectus, including such statistical, market and industry data, we have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. In addition, while we believe the market opportunity information included in this prospectus is generally reliable and is based on reasonable assumptions, such data involves risks and uncertainties, including those discussed under the heading “Risk Factors.”
PRESENTATION OF FINANCIAL INFORMATION
Our functional currency and reporting currency are in U.S. dollars. This prospectus contains consolidated financial statements presented in U.S. dollars, which were prepared in accordance with generally accepted accounting principles in the United States. Our fiscal year ends on December 31 of each year. Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Unless otherwise noted, (i) all industry and market data in this prospectus is presented in U.S. dollars, (ii) all financial and other data related to Innovation Beverage Group Limited in this prospectus is presented in U.S. dollars, (iii) all references to “$” or “USD” in this prospectus (other than in our financial statements) refer to U.S. dollars, and (iv) all references to “AUD$” or “AUD” in this prospectus refer to Australian dollars.
TRADEMARKS AND TRADENAMES
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names that may appear in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.
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This summary highlights information that we present more fully in the rest of this prospectus. This summary does not contain all of the information you should consider before buying ordinary shares in this offering. This summary contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the notes to those statements.
Company History and Development
Innovation Beverage Group Limited was incorporated in Australia on April 20, 2018 as “Australian Boutique Spirits PTY LTD” and changed its name on May 2, 2022 to “Innovation Beverage Group PTY Limited”. Subsequently, on June 11, 2022, the company converted from a proprietary company to a public limited company. Our registered office is located at 29 Anvil Road, Seven Hills, NSW 2147, Australia. Our main telephone number is +61 (02) 9620 4574. Since its beginning in 2018 as Australian Boutique Spirits Pty Ltd, IBG has been a committed innovator within the beverage industry.
On April 29, 2021, the Company’s Board of Directors and shareholders approved of a recapitalization of the Company by increasing the share capital from 600 ordinary shares to 10,000,000 ordinary shares, effective July 29, 2021. On August 12, 2022, the Company’s shareholders approved of a reverse split of our ordinary shares determined at the discretion of the Board of Directors. On September 10, 2022, our Board of Directors approved a 1-for-1.62 reverse split of our ordinary shares, effective September 12, 2022, pursuant to which shareholders received one (1) ordinary share for every 1.62 ordinary shares held as of such date.
Innovation Beverage Group Limited (“IBG”) has two wholly-owned subsidiaries, Bevmart USA LLC and Reg Liquors LLC d/b/a Wired for Wine. On July 13, 2021, IBG formed Bevmart USA LLC, a Delaware limited liability company, and on July 8, 2022, we changed the name to IBG USA LLC. Subsequently, on November 3, 2021, IBG acquired 100% of the outstanding equity interests in Reg Liquors LLC, a New Jersey limited liability company formed on August 16, 2016. The following chart illustrates our structure both at the time of this prospectus and after the offering.
Overview
We are a developer, manufacturer, marketer, exporter and retailer of a growing beverage portfolio of 60 formulations across 13 alcoholic and non-alcoholic brands for which we own exclusive manufacturing rights. Our focus is on premium and super premium brands.
IBG USA LLC (“IBG USA”) was formed for the purpose of importing, producing via co-packers, marketing and wholesaling Innovation Beverage Group Limited owned portfolio of brands in the United States. IBG USA has not conducted any of these activities as of yet but plans to in the near future.
Reg Liquors LLC d/b/a Wired For Wine is an e-commerce retailer of wines and spirits, and it operates its own marketplaces, www.wiredforwine.com and www.bevmart.com.
Our flagship Australian Bitters Company (ABC) brand accounted for approximately 75% of our revenues in 2021. We also sell BitterTales, a brand to which we have the exclusive right to manufacture for distribution in the United States. The Bitters category is expected to return to growth from 2021 onwards, especially Cocktail Bitters, as restrictions ease and consumer trends around home cocktailing, desire for more natural ingredients and bitter flavors increases.
Our goal is to increase our market share in the $600 million global market for bitters. Our partnership with Coca-Cola Europacific Partners (NASDAQ:CCEP), one of the world’s largest Coca-Cola bottlers, to exclusively manufacture ABC bitters for distribution in Australia is a key component of this strategy. We retain distribution rights for ABC bitters outside Australia and are actively negotiating new distribution arrangements for new markets.
Our direct-to-consumer (DTC) distribution channel is a network of eCommerce platforms: www.bevmart.com.au, www.bevmart.com, www.wiredforwine.com, and www.drummerboy.com. We launched BevMart.com.au in Australia in May 2021 and BevMart.com in the U.S. in February 2022. In November 2021, we acquired the U.S.-based www.wiredforwine.com. Our Drummerboy brand will be offered through its own DTC website. We offer our brands, as well as other brands, through our four (4) eCommerce platforms.
We are introducing a new non-alcoholic spirit brand called Drummerboy, our first entry into the growing non-alcoholic beverage market. No-and-Low Alcohol products are becoming increasingly accepted as a lifestyle and societal norm, making it more accessible and approachable for consumers. The market value of no/low alcohol in key global markets in 2021 was just under USD$10 billion, up from USD$7.8 billion in 2018.[2] With a direct to consumer (DTC) retail price per bottle of AUD$50 (approximately USD$35) and via manufacturing efficiencies through in-house manufacturing, we anticipate a margin in excess of 80% gross profit when selling Drummerboy through its own www.drummerboy.com website in a DTC sale.
[2] IWSR, No- and Low-Alcohol in Key Global Markets Reaches Almost US$10 Billion in Value (Last accessed April 26, 2022).
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Through efficiencies of managing www.bevmart.com, www.bevmart.com.au, and www.wiredforwine.com and having our own back end fulfilment warehouses and key relationships with logistics partnerships launch of www.drummerboy.com in both Australia and the U.S. via our own DTC system will lead to immediate scale opportunities.
We have launched Twisted Shaker, our first entry in the bottled cocktail market, in Australia. The pre-batched cocktail market grew significantly during the beginning of the COVID pandemic with consumers loving the convenience and cost efficiency of this type of product. Twisted Shaker cocktails are full-strength, high-quality bottled cocktails. We expect to launch new bottled cocktail brands in the U.S. in July 2022.
Our Company conducts business with and has entered into material agreements with Sway Energy Corp. (“Sway”). Our Chief Operating Officer and Chairman of our board of directors is Sahil Beri, who is the brother of Amit Beri, the Chief Executive Officer and a director of Sway Energy Corp. This family relationship presents a potential conflict of interest between the companies. On July 31, 2021, the Company (formerly known as Australian Boutique Spirits Pty Ltd) and Sway (formerly known as Elegance Brand, Inc.) entered into a Manufacturing, Supply and License Agreement, as amended on March 10, 2021 and June 14, 2021 (“2020 Manufacturing Agreement”). Pursuant to the 2020 Manufacturing Agreement, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of BitterTales and Australian Bitters Company for USD$2,000,000, which may be exercised within 90 days following the termination of the 2020 Manufacturing Agreement, for any reason other than an automatic termination or termination by the Company for Cause as provided therein. In the event that Sway exercises its purchase option, Sway would come to own the formulations of BitterTales and Australian Bitters Company, and IBG would be required to obtain a license from Sway to continue manufacturing bitters under those brand names. Upon the termination of the 2020 Manufacturing Agreement, two licenses granted thereunder will expire. Pursuant to said agreement, (i) IBG holds a royalty-free license to Twisted Shaker to manufacture, use and sell the product throughout the world, except the U.S., its territories and possessions; and (ii) Sway holds a royalty-free license to use the intellectual property rights associated with VOCO to manufacture, use and sell the brand in the U.S., its territories and possessions. For further details about the 2020 Manufacturing Agreement, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
Innovation Beverage Group Limited operates, under a lease agreement, a distillery and beverage manufacturing facility in Seven Hills, NSW Australia. The facility has the ability to macerate, blend, import bulk spirits, distill a variety of spirits and bottle or can products. The following products are currently manufactured in this facility:
| ● | Australian Bitters Company | |
| ● | BitterTales | |
| ● | Coventry Estate Gin | |
| ● | Cheeky Vodka | |
| ● | Twisted Shaker Cocktails | |
| ● | Geo Liqueurs | |
| ● | Cheeky Espresso Martini |
Our facility is FDA-certified, kosher compliant in Australia and meets CCEP’s stringent standards. We believe that we currently have the capacity to increase production tenfold with minimal capital expenditures. We also plan to engage third-party manufacturers, as appropriate, to achieve cost savings and logistical efficiencies.
Growth Strategy
Our growth strategy is focused on:
| ● | continuing to invest in development of new formulations and brands; |
| ● | invest in strategic marketing initiatives to build our portfolio of brands: |
| ● | invest in global distribution expansion: |
| ● | strengthening relationships with existing distributors and entering into partnerships with new distributors to expand global distribution network; |
| ● | expanding our production volume by utilizing unused production capacity in our Australian manufacturing facility; |
| ● | increasing our DTC capabilities through our existing marketplaces and acquiring additional marketplaces in the future; and |
| ● | developing our employees to enhance performance in the marketplace. |
We have remained committed to executing this strategy, and as a result have realized its impact on each segment of our business.
Competitive Advantages
Our Company has vertically integrated manufacturing, import, sales and marketing company with a focus on direct-to-consumer sales enabling complete capture of the value chain. Our eCommerce and product team consists of members with extensive beverage industry experience garnered at some of the world’s largest alcohol companies, such as Endeavour Drinks Group (Australia’s largest liquor online and brick-and-mortar retail group), Treasury Wine Estates (Australia’s largest wine company and one of the world’s largest wine companies) and Anheuser-Busch InBev (the world’s largest brewer).
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Cost Advantages
IBG’s product portfolio is focused on bitters, light spirits and non-alcoholic spirits, which have short manufacturing times. As a result, IBG is more capital efficient as compared to dark spirit manufacturers (e.g. whisky, brandy, etc.), which often require aging in barrels for years before being sold.
Management Team
Our senior management team is led by Dean Huge, our chief executive officer. Mr. Huge joined us on February 22, 2022.
During his 35-year career as a high-impact, hands-on finance executive, Dean Huge has built a track record of growing profitable operations and implementing successful turnarounds as CEO, CFO, Director, and Treasurer at public and private companies in industries including beverage, financial services, manufacturing, distribution, and SAAS. Most recently, Mr. Huge was CFO of Splash Beverage Group (NYSE American:SBEV) where within five years he led the company from start-up to a NYSE uplisting, raising $24 million.
Emerging Growth Company Status
As a company with less than $1.07 billion in revenue during our last two fiscal periods (the years ended December 31, 2020 and 2021), we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| ● | being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our SEC filings; | |
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; | |
| ● | reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and | |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”). However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.
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Foreign Private Issuer Status
We are a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.
As an exempted Australian company to be listed on the Nasdaq Capital Market, we will be subject to the Nasdaq Stock Market corporate governance listing standards. However, the Nasdaq Stock Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Australia, which is our home country, may differ significantly from the Nasdaq Stock Market corporate governance listing standards. For instance, we are not required to:
| ● | have a majority of the board to be independent (although all of the members of the audit committee must be independent under the U.S. Securities Exchange Act of 1934, as amended, or the “Exchange Act”); | |
| ● | have a compensation committee or a nominating or corporate governance committee consisting entirely of independent directors; | |
| ● | have regularly scheduled executive sessions for non-management directors; and | |
| ● | have annual meetings and director elections. |
Currently, as an Australian company, we intend to rely on home country practice with respect to our corporate governance.
Risk Factor Summary
We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, liquidity and prospects. You should carefully consider these risks, including the risks described under the heading “Risk Factors” included elsewhere in this prospectus, before deciding to invest in our ordinary shares. Risks relating to our business include, among others:
| ● | Potential decline in consumption of products we sell due to consumer preference and taste; |
| ● | Changes in consumer preferences and category trends; |
| ● | Shifts in health concerns and legislative initiatives against sweetened beverages; |
| ● | Inability to successfully consummate or integrate acquisitions or divestitures; |
| ● | Issues surrounding retention of our management team and workforce; |
| ● | Inability to secure additional capital and achieve adequate liquidity to grow, compete, and continue on; |
| ● | Reliance on distributors, retailers, and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business; |
| ● | If a change of control is effected, Coca-Cola Europacific Partners could potentially terminate their agreement with us; |
| ● | Issues predicting the timing, amount of our sales, and inventory stock; |
| ● | Disruptions in the relationship with our key flavor suppliers; |
| ● | Loss or damage to goods in transit and other possible product contamination and liabilities; |
| ● | Disruptions to the shipping industry; |
| ● | Failure or issues with protecting our intellectual property; |
| ● | The competitive nature of the industry in which we operate; |
| ● | Market shortages and volatility surrounding raw materials necessary to manufacture our products;; |
| ● | Factors that may affect consumer discretionary spending; |
| ● | Disruptions in supply and distribution chains; |
| ● | Economic, political, and other global uncertainties leading to capital market disruptions; |
| ● | Failure of our products to secure and maintain listings in the control states in the U.S.; |
| ● | Cybersecurity issues; |
| ● | Issues with industry regulation compliance; |
| ● | Risks inherent with sales of products in international markets; |
| ● | Inability to secure additional capital and achieve adequate liquidity to grow, compete, and continue on; and |
| ● | Our emerging growth company status could make our stock less attractive to investors. |
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| Ordinary shares offered | 2,125,000 ordinary shares(1) | |
| Over-allotment Option to purchase additional ordinary shares from us |
We have granted the underwriters forty-five (45) days from the date of this prospectus, to purchase up to an additional 318,750 ordinary shares (equal to 15% of the total number of ordinary shares offered in this offering) on the same terms as the other shares being purchased by the underwriters from us. | |
| Ordinary shares outstanding before this offering | 7,502,872 ordinary shares. | |
| Ordinary shares outstanding after this offering | 9,627,872 ordinary shares (or 9,946,622 if the underwriter exercises its over-allotment option in full). | |
| Use of Proceeds | We intend to use the net proceeds from this offering to pay, in connection with the acquisition of Reg Liquors LLC d/b/a/ Wired for Wine, USD$600,000 to the seller, for working capital and general corporate purposes, including operating expenses. Additionally, we may use a portion of the net proceeds from this offering to acquire or invest in complementary products or assets. However, we have no current plans, commitments or obligations to do so. See “Use of Proceeds” for more information. | |
| Underwriter | EF Hutton, division of Benchmark Investments, LLC | |
| Underwriter’s Warrants | We have agreed to issue to EF Hutton warrants to purchase up to a total of 106,250 ordinary shares (equal to five percent (5%) of the ordinary shares sold in this offering, or 122,188 ordinary shares if the underwriter exercises its over-allotment option in full), which are exercisable at a price per share of $6.00 (equal to 120% of the offering price). | |
| Lockup Agreements | Our executive officers, directors, and shareholders holding five percent (5%) or more of our ordinary shares prior to the offering, collectively, have agreed with the underwriters not to sell, transfer or dispose of any ordinary shares or similar securities for a period of 180 days following the closing of this offering. | |
| Nasdaq Trading symbol | We have applied for listing of our ordinary shares on the Nasdaq Capital Market under the symbol “IBG.” The offering will not proceed unless the Company is accepted for listing on the Nasdaq Capital Market. | |
| Risk Factors | Investing in these securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus before deciding to invest in our ordinary shares. |
(1) Effective September 12, 2022, we implemented a 1-for-1.62 reverse split of our ordinary shares, pursuant to which shareholders received one (1) ordinary share for every 1.62 ordinary shares held as of that date.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our historical financial data. The summary consolidated statements of operation for the years ended December 31, 2020 and 2021 and the summary consolidated balance sheets as of December 31, 2020 and 2021 have been derived from our consolidated financial statements included elsewhere in this prospectus. The following summary financial data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
The following table presents our summary consolidated statements of operation for the years ended December 31, 2021 and 2020:
| For the year ended December 31, 2021 (US$) | For the year ended December 31, 2020 (US$) | |||||||
| Revenue, net | $ | 3,748,281 | $ | 2,181,754 | ||||
| Cost of goods sold | 1,255,877 | 441,710 | ||||||
| Gross profit | 2,492,404 | 1,740,044 | ||||||
| Operating expenses | ||||||||
| Other general and administrative | 910,319 | 354,713 | ||||||
| Salary and wages | 800,186 | 492,189 | ||||||
| Sales and marketing | 424,992 | 24,438 | ||||||
| Contracted services | 302,740 | 183,416 | ||||||
| Total operating expenses | 2,438,237 | 1,054,756 | ||||||
| Income from operations | 54,167 | 685,288 | ||||||
| Other income (expenses): | ||||||||
| Other income (expenses) | (5,775 | ) | 109,812 | |||||
| Interest income | 72,446 | 36,877 | ||||||
| Interest expense | (32,549 | ) | (6,145 | ) | ||||
| Total other income (expenses) | 34,122 | 140,544 | ||||||
| Income before taxes | 88,289 | 825,832 | ||||||
| Income tax expense | 56,526 | 230,066 | ||||||
| Net income | 31,763 | 595,766 | ||||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | (147,514 | ) | 82,824 | |||||
| Total other comprehensive income (loss) | $ | (115,751 | ) | $ | 678,590 | |||
| Basic and diluted earnings per share | $ | 0.00 | $ | 0.10 | ||||
| Weighted average shares outstanding – basic and diluted | 6,449,014 | 6,172,840 | ||||||
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The following table presents our summary consolidated balance sheets data as of December 31, 2021 and 2020.
| As of December 31, 2021 (US$) |
As of December 31, 2020 (US$) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,559,172 | $ | 403,486 | ||||
| Accounts receivable | 995,666 | 15,036 | ||||||
| Inventory, at cost | 1,070,275 | 428,449 | ||||||
| Prepaid expenses | 180,133 | 11,564 | ||||||
| Total current assets | 3,805,246 | 858,535 | ||||||
| Deposits | 36,762 | 39,021 | ||||||
| Finance right of use asset | 29,621 | 50,880 | ||||||
| Operating right of use asset | 330,759 | 423,849 | ||||||
| Due from related parties | 697,127 | 1,884,577 | ||||||
| Equipment, net | 189,272 | 163,164 | ||||||
| Intangible assets, net | 421,565 | — | ||||||
| Goodwill | 951,802 | — | ||||||
| Deferred tax asset | 50,895 | 34,986 | ||||||
| Total assets | $ | 6,513,049 | $ | 3,455,012 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,505,899 | $ | 1,219,662 | ||||
| Deferred revenue | 170,832 | — | ||||||
| Notes payable | 708,063 | 197,777 | ||||||
| Current portion of finance lease liability | 23,631 | 32,489 | ||||||
| Current portion of operating lease liability | 143,015 | 118,267 | ||||||
| Total current liabilities | 2,551,440 | 1,568,195 | ||||||
| Accrued employee benefits, non-current | 18,237 | 12,001 | ||||||
| Finance lease liability, less current portion | 5,593 | 26,545 | ||||||
| Operating lease liability, less current portion | 243,186 | 383,903 | ||||||
| Total liabilities | 2,818,456 | 1,990,644 | ||||||
| Stockholders’ equity | ||||||||
| Ordinary shares, no par value; no authorization limited; 7,280,031 and 6,172,840 ordinary shares issued and outstanding at December 31, 2021 and 2020 respectively | 3,942,069 | 420 | ||||||
| Accumulated other comprehensive income (loss) | (44,441 | ) | 103,073 | |||||
| Retained earnings (accumulated deficit) | (203,035 | ) | 1,360,875 | |||||
| Total stockholders’ equity | 3,694,593 | 1,464,368 | ||||||
| Total liabilities and stockholders’ equity | $ | 6,513,049 | $ | 3,455,012 | ||||
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Investing in our securities is speculative and involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this prospectus, including our consolidated financial statements and notes thereto, before you decide to purchase our securities. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be materially adversely affected, the value of our ordinary shares could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Cautionary Note Regarding Forward-Looking Statements.”
Potential decline in the consumption of products we sell due to consumer preference and taste could have a negative impact on our sales, operations, and business.
Our business depends upon consumers’ consumption of our beverage brands. Consumer preferences and tastes may shift due to, among other reasons, changing taste preferences, demographics, or perceived value. Consequently, any material shift in consumer preferences and taste in our major markets away from our beverage brands, or from the categories in which they compete could have a negative impact on our business, liquidity, financial condition, and/or results of operations. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies may be put into effect to deal with the spread of COVID-19, and changes in leisure, dining, and beverage consumption patterns. A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:
| ● | a general decline in economic or geopolitical conditions; | |
| ● | concern about the health consequences of consuming beverage alcohol products and about drinking and driving; | |
| ● | a general decline in the consumption of beverage alcohol products in on-premise establishments, which may result from stricter laws relating to driving while under the influence of alcohol; | |
| ● | the increased activity of anti-alcohol groups; | |
| ● | increased federal, state, provincial, and foreign excise, or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing; | |
| ● | increased regulation placing restrictions on the purchase or consumption of beverage alcohol products or increasing prices due to the imposition of duties or excise tax or changes to international trade agreements or tariffs; | |
| ● | inflation; and | |
| ● | wars, health epidemics or pandemics, quarantines, weather, and natural or man-made disasters. |
Demand for our products may be adversely affected by changes in category trends and consumer preferences.
Consumer preferences for our beverage brands change continually. Our success depends on our ability to predict, identify and interpret the tastes and habits of consumers and to offer products that appeal to those preferences.
If we do not succeed in offering products that appeal to consumers, our sales and market share will decrease, and our profitability could suffer. We must be able to distinguish among short-term fads, mid-term trends, and long-term changes in consumer preferences. If we are unable to accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline. In addition, because of our varied consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products will decrease and our profitability could suffer.
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We may experience a reduced demand for some of our products due to health concerns (including obesity) and legislative initiatives against sweetened beverages.
Consumers are concerned about health and wellness; public health officials and government officials are increasingly vocal about obesity and its consequences. There has been a trend among some public health advocates and dietary guidelines to recommend a reduction in sweetened beverages, as well as increased public scrutiny, new taxes on sugar-sweetened beverages (as described below), and additional governmental regulations concerning the marketing and labeling/packing of the beverage industry. Additional or revised regulatory requirements, whether labeling, tax or otherwise, could have a material adverse effect on our financial condition and results of operations. Further, increasing public concern with respect to sweetened beverages could reduce demand for our beverages and increase desire for more low-calorie soft drinks, water, enhanced water, coffee-flavored beverages, tea, and beverages with natural sweeteners. We are continuously working to reduce calories and sugar in our products while launching new products, to pair with existing brand extensions that round out our diversified portfolio.
We may not be able to consummate proposed acquisitions or divestitures successfully or integrate acquired businesses successfully.
From time to time, we acquire businesses, assets, or securities of companies that we believe will provide a strategic fit with our business. We integrate acquired businesses with our existing operations; our overall internal control over financial reporting processes; and our financial, operations, and information systems. If the financial performance of our business, as supplemented by the assets and businesses acquired, does not meet our expectations, it may make it more difficult for us to service our debt obligations and our results of operations may fail to meet market expectations. We may not effectively assimilate the business or product offerings of acquired companies into our business or within the anticipated costs or timeframes, retain key customers and suppliers or key employees of acquired businesses, or successfully implement our business plan for the combined business. In addition, our final determinations and appraisals of the estimated fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates, and we may fail to realize fully anticipated cost savings, growth opportunities, or other potential synergies. We cannot assure that the fair value of acquired businesses or investments will remain constant.
We may also divest ourselves of businesses, assets, or securities of companies that we believe no longer provide a strategic fit with our business. We may provide various indemnifications in connection with the divestiture of businesses or assets. Divestitures of portions of our business may also result in costs stranded in our remaining business. Delays in developing or implementing plans to address such costs could delay or prevent the accomplishment of our financial objectives.
In addition, our continued success depends, in part, on our ability to develop new products. The launch and ongoing success of new products are inherently uncertain, especially with respect to consumer appeal. A new product launch can give rise to a variety of costs. An unsuccessful launch, among other things, can affect consumer perception of existing brands, and our reputation. Unsuccessful implementation or short-lived popularity of our product innovations may result in inventory write-offs and other costs.
We cannot assure that we will realize the expected benefits of acquisitions, divestitures, or investments. We also cannot assure that our acquisitions, investments, or joint ventures will be profitable, that forecasts regarding our acquisitions, divestitures, or investment activities will be accurate, or that the internal control over financial reporting of entities which we must consolidate as a result of our investment activities will be as robust as the internal control over financial reporting for our wholly-owned entities. Our failure to adequately manage the risks associated with acquisitions or divestitures, or the failure of an entity in which we have an equity or membership interest, could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
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We may not be able to retain and recruit executive management or build morale and performance amongst our workforce.
Our success depends upon the efforts and abilities of our executive management team, key senior management, and a high-quality employee base, as well as our ability to attract, motivate, reward, and retain them. If one of our executive officers or critical senior management terminates his or her employment, we may not be able to replace their expertise, fully integrate new personnel, or replicate the prior working relationships. The loss of critical employees might significantly delay or prevent the achievement of our business objectives. Qualified individuals with the breadth of skills and experience in our industry that we require are in high demand, and we may incur significant costs to attract them. Difficulties in hiring or retaining key executive or employee talent, or the unexpected loss of experienced employees could have an adverse impact on our business performance. In addition, we could experience business disruption and/or increased costs related to organizational changes, reductions in workforce, or other cost-cutting measures.
We may not be able to secure additional capital and achieve adequate liquidity to grow and compete.
We will require additional capital to operate, grow and compete, and failure to obtain such additional capital could limit our operations and our growth. We may need to raise additional funds through private or public equity and/or debt financing. We cannot assure that additional financing will be available to us on acceptable terms or at all. If additional capital is either unavailable or cost prohibitive, our operations and growth may be limited, and we may need to change our business strategy to slow the rate of, or eliminate, our expansion or to reduce or curtail our operations. Also, any additional financing we undertake could impose covenants upon us that restrict our operating flexibility, and, if we issue equity securities to raise capital, our existing shareholders may experience dilution and the new securities may have rights, preferences, and privileges senior to those of our ordinary shares.
If we are not able to successfully execute on our future operating plans and objectives, our financial condition, and results of operation may be materially adversely affected, and we may not be able to continue as a going concern.
It is important that we meet our sales goals and increase sales going forward as our operating plan already reflects prior significant cost containment measures and may make it difficult to achieve top-line growth if further significant reductions become necessary. If we do not meet our sales goals, our available cash and working capital will decrease and our financial condition will be negatively impacted.
In order to be successful, we believe that we must, among other things:
| ● | increase the sales volume and gross margins for our products; | |
| ● | maintain efficiencies in operations; | |
| ● | manage our operating expenses to sufficiently support operating activities; | |
| ● | maintain fixed costs at or near current levels; and | |
| ● | avoid significant increases in variable costs relating to production, marketing, and distribution. |
We may not be able to meet these objectives, which could have a material adverse effect on our results of operations. We have incurred significant operating expenses in the past and may do so again in the future and, as a result, will need to increase revenues in order to improve our results of operations. Our ability to increase sales will depend primarily on success in expanding our current markets, improving our distribution base, entering into DTC arrangements with national accounts, and introducing new brands, products or product extensions to the market. Our ability to successfully enter new distribution areas and obtain national accounts will, in turn, depend on various factors, many of which are beyond our control, including, but not limited to, the continued demand for our brands and products in target markets, the ability to price our products at competitive levels, the ability to establish and maintain relationships with distributors in each geographic area of distribution and the ability in the future to create, develop and successfully introduce one or more new brands, products, and product extensions.
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Our reliance on distributors, retailers, and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.
Our ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent on our ability to establish and maintain successful relationships with reliable distributors, retailers, and brokers strategically positioned to serve those areas. Most of our distributors, retailers, and brokers sell and distribute competing products, including non-alcoholic and alcoholic beverages, and our products may represent a small portion of their businesses. The success of this network will depend on the performance of the distributors, retailers, and brokers of this network. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other beverage companies who have greater resources than we do. To the extent that our distributors, retailers, and brokers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products, our sales and results of operations could be adversely affected. Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing, and sales activities.
Our ability to maintain and expand our distribution network and attract additional distributors, retailers, and brokers will depend on a number of factors, some of which are outside our control. Some of these factors include:
| ● | the level of demand for our brands and products in a particular distribution area; | |
| ● | our ability to price our products at levels competitive with those of competing products; and | |
| ● | our ability to deliver products in the quantity and at the time ordered by distributors, retailers, and brokers. |
We may not be able to successfully manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues and financial results.
A key component of our business is our arrangement with CCEP to exclusively manufacture the bitters sold under the Australian Bitters Company brand for distribution in Australia. The disruption of this distribution strategy or the loss of this manufacturing and distribution partnership could result in a significant loss of revenue.
IBG exclusively manufactures Australian Bitters Company bitters for distribution in Australia due to our partnership with CCEP. During 2020, from a period of April to October, due to the COVID-pandemic and mass lockdowns of hospitality venues in a majority of Australia, CCEP did not make any significant purchases of product from us. In 2021, distribution and sales of our bitters under the Australian Bitters Company brand accounted for approximately 75% of our total revenue. If we fail to maintain good relations with CCEP and our agreement with CCEP were to expire or terminate, then we could incur a significant loss of revenue, which would negatively impact our results of operations.
Coca-Cola Europacific Partners could potentially terminate their agreement with us in the event of a change of control.
Under our Manufacturing Agreement (the “Agreement”) with Coca-Cola Europacific Partners, Coca-Cola Europacific Partners has the right to terminate the Agreement in the event of a change of control (as defined in the Agreement). The Company has been advised by Australian counsel that this offering would not constitute a change of control for purposes of the Agreement unless an entity that is a direct competitor of Coca-Cola Europacific Partners in the beverage industry comes to hold, directly or indirectly, a legal or beneficial interest in any shares in the Company. There can be no assurance that Coca-Cola Europacific Partners will not determine that upon consummation of the offering or thereafter such a competitor has become a holder, directly or indirectly of a legal or beneficial interest in any shares in the Company. In addition, events may occur after the consummation of this offering that would constitute a change of control under other elements of the definition of change of control set forth in the Agreement and thus trigger Coca-Cola Europacific Partners’ right to terminate the Agreement. Termination of the Agreement could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
We engage in transactions with a related party, which presents a potential conflict of interest.
Our Company conducts business with and has entered into material agreements with Sway Energy Corp. Our Chief Operating Officer and Chairman of our board of directors is Sahil Beri, who is the brother of Amit Beri, the Chief Executive Officer and a director of Sway Energy Corp. This family relationship presents a potential conflict of interest between the companies. We cannot assure you that Mr. Sahil Beri’s interests will always be wholly aligned with the Company’s or that strains on such family relationship will not negatively impact our Company or our business.
The Formulations of two of our brands, Bitters Tales and Australian Bitters Company, could be acquired if a purchase option is exercised within 90 days of the 2020 Manufacturing Agreement.
On July 31, 2021, the Company (formerly known as Australian Boutique Spirits Pty Ltd) and Sway (formerly known as Elegance Brand, Inc.) entered into a Manufacturing, Supply and License Agreement, as amended on March 10, 2021 and June 14, 2021 (“2020 Manufacturing Agreement”). Pursuant to the 2020 Manufacturing Agreement, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of BitterTales and Australian Bitters Company for USD$2,000,000, which may be exercised within 90 days following the termination of the 2020 Manufacturing Agreement for any reason other than an automatic termination or termination by the Company for Cause as provided therein. In the event that the 2020 Manufacturing Agreement is terminated and Sway exercises its purchase option, the rights to the bitters formulations of BitterTales and Australian Boutique Spirits would transfer to Sway and we would have to obtain a license to continue manufacturing the bitters products. We may not be able to negotiate exclusivity or favorable prices or manufacturing terms, or negotiate a license at all, which would adversely effect our revenue, financial condition and results of operations.
Upon the termination of the 2020 Manufacturing Agreement, two manufacturing and distribution licenses will expire, one of which would have a negative impact on our revenue.
Upon the termination of the 2020 Manufacturing Agreement, two licenses granted thereunder will expire. Pursuant to said agreement, (i) IBG holds a royalty-free license to Twisted Shaker to manufacture, use and sell the product throughout the world, except the U.S., its territories and possessions; and (ii) Sway holds a royalty-free license to use the intellectual property rights associated with VOCO to manufacture, use and sell the brand in the U.S., its territories and possessions. The expiration of the license to manufacture and distribute Twisted Shaker would negatively impact our revenue as it accounted for one percent (1%) of our group consolidated revenue for fiscal year 2021, whereas the expiration of Sway’s royalty-free license to manufacture and distribute VOCO would return the rights to us.
Under the 2020 Manufacturing Agreement, Sway has a right to a Favored Nations Price Adjustment and if we fail to comply to provide such a pricing obligation, Sway is entitled to terminate the agreement.
Sway is entitled to a Favored Nations Price Adjustment (as described further under the section “Material Agreements”) on one occasion only during each Anniversary Year (meaning the period from August 1 through July 31) and it only applies to sales and purchases of Covered Products (as defined in the section “Material Agreements”) in the next succeeding Anniversary Year. If IBG fails to provide Sway with a Favored Nations Price Adjustment to which it may be entitled, Sway may, at its option, in addition to all of its other rights under this Agreement or at law, terminate this Agreement without liability to IBG. The termination of the 2020 Manufacturing Agreement would adversely effect our revenue, financial condition and results of operations.
It is difficult to predict the timing and amount of our sales because our distributors are not required to place minimum orders with us.
Our independent distributors and national accounts are not required to place minimum monthly or annual orders for our products. In order to reduce their inventory costs, independent distributors typically order products from us on a “just in time” basis in quantities and at such times based on the demand for the products in a particular distribution area. Accordingly, we cannot predict the timing or quantity of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past. Additionally, our larger distributors and national partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials, or other key supplies could negatively affect us.
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If we do not adequately manage our inventory levels, our operating results could be adversely affected.
We need to maintain adequate inventory levels to be able to deliver products to distributors on a timely basis. Our inventory supply depends on our ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly for new products, seasonal promotions, and new markets. If we materially underestimate demand for our products or are unable to maintain sufficient inventory of raw materials, we might not be able to satisfy demand on a short-term basis. If we overestimate distributor or retailer demand for our products, we may end up with too much inventory, resulting in higher storage costs, increased trade spend, and the risk of inventory spoilage. If we fail to manage our inventory to meet demand, we could damage our relationships with our distributors and retailers and could delay or lose sales opportunities, which would unfavorably impact our future sales and adversely affect our operating results. In addition, if the inventory of our products held by our distributors and retailers is too high, they will not place orders for additional products, which would also unfavorably impact our sales and adversely affect our operating results.
We rely upon our ongoing relationships with our key flavor suppliers. If we are unable to source our flavors on acceptable terms from our key suppliers, we could suffer disruptions in our business.
We currently purchase our flavor concentrate from various flavor concentrate suppliers, and continually develop other sources of flavor concentrate for each of our products. Generally, flavor suppliers hold the proprietary rights to their flavor specific ingredients. Although we have the exclusive rights to flavor concentrates developed with our current flavor concentrate suppliers, and while we have the rights to the ingredients for our products, we do not have the list of ingredients for our flavor extracts and concentrates. Consequently, we may be unable to obtain these exact flavors or concentrates from alternative suppliers on short notice. If we have to replace a flavor supplier, we could experience disruptions in our ability to deliver products to our customers, which could have a material adverse effect on our results of operations.
We highly depend upon the protection of our trademarks and proprietary rights, and failure to protect our intellectual property rights may result in our inability to continue providing certain of our existing products and beverage brands.
Our future success depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property rights. We have been granted trademark registrations covering our brands and products and have filed, and expect to continue to file, trademark applications seeking to protect newly developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of our trademark applications. We could also, by omission, fail to timely renew or protect a trademark and our competitors could challenge, invalidate, or circumvent any existing or future trademarks issued.
Competition from traditional and large, well-financed non-alcoholic and alcoholic beverage manufacturers may adversely affect our distribution relationships and may hinder development of our existing markets, as well as prevent us from expanding our markets.
The beverage industry is highly competitive. We compete with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and for marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with all non-alcoholic and alcoholic beverages, most of which are marketed by companies with substantially greater financial resources than ours. Some of these competitors are placing severe pressure on independent distributors not to carry competitive brands such as ours. We also compete with regional beverage producers and “private label” suppliers.
Increased competitor consolidations, market-place competition, particularly among branded beverage products, and competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to achieve our current revenue and financial targets. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our existing markets, as well as on our ability to expand the market for our products.
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If we fail to protect our trademarks and trade secrets, we may be unable to successfully market our products and compete effectively.
We have an international registration of certain of our trademarks under the Madrid protocol. We also rely on a combination of trademark and trade secrecy laws, confidentiality procedures, formulation protection procedures and contractual provisions with employees and contractors to protect our intellectual property rights. Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, copyrights, licenses, formulations and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, and in particular our trademarks and trade secrets, to be of considerable value and importance to our business and our success. However, the steps taken by us to protect these proprietary rights may not be adequate and may not prevent third parties from infringing or misappropriating our trademarks, trade secrets, or similar proprietary rights. In addition, other parties may seek to assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or sell our brands, profitably exploit our products, or recoup our associated research and development costs.
As part of the distribution strategy of our products, we grant licenses to distributors for their respective territory. Although our distribution agreements require that the use of our trademarks and designs is subject to our control and approval, any breach of these provisions, or any other action by any of our licensing partners that is harmful to our brands, goodwill and overall image, could have a material adverse impact on our business.
Supply of quality water, agricultural and other raw materials, certain raw materials, and packaging materials purchased under short-term supply contracts, and limited group of suppliers of glass bottles, may harm our supplier which may affect our production costs and cause a shortage of our product supply.
The quality and quantity of water available for use is important to the supply of our agricultural raw materials and our ability to operate our business. Water is a limited resource in many parts of the world and if climate patterns change and droughts become more severe, there may be a scarcity of water or poor water quality which may affect our production costs or impose capacity constraints. We are dependent on sufficient amounts of quality water for operation of our facilities, as well as to conduct our other operations. The suppliers of the agricultural raw materials we purchase are also dependent upon sufficient supplies of quality water for their vineyards and fields. If water available to our operations or the operations of our suppliers becomes scarce or the quality of that water deteriorates, we may incur increased production costs or face manufacturing constraints. In addition, water purification and waste treatment infrastructure limitations could increase costs or constrain operation of our production facilities. A substantial reduction in water supplies could result in material losses of grape crops and vines or other crops, which could lead to a shortage of our product supply.
Our facilities use a large volume of agricultural and other raw materials to produce their products. Our facilities all use large amounts of various packaging materials, including glass, aluminum, cardboard, and other paper products. Our production facilities also use electricity, natural gas, and diesel fuel in their operations. Certain raw materials and packaging materials are purchased under contracts of varying maturities. The supply, on-time availability and price of raw materials, packaging materials, and energy can be affected by many factors beyond our control, including market demand, global geopolitical events (especially as to their impact on crude oil prices), droughts, storms, and other weather conditions or natural or man-made events, economic factors affecting growth decisions, inflation, plant diseases, and theft.
Disruptions in our supply chains could impact our ability to continue production. To the extent any of the foregoing factors increases the costs of our finished products or lead to a shortage of our product supply, we could experience a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
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The volatility of energy and increased regulations may have an adverse impact on our gross margin.
Over the past few years, volatility in the global oil markets has resulted in variable fuel prices, which many shipping companies have passed on to their customers by way of higher base pricing and increased fuel surcharges. If fuel prices continue to increase, we expect to experience higher shipping rates and fuel surcharges, as well as energy surcharges on our raw materials. It is hard to predict what will happen in the fuel markets in the remainder of 2022 and beyond. Due to the price sensitivity of our products, we may not be able to pass such increases on to our customers.
Disruption within our supply chain or distribution channels could have an adverse effect on our business, financial condition, and results of operations.
Our ability, through our suppliers, business partners, independent distributors, and retailers, to make, move and sell products is critical to our success. Damage or disruption to our suppliers or to manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics such as the COVID-19 pandemic, labor strikes, or other reasons, could impair the manufacture, distribution, and sale of our products. Many of these events are outside of our control. Failure to take adequate steps to protect against or mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition, and results of operations.
Our business operations may be interrupted and negatively affected due to economic and political uncertainties or changes associated with our international operations.
We operate facilities in Australia, which includes a distillery, and in the United States. These countries impose duties, excise taxes, and/or other taxes on beverage alcohol products, and/or on certain raw materials used to produce our beverage alcohol products, in varying amounts. Governmental bodies may propose changes to international trade agreements, treaties, tariffs, taxes, and other government rules and regulations including but not limited to environmental treaties and regulations. Significant increases in import and excise duties or other taxes on, or that impact, beverage alcohol products could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations. Any such tariffs, and any retaliatory tariffs may have a material adverse effect on our results of operations, including our sales and profitability.
In addition, governmental agencies extensively regulate the beverage alcohol products industry concerning such matters as licensing, warehousing, trade and pricing practices, permitted and required labeling, advertising, and relations with wholesalers and retailers. Certain regulations also require warning labels and signage. New or revised regulations or increased licensing fees, requirements, or taxes could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations. Additionally, various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the marketing or sale of our products because of what our products contain or allegations that our products cause adverse health effects. If these types of requirements become applicable to one or more of our major products under current or future environmental or health laws or regulations, they may inhibit sales of such products.
These uncertainties and changes, as well as the decisions, policies, and economic strength of our suppliers and distributors, could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
Volatility in the price or availability of the inputs we depend on, including raw materials, packaging, energy, and labor, could adversely impact our financial results.
The principal raw materials we use include glass bottles, aluminum cans, labels, and cardboard cartons, flavorings, and sweeteners. These ingredient costs are subject to fluctuation. Substantial increases in the prices of our ingredients, raw materials, and packaging materials, to the extent that they cannot be recouped through increases in the prices of finished beverage products, would increase our operating costs and could reduce our profitability. If our supply of these raw materials is impaired or if prices increase significantly, it could affect the affordability of our products and reduce sales.
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If we are unable to secure sufficient ingredients or raw materials including glass, sugar, and other key supplies, we might not be able to satisfy demand on a short-term basis.
Operational disruptions or catastrophic loss to our properties, other production facilities, or distribution systems could cause delays in our production.
If any of our properties, production facilities, or distribution systems were to experience a significant operational disruption or catastrophic loss, it could delay or disrupt production, shipments, and revenue, and result in potentially significant expenses to repair or replace these properties. Also, our production facilities are asset intensive. As our operations are concentrated in a limited number of production and distribution facilities, we are more likely to experience a significant operational disruption or catastrophic loss in any one location from acts of war or terrorism, fires, floods, earthquakes, severe winter storms, hurricanes, pandemics, labor strike, or other labor activities, cyber-attacks, and other attempts to penetrate our information technology systems or the information technology used by our employees who work from home during the COVID-19 pandemic, unavailability of raw or packaging materials, or other natural or man-made events. If a significant operational disruption or catastrophic loss were to occur, we could breach agreements, our reputation could be harmed, and our business, liquidity, financial condition, and/or results of operations could be adversely affected due to higher maintenance charges, unexpected capital spending, or product supply constraints.
Our insurance policies do not cover certain types of catastrophes and may not cover certain events such as pandemics. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain property damage and business interruption insurance. If our insurance coverage is adversely affected, or to the extent we have elected to self-insure, we may be at greater risk that we may experience an adverse impact to our business, liquidity, financial condition, and/or results of operations.
Counterfeit or confusingly similar products sold by third parties could harm our brand and cause a decrease in our sales and operations.
To the extent that third parties sell products that are either counterfeit versions of our brands or brands that look like our brands, consumers of our brands could confuse our products with products that they consider inferior. This could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our sales and operations.
Failure to obtain satisfactory performance from our suppliers or loss of our existing suppliers could harm our business and as a result, our operations could suffer.
We do not have long-term, written agreements with any of our suppliers. The termination of our relationships or an adverse change in the terms of these arrangements could have a negative impact on our business. If our suppliers increase their prices, we may not be able to secure alternative suppliers, and may not be able to raise the prices of our products to cover all or even a portion of the increased costs. Also, our suppliers’ failure to perform satisfactorily or handle increased orders, delays in shipments of products from suppliers or the loss of our existing suppliers, especially our key suppliers, could cause us to fail to meet orders for our products, lose sales, incur additional costs and/or expose us to product quality issues. In turn, this could cause us to lose credibility in the marketplace and damage our relationships with distributors, ultimately leading to a decline in our business and results of operations. If we are not able to renegotiate these contracts on acceptable terms or find suitable alternatives, our business, financial condition, or results of operations could be negatively impacted.
Failure of our U.S. distributors to distribute our products adequately within their territories could result in a decline of our operations.
In the U.S., we are required by law to use state-licensed distributors or, in 17 states known as “control states,” state-owned agencies performing this function, to sell our products to retail outlets, including liquor stores, bars, restaurants, and national chains in the United States. Our importer has established relationships for our brands with a limited number of wholesale distributors; however, failure to maintain those relationships could significantly and adversely affect our business, sales, and growth. Through our eCommerce website in the United States, www.wiredforwine.com, we distribute to approximately 44 states under a direct-to-consumer (DTC) model where such DTC shipments of wine are legally permitted.
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Over the past decade there has been increasing consolidation, both intrastate and interstate, among distributors. As a result, many states now have only two or three significant distributors. Also, there are several distributors that now control distribution for several states. If we fail to maintain good relations with a distributor, our products could, in some instances be frozen out of one or more markets entirely. The ultimate success of our products also depends in large part on our distributors’ ability and desire to distribute our products to our desired U.S. target markets, as we rely significantly on them for product placement and retail store penetration. In addition, all of our distributors also distribute competitive brands and product lines. We cannot assure you that our U.S. distributors will continue to purchase our products, commit sufficient time and resources to promote and market our brands and product lines, or that they can or will sell them to our desired or targeted markets. If they do not, our sales will be harmed, resulting in a decline in our results of operations.
If our third-party service providers and business partners do not satisfactorily fulfill their commitments and responsibilities, our financial results could suffer.
In the conduct of our business, we rely on relationships with third parties, including cloud data storage and other information technology service providers, suppliers, distributors, contractors, joint venture partners, and other external business partners, for certain functions or for services in support of key portions of our operations. These third-party service providers and business partners are subject to similar risks as we are, relating to cybersecurity, privacy violations, business interruption, and systems and employee failures, and are subject to legal, regulatory, and market risks of their own. Our third-party service providers and business partners may not fulfill their respective commitments and responsibilities in a timely manner and in accordance with the agreed-upon terms. In addition, while we have procedures in place for selecting and managing our relationships with third-party service providers and other business partners, we do not have control over their business operations or governance and compliance systems, practices and procedures, which increases our financial, legal, reputational, and operational risk. If we are unable to effectively manage our third-party relationships, or for any reason our third-party service providers or business partners fail to satisfactorily fulfill their commitments and responsibilities, our financial results could suffer.
Pandemics, such as the current global COVID-19 pandemic, outbreaks of communicable infections or diseases, or other public health concerns in the markets in which our consumers or employees live and/or in which we or our distributors, retailers, and suppliers operate may damage our business and disrupt our operations.
Disease outbreaks and other public health conditions could result in disruptions and damage to our business caused by potential negative consumer purchasing behavior as well as disruption to our supply chains, production processes, and operations. Consumer purchasing behavior may be impacted by reduced consumption by consumers who may not be able to leave home or otherwise shop in a normal manner as a result of quarantines or other cancellations of public events and other opportunities to purchase our products, from bar and restaurant closures, or from a reduction in consumer discretionary income due to reduced or limited work and layoffs. Supply disruption may result from restrictions on the ability of employees and others in the supply chain to travel and work, caused by quarantine or individual illness, or which may result from border closures imposed by governments to deter the spread of communicable infection or disease, or determinations by us or our suppliers or distributors to temporarily suspend operations in affected areas, or other actions which restrict the ability to distribute our products or which may otherwise negatively impact our ability to produce, bottle, and ship our product, for our distributors to distribute our products, or for our suppliers to provide us our raw materials. Ports or channels of entry may be closed or operate at only a portion of capacity, or transportation of products within a region or country may be limited, if workers are unable to report to work due to travel restrictions or personal illness. Our operations and the operations of our suppliers may become less efficient or otherwise become negatively impacted if our executive leaders or other personnel critical to our operations are unable to work or if a significant percentage of the workforce is unable to work or is required to work from home. Our cyber-security could be compromised if persons who are forced to work from home do not maintain adequate information security. A prolonged quarantine or border closure could result in temporary or longer-term disruptions of sales patterns, consumption and trade patterns, supply chains, production processes, and operations. A widespread health crisis, such as the COVID-19 pandemic, could negatively affect the economies and financial markets of many countries resulting in a global economic downturn, which could negatively impact demand for our products and our ability to borrow money. Any of these events could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
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Contamination and degradation of product quality from diseases, pests, and the effects of weather and climate conditions could delay, disrupt, and harm our sales and operations.
Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could adversely affect sales. Various diseases, pests, fungi, viruses, drought, frosts, and certain other weather conditions or the effects of climate conditions, such as smoke taint from wildfires, could affect the quality and quantity of agricultural raw materials available, decreasing the supply and quality of our products. Similarly, power disruptions due to weather conditions could adversely impact our production processes and the quality of our products. We cannot guarantee that we and/or our suppliers of agricultural raw materials will succeed in preventing contamination in existing and/or future vineyards or fields. Future government restrictions regarding the use of certain materials used in growing grapes or other agricultural raw materials may increase vineyard costs and/or reduce production of grapes or other crops. It is also possible that a supplier may not provide materials or product components which meet our required standards or may falsify documentation associated with the fulfillment of those requirements.
Product contamination or tampering or the failure to maintain our standards for product quality, safety, and integrity, including with respect to raw materials, naturally occurring compounds, packaging materials, or product components obtained from suppliers, may also reduce demand for our products or cause production and delivery disruptions. Contaminants or other defects in raw materials, packaging materials, or product components purchased from third parties and used in the production of our products, or defects in the fermentation or distillation process could lead to low beverage quality as well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand or all our brands.
If any of our products become unsafe or unfit for consumption, are misbranded, or cause injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall, multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a period, which could further reduce consumer demand and brand equity.
Class action or other litigation relating to abuse of our products, the misuse of our products, product liability, or marketing or sales practices could cause a disruption in our operations.
There has been public attention directed at the beverage alcohol industry, which we believe is due to concern over problems related to harmful use of alcohol, including drinking and driving, underage drinking, and health consequences from the misuse of alcohol. We could be exposed to lawsuits relating to product liability or marketing or sales practices. Adverse developments in lawsuits concerning these types of matters or a significant decline in the social acceptability of beverage alcohol products that may result from lawsuits could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
Failure of our products to secure and maintain listings in the control states in the U.S. could cause our sales to decrease which will negatively impact our operations.
In the control states, the state liquor commissions act in place of distributors and decide which products are to be purchased and offered for sale in their respective states. Products selected for listing in control states must generally reach certain volumes and/or profit levels to maintain their listings. Products in control states are selected for purchase and sale through listing procedures, which are generally made available to new products only at periodically scheduled listing interviews. Products not selected for listings can only be purchased by consumers in the applicable control state through special orders, if at all. If, in the future, we are unable to maintain our current listings in the control states, or secure and maintain listings in those states for any additional products we may develop or acquire, sales of our products could decrease significantly, which would have a material adverse financial effect on our results of operations and financial condition.
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Failure of our key or service product information technology systems, cyber-security breach, or cyber-related fraud to act properly could negatively impact our business, operations, and reputation.
We rely on information technology (“IT”) systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), and software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist us in the management of our business.
Increased IT security threats and more sophisticated cyber-crime, pose a potential risk to the security of our IT systems, networks, and services, as well as to the confidentiality, availability, and integrity of our data. If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and reputational, competitive, and/or business harm, which may adversely affect our business operations and/or financial condition. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, our employees, customers, suppliers, or consumers. In any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems.
Litigation and litigation risks may have an adverse impact on our operations, business, and reputation.
From time to time, we may become involved in various litigation matters and claims, including employment, regulatory proceedings, administrative proceedings, governmental investigations, and contract disputes. We could face potential claims or liability for, among other things, breach of contract, defamation, libel, fraud, or negligence. We may also face employment-related litigation, including claims of age discrimination, sexual harassment, gender discrimination, immigration violations, or other local, state, and federal labor law violations. Because of the uncertain nature of litigation and insurance coverage decisions, the outcome of such actions and proceedings cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, cash flows, reputation, brand identity, and the trading price of our securities. Any such litigation, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.
Product liability or other related liabilities could lead to litigation which could damage our operations, business, and reputations.
Although we maintain liability insurance and will attempt to limit our contractual liability for damages arising from our products, these measures may not be sufficient for us to successfully avoid or limit product liability or other related liabilities. Our product liability insurance coverage is limited to AUD$1 million per occurrence and AUD$2 million in the aggregate and our general liability umbrella policy is capped at AUD$5 million, which may be insufficient. Further, any contractual indemnification and insurance coverage we have from parties supplying our products is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by these suppliers. In any event, extensive product liability claims could be costly to defend and/or costly to resolve and could harm our reputation or business.
If we encounter product recalls or other product quality issues, our business may suffer.
Product quality issues, real or imagined, or allegations of product contamination, even when false or unfounded, could tarnish our image and could cause consumers to choose other products. In addition, because of changing government regulations or implementation thereof, or allegations of product contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls could affect our profitability and could negatively affect brand image.
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Our business is subject to many regulations and noncompliance is costly.
The production, marketing and sale of our beverages, including contents, labels, caps, and containers, are subject to the rules and regulations of various federal, provincial, state, and local health agencies. If a regulatory authority finds that a current or future product or production batch or “run” is not in compliance with any of these regulations, we may be fined, or production may be stopped, which would adversely affect our financial condition and results of operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we cannot anticipate whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.
Significant additional labeling or warning requirements may inhibit sales of affected products.
Various jurisdictions may seek to adopt significant additional product labeling or warning requirements relating to the chemical content or perceived adverse health consequences of certain of our products. These types of requirements, if they become applicable to one or more of our products under current or future environmental or health laws or regulations, may inhibit sales of such products. In California, a law requires that a specific warning appear on any product that contains a component listed by the state as having been found to cause cancer or birth defects. This law recognizes no generally applicable quantitative thresholds below which a warning is not required. If a component found in one of our products is added to the list, or if the increasing sensitivity of detection methodology that may become available under this law and related regulations as they currently exist, or as they may be amended, results in the detection of an infinitesimal quantity of a listed substance in one of our beverages produced for sale in California, the resulting warning requirements or adverse publicity could affect our sales.
Our business and operations would be adversely impacted in the event of a failure or interruption of our information technology infrastructure or as a result of a cybersecurity attack.
The proper functioning of our own information technology (IT) infrastructure is critical to the efficient operation and management of our business. We may not have the necessary financial resources to update and maintain our IT infrastructure, and any failure or interruption of our IT system could adversely impact our operations. In addition, our IT is vulnerable to cyber-attacks, computer viruses, worms and other malicious software programs, physical and electronic break-ins, sabotage and similar disruptions from unauthorized tampering with our computer systems. We believe that we have adopted appropriate measures to mitigate potential risks to our technology infrastructure and our operations from these IT-related and other potential disruptions. However, given the unpredictability of the timing, nature, and scope of any such IT failures or disruptions, we could potentially be subject to downtimes, transactional errors, processing inefficiencies, operational delays, other detrimental impacts on our operations or ability to provide products to our customers, the compromising of confidential or personal information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our cash flows, competitive position, financial condition, or results of operations.
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If we fail to comply with personal data protection and privacy laws, we could be subject to adverse publicity, government enforcement actions, and/or private litigation, which could negatively affect our business and operating results.
In the ordinary course of our business, we receive, process, transmit, and store information relating to identifiable individuals (“personal data”), primarily employees, former employees, and consumers with whom we interact. As a result, we are subject to various U.S. federal and state and foreign laws and regulations relating to personal data. These laws have been subject to frequent changes, and new legislation in this area may be enacted in other jurisdictions at any time. These laws impose operational requirements for companies receiving or processing personal data, and many provide for significant penalties for noncompliance. These requirements with respect to personal data have subjected and may continue in the future to subject us to, among other things, additional costs and expenses and have required and may in the future require costly changes to our business practices and information security systems, policies, procedures, and practices. Our security controls over personal data, the training of employees and vendors on data privacy and data security, and the policies, procedures, and practices we implemented or may implement in the future may not prevent the improper disclosure of personal data by us or the third-party service providers and vendors whose technology, systems and services we use in connection with the receipt, storage, and transmission of personal data. Unauthorized access or improper disclosure of personal data in violation of personal data protection or privacy laws could harm our reputation, cause loss of consumer confidence, subject us to regulatory enforcement actions (including fines), and result in private litigation against us, which could result in loss of revenue, increased costs, liability for monetary damages, fines, and/or criminal prosecution, all of which could negatively affect our business and operating results.
International operations, worldwide and domestic economic trends, and financial market conditions, geopolitical uncertainty, changes to international trade agreements and tariffs, import and excise duties, other taxes, or other governmental rules and regulations could have a material adverse effect on our business and operations.
Risks associated with international operations, any of which could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations, include:
| ● | changes in local political, economic, social, and labor conditions; | |
| ● | potential disruption from socio-economic violence, including terrorism and drug-related violence; | |
| ● | restrictions on foreign ownership and investments or on repatriation of cash earned in countries outside the U.S.; | |
| ● | import and export requirements and border accessibility; | |
| ● | currency exchange rate fluctuations; | |
| ● | a less developed and less certain legal and regulatory environment in some countries, which, among other things, can create uncertainty regarding contract enforcement, intellectual property rights, privacy obligations, real property rights, and liability issues; and | |
| ● | inadequate levels of compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act. |
Unfavorable global or regional economic conditions, including economic slowdown and the disruption, volatility, and tightening of credit and capital markets, as well as unemployment, tax increases, governmental spending cuts, or a return of high levels of inflation, could affect consumer spending patterns and purchases of our products. These could also create or exacerbate credit issues, cash flow issues, and other financial hardships for us and our suppliers, distributors, retailers, and consumers. The inability of suppliers, distributors, and retailers to access liquidity could impact our ability to produce and distribute our products.
We are also exposed to risks associated with interest rate fluctuations. We could experience changes in our ability to manage fluctuations in interest rates and, accordingly, there can be no assurance that we will be successful in reducing those risks.
We could also be affected by nationalization of our international operations, unstable governments, unfamiliar or biased legal systems, intergovernmental disputes or animus against the U.S. Any determination that our operations or activities did not comply with applicable U.S. or foreign laws or regulations could result in the imposition of fines and penalties, interruptions of business, terminations of necessary licenses and permits, and other legal and equitable sanctions.
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We are subject to risks inherent in sales of products in international markets.
Our operations outside of the United States constitute a significant portion of our revenue and profitability, and we believe that developing and emerging markets could present future growth opportunities for us. However, there can be no assurance that existing or new products that we manufacture, distribute, or sell will be accepted or be successful in any particular foreign market, due to local or global competition, product price, cultural differences, consumer preferences, or otherwise. There are many factors that could adversely affect demand for our products in foreign markets, including our inability to attract and maintain key distributors in these markets; volatility in the economic growth of certain of these markets; changes in economic, political or social conditions; the status and renegotiations of the North American Free Trade Agreement; imposition of new or increased labeling, product or production requirements, or other legal restrictions; restrictions on the import or export of our products or ingredients or substances used in our products; inflationary currency, devaluation or fluctuation; and increased costs of doing business due to compliance with complex foreign and U.S. laws and regulations. If we are unable to effectively operate or manage the risks associated with operating in international markets, our business, financial condition, or results of operations could be adversely affected.
Damage to our reputation could harm our business and cause a decline in our sales.
The success of our brands depends upon the positive image that consumers have of those brands and maintaining a good reputation is critical to selling our branded products. Our reputation could also be impacted negatively by public perception, adverse publicity (whether or not valid, such as the similarity of the name of certain of our brands or trademarks and a type of virus), negative comments in social media, or our responses relating to:
| ● | a perceived failure to maintain high ethical and ESG standards and practices for all our operations and activities; | |
| ● | a perceived failure to address concerns relating to the quality, safety, or integrity of our products, including from contamination, whether arising accidentally or through deliberate third-party action; | |
| ● | allegations that we, or persons associated with us or formerly associated with us, have violated applicable laws or regulations, including but not limited to those related to safety, employment, discrimination, harassment, whistle-blowing, privacy, corporate citizenship, improper business practices, or cyber-security; | |
| ● | our environmental impact, including use of agricultural materials, packaging, water and energy use, and waste management; or | |
| ● | efforts that are perceived as insufficient to promote the responsible use of alcohol. |
Failure to comply with federal, state, or local laws and regulations, maintain an effective system of internal controls, provide accurate and timely financial statement information, or protect our information systems against service interruptions, misappropriation of data, or breaches of security, could also hurt our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations, as well as require additional resources to rebuild our reputation, competitive position, and brand equity and renew investor confidence.
Due to the highly competitive market we operate in, our sales and operations could be negatively affected by our competitors.
We are in a highly competitive industry and our sales could be negatively affected by numerous factors including:
| ● | our inability to maintain or increase prices; | |
| ● | new entrants in our market or categories; | |
| ● | the decision of wholesalers, retailers, or consumers to purchase competitors’ products instead of ours; or | |
| ● | a general decline in beverage alcohol consumption due to consumer dietary preference changes or consumers substituting legalized marijuana or other similar products in lieu of beverage alcohol. |
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Sales could also be affected by pricing, purchasing, financing, operational, advertising, or promotional decisions made by wholesalers, state and other local agencies, and retailers which could affect their supply of, or consumer demand for, our products. We could also experience higher than expected selling, general, and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons. We cannot guarantee that we will be able to increase our prices to pass along to our customers any increased costs we incur.
Our intangible assets, such as goodwill and trademarks, could have a material adverse effect in the event of a write-down of the assets.
We have a significant amount of intangible assets such as goodwill and trademarks and may acquire more intangible assets in the future. Intangible assets are subject to a periodic impairment evaluation under applicable accounting standards. The write-down of any of these intangible assets could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
Changes to tax laws, fluctuations in our effective tax rate, accounting for tax positions, the resolution of tax disputes, and changes to accounting standards, elections, or assertions could harm our business and operations.
The U.S. federal budget and individual state, provincial, local municipal budget deficits, or deficits in other governmental entities, could result in increased taxes on our products, business, customers, or consumers. Various proposals to increase taxes on beverage alcohol products have been made at the federal and state levels or at other governmental bodies in recent years. Federal, state, provincial, local, or foreign governmental entities may consider increasing taxes upon beverage alcohol products as they explore available alternatives for raising funds.
In addition, significant judgment is required to determine our effective tax rate and evaluate our tax positions. Our provision for income taxes includes a provision for uncertain tax positions. Fluctuations in federal, state, local, and foreign taxes, or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and our financial results. When tax matters arise, several years may elapse before such matters are audited and finally resolved. Unfavorable resolution of any tax matter could increase our effective tax rate and resolution of a tax issue may require the use of cash in the year of resolution.
U.S. tax changes or changes in how international corporations are taxed, including changes in how existing tax laws are interpreted or enforced, or changes to accounting standards, elections or assertions could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
We may be required in the future to record a significant charge to earnings if our goodwill or intangible assets become impaired.
Under United States Generally Accepted Accounting Principles (“U.S. GAAP”), we are required to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include, declining or slower than anticipated growth rates for certain of our existing products, a decline in stock price and market capitalization, and slower growth rates in our industry. We may be required in the future to record a significant charge to earnings during the period in which we determine that our intangible assets have been impaired. Any such charge would adversely impact our results of operations. As of December 31, 2021, our goodwill totaled approximately USD$951,000.
Our results of operations may fluctuate from quarter to quarter for many reasons, including seasonality.
Our sales are seasonal and we experience fluctuations in quarterly results as a result of many factors. Companies similar to ours have historically generated a greater percentage of our revenues during the warm weather months of September through December. Timing of customer purchases will vary each year and sales can be expected to shift from one quarter to another. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
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Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
The U.S. GAAP and related pronouncements, implementation guidelines, and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, stock-based compensation, trade spend and promotions, and income taxes are highly complex and involve many subjective assumptions, estimates, and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates, or judgments by our management could significantly change our reported results.
If we are unable to maintain effective disclosure controls and procedures and internal control over financial reporting, our stock price and investor confidence could be materially and adversely affected.
We are required to maintain both disclosure controls and procedures and internal control over financial reporting that are effective. Because of their inherent limitations, internal control over financial reporting, however well designed and operated, can only provide reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions. The failure of controls by design deficiencies or absence of adequate controls could result in a material adverse effect on our business and financial results, which could also negatively impact our stock price and investor confidence.
We face substantial competition in the alcoholic beverage industry, and we may not be able to effectively compete.
Consolidation among spirits producers, distributors, wholesalers, or retailers could create a more challenging competitive landscape for our products. Consolidation at any level could hinder the distribution and sale of our products as a result of reduced attention and resources allocated to our brands, both during and after transition periods, because our brands might represent a smaller portion of the new business portfolio. Expansion into new product categories by other suppliers, or innovation by new entrants into the market, could increase competition in our product categories. Changes to our distribution channels or partners in important markets could result in temporary or longer-term sales disruption, higher implementation-related or fixed costs, and could negatively affect other business relationships we might have with that partner. Distribution network disruption or fluctuations in our product inventory levels with distributors, wholesalers, or retailers could negatively affect our results for a particular period.
Our competitors may respond to industry and economic conditions more rapidly or effectively than we do. Our competitors offer products that compete directly with ours for shelf space, promotional displays, and consumer purchases. Pricing, (including price promotions, discounting, couponing, and free goods), marketing, new product introductions, entry into our distribution networks, and other competitive behavior by our competitors could adversely affect our sales margins, and profitability.
Our business operations may be adversely affected by social, political, and economic conditions affecting market risks and the demand for and pricing of our products.
These risks include:
| ● | Unfavorable economic conditions and related low consumer confidence, high unemployment, weak credit or capital markets, sovereign debt defaults, sequestrations, austerity measures, higher interest rates, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations; | |
| ● | Changes in laws, regulations, or policies – especially those that affect the production, importation, marketing, sale, or consumption of our beverage alcohol products; |
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| ● | Tax rate changes (including excise, sales, tariffs, duties, corporate, individual income, dividends, capital gains), or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur; | |
| ● | Dependence upon the continued growth of brand names; | |
| ● | Changes in consumer preferences, consumption, or purchase patterns, and our ability to anticipate and react to them; | |
| ● | Bar, restaurant, travel, or other on premise declines; | |
| ● | Unfavorable consumer reaction to our products, package changes, product reformulations, or other product innovation; | |
| ● | Decline in the social acceptability of beverage alcohol products in our markets; | |
| ● | Production facility or supply chain disruption; | |
| ● | Imprecision in supply/demand forecasting; | |
| ● | Higher costs, lower quality, or unavailability of energy, input materials, labor, or finished goods; | |
| ● | Direct-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher implementation--related or fixed costs; | |
| ● | Inventory fluctuations in our products by distributors, wholesalers, or retailers; | |
| ● | Competitors’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets; | |
| ● | Insufficient protection of our intellectual property rights; | |
| ● | Product recalls or other product liability claims; | |
| ● | Product counterfeiting, tampering, or product quality issues; | |
| ● | Significant legal disputes and proceedings; | |
| ● | Government investigations (particularly of industry or company business, trade or marketing practices); | |
| ● | Failure or breach of key information technology systems; | |
| ● | Negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects; and | |
| ● | Business disruption, decline, or costs related to organizational changes, reductions in workforce, or other cost-cutting measures, or our failure to attract or retain key executive or employee talent. |
Uncertainty in the financial markets and other adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our industry, business and results of operations.
Global economic uncertainties, including foreign currency exchange rates, affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. There can be no assurance that economic improvements will occur, or that they would be sustainable, or that they would enhance conditions in markets relevant to us.
There has been no prior public market for our ordinary shares, the price of our ordinary shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your ordinary shares at or above the offering price.
There has been no public market for our ordinary shares prior to this offering. The offering price for our ordinary shares will be determined through negotiations between the underwriter and us and may vary from the market price of our ordinary shares following this offering. If you purchase ordinary shares in this offering, you may not be able to resell the ordinary shares at or above the offering price. An active or liquid market in our ordinary shares may not develop upon the completion of this offering or, if it does develop, it may not be sustainable. Further, an inactive market may also impair our ability to raise capital by selling our ordinary shares in the future and may impair our ability to enter into strategic partnerships or acquire companies or products by using our ordinary shares as consideration.
An investment in our ordinary shares is speculative and there can be no assurance of any return on any such investment.
An investment in our ordinary shares is speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in the Company, including the risk of losing their entire investment.
Future sales of ordinary shares, or the perception of such future sales, by some of our existing shareholders could cause the price of our ordinary shares to decline.
The market price of our ordinary shares could decline as a result of sales of a large number of shares of our ordinary shares in the market or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell ordinary shares in the future at a time and at a price that we deem appropriate.
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From time to time, certain of our shareholders may be eligible to sell all or some of their ordinary shares by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain limitations. In general, pursuant to Rule 144, non-affiliate shareholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), and current public information and notice requirements.
Because certain shareholders own a large percentage of our voting stock, other shareholders’ voting power may be limited.
As of September 6, 2022, two (2) of our shareholders own or control approximately 59.5% of our outstanding ordinary shares. If those shareholders act together, they would have the ability to have a substantial influence on matters submitted to our shareholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. As a result, our other shareholders may have little or no influence over matters submitted for shareholder approval. In addition, the ownership of such shareholders could preclude any unsolicited acquisition of us, and consequently, adversely affect the price of our ordinary shares. These shareholders may make decisions that are adverse to your interests.
We do not expect to pay dividends and investors should not buy our ordinary shares expecting to receive dividends.
We do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our ordinary shares if the price appreciates. You should not purchase our ordinary shares expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in establishing an orderly trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not anticipate that we will pay dividends, we may have trouble raising additional funds which could affect our ability to expand our business operations.
There can be no assurances that our ordinary shares once listed on the Nasdaq Capital Market will not be subject to potential delisting if we do not continue to maintain the listing requirements of Nasdaq.
We have applied to list our ordinary shares on the Nasdaq Capital Market, under the symbol “IBG”. An approval of our listing application by the Nasdaq will be subject to, among other things, our fulfilling all of the listing requirements of the Nasdaq. In addition, the Nasdaq has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing (i.e., being de-listed from the Nasdaq), would make it more difficult for shareholders to sell our ordinary shares and more difficult to obtain accurate price quotations on our ordinary shares. This could have an adverse effect on the price of our ordinary shares. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our ordinary shares are not traded on a national securities exchange.
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Our ordinary shares could be further diluted as the result of the issuance of additional ordinary shares, convertible securities, options, or warrants.
Our issuance of additional ordinary shares, convertible securities, options, and warrants could affect the rights of our shareholders, result in a reduction in the overall percentage holdings of our shareholders, could put downward pressure on the market price of our ordinary shares, could result in adjustments to conversion and exercise prices of outstanding notes and warrants, and could obligate us to issue additional ordinary shares to certain of our shareholders.
We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make the ordinary shares less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, not being required to comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, not being required to comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could remain an emerging growth company until the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer. We cannot predict if investors will find our ordinary shares less attractive if we choose to rely on these exemptions. If some investors find our ordinary shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our ordinary shares and our share price may be more volatile. Further, as a result of these scaled regulatory requirements, our disclosure may be more limited than that of other public companies and you may not have the same protections afforded to shareholders of such companies.
Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. We have opted for taking advantage of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jobs Act.
Because we have elected to use the extended transition period for complying with new or revised accounting standards for an emerging growth company our financial statements may not be comparable to companies that comply with public company effective dates.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our consolidated financial statements may not be comparable to companies that comply with public company effective dates, and thus investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our ordinary shares.
Breaches of our online commerce security could occur and could have an adverse effect on our reputation.
A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography and cybersecurity, or other events or developments will not result in a compromise or breach of the technology used by the Company to protect customer transaction data. If any such compromise of the Company’s security were to occur, it could have a material adverse effect on the Company’s reputation and, therefore, on its business, results of operations and financial condition. Furthermore, a party who is able to circumvent the Company’s security measures could misappropriate proprietary information or cause interruptions in the Company’s operations. The Company may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and other online services and the privacy of users may also inhibit the growth of the Internet and other online services generally, and the web in particular, especially as a means of conducting commercial transactions. To the extent that activities of the Company involve the storage and transmission of proprietary information, security breaches could damage the Company’s reputation and expose the Company to a risk of loss or litigation and possible liability. There can be no assurance that the Company’s security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse effect on the Company’s business, results of operations and financial condition.
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Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other types of attacks pose a potential risk to the security of our IT systems, networks and services, as well as the confidentiality, availability, and integrity of our data. We may in the future experience cyberattacks and other unauthorized access attempts to our IT systems. Because the techniques used to obtain unauthorized access are constantly changing and often are not recognized until launched against a target, we or our vendors may be unable to anticipate these techniques or implement sufficient preventative or remedial measures. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access. In the event of a ransomware or other cyber-attack, the integrity and safety of our data could be at risk or we may incur unforeseen costs impacting our financial position. Although we carry insurance covering cyber-attacks including ransomware, these coverages are subject to deductibles and self-insurance obligation, as well as caps on coverage that could be below the value of losses we could incur. If the IT systems, networks or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information due to any number of causes ranging from catastrophic events, power outages, security breaches, unauthorized use or usage errors by employees, vendors or other third parties and other security issues, we may be subject to legal claims and proceedings, liability under laws that protect the privacy and security of personal information (also known as personal data), litigation, governmental investigations and proceedings and regulatory penalties, and we may suffer interruptions in our ability to manage our operations and reputational, competitive or business harm, which may adversely affect our business, results of operations and financial results. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our employees, stockholders, customers, suppliers, consumers or others. In any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or technological failure and the reputational damage resulting therefrom, to pay for investigations, forensic analyses, legal advice, public relations advice or other services, or to repair or replace networks and IT systems. As a result of the COVID-19 pandemic, a greater number of our employees are working remotely and accessing our IT systems and networks remotely, which may further increase our vulnerability to cybercrimes and cyberattacks and increase the stress on our technology infrastructure and systems. Even though we maintain cyber risk insurance, this insurance may not be sufficient to cover all of our losses from any future breaches or failures of our IT systems, networks and services.
A failure of one or more of our key IT systems, networks, processes, associated sites or service providers could have a material adverse impact on business operations, and if the failure is prolonged, our financial condition.
We rely on IT systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed, hosted, provided and used by third-parties or their vendors, to assist us in the management of our business. The various uses of these IT systems, networks and services include, but are not limited to: hosting our internal network and communication systems; supply and demand planning; production; shipping our products to customers; hosting our brand websites and marketing products to consumers; collecting and storing customer, consumer, employee, shareholder, and other data; processing transactions; summarizing and reporting results of operations; hosting, processing and sharing confidential and proprietary research, business plans and financial information; complying with regulatory, legal or tax requirements; providing data security; and handling other processes necessary to manage our business.
Any significant disruption in or unauthorized access to our computer systems and other technology or those of our customers, partners and other third parties that we utilize in our operations, could result in a loss or degradation of service, unauthorized disclosure of data, or theft or tampering of intellectual property, any of which could materially adversely impact our business.
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Our operations, products, data and intellectual property are inherently at risk of loss, inappropriate access, or tampering by both insider threats and external bad actors. In particular, our operations face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information, intellectual property, mission operations, systems and networks. Our systems (internal, customer and partner systems) and assets may also be subject to damage or interruption from natural and other disaster events or disruptions including hurricanes, floods, earthquakes, fires, other extreme weather conditions, epidemics or pandemics, acts of terrorism, power shortages and blackouts, aging infrastructures and telecommunications failures. In addition, insider threats, threats to the safety of our directors and employees, threats to the security of our facilities, infrastructure and supply chain and threats from terrorist acts or other acts of aggression could have a material adverse impact on our business.
Our customers and partners (including our supply chain) face similar threats. Customer or partner proprietary, classified, or sensitive data and information transmitted to, from, or stored on our networks are at risk. Assets and intellectual property and products in customer or partner environments are also at risk. We also have risk where we have access to customer and partner networks and face risks of breach, disruption or loss as well. Our supply chain for products and services is becoming more diverse and therefore that risk is also growing.
While we have implemented reasonable measures consistent with government regulations aimed at reducing the risk of cyber threats as well as to help thwart bad actors and protect our data and our systems and assets, the techniques used to gain unauthorized access are constantly evolving, and we may be unable to anticipate or prevent all unauthorized access, disruption, loss, or harm. Because of our desired data and intellectual property we (and/or partners we use) may be an attractive target for such attacks. We cannot offer assurances, however, that future attacks will not materially adversely affect our business or reputation.
Unstable market and economic conditions caused by the ongoing conflict between the Ukraine and Russia, as well as the ongoing COVID-19 pandemic, could have adverse consequences on our business, financial condition and results of operations.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions as a result of the ongoing conflict between the Ukraine and Russia, as well as challenges arising from the ongoing COVID-19 pandemic, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. We could suffer inflationary pressure in our business such as through the increased costs of the supplies that we use to manufacture our products, bottling our bitters, and distributing our products to all our customers where we do business. Any such volatility and disruptions could have adverse consequences on us or the third parties upon whom we rely.
You should consult your independent tax advisor regarding any tax matters arising with respect to our ordinary shares.
All prospective purchasers of our ordinary shares are advised to consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences relevant to the purchase, ownership, and disposition of our ordinary shares.
Some of our directors and executive officers are non-residents of the United States and as a result, it may not be possible for shareholders to enforce civil liabilities against those directors and executive officers.
Some of our directors and executive officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for stockholders to effect service of process within the United States upon such persons or to enforce against them judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Australia in original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal securities laws of the United States. Please see the section entitled “Enforcement of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.
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We have made statements in this prospectus, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere that constitute forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements include:
| ● | the timing of the development of future services; |
| ● | projections of revenue, earnings, capital structure and other financial items; |
| ● | the development of future company-owned call centers; |
| ● | statements regarding the capabilities of our business operations; |
| ● | statements of expected future economic performance; |
| ● | statements regarding competition in our market; and |
| ● | assumptions underlying statements regarding us or our business. |
The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material risks under the heading “Risk Factors” above. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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We estimate that the net proceeds to us from the sale of our ordinary shares in this offering will be approximately $9,381,250, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us (including the offering expenses that have been committed to be paid).
We intend to use net proceeds from this offering to pay, in connection with the acquisition of Reg Liquors LLC d/b/a/ Wired for Wine, USD$600,000 to the seller, for working capital and for general corporate purposes, including operating expenses. Additionally, we may use a portion of the net proceeds from this offering to acquire or invest in complementary products or assets. Other than as set forth, we do not anticipate requiring any material amounts of other funds to accomplish the specified purposes. We believe that the net proceeds from this offering and our existing cash will be sufficient to fund our operations through at least the next 24 months. This expected use of the net proceeds from the offering represents our intentions based upon our current plans and business conditions. We cannot specify with certainty all of the particular uses of the net proceeds that we will receive from this offering, or the amounts that we will actually spend on the uses set forth above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in using these proceeds. Investors will be relying on our judgment regarding the use of the net proceeds from this offering.
The expected use of net proceeds of this offering represents our current intentions based upon our present plan and business conditions. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. We will have broad discretion in the application of the net proceeds in the category of “for general corporate purposes,” and investors will be relying on our judgment regarding the application of the proceeds of this offering. Depending on the outcome of our business activities and other unforeseen events, our plans and priorities may change and we may apply the net proceeds of this offering in different proportions than we currently anticipate.
The holders of our ordinary shares are entitled to dividends out of funds legally available when and as declared by our Board of Directors subject to the Australian Corporations Act 2001 (Cth). On June 30, 2021, our Board declared a dividend in the amount of AUD$2,138,610 based on the Company’s historical retained earnings as of June 30, 2021 and in accordance with Section 254T of the Corporations Act 2001 (Cth). Other than the foregoing dividends, our Board has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Should we decide in the future to pay dividends, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, our operating company may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.
Our functional currency is the U.S. dollar, which we also use as our reporting currency. Therefore, periodic reports made to shareholders will include current period amounts translated into U.S. dollars using the then-current exchange rates. Our financial statements have been translated into U.S. dollars in accordance with Accounting Standards Codification (“ASC”) 830-10, “Foreign Currency Matters.” We have translated our asset and liability accounts using the exchange rate in effect at the balance sheet date. We translated our statements of operations using the average exchange rate for the period. We reported the resulting translation adjustments under other comprehensive income/loss. Unless otherwise noted, we have translated profit and loss items at an average rate of AUD$0.6906 for the year ended December 31, 2020 and AUD$0.7215 for the year ended December 31, 2021, and for the balance sheet items we have translated at closing rate as of December 31, 2020 which is AUD$0.7702 and as of December 31, 2021 which is AUD$0.7256.
We make no representation that any Australian dollar or U.S. dollar amounts could have been, or could be, converted into U.S. dollars, as the case may be, at any particular rate, or at all. We do not currently engage in currency hedging transactions.
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The following table sets forth our cash and our capitalization as of August 31, 2022, as adjusted to give effect to a 1-for-1.62 reverse split of our ordinary shares, effective September 12, 2022:
| ● | On an actual basis; and | |
| ● | On a pro forma basis to give effect to the sale of 2,125,000 ordinary shares by us in this offering at the assumed initial public offering price of $5.00 per ordinary share, and to reflect the application of the proceeds after deducting the estimated seven percent (7%) underwriting discounts and commissions, one percent (1%) non-accountable expense allowance and estimated offering expenses payable by us. |
The pro forma information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the public offering price of our ordinary shares and other terms of this offering determined at pricing. You should read this capitalization table together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information included elsewhere in this prospectus.
| August 31, 2022(1) | ||||||||
| Actual | Pro
Forma (3)(4) | |||||||
| Cash and cash equivalents | $ | 181,835 | 8,963,085 | |||||
| Notes payable | 990,825 | (2) | 390,825 | |||||
| Shareholders’ Equity: | ||||||||
| Ordinary shares, no par value; no authorization limit; 7,502,872 ordinary shares issued and outstanding; 9,627,872 ordinary shares issued and outstanding, as adjusted assuming the over-allotment option is not exercised | ||||||||
| Additional paid-in capital | 4,486,286 | 13,867,536 | ||||||
| Statutory reserve | — | — | ||||||
| Retained earnings | -2,368,435 | -2,368,435 | ||||||
| Accumulated other comprehensive income | 219,852 | 219,852 | ||||||
| Total Shareholders’ Equity | 2,337,703 | 11,718,953 | ||||||
| Total Capitalization | $ | 3,328,528 | $ | 12,109,778 | ||||
| (1) | On an as adjusted basis to give effect to the reverse split of 1-for-1.62, effective September 12, 2022. | |
| (2) | Notes payable includes USD$600,000 to be paid out of the net proceeds from the ordinary share offering to the seller of Reg Liquors LLC d/b/a/ Wired for Wine, which we acquired on November 3, 2021. | |
| (3) | Assumes the option to purchase additional ordinary shares is not exercised by the underwriters and no value is attributed to the Underwriter’s Warrants. The Company will use the Black-Scholes option pricing model to determine the weighted average fair value of warrants and the equity-based compensation expense will be recorded in administrative expenses. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. | |
| (4) | Reflects the sale of ordinary shares in this offering at an assumed initial public offering price of $5.00 per share, and after deducting the estimated underwriting discounts, and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. Additional paid-in capital reflects the net proceeds we expect to receive, after deducting the underwriting discounts and estimated offering expenses payable by us. We estimate that such net proceeds will be approximately $9,381,250. |
The number of ordinary shares on an as adjusted basis set forth in the table above is based on ordinary shares outstanding as of August 31, 2022, giving effect to the 1-for-1.62 reverse split, and assumes:
| ● | no exercise of the Underwriter’s warrants; and | |
| ● | no ordinary shares will be issued pursuant to the over-allotment option. |
A $1.00 increase (decrease) in the assumed public offering price of $5.00 per share would increase (decrease) the pro forma net tangible book value per share by approximately $0.21 and the dilution in pro forma net tangible book value per share to investors participating in this offering by $0.21 per share, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions, non-accountable expense allowance, and offering expenses payable by us.
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If you invest in our ordinary shares, your interest will be diluted for each ordinary share you purchase to the extent of the difference between the initial public offering price per ordinary share and our net tangible book value per ordinary share after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net tangible book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.
Our net tangible book value as of August 31, 2022, was $966,185, or $0.13 per ordinary share, as adjusted to reflect a 1-for-1.62 reverse split of our ordinary shares, effective September 12, 2022. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the net tangible book value per ordinary share (as adjusted for the offering) from the initial public offering price per ordinary share and after deducting the estimated underwriting discounts and the estimated offering expenses payable by us and giving effect to the reverse split.
After giving effect to our sale of 2,125,000 ordinary shares offered in this offering based on the assumed initial public offering price of $5.00 per ordinary shares, which is the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deduction of the estimated underwriting discounts and the estimated offering expenses payable by us, our as adjusted net tangible book value as of August 31, 2022, would have been $10,347,435, or $1.07 per outstanding ordinary share. This represents an immediate increase in net tangible book value of $0.94 per ordinary share to the existing shareholders, and an immediate dilution in net tangible book value of $3.93 per ordinary share to investors purchasing ordinary shares in this offering. The as adjusted information discussed above is illustrative only.
A $1.00 change in the assumed public offering price of $5.00 per ordinary share would, in the case of an increase, increase and, in the case of a decrease, decrease our pro forma net tangible book value after giving effect to the offering by $1.98 million, the pro forma net tangible book value per ordinary share after giving effect to this offering by $0.21 and the dilution in pro forma net tangible book value per ordinary share to new investors in this offering by $0.21 assuming no change to the number of ordinary share offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and estimated offering expenses. The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ordinary shares and other terms of this offering determined at pricing.
The following table illustrates the estimated net tangible book value per share after this offering and the per share dilution to persons purchasing ordinary shares in this offering based on the foregoing offering assumptions, and reflects the reverse split effective September 12, 2022:
| No Exercise of Over-Allotment Option | Full Exercise of Over-Allotment Option | |||||||
| Assumed initial public offering price per ordinary share | $ | 5.00 | $ | 5.00 | ||||
| Net tangible book value per ordinary share as of August 31, 2022 | 0.13 | 0.13 | ||||||
| As adjusted net tangible book value per ordinary share attributable to payments by new investors | 0.94 | 1.15 | ||||||
| Pro forma net tangible book value per ordinary share immediately after this offering | 1.07 | 1.28 | ||||||
| Amount of dilution in net tangible book value per ordinary share to new investors in the offering | $ | 3.93 | $ | 3.72 | ||||
The following tables summarize, on a pro forma as adjusted basis as of August 31, 2022, and reflecting a reverse split effective September 12, 2022, the differences between existing shareholders and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share before deducting the estimated underwriting discounts and the estimated offering expenses payable by us, and assuming no exercise of the underwriters’ over-allotment option.
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| Ordinary Shares purchased | Total consideration | Average price per Ordinary | ||||||||||||||||||
| Over-allotment option not exercised | Number | Percent | Amount | Percent | Share | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Existing shareholders | 7,502,872 | 78 | % | $ | 4,486 | 30 | % | $ | 0.60 | |||||||||||
| New investors | 2,125,000 | 22 | % | 10,625 | 70 | % | 5.00 | |||||||||||||
| Total | 9,627,872 | 100 | % | $ | 15,111 | 100 | % | $ | 1.57 | |||||||||||
| Ordinary Shares purchased | Total consideration | Average price per Ordinary | ||||||||||||||||||
| Over-allotment option exercised in full | Number | Percent | Amount | Percent | Share | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Existing shareholders | 7,502,872 | 75 | % | $ | 4,486 | 27 | % | $ | 0.60 | |||||||||||
| New investors | 2,443,750 | 25 | % | 12,219 | 73 | % | 5.00 | |||||||||||||
| Total | 9,946,622 | 100 | % | $ | 16,705 | 100 | % | $ | 1.68 | |||||||||||
The pro forma as adjusted information as discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ordinary shares and other terms of this offering determined at the pricing.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in this prospectus. See “Cautionary Statement About Forward-Looking Statements.”
Overview
We are a developer, manufacturer and exporter of a growing portfolio of 60 formulations across 13 alcoholic and non-alcoholic brands of beverages like Australian Bitters Company and Drummerboy. Our distribution capabilities include sales to large distributors and high-margin direct-to-consumer sales. We have partnered with Coca-Cola Europacific Partners (NASDAQ:CCEP), one of the world’s largest Coca-Cola bottlers, to exclusively distribute “Australian Bitters Company” bitters in Australia while retaining the rights throughout the rest of the world, and we are negotiating distribution to new European markets, including expansion of our new brands such as Drummerboy into Australia and Europe. We focus on direct-to-consumer (DTC) sales through our network of eCommerce platforms. We launched BevMart, a DTC marketplace, in Australia in May 2021 and in the U.S. in February 2022. We also acquired the U.S.-based Wired For Wine.com in November 2021, increasing the scope of our DTC capabilities, which allows us to drive higher margins across our brands.
We have facilities, which are FDA certified, kosher compliant and meet Coca-Cola’s stringent standards, include the ability to engage in the process of making our products in-house, including innovation and development, maceration, blending, distillation, rectification and bottling. We believe that we currently have the capacity to increase production by 10x with minimal capital expenditures.
Factors Affecting Our Results of Operations
We believe our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this prospectus titled “Risk Factors.”
Implementing our growth strategy
The Company has two distinct business units as follows:
| A. | Creating, marketing, and scaling lifestyle focused beverage brands with a focus on Bitters, Non-Alcohol Spirits, Bottled cocktails and other high margin innovative products exclusively developed in house and sold via large distribution partners in Australia and around the globe. The largest distribution partnership is with Coca-Cola Euro-Pacific Partners (NASDAQ:CCEP) followed by a partnership with Sway Energy Corporation. | |
| B. | Sales of wine and spirits via company’s owned marketplaces namely www.wiredforwine.com, www.bevmart.com, www.bevmart.com.au, and www.drummerboy.com. These marketplaces allow us to position is range of owned, produced and future brands into a direct to consumer (DTC) business model which allows for the capture of the entire value chain as well as the opportunity to test and trial consumer feedback on new innovations. |
Our growth objectives for A are to increase its range of brands as well as increase its territories with a focus on large territories suited for its brands. A significant opportunity is to increase its range with current distribution partners of which CCEP is a major distributor. We also have a U.S. expansion strategy for Bitters brands and its latest non-alcohol spirits innovation and brand called Drummerboy. We are in active discussions with significant distributors around the world for its suite of brands.
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Our growth objectives for B are to increase the number of visitors to its marketplaces and increase the conversion via a customer acquisition strategy (CAC). The primary growth opportunity is to increase revenues, increase efficiencies and gross margins. A primary driver of the increase in revenues will be wiredforwine.com and drummerboy.com which will both utilize the same back-end infrastructure and fulfilment center controlled by the company.
Impact of COVID-19
Our full year 2020 and 2021 performance reflected the impact of COVID-19 throughout the period. Restrictions continued to impact company’s global operations, with significant impacts in our Australian operations with key sales channels remaining in varied states of impact and recovery. During the pandemic, e-commerce continued to demonstrate strong performance, offset by varying levels of disruption of other sales channels such as on-premises and travel retail. We remain confident that, as most those sales channels re-open and consumption demand returns, it is very well placed to further the pace of its recovery. COVID-19 also caused the shortage of raw material and prolonged logistical issues. The Company’s experienced management team has supported the business well through this time of challenge and has helped to drive positive momentum.
IBG believes that not every disruption can be avoided, but many of them can be managed. We managed to implement a few actions to strengthen the resilience of our supply chain as discussed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Supply Chain Disruptions.” As of the date of this prospectus, there have been no significant challenges identified that materially impact IBG’s results of operations or capital resources.
Key Components of Our Results of Operations
We consider a variety of financial and operating measures in assessing the performance of our business. The key financial performance measures we use are revenue, gross profit and gross margin. Our review of these indicators facilitates timely evaluation of the performance of our business and effective communication of results and key decisions, allowing our business to respond promptly to competitive market conditions and different demands and preferences from our customers. The key measures that we use to evaluate the performance of our business are set forth below and are discussed in greater details under “Results of Operations”.
Revenue
Our revenue is derived primarily from the sales of bitter products to Coca-Cola Europacific Partners and oversea customers and direct-to-customer (DTC) sales through our on-line marketplaces.
Cost of Goods Sold
Cost of goods sold include the costs of direct materials and delivery costs, direct labor, import duties and other taxes, and an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity.
General and Administrative Expenses
Selling, general and administrative expenses consist primarily of amortization of intangible assets, advertising and marketing, consultancy and other professional fees, insurance, and new product development.
Finance Costs
Finance costs consist primarily of interest expenses as a result of the lease accounting.
Other Income
Other income consists of government incentives in the form of the Australian federal government’s “JobKeeper” program which was a program aimed to support companies as a result of the COVID-19 pandemic, bank interest received, gains on disposal of assets and other income earned from sales to contractors.
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Results of Operations
Fiscal Years Ended December 31, 2021 to December 31, 2020
Revenues for the year ended December 31, 2021, were $3,748,281 compared to revenues of $2,181,754 for the year ended December 31, 2020. The following table summarizes the results of our sales for the years ended December 31, 2021 and 2020, respectively.
| 12 Months Ended December 31, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Australian Bitters Company | $ | 2,264,574 | 60 | % | $ | 1,399,921 | 64 | % | ||||||||
| BitterTales and others | $ | 742,654 | 20 | % | $ | 781,833 | 36 | % | ||||||||
| Total Brand Products | $ | 3,007,228 | 80 | % | $ | 2,181,754 | 100 | % | ||||||||
| Spirits | $ | 185,900 | 5 | % | $ | — | 0 | % | ||||||||
| Wines | $ | 555,153 | 15 | % | $ | — | 0 | % | ||||||||
| Total E-Commerce | $ | 741,053 | 20 | % | $ | — | 0 | % | ||||||||
| Grand Total | $ | 3,748,281 | 100 | % | $ | 2,181,754 | 100 | % | ||||||||
The $1,566,527, or approximately 71.8%, increase in revenue was driven by the direct-to-consumer (DTC) sales contributed from BevMart Australia (since May 2021) and Wired For Wine.com (since Nov 2021) and stable year-to-year increased sale of our “Australian Bitters Company” bitters whose growth in net sales was mainly attributable to strong volume contribution for year 2020 to 2021.
Cost of goods sold for year ended December 31, 2021, were $1,255,877 compared to cost of goods sold for the year ended December 31, 2020, of $441,710. The increase in cost of goods sold for the year ended December 31, 2021, was primarily due to our increased sales. Gross profit percentage (GP%) for our brand products was kept as high as 70%, we expect the group’s overall GP% will drop to approximately 55% on average in future along with the increased contribution of Wired For Wine, whose GP% usually ranges from 20% to 25%.
| 12 Months Ended December 31, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Other General and Administrative | $ | 910,319 | 37 | % | $ | 354,713 | 34 | % | ||||||||
| Salary and Wages | $ | 800,186 | 33 | % | $ | 492,189 | 47 | % | ||||||||
| Sales and Marketing | $ | 424,992 | 17 | % | $ | 24,438 | 2 | % | ||||||||
| Contracted Services | $ | 302,740 | 12 | % | $ | 183,416 | 17 | % | ||||||||
| Total Operating Expenses | $ | 2,438,237 | 100 | % | $ | 1,054,756 | 100 | % | ||||||||
Operating expenses for the year ended December 31, 2021, were $2,438,237 compared to $1,054,756 for the year ended December 31, 2020. The increase in our operating expenses was primarily a result of recording increased expenses relating to:
| ● | Intangible asset amortization ($124,611), as one item of Other General and Administrative, predominantly represents a once-off accounting adjustment to “catch up” historical under-amortization of a long-term customer contract; | |
| ● | Consultancy ($262,481), as another item of Other General and Administrative, for hiring external professionals to help the company with the likes of fundraising, this offering, human resources, corporate governance, technology, and eCommerce strategy. All these activities and improvement are demanded and incurred in year 2021 as necessary of the next stage growth; | |
| ● | Sales and Marketing ($400,554), consists of brand marketing campaigns through various online platforms, including email, digital, website, social media, search engine optimization, as well as celebrities’ ambassadorship; and | |
| ● | Salary and Wages ($307,997) represents our efforts to build up a more experienced and robust team in sales & marketing, quality control, e-Commerce, and finance departments. |
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| 12 Months Ended December 31, | ||||||||||
| 2021 | 2020 | |||||||||
| Other income / (expense) | $ | (5,775 | ) | $ | 109,812 | |||||
| Interest income | $ | 72,446 | $ | 36,877 | ||||||
| Interest expense | $ | (32,549 | ) | $ | (6,145 | ) | ||||
| Total other income / (expenses) | $ | 34,122 | $ | 140,544 | ||||||
| Net Income | $ | 31,763 | $ | 595,766 | ||||||
The other income for the year ended December 31, 2021, was $34,122 as compared to the other income of $140,544 for the year ended December 31, 2020. The decrease in other income is due to the company received a lump-sum, covid-relevant grant from the government in 2020 which discontinued in 2021.
The net income for the year ended December 31, 2021, was $31,763 as compared to the net income of $595,766 for the year ended December 31, 2020. The decrease in net income is mainly due to our increase in operating expenses invested in company’s long-term growth and a discontinued government COVID relief grant.
Liquidity and Capital Resources
Cash Flow
Fiscal Years Ended December 31, 2021, and 2020
As of December 31, 2021, we had total cash and cash equivalents of $1,559,172 as compared with $403,486 at December 31, 2020. The following table summarizes our sources and uses of cash for each of the periods presented:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash used in operating activities | $ | (843,591 | ) | $ | 1,003,187 | |||
| Cash used in investing activities | $ | (1,758,226 | ) | $ | (708,826 | ) | ||
| Cash provided by financing activities | $ | 3,905,017 | $ | (5,208 | ) | |||
| Impact of changes in foreign currency on cash | $ | (147,514 | ) | $ | 82,824 | |||
| Net increase (decrease) in cash and cash equivalents | $ | 1,155,686 | $ | 371,977 | ||||
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The increase of $1.16m was primarily due to $3.94m inflow from a Series A Financing as financing activities net off by $1.2m business and intangible assets acquisition (investing activities) and $0.2m from operating activities.
The net cash received from the increase in share capital during the period between January 1, 2022 and June 15, 2022 was $677,605 through the issuance of 309,762 ordinary shares.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements for the years ended December 31, 2021 and 2020 that have or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our estimates on an ongoing basis, including those related to revenue recognition and income taxes. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making the judgments we make about the carrying values of our assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates.
The critical accounting policies summarized in this section are discussed in further detail in the notes to our consolidated financial statements appearing elsewhere in this annual report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from contracts with customers” (Topic 606). Revenue is recognized upon the Company’s satisfaction of a single performance obligation when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company’s main revenue stream is from sales of products. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
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Lease Commitments
Operating lease right of use (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the statements of operations.
Finance lease right of use assets represents the right to use the leased asset for the lease term and finance lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The initial liability for a finance lease will subsequently be adjusted to reflect interest expense incurred (increase of the liability), and lease payments made (decrease of the liability). Interest should be recognized equal to an amount that produces a constant periodic discount rate on the remaining balance of the liability during the lease term (i.e., the effective interest method). The ROU asset should be amortized on a straight-line basis from the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term. If, however, ownership of the ROU asset is transferred to the lessee at the end of the lease term or it is reasonably certain the lessee will exercise a purchase option for the ROU asset, then the lessee should amortize the ROU asset from commencement of the lease to the end of the useful life of the ROU asset.
Foreign Currency Translation
The Company determined that its functional currency is the U.S. dollar since the U.S. dollar is the currency of the environment in which the Company primarily generates and expends cash. Foreign currency transaction gains and losses represent gains and losses resulting from transactions entered into in a currency other than the functional currency of the Company. These transaction gains and losses are included in results of operations.
Recently Issued Accounting Pronouncements
On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
The new guidance; (i) eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an organization’s current estimate of all expected credit losses over the contractual term of its financial assets, (ii) broadens the information that an entity can consider when measuring credit losses to include forward-looking information, (iii) increases usefulness of the financial statements by requiring timely inclusion of forecasted information in forming expectations of credit losses, (iv) increases comparability of purchased financial assets with credit deterioration (PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets because credit losses that are expected will be recorded through an allowance for credit losses for all assets, (v) increases users’ understanding of underwriting standards and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage), and (vi) aligns the income statement recognition of credit losses, for available-for-sale debt securities, with the reporting period in which changes occur by recording credit losses (and subsequent changes in credit losses) through an allowance rather than a write down.
The new guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. It affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.
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For public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application is permitted. The Company will adopt beginning January 1, 2023. The Company does not believe the adoption of this pronouncement will have a material impact on its consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
Overview
We are a developer, manufacturer, marketer, exporter and retailer of a growing beverage portfolio of 60 formulations across 13 alcoholic and non-alcoholic brands. Our focus is on premium and super premium brands.
Innovation Beverage Group Limited has two subsidiaries. IBG USA LLC (“IBG USA”) was formed for the purpose of importing, producing via co-packers, marketing and wholesaling Innovation Beverage Group Limited owned portfolio of brands in the United States. IBG USA has not conducted any of these activities as of yet but plans to in the near future. Reg Liquors LLC d/b/a Wired For Wine is an e-commerce retailer of wines and spirits, and it operates its own marketplaces, www.wiredforwine.com and www.bevmart.com.
Our flagship Australian Bitters Company (ABC) brand accounted for approximately 75% of our revenues in 2021. We also sell BitterTales, a brand to which we have the exclusive right to manufacture for distribution in the United States. By geographic market, our total revenues are:
| 2021 (USD) | 2020 (USD) | 2019 (USD) | ||||||||||
| Australian Market | $ | 2,386,798 | $ | 1,598,822 | $ | 2,248,941 | ||||||
| U.S. Market(1) | $ | 1,361,483 | $ | 582,932 | — | |||||||
| Total Revenue | $ | 3,748,281 | $ | 2,181,754 | $ | 2,248,941 | ||||||
(1) Solely for the purpose of this chart, exports to the U.S. are included as revenue attributable to the U.S. market. IBG manages its business in two geographical segments, Australia and the United States, and for accounting purposes, the revenue allocation is different in Note 11 of our Notes to Consolidated Financial Statements given that the export sales to the U.S. Market as shown in this chart, represent revenue generated from sales to IBG’s customers or distributors located in the Australia Market, who in turn distribute the sale of those products onward to consumers in the U.S. Market.
The Australian Bitters Company brand was developed as an Australian alternative to a well-known, nearly 200 year old brand, Angostura Bitters. In 2020, ABC had approximately 25% of the market share in Australia, having launched in 2015. We believe that the growth of ABC to its current position in the markets shows that ABC has become the first Australian-made challenger brand to Angostura Bitters. By way of distribution through Coca-Cola Europacific Partners (CCEP), Australia’s largest beverage distributor, ABC has managed to grow its market share substantially. CCEP has a distribution network that reaches over 90% of postcodes across Australia. As a brand in CCEP’s distribution network, we anticipate significant continued growth. ABC also has the home-field advantage of being locally produced and Australian rather than being an imported product.
Our Company relies on certain business relationships to manufacture and/or distribute different brand-name products. Among such relationships is our business with Sway Energy Corp. Our Chief Operating Officer and Chairman of our board of directors is Sahil Beri, who is the brother of Amit Beri, the Chief Executive Officer and a director of Sway Energy Corp. This family relationship presents a potential conflict of interest between the companies.
The following chart summarizes the arrangements we have with respect to our different brand-name products. For a complete description about the related agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
| Brands | Summary | Governing Agreement | IP | Consideration/Royalty |
| Elegance Vodka | Sway Energy Corp. owned all intellectual property rights to Elegance Vodka until the brand was sold on June 29, 2022 around which time IBG ceased manufacturing this product. | Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance (“2020 Manufacturing Agreement”)
|
N/A | N/A |
| Australis Gin | IBG owns this brand after repurchasing it from Sway Energy pursuant to the June 2021 Agreement. | ● Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance
● Termination of BevMart Agreement and Amendment to Manufacturing Agreement, between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc., dated June 14, 2021 (“June 2021 Agreement”)
|
IBG owns the intellectual property rights, including formulations, associated with the brand Australis Gin. | ABS paid USD$42,500 representing 100% of the costs and expenses incurred by Elegance as at that time in developing the Australis Gin beverage and brand |
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| Twisted Shaker | IBG holds a royalty-free license to Twisted Shaker to manufacture, use and sell the product throughout the world, except the U.S., its territories and possessions. | ● Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance
● Termination of BevMart Agreement and Amendment to Manufacturing Agreement, between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc., dated June 14, 2021 |
IBG sold its intellectual property rights, including related formulations, associated with the Twisted Shaker brand to Sway.
Sway granted IBG a royalty-free non-exclusive license to use its intellectual property rights associated with the Twisted Shaker brand to manufacture, use and sell Twisted Shaker throughout the world, except for the U.S., its territories and possessions, which are Sway’s exclusive territories. The license expires upon termination of the 2020 Manufacturing Agreement.
|
IBG received as consideration from Sway USD$10,000 for each of the formulations possessed by IBG with respect to the Twisted Shaker brand
IBG agreed with Sway to offset future royalties payable for Twisted Shaker to Sway in return for a royalty free right Sway to sell VOCO in the USA.
|
| BitterTales | Sway owns this brand globally, but does not own the formulations.
With respect to formulations, IBG granted Sway a license to manufacture, use and sell all formulations of BitterTales within the USA and other countries located in Sway’s territories. |
Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance | IBG granted to Sway irrevocable and exclusive right and perpetual, license, with the right to grant sublicenses, to make, use and sell all formulations with respect to the BitterTales brand of alcoholic products. | One-time upfront royalty payment in the amount of USD$40,000 paid on August 15, 2020
Within 90 days following the termination of the 2020 Manufacturing Agreement for any reason other than an automatic termination or termination by IBG for Cause as provided therein, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of BitterTales for USD$2,000,000 (along with those for Australian Bitters Company). |
| VOCO | IBG owns this brand and granted Sway a royalty-free license to use its intellectual property rights associated with VOCO to manufacture, use and sell the brand in the U.S., its territories and possessions. | ● Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance
● Termination of BevMart Agreement and Amendment to Manufacturing Agreement, between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc., dated June 14, 2021 |
IBG granted Sway a royalty-free exclusive license to the intellectual property rights associated with the VOCO brand to make, use and sell the brand in the U.S., its territories and possessions. The license expires upon termination of the 2020 Manufacturing Agreement.
|
Sway paid to IBG the paid-up sum of USD$200,000, in lieu of all current and future royalties due.
IBG agreed with Sway to offset future royalties payable for Twisted Shaker to Sway in return for a royalty-free right for Sway to sell VOCO in the U.S.
|
| Australian Bitters Company | Within Australia, CCEP owns the right to distribute the Australian Bitters Company brand and IBG has the exclusive right to manufacturer the product.
Outside Australia, IBG owns the brand and has the right to manufacture and distribute Australian Bitters Company products. With respect to the U.S., its territories and possessions, IGB has a distribution arrangement with Sway whereby Sway pays USD$60 per case. |
● Europa and CCA 2016 Manufacturing Agreement dated Dec. 22, 2016, which terminates on Dec. 31, 2031 ● Deed of Novation, date July 2, 2018 ● Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance ● Termination of BevMart Agreement and Amendment to Manufacturing Agreement, between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc., dated June 14, 2021 |
IBG sold its right, title and interest to all brands, line extensions, and flavor line extensions associated with the Australian Bitters Company brand to Sway for sale and distribution in the U.S., its territories and possessions.
Sway distributes Australian Bitters Company products in the U.S. for IBG. |
Sway pays USD$60 per case of Australian Bitters Company products
Within 90 days following the termination of the 2020 Manufacturing Agreement for any reason other than an automatic termination or termination by IBG for Cause as provided therein, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of Australian Bitters Company for USD$2,000,000 (along with those for BitterTales). |
Cheeky Vodka and flavor variants
Coventry Estate Gin and flavor variants
Geo Liqueurs in multiple variants
Cheeky Espresso Martini in multiple variants
|
IBG owns and manufactures these brands. | ● Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance
● Termination of BevMart Agreement and Amendment to Manufacturing Agreement, between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc., dated June 14, 2021 |
IBG owns and manufactures these brands, as well as the BevMart.com.au website and business.
|
IBG paid as consideration to Sway USD$188,630.41, which represented 100% of the fully burdened costs and expenses incurred by Sway in developing the website and developing and creating formulations for each of the brands. |
Our goal is to increase our market share in the $600 million global market for bitters. Our partnership with Coca-Cola Europacific Partners (NASDAQ:CCEP), one of the world’s largest Coca-Cola bottlers, to exclusively manufacture ABC bitters for distribution in Australia is a key component of this strategy. We retain distribution rights for ABC bitters outside Australia and are actively negotiating new distribution arrangements for new markets.
Our direct-to-consumer (DTC) distribution channel is a network of eCommerce platforms: www.bevmart.com.au, www.bevmart.com, www.wiredforwine.com, and www.drummerboy.com. We launched BevMart.com.au in Australia in May 2021 and BevMart.com in the U.S. in February 2022. In November 2021, we acquired the U.S.-based www.wiredforwine.com. Our Drummerboy brand will be offered through its own DTC website. We offer our brands, as well as other brands, through our four (4) eCommerce platforms.
We are introducing a new non-alcoholic spirit brand called Drummerboy, our first entry into the growing non-alcoholic beverage market. No-and-Low Alcohol products are becoming increasingly accepted as a lifestyle and societal norm, making it more accessible and approachable for consumers. The market value of no/low alcohol in key global markets in 2021 was just under USD$10 billion, up from USD$7.8 billion in 2018.[5] With a direct to consumer (DTC) retail price per bottle of AUD$50 (approximately USD$35) and via manufacturing efficiencies through in-house manufacturing, we anticipate a margin in excess of 80% gross profit when selling Drummerboy through its own www.drummerboy.com website in a DTC sale.
We have launched Twisted Shaker, our first entry in the bottled cocktail market, in Australia. The pre-batched cocktail market grew significantly during the beginning of the COVID pandemic with consumers loving the convenience and cost efficiency of this type of product. Twisted Shaker cocktails are full-strength, high-quality bottled cocktails. We expect to launch new bottled cocktail brands in the U.S. in July 2022.
[4] Reserved.
[5] IWSR, No- and Low-Alcohol in Key Global Markets Reaches Almost US$10 Billion in Value (Last accessed April 26, 2022).
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IBG eCommerce
* Depicted in this image are products we distribute through our eCommerce websites on behalf of customers as well as our Twisted Shaker and Drummerboy products.
Wired For Wine.com
Wired For Wine.com is a packaged wine website offering quality wines at highly competitive prices with incentivized free delivery on certain purchases. The current range contains more than 500 SKUs, with an email database of more than 33,000 highly engaged customers (42.16% average open rate on email marketing campaigns) and a majority demographic in the 45 - 54 age range (where 58% of customers are males).
On November 3, 2021, the Company acquired 100% of the outstanding equity interests in Reg Liquors, LLC d/b/a Wired For Wine.com, located in Stockton, New Jersey. Since the acquisition of Wired For Wine.com, IBG has begun reshaping the brand’s proposition and identity towards premiumization. The aim is to transform Wired For Wine.com into the U.S.’s leading online destination for premium wine.
WFW Short - Medium Term Strategy
| ● | Invest in short-term performance marketing, website optimization and long-term brand building. |
Investing in performance marketing (paid digital media) and website optimizations will increase revenue in the short term while brand-building lays the foundation for sustainable growth. A strong brand will have better organic acquisition and retain more customers over time.
| ● | Build long-term relationships and loyalty with our customers through community and rewards. |
New customer acquisition costs are skyrocketing and will continue to do so with a rise in (COVID-19 driven) online competition and a shift towards digital privacy. Building communities with shared values of the WFW brand and rewarding them for their loyalty reduces marketing costs, increases customer retention and supports brand building.
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| ● | Focus on sustainable growth. |
Even with the additional marketing spending and optimizations to WFW, it will be loss-making if it continues in its current format. Delivery costs are too high and margins are too thin to reinvest back into marketing for rapid growth. Short-term changes to promotional mechanics and pricing with long-term investment in brand equity and buying efficiencies will allow for increased profits without sacrificing revenue.
| ● | Utilize technology and expertise across our operations. |
Product ranging, knowledge and buying efficiencies will be core to the success of WFW’s new brand identity. As such, we plan to hire a sommelier or wine expert for support in product ranging (sought after, premium wines) and product-related knowledge that can be used as digital content. Better insights and analytics will support personal knowledge with data on purchase frequency, purchase amount and predicted depletion date to better manage cash flow and forecasting. Operationally, our consolidation of the eCommerce structure will help reduce operating expenses, duplication of work and leverage the team’s experience and capabilities.
The below roadmap illustrates the planned projects based on the above short-term strategy.
WFW Medium - Long Term Strategy
1:1 Marketing personalization
| ● | Create a destination for corporate & gifting orders | |
| ● | Expand reach through 3rd part marketplaces (e.g. Drizly, Vivino) | |
| ● | Convenience options for customers (e.g. SMS orders, same-day delivery expansion) |
Competitive Market
The U.S. market is relatively crowded with online packaged alcohol retailers, led by early adopters to online DTC and convenience commerce models, such as Drizly. The leaders in the destination, low price space - Total Wine (8.1 million monthly visits), Wine.com (1.1 million monthly visits) and Bevmo (913,000 monthly visits) - where Wired For Wine.com currently inhabits, all have a very similar business model: large range, low prices.
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It is our belief that it would be futile for WFW to remain in this space. Low pricing to remain competitive and low margins inhibit our ability to scale and achieve revenue targets. Instead, a shift towards premiumization with a target of pre-family, medium to high income earners is the necessary model to achieve our goals. ReserveBar is great example of this, having success as a premium spirits (and small wine range) online retailer.
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Competitor Analysis
Note:
Winc, Naked Wines and Vivino have not been included due to their business models.
Strengths
| ● | W4W’s small size allows it to be nimble and adapt quickly to changes in the market. It also allows W4W to purchase high demand stock in small batches to push our brand and product specialization image without disappointing customers. |
| ● | W4W has an established loyal customer base built over a number of years will help us safeguard against new entrants into the market. |
| ● | W4W aims to be a modern brand where the incumbents have, for the most part, built their brands on the traditional ‘wine world’ identity. |
Weaknesses
| ● | W4W currently cannot match the buying power or margins of the big players due to volume purchase. Price wars can become damaging to profit (if we engage) once W4W lands on the radar of bigger players. |
| ● | A single warehouse location on the east coast limits W4W’s ability to expand instant delivery. |
Opportunity
| ● | Taking market share from Shop Wine Direct and K&L Wine Merchants with a superior customer experience enabled by technology, mobile experience where most consumers shop, loyalty program and modern brand. |
| ● | A lot of the competitor websites have a poor user interface and user experience, which causes user frustration and can be a defining factor of conversion, particularly mobile, where most users now shop online. WFW will address this, offering a best-in-class user interface and user experience. |
| ● | Utilizing technology to solve the customer pain points. |
| ● | Expansion of W4W subscriptions and corporate services. |
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Challenges
| ● | ReserveBar would become a significant competitor if they choose to expand their wine range and have an appetite for a price war. |
| ● | Convenience commerce models and third-party marketplaces will continue to dominate the online space, however we should look to partner with these brands as they are an opportunity to reach a larger audience. |
Bevmart AU
Bevmart is a vertically integrated, direct-to-consumer spirits website for Australian Boutique Spirits. Bevmart specializes in exclusive spirits and imported celebrity brands for the Australian market. Bevmart offers a range of 50 SKUs (primarily our produced products) with the objective to expand this range significantly by end of our 2022 fiscal year.
Competitive Market
Spirits are driving the most growth in both premium and mainstream categories of the packaged liquor market in 2020, with younger premium customers showing the strongest overall growth than any other segment.
For premium customers, gin, liqueurs and tequila show the highest growth in the spirits category with seltzers and gin-based premix leading the premix category.[6] The opportunity exists to capitalize on the younger premium segment through optimized channel targeting, customer service and range extension.
[6] IBIS World, AU Industry (Specialized) Report OD4087, Online Beer, Wine and Liquor Sales in Australia, Matthew Reeves (April 2021); IBIS World, AU Industry (ANZSIC) Report G4123, Liquor Retailing in Australia, Matthew Reeves (February 2021).
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Strengths
| ● | Exclusive, award winning and unique product range. | |
| ● | Celebrity endorsement in Australia from Michael Clarke, an Australian cricket legend. | |
| ● | Product range, website and customer service highly rated with an average star rating of 4.71/5 for product and 4.82/5 for website and customer service. | |
| ● | Offers same day delivery in Sydney metro. | |
| ● | Competitive pricing. |
Weaknesses
| ● | Branding and range does not all reflect premium positioning. | |
| ● | Small range limits revenue growth. | |
| ● | Single warehouse location limits our ability to offer pick up across major cities. | |
| ● | Exclusiveness can be hard to secure for small or new brands. |
Opportunity
| ● | Range expansion through exclusive agreements and parallel importing to cover more categories to increase revenue. | |
| ● | Create corporate and gifting destination. | |
| ● | Expert validation of product quality through award shows. | |
| ● | Expand same day delivery to other major cities in Australia. | |
| ● | Leverage technology to solve customer pain points. |
Challenges
| ● | Celebrity product range could be picked up by competitors, diluting the brand proposition. |
Bevmart U.S.A
Bevmart U.S.A aims to be a leading direct-to-consumer spirits platform in the U.S. market, specializing in exclusive spirits and celebrity brands. Bevmart U.S.A offers a range of 13 SKUs, which are all celebrity products.
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Target Market Size
Spirits in the U.S. - for the 11th straight year - have continued to gain market share over beer and wine.[7] Premiumization also continues to increase with premium and the super-premium spirits categories seeing +7.3% and +12.7% growth, respectively.[8]
The demand for whiskies, such as Bourbon, Tennessee, and Rye, is growing significantly in the United States. The increasing demand for premium whiskies with the rising number of super-premium brands and the fast-growing cocktail market are the key factors driving the growth of the American whiskey market.
Competitive Market
At home beverage consumption was already trending prior to COVID-19. While it may have increased adoption of online liquor sales, consumers being more comfortable with being at home will continue to accelerate the trend.
The U.S. is forecast to overtake China to become world’s largest beverage alcohol eCommerce market by end of 2021.[9] As consumers continue to adjust to the effects of Covid-19, beverage alcohol eCommerce has become an increasingly important retail channel across the globe.[10]
Nearly half (44%) of American spirits e-shoppers began buying their booze online in 2021.[11] As a result, IWSR says that the American booze e-commerce market value grew by 80% this year; by 2024, online liquor sales in the U.S. are expected to hit 7% of total off-trade beverage alcohol volume in the country, compared to 6% in China.[12]
[7] Wine Enthusiast, “Spirits Sales Grew in 2020 Despite Pandemic, ‘Destructive’ Tariffs,” January 29, 2021.
[8] Id.
[9] IWSR, “Beverage alcohol eCommerce value grows by 42% in 2020, to reach US$24 billion”. (Last accessed April 26, 2022.)
[10] Id.
[11] Forbes, “U.S. On Track To Be Biggest Alcohol E-Commerce Market By 2021,” November 30, 2020.
[12] Id.
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Competitive Analysis
Strengths
| ● | Premium celebrity product range offering competitive prices. |
| ● | Soon to offer same day delivery in New York City and Jersey City, New Jersey. |
| ● | Small size allows Bevmart U.S.A to be nimble and adapt quickly to changes in the market. It also allows Bevmart U.S.A to purchase high demand stock in small batches to push our product specialization image without disappointing customers. |
Weaknesses
| ● | Small range limits revenue growth. |
| ● | Bevmart U.S.A currently cannot match the buying power or margins of the big players due to volume purchase. Price wars can become damaging to profit (if Bevmart U.S.A engages) once Bevmart U.S.A lands on the radar of bigger players. |
| ● | Single warehouse location on the east coast limits Bevmart U.S.A’s ability to expand instant delivery. |
| ● | Exclusiveness can be hard to secure for small or new brands. |
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Opportunity
| ● | Range expansion to increase revenue. |
| ● | Create corporate and gifting destination for spirits. |
| ● | Leverage Wired For Wine.com’s customer base to market Bevmart U.S.A. |
Challenges
| ● | Celebrity product range could be picked up by competitors, diluting the brand proposition. |
| ● | Convenience commerce models and third-party marketplaces will continue to dominate the online space, however, Bevmart U.S.A should look to partner with these brands as they are an opportunity to reach a larger audience. |
Drummerboy
Through efficiencies of managing www.bevmart.com, www.bevmart.com.au, and www.wiredforwine.com and having our own back end fulfilment warehouses and key relationships with logistics partnerships launch of www.drummerboy.com in both Australia and the U.S. via our own DTC system will lead to immediate scale opportunities.
Drummerboy.com will also have the advantage of cross marketing this website to existing loyal customers across the other marketplaces already in revenue.
Additionally, we will have efficiencies of scale in our digital, native, influencer, and direct marketing strategies with all websites managed and controlled by one centralized team and agency partnership.
eCommerce Advantages
Technological Advantages
All four of our eCommerce brands - www.wiredforwine.com, www.bevmart.com, www.bevmart.com.au, and www.drummerboy.com - are built on Shopify, including their front ends. While there are some customization restraints (ones that are not currently needed), Shopify provides a best-in-class, low-cost solution for our direct-to-consumer functionality needs. Its native features and a large library of app integrations significantly reduce our development costs and allow us to be nimble in an ever-changing digital landscape.
As we scale the brands, there may be a need for additional front end customizations in which we would adopt a headless e-Commerce architecture (custom front end) utilizing Shopify’s back end.
Operational Advantages
IBG has vertically integrated manufacturing, import, sales and marketing company with a focus on direct-to-consumer (DTC) enabling complete capture of the value chain. Our eCommerce and product team consists of members with extensive beverage industry experience garnered at some of the world’s largest alcohol companies, such as Endeavour Drinks Group (Australia’s largest liquor online and brick-and-mortar retail group), Treasury Wine Estates (Australia’s largest wine company and one of the world’s largest wine companies) and Anheuser-Busch InBev (the world’s largest brewer). This is aided by the wealth of knowledge consulting the IBG eCommerce team in Paul Waddy - former CEO of The Horse, Head of Operations at Showpo and voted No 2 in Inside Retail’s Top 50 People in eCommerce Australia in 2021.
IBG’s leased warehouses in Sydney and New Jersey provide logistical advantages for the distribution for our products and those of our clients to nearby large population centers.
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Cost Advantages
IBG’s product portfolio is focused on bitters, light spirits and non-alcoholic spirits, which have short manufacturing times. As a result, IBG is more capital efficient as compared to dark spirit manufacturers (e.g. whisky, brandy, etc.), which often require aging in barrels for years before being sold.
With regard to the our eCommerce, the flat structure helps to reduce our operating expenses (as we have one digital marketing agency and web development team) and duplication of work. The structure also leverages the team’s experience and capabilities across four eCommerce banners. Owned products, such as Drummerboy and Twisted Shaker, and distribution deals (i.e. Drake’s Virginia Black) allows us to retain margin and push exclusiveness as a competitive difference through our DTC banners (i.e. Bevmart).
IBG Bitters Products
We produce a range of award-winning Bitters at our distillery and beverage manufacturing facility in Seven Hills, NSW Australia. Our BitterTales Aromatic Bitters was a Gold Medal winner at the 2021 L.A. Spirits Awards and Platinum Medal winner at the 2020 L.A. Spirits Awards. Our product also won Best In Show of the 2020 L.A. Spirits Awards. Our bitters that we manufacture as the Australian Bitters Company, was awarded Gold and Silver medals at the 2018 International Wine and Spirit Competition (IWSC), as well as two Silver Medals at the 2018 L.A. Spirits Awards.
In Australia, our Bitters are predominantly sold to Coca-Cola Europacific Partners (CCEP) under a long-term Australian contract, which expires 2033, in Australia. (In 2021, our previous distributor, Coca-Cola Amatil Limited, merged with CCEP.) The balance of our Bitters’ sales is exported. Bitters for our Company as a manufacturer and brand owner is a highly profitable category with a gross profit margin of approximately 80%. All of our Bitters are manufactured at our distillery and beverage manufacturing facility in Seven Hills, NSW Australia.
IBG is in discussions with global distribution partners in Europe, Asia and the Americas for its Bitters brands. BitterTales is another successful Bitters product manufactured by IBG. Sales of this product in Australia, for export sales to the U.S., grew from AUD$669,180 (approx. USD$485,557) in 2020 to AUD$936,960 (approx. USD$679,858) in 2021, which represents approximately 40% year over year growth.
On July 31, 2021, the Company (formerly known as Australian Boutique Spirits Pty Ltd) and Sway Energy Corp. (formerly known as Elegance Brand, Inc.) (“Sway”) entered into a Manufacturing, Supply and License Agreement, as amended on March 10, 2021 and June 14, 2021 (“2020 Manufacturing Agreement”). Pursuant to the 2020 Manufacturing Agreement, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of BitterTales and Australian Bitters Company for USD$2,000,000, which may be exercised within 90 days following the termination of the 2020 Manufacturing Agreement, for any reason other than an automatic termination or termination by the Company for Cause as provided therein. In the event that Sway exercises its purchase option, Sway would come to own the formulations of BitterTales and Australian Bitters Company, and IBG would be required to obtain a license from Sway to continue manufacturing bitters under those brand names. For further details about the 2020 Manufacturing Agreement, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
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Target Market Size
Until the COVID-19 pandemic, the global Bitters category was growing at a healthy rate, particularly Cocktail Bitters. However, in 2020, the Bitters category took a hit in volume and retail sales values. Going forward, however, the Bitters category is expected to return to growth from 2021 onwards, especially Cocktail Bitters, as restrictions ease and consumer trends around home cocktailing, desire for more natural ingredients and bitter flavors increases.
The global Cocktail Bitters category experienced some decline in 2020 given the on-premise restrictions, particularly among premium focused brands. However, the category is expected to recover and return to growth as well.
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Competitive Market
The global Cocktail Bitters category has experienced some decline in 2020 given the decline of the on-premise due to local restrictions, which effected many Premium & Above brands that were strongly or solely activated in the on-premise.
Before the COVID-19 pandemic, the category was more or less evenly split by on and off-premise channels, given market differences. However, with the decline of the on-premise, the off-premise managed to grow and offset losses, particularly with the help of eCommerce. Many brands were able to pivot and transition efforts to online, which has helped to drive interest in the category alongside the rise of the ‘Home Premise’ and at home cocktail making during lockdowns.
This helped some markets grow in 2020, particularly in the U.S. and Australia. Going forward, the global category is expected to return to growth in 2021 as consumer interest and demand grows, spreading beyond key markets.
Competitive Analysis
The U.S. continues to dominate the global Cocktail Bitters market, followed by Australia, both of which saw growth in 2020. Trinidad & Tobago, the UK, and France make up the rest of the Top 5 Global markets in case numbers. However, each had mixed results recently. Trinidad & Tobago managed to grow in 2020, whereas the UK and France were impacted by the on-premise closures but will recover going forward.
Angostura continues to lead the global Cocktail Bitters category, followed by Peychaud’s and Australian Bitters Co., all of which saw growth in 2020. Several other brands, including Fee Brothers, Bittermen’s, The Bitter Truth, and many more, were impacted in 2020 given their on-premise presence. However, quite a few of these brand owners have managed to adapt during the pandemic and shift their businesses to off-premise, as well as expand their distribution to more markets. It is expected they will return to growth alongside the category.
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Strengths
| ● | Iconic packaging- proprietary bottle, screen printed bottle provides unique and remarkable look and feel |
| ● | All natural ingredients |
| ● | Great value offer versus Angostura |
| ● | Small size allows IBG to be nimble and adapt quickly to changes in the market with new packaging format, sizes and flavors |
| ● | CCEP distribution machine in Australia |
Weaknesses
| ● | Consumer awareness in Australia |
| ● | Growth in the U.S. will require obtaining a large distributor |
Opportunity
| ● | Innovation into bigger bottles (500ml) and smaller bottles (50ml) to increase the occasions where cocktail bitters may be utilized as an ingredient and, therefore, increase sales. For example, a smaller 50ml bottle may become an affordable yet impulse purchase option for a consumer purchasing a basket of beverages for a party as they may be more inclined to purchase a smaller bottle of our bitters in their basket mix. |
| ● | Strengthen association with cooking |
| ● | Be the “go to” bitters for mocktails (non-alcohol cocktails are commonly referred to as mocktails) |
Challenges
| ● | Market size and scale of Angostura, particularly if they drop price. |
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No-and-Low Alcohol Drummerboy
Drummerboy is a delicious range of non- alcoholic spirits for those that want to forge their own path.
No-and-Low Alcohol products are becoming increasingly accepted as a lifestyle and societal norm, making it more accessible and approachable for consumers. Many new No-and-Low Alcohol (No/Low Alcohol) products are starting to use more natural ingredients, as well as botanicals and bitter flavors as consumers needs and palettes are evolving with the larger health and wellness trend. As a result, there is an opportunity to offer a low-ABV pre-packaged offering made with Cocktail Bitters to tap into the growing ready to drink (RTD) trend of Hard Seltzers and Spritzes. Additionally, the category lines between No Alcohol RTDs and Mixers are starting to blur with big corporations starting to tread into adjacent categories (e.g. Coca-Cola, Pepsi, and Molson Coors) offering premium mixers to tap into the growing soda cocktail trend.
Target Market Size
The market size of No/Low Alcohol is 349.2 million 9L cases or USD$9.9 billion in market value. The expected CAGR from 2021-25 is 8.0% or an enormous 126.4 million 9L cases.
The biggest market for No/Low spirits is the U.S. (719,000 9 Liter Equivalent (LE)), France (515,000 9LE), UK (319,000 9LE), Germany (176,000 9LE), and Australia (63,000 9LE).
Competitive Analysis
No market share data is available for this new category. However, evidence of its attractions can be shown by the market leader, Lyre’s, which closed a funding round of £20m in November 2021 that valued the business at £270m, up from a valuation of £100m earlier the same year.[13] According to Lyre’s founder Mark Livings, the business has expanded to 60 countries and is on track to generate £50m in sales this year.[14]
[13] BusinessWire, “Lyre’s Hits £270 Million Valuation in Category’s Largest Funding Round To-Date” (November 15, 2021).
[14] The Spirits Business, “Lyre’s on track to reach $1bn valuation” (November 15, 2021).
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Drummerboy Website
Drummerboy website, the direct-to-consumer website for the packaged non-alcoholic spirits forms part of the omni-channel approach to the brand. Drummerboy Non Alcohol Spirits will also be sold via Bevmart and Wired For Wine.com. However, the brand will have its own transactional website for below reasons:
| ● | Allows for greater storytelling capability with more room for content |
| ● | Not subject to online alcohol restriction rules by government and marketing platforms |
| ● | Greater targeting for paid and owned marketing channels |
We will also utilize the same logistics back end as Bevmart in Australia and Wired For Wine.com in the U.S.
Competitive Market
Online competition will be focused on DTC non-alcohol brands like market leader Lyre’s, Seedlip and online (packaged alcohol and non-alcoholic) retailers carrying a non-alcoholic spirits category.
While technically competitors, we anticipate that packaged alcohol and non-alcoholic retailers in the market, such as Dan Murphy’s, First Choice, and Sans Drinks in Australia, will organically grow the Drummerboy website traffic and revenue once the products are ranged at these retailers.
We believe that due to the increased brand awareness, paid media spend (from retailers) and, through our experience, Google’s tendency to rank brand and supplier websites higher over retailers*. (*Not guaranteed. Website must have good Search Engine Optimization (SEO) practices and consistent fresh content for us to take advantage of the google algorithm.)
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Strengths
| ● | Drummerboy Brand - unique positioning encouraging people to rise above peer pressure and stay off the drink when they want too. |
| ● | Packaging- memorable name and unique brand iconography. |
| ● | Ability to expand globally quickly with 3-tier compliant retailers already established in the U.S. |
| ● | Existing customer base of Bevmart and Wired For Wine.com we can market to at minimal cost. Link equity will also be passed to www.drummerboy.com to support in search engine optimization. |
| ● | Celebrity endorsement in Australia from Michael Clarke, Australian cricket legend. |
Weaknesses
| ● | Consumer awareness |
| ● | Distribution |
| ● | Warehouse locations limits our ability to offer Pick up. |
Opportunity
| ● | Create a destination for mocktail recipe content online. |
| ● | Partner with dark warehouse, a fully-automated warehouse, and several fast commerce businesses that use applications (apps) that offer 10-minute delivery in cities to reach a fast growing audience online where our competitors are not. Milkrun and Go Puff are examples of such businesses. |
| ● | Validate quality of product through award shows. |
| ● | Expand globally to No and Low Alcohol key markets |
| ● | Build the brand via strong and relevant marketing |
Challenges
| ● | Convenience commerce models and third-party marketplaces will continue to dominate the online space. However, we should look to partner with these brands as they are an opportunity to reach a larger audience. |
| ● | Range and category expansion from market leaders. |
| ● | Minimal regulation (compared to alcohol) make market entry easier. |
Sources and Availability of Raw Materials
Our use of raw materials mainly includes herbs, bottles, and labels. We maintain, and seek to continue maintaining, strong and long-term relationships with our major raw material vendors to create a stable supply of such materials. No indication of price surge has been brought to our attention by our vendors.
Supply Chain Disruptions
Supply chain disruptions have become a constant source of stress for many beverage companies with global footprints like IBG. Any disruption along the supply chain can disrupt plant operations, production schedules, logistics, and the customer experience. IBG was impacted by the supply chain disruption due to:
| ● | transportation delay for some materials (e.g., bottles) purchased from certain areas such as China; | |
| ● | shipping container shortage that postponed the export of our BitterTales products to the United States; | |
| ● | labor shortages internally and externally due to COVID-associated sick and carer leaves; and | |
| ● | customer demand drops and surges. |
While not every disruption can be avoided, many of them can be managed. Preparation and planning are vital for businesses that want to avoid delays and shutdowns now and in the future. IBG’s management has been working on different aspects to strengthen the resilience of our supply chain. IBG’s key actions include:
| ● | establishing more robust sales and operations planning to monitor customer demand, raw material availability and labor scheduling; | |
| ● | optimize inventory and freight process by implementing a new warehouse management system; | |
| ● | renegotiating the manufacturing agreements with main customers by passing the logistic responsibilities from IBG to the buyers; | |
| ● | diversify the supply networking to avoid heavy reliance on a certain supplier or suppliers from one certain area; and | |
| ● | encourage flexible and remote working arrangements to improve productivity and minimize employee turnover. |
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Material Agreements
Deed of Novation
Europa International Pty Ltd. (“Europa”), Coca-Cola Amatil (Australia) Pty Ltd (succeeded by Coca-Cola Europacific Partners, “CCA”) and Australian Boutique Spirits Pty Ltd (“ABS”) entered into a novation agreement on July 2, 2018 (“Europa-CCA-ABS Novation Agreement”). Pursuant to the Europa-CCA-ABS Novation Agreement, we have been assigned Europa’s rights and obligations under the Manufacturing Agreement entered into December 22, 2016; the Manufacturing Agreement dated June 9, 2017, the Intellectual Property Assignment Agreement, the Intellectual Property Co-Existence Deed, and the Deed Poll. As such, the following Manufacturing Agreements of 2016, 2017, and the Notice Under Manufacturing Agreement all fall within the scope of the Deed of Novation.
2016 Europa Manufacturing Agreement
On December 22, 2016, Europa and CCA entered into a Manufacturing Agreement (“2016 Europa Manufacturing Agreement”) that began on January 1, 2017. The 2016 Europa Manufacturing Agreement is effective until December 31, 2031, unless terminated earlier for cause.
In the 2016 Europa Manufacturing Agreement, CCA appointed Europa to manufacture bitters of all flavors produced by Europa, or any product bearing the AUSTRALIAN BITTERS Brand and granted Europa an exclusive, non-transferable, royalty free license to use the AUSTRALIAN BITTERS intellectual property in the territory to the extent needed to manufacture the products. Specifically, the products include (a) 250 mL bottle of Australian Bitters supplied in a case of 12 and (b) 125 mL bottle of Australian Bitters supplied in a case of 12. The territory consists of Australia, New Zealand, and Fiji. CCA must pay Europa within 20 business days of the end of the month in which Europa sends CCA the invoice for products delivered to them. Additionally, in consideration of CCA’s providing marketing services, Europa agreed to pay CCA a contribution amount on all products receipted by CCA from time to time. The aggregate payment may not exceed 50% of the direct marketing expenditure.
While the agreement was originally exclusive in the Commonwealth of Australia, the Commonwealth of New Zealand and the Republic of Fiji, now, since neither CCA nor any of its related parties supplied any products to any customer located in New Zealand or Fiji by January 1, 2019, both Fiji and New Zealand ceased being considered territories. As such, we are able to expand our markets.
Notice Under 2016 Europa Manufacturing Agreement
On January 9, 2019, we sent a letter to CCA regarding the 2016 Agreement. We notified CCA, in accordance with clause 1.1 of the 2016 Agreement, that we would now be able to import, sell, allow or procure any third party to sell, any products to any person within New Zealand and Fiji. We are able to sell in these territories because neither CCA nor any of its related parties have supplied any products to any customer located in Fiji or New Zealand from the start date of the 2016 Agreement to January 1, 2019.
Manufacturing, Supply and License Agreement between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc. dated July 31, 2020, as amended (“2020 Manufacturing Agreement”) by that certain Amendment Agreement dated March 10, 2021 (“March 2021 Amendment Agreement”) and that certain Termination of BevMart Agreement and Amendment to Manufacturing Agreement between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc. dated June 14, 2021 (“June 2021 Amendment Agreement”)
On July 31, 2020, IBG and Elegance Brands, Inc. (now known as Sway Energy Corp.) (“Sway”) entered into a manufacturing, supply and license agreement whereby IBG agreed to manufacture and sell Covered Products (as defined below) to Sway. Subsequently on March 10, 2021 and June 14, 2021, sections of the agreement were amended by that certain March 2021 Amendment Agreement and the June 2021 Amendment Agreement.
The term of the 2020 Manufacturing Agreement is such that at its initial execution in July 2020, the initial term was July 31, 2020 through July 21, 2022 pursuant to a 24-month initial term period. The March 10 Amendment Agreement changed the initial term from a 24-month initial term period to a 36-month initial term period. As a result of the amendment, the initial term period of the 2020 Manufacturing Agreement is July 31, 2020 through July 31, 2023. The term may automatically renew for up to 24 months, unless either party provides written notice of non-renewal.
A description of the material terms of the 2020 Manufacturing Agreement follows. “Covered Products” means the individual and collective reference to (a) the alcoholic drinks and Formulations sold as (i) each of the BevMart Brands, (ii) BitterTales, (iii) Cocktail Bitters, (iv) VOCO and (v) Australian Bitters Company. “BevMart Brands” means the individual brands and line extensions of: (a) Cheeky Vodka and flavor variants, (b) Coventry Estate Gin and flavor variants, (c) Geo Liqueurs in multiple variants, (d) Cheeky Espresso Martini in multiple variants., and (e) all future brands developed by Sway which ABS determines to offer for sale on the BevMart websites www.bevmart.com and www.bevmart.com.au.
Pursuant to the 2020 Manufacturing Agreement, Sway purchases Covered Products from IBG, who manufactures and sells such products in accordance with purchase orders received from Sway. Sway also provides its best projections and estimates as to the quantity, in units and cases, of each of the Covered Products that Sway will need to purchase from IBG for the next succeeding 90 days. Based on such projections, IBG maintains sufficient manufacturing capacity, stocks of raw materials and packaging to enable it to meet such requirements.
During a requisite 12 month period following July 31, 2020, IBG had the right, but not the obligation, to manufacture and sell to Sway all new alcoholic products branded under Sway’s intellectual property rights and to be sold or distributed by Sway in its territory, meaning, only the U.S., its territories and possessions with respect to the Australian Bitters Company Covered Products and VOCO covered products, and the rest of the world with respect to all other Covered Products. Sway accepted IBG’s exercise of such right; consequently, IBG gained the right to manufacture and sell other new products in addition to the Covered Products.
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The 2020 Manufacturing Agreement may be terminated by either party for cause. Sway may terminate by providing written notice to IBG: (a) if IBG repudiates or threatens to repudiate, any of its obligations under this Agreement; (b) except as otherwise specifically provided under Sway’s right to terminate for cause, if IBG is in material breach of, or threatens to breach, any material representation, warranty or covenant of IBG under this Agreement and either the breach cannot be cured or, if the breach can be cured, it is not cured by IBG within a commercially reasonable period of time under the circumstances, in no case exceeding sixty (60) days following IBG’s receipt of written Notice of such breach; (c) if IBG repeatedly fails to, or threatens not to, timely deliver Covered Products conforming to the requirements of, and otherwise in accordance with, the terms and conditions of this Agreement; (d) if IBG (i) becomes insolvent or is generally unable to pay, or fails to pay, its debts as they become due, (ii) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (iii) makes or seeks to make a general assignment for the benefit of its creditors, or (iv) applies for or has appointed a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business; (e) if IBG fails to provide Sway, within a commercially reasonable time after Sway’s request (but in no case exceeding 30 days after such request) with adequate and reasonable assurance of IBG’s financial and operational capability to perform timely any of IBG’s obligations under the 2020 Manufacturing Agreement; (f) if, as a result of any repeated and material breach by IBG of any of its obligations under this Agreement, Sway’s customer requires that Sway obtain another supplier of Covered Products; (g) if IBG takes any action, or fails to take any action, required under this Agreement or any other agreement between Sway and IBG, or as reasonably requested by Sway, the result of which is an imminent interruption or delay, or the threat of an imminent interruption or delay, in any production at any of Sway’s or its customer’s manufacturing facilities; (h) if, without obtaining Sway’s prior written consent, (i) IBG sells, leases or exchanges a material portion of IBG’s assets, (ii) IBG merges or consolidates with or into another Person (as defined in said agreement), other than Sway, or (iii) a change in Control (meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of another Person (as defined in said agreement), whether through the ownership or voting securities, by contract, or otherwise) of IBG occurs; or (i) upon the occurrence of any other event constituting grounds for termination set forth in under the 2020 Manufacturing Agreement.
Any termination under Sway’s right to terminate for cause will be effective on IBG’s receipt of Sway’s written notice of termination or such later date (if any) set forth in such termination notice. Upon the occurrence of any of the events described under Sway’s right to terminate for cause, Sway may, in addition to any of its other rights to suspend performance under the 2020 Manufacturing Agreement or applicable law, immediately suspend its performance under all or any part of such agreement, without any liability of Sway to IBG, and, notwithstanding anything to the contrary contained in such agreement Sway may, at its election, recover any and all direct and indirect actual and incidental damages (but not including consequential damages) and costs (including attorneys’ and other professionals’ fees and costs), expenses and losses incurred by Sway as a result of any event described under Sway’s right to terminate for cause or any breach of the 2020 Manufacturing Agreement by IBG.
With respect to IBG, the Company has a right to terminate the 2020 Manufacturing Agreement for cause by providing written notice to Sway: (a) if Sway is in material breach of any material representation, warranty or covenant of Sway under said Agreement, and either the breach cannot be cured or, if the breach can be cured, it is not cured by Sway within a commercially reasonable period of time, in no case exceeding sixty (60) days, after Sway’s receipt of written notice of such breach; or (b) if Sway (i) becomes insolvent or is generally unable to pay, or fails to pay, its debts as they become due, (ii) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (iii) makes or seeks to make a general assignment for the benefit of its creditors, or (iv) applies for or has appointed a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.
Any termination by IBG will be effective on Sway’s receipt of IBG’s written notice of termination or such later date (if any) set forth in such notice.
Immediately upon the effectiveness of a notice of termination delivered by Sway to IBG, IBG shall promptly, unless otherwise directed by Sway, and subject to IBG’s obligation provide resourcing cooperation: (i) terminate all performance under the 2020 Manufacturing Agreement and under any outstanding purchase orders; (ii) transfer title and deliver to Sway all Covered Products produced and paid for pursuant to the 2020 Manufacturing Agreement prior to effectiveness of the notice of termination; and (iii) return to Sway all bailed property and any other property furnished by or belonging to Sway or any of Sway’s customers, or dispose of such bailed property or other property in accordance with Sway’s instructions (provided that Sway will reimburse IBG for the actual, reasonable costs associated with such disposal). The expiration or termination of the then-current term will not affect any rights or obligations of Sway or IBG that: (i) come into effect upon or after termination or expiration of the 2020 Manufacturing Agreement; or (ii) otherwise survive the expiration or earlier termination of such agreement pursuant to its terms and were incurred by the parties prior to such expiration or earlier termination. Upon the expiration or earlier termination of the 2020 Manufacturing Agreement, each party shall: (i) return to the other party all documents and tangible materials (and any copies) containing, reflecting, incorporating or based on the other party’s confidential information, and not retain any copies thereof; (ii) permanently erase all of the other party’s confidential information from its computer systems, except for copies that are maintained as archive copies on its disaster recovery and/or information technology backup systems, Sway and IBG each shall destroy any such copies upon the normal expiration of its backup files; and (iii) upon the other party’s written request, certify in writing to such other party that it has complied with the termination requirements. Termination of the 2020 Manufacturing Agreement will not constitute a waiver of any of the terminating party’s rights or remedies/either party’s rights, remedies or defenses under said agreement, at law, in equity or otherwise.
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Subject to price adjustments, including a favored nations price adjustment herein described, Sway purchases the Covered Products according to the following pricing schedule: (a) for all Covered Products, other than Cocktail Bitters, (i) IBG’s actual manufacturing cost for each of the Covered Products, plus (ii) 54% of the manufacturing cost for such Covered Products; and (b) for Cocktail Bitters, the same price per case as IBG charges to and receives from its largest customer, Coca-Cola Europacific Partners, which is equal to or less than AUD$81.75 per case. If a price adjustment is warranted (a) for Covered Products, other than Cocktail Bitters, as a result of IBG’s increased manufacturing costs, or (b) for Cocktail Bitters, as a result of IBG’s increased pricing to Coca-Cola Europacific Partners, IBG shall provide Sway with evidence, reasonably acceptable to Sway, of such increased manufacturing costs or increases prices charged to Coca-Cola Europacific Partners, as applicable. Applicable price adjustments are effective immediately for all purchase orders not yet accepted by IBG. If at any time during the then-term, either (a) Sway demonstrates to IBG that Sway is able to purchase from one or more unaffiliated third party sources similar quantities of Covered Products on similar delivery dates and delivery terms, either at lower prices or on more favorable payment terms than those earlier stated, or (b) IBG charges any other buyer of similar quantities of Covered Products on similar delivery date and delivery terms, a lower price, or agrees to payment terms that are more favorable to such buyer than those set forth in the agreement for the same Covered Products, IBG shall adjust its pricing and apply that lower price and more favorable payment terms to all same or similar Covered Products covered by 2020 Manufacturing Agreement and under applicable purchase orders, statements of work or invoices (the “Favored Nations Price Adjustment”). Sway is entitled to a Favored Nations Price Adjustment on one occasion only during each Anniversary Year (meaning the period from August 1 through July 31) and it shall apply only to sales and purchases of Covered Products in the next succeeding Anniversary Year. If IBG fails to provide Sway with a Favored Nations Price Adjustment to which it may be entitled, Sway may, at its option, in addition to all of its other rights under this Agreement or at law, terminate this Agreement without liability to IBG.
Pursuant to the 2020 Manufacturing Agreement, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of BitterTales and Australian Bitters Company for USD$2,000,000, which may be exercised within 90 days following the termination of the 2020 Manufacturing Agreement, for any reason other than an automatic termination or termination by the Company for Cause as provided therein. In the event that Sway exercises its purchase option, Sway would come to own the formulations of BitterTales and Australian Bitters Company, and IBG would be required to obtain a license from Sway to continue manufacturing bitters under those brand names. Upon termination of the 2020 Manufacturing Agreement, two licenses granted thereunder will expire: (i) IBG’s royalty-free license to Twisted Shaker to manufacture, use and sell the product throughout the world, except the U.S., its territories and possessions; and (ii) Sway’s royalty-free license to use the intellectual property rights associated with VOCO to manufacture, use and sell the brand in the U.S., its territories and possessions.
The June 2021 Amendment Agreement also terminated a Management, Supply and License Agreement between IBG and Sway dated December 31, 2020. Under the terms of such agreement. IBG obtained the sole and exclusive right to own and operate the BevMart business in Australia, including its website and the BevMart Brands.
The June 2021 Amendment Agreement also set forth the intellectual property arrangements between IBG and Sway, which are described in the chart below.
| Australis Gin | IBG owns the intellectual property rights, including formulations, associated with the brand Australis Gin.
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ABS paid USD$42,500 representing 100% of the costs and expenses incurred by Elegance as at that time in developing the Australis Gin beverage and brand |
| Twisted Shaker | IBG sold its intellectual property rights, including related formulations, associated with the Twisted Shaker brand to Sway.
Sway granted IBG a royalty-free non-exclusive license to use its intellectual property rights associated with the Twisted Shaker brand to manufacture, use and sell Twisted Shaker throughout the world, except for the U.S., its territories and possessions, which are Sway’s exclusive territories. The license expires upon termination of the 2020 Manufacturing Agreement.
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IBG received as consideration from Sway USD$10,000 for each of the formulations possessed by IBG with respect to the Twisted Shaker brand
IBG agreed with Sway to offset future royalties payable for Twisted Shaker to Sway in return for a royalty free right Sway to sell VOCO in the USA.
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| VOCO | IBG granted Sway a royalty-free exclusive license to the intellectual property rights associated with the VOCO brand to make, use and sell the brand in the U.S., its territories and possessions. The license expires upon termination of the 2020 Manufacturing Agreement.
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Sway paid to IBG the paid-up sum of USD$200,000, in lieu of all current and future royalties due.
IBG agreed with Sway to offset future royalties payable for Twisted Shaker to Sway in return for a royalty-free right for Sway to sell VOCO in the U.S.
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| Australian Bitters Company | Within Australia, CCEP owns the right to distribute the Australian Bitters Company brand and IBG has the exclusive right to manufacturer the product.
Outside Australia, IBG owns the brand and has the right to manufacture and distribute Australian Bitters Company products. With respect to the U.S., its territories and possessions, IGB has a distribution arrangement with Sway whereby Sway pays USD$60 per case. |
Elegance pays USD$60 per case of Australian Bitters Company products
Within 90 days following the termination of the Manufacturing, Supply and License Agreement dated July 31, 2020 between ABS and Elegance, as amended on March 10, 2021 and June 14, 2021 (“2020 Manufacturing Agreement”) for any reason other than an automatic termination or termination by IBG for Cause as provided therein, Sway has a purchase option to acquire the formulations, but no intellectual property rights, of Australian Bitters Company for USD$2,000,000 (along with those for BitterTales). |
Cheeky Vodka and flavor variants
Coventry Estate Gin and flavor variants
Geo Liqueurs in multiple variants
Cheeky Espresso Martini in multiple variants
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IBG owns and manufactures these brands (the BevMart Brands), as well as the BevMart.com.au website and business.
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IBG paid as consideration to Sway USD$188,630.41, which represented 100% of the fully burdened costs and expenses incurred by Sway in developing the website and developing and creating formulations for each of the brands. |
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Loan Agreement between Australian Boutique Spirits Pty Ltd and Amit Beri as of June 30, 2021, as novated to Meena Beri on December 27, 2021
On June 30, 2021, ABS and Amit Beri entered into an unwritten loan agreement for the aggregate amount of AUD$2,853,105 for loans received from the Company between January 2020 through such date (the “Beri Loan”) bearing an interest rate of 4.52%. The repayment term was such that in lieu of a cash payment by Mr. Beri to ABS, ABS would offset the loan against the dividend declared for the period to June 30, 2021. In accordance with the Corporations Act (Cth), the Board declared a dividend of AUD$2,138,610 from ABS’ historical retained earnings as of June 30, 2021 and offset the dividend against the loan owing from Mr. Beri.
Subsequently on December 27, 2021, ABS, Mr. Beri and Meena Beri entered into a novation agreement (“Novation of Debt Agreement”) whereby the Beri Loan was novated to Ms. Beri such that the repayment of the remaining balance of AUD$960,759.60 was assumed by Ms. Beri, which is repayable upon demand by ABS.
Intellectual Property
Our success and future revenue growth depend, in part, on our ability to protect our intellectual property. We sell our products under trademarks, which we own or use under license. The chart below sets forth the intellectual property we own or license.
| Brands | Summary | IP |
| Drummerboy | IBG owns this brand. | IBG owns all intellectual property rights, including formulations, associated with the brand Drummerboy. |
| Elegance Vodka | Sway Energy Corp. owned all intellectual property rights to Elegance Vodka until the brand was sold on June 29, 2022 around which time IBG ceased manufacturing this product. | N/A |
| Australis Gin | IBG owns this brand after repurchasing it from Sway Energy pursuant to the June 2021 Agreement. | IBG owns the intellectual property rights, including formulations, associated with the brand Australis Gin. |
| Twisted Shaker | IBG holds a royalty-free license to Twisted Shaker to manufacture, use and sell the product throughout the world, except the U.S., its territories and possessions. | IBG previously sold its intellectual property rights, including related formulations, associated with the Twisted Shaker brand to Sway.
Sway then granted IBG a royalty-free non-exclusive license to use its intellectual property rights associated with the Twisted Shaker brand to manufacture, use and sell Twisted Shaker throughout the world, except for the U.S., its territories and possessions, which are Sway’s exclusive territories. The license expires upon termination of the 2020 Manufacturing Agreement.
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| BitterTales | Sway owns this brand globally, but does not own the formulations.
With respect to formulations, IBG granted Sway a license to manufacture, use and sell all formulations of BitterTales within the USA and other countries located in Sway’s territories. |
IBG granted to Elegance irrevocable and exclusive right and perpetual, license, with the right to grant sublicenses, to make, use and sell all formulations with respect to the BitterTales brand of alcoholic products. |
| VOCO | IBG owns this brand and granted Sway a royalty-free license to use its intellectual property rights associated with VOCO to manufacture, use and sell the brand in the U.S., its territories and possessions. | IBG granted Sway a royalty-free exclusive license to the intellectual property rights associated with the VOCO brand to make, use and sell the brand in the U.S., its territories and possessions. The license expires upon termination of the 2020 Manufacturing Agreement.
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| Australian Bitters Company | Within Australia, CCEP owns the right to distribute the Australian Bitters Company brand and IBG has the exclusive right to manufacturer the product.
Outside Australia, IBG owns the brand and has the right to manufacture and distribute Australian Bitters Company products. With respect to the U.S., its territories and possessions, IGB has a distribution arrangement with Sway whereby Sway pays USD$60 per case. |
ABS sold its right, title and interest to all brands, line extensions, and flavor line extensions associated with the Australian Bitters Company brand to Sway for sale and distribution in the U.S., its territories and possessions.
Elegance distributes Australian Bitters Company products in the U.S. for IBG. |
Cheeky Vodka and flavor variants
Coventry Estate Gin and flavor variants
Geo Liqueurs in multiple variants
Cheeky Espresso Martini in multiple variants
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IBG owns and manufactures these brands. | IBG owns and manufactures these brands, as well as the BevMart.com.au website and business.
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We have trademarks registered in Australia for “Twisted Shaker” (mark no. 2231533) and “Drummerboy” (mark no. 2235565). In the United States, we have a trademark registration for “Wired for Wine”.
We expect to register our trademarks in additional markets as we expand our distribution territories to protect our business interests and ensure our competitive position in our industry. We intend to vigorously protect our intellectual property rights, but there can be no assurance that our efforts will be successful. If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue, and incur costly litigation to protect our rights. Even if our efforts are successful, we may incur significant costs in defending our rights. For further details about our intellectual property, see “Risk Factors.”
Also included in our intellectual property are our domain and social channel ownerships. We own and operate the following domains: abspirits.com.au; australianboutiquespirits.com; beveragemart.com.au; bevmart.cn; bevmart.co.in; bevmart.co.nz; bevmart.co.uk; bevmart.com; bevmart.com.au; bevmart.in; cinderella-wine.com; cinderellawin.com; distyl.com; drinkdistyl.com; drinkpellicano.com; drinkpellicano.com.au; drinkriveria.com; drinkriveria.com.au; drummerboy.ca; drummerboy.co.uk; drummerboy.com; drummerboy.de; drummerboy.es; drummerboy.fr; innovationbev.com; lpt18.com; twistedshakercocktails.com; virginiablack.com.au; virginiablackwhiskey.com.au; winetilsoldou.com; wire4wine.com; wired4wine.com; wiredforcheese.com; wiredforcigars.com; wiredforjava.com; wiredforpot.com; wiredforspirits.com; wiredforwine.com; wiredonwine.com; wireforwine.com.
We operate the following social media handles.
| ● | Instagram: www.instagram.com/wiredforwine; www.instagram.com/drinkdrummerboy; www.instagram.com/bevmartau; www.instagram.com/bevmartus; www.instagram.com/australianboutiquespirits; www.instagram.com/twistedshakercocktails; www.instagram.com/innovationbeveragegroup | |
| ● | Facebook: www.facebook.com/bevmartau; www.facebook.com/bevmartus; www.facebook.com/twistedshakercocktails; www.facebook.com/wiredforwineus; www.facebook.com/drinkdrummerboy | |
| ● | Youtube: |
| o | Drummerboy: www.youtube.com/channel/UC-z4dp67m_I2--nwU5jtB8w | |
| o | Bevmart - www.youtube.com/channel/UCDu32Yxt4OloteZZG2DrHRQ |
| ● | TikTok: www.tiktok.com/@drinkdrummerboy | |
| ● | LinkedIn: www.linkedin.com/company/australian-boutique-spirits; www.linkedin.com/company/bevmart |
Government Regulation
Australia
The conduct of our businesses, including the production, importation, under-bond storage/warehousing, distribution, sale, display, advertising, marketing, labeling, content, quality, safety, transportation, packaging, disposal, recycling and use of our products, as well as our employment and occupational health and safety practices and protection of personal information, are subject to various laws and regulations administered by federal, state and local governmental authorities in the state of New South Wales and the country of Australia. It is our policy to abide by the laws and regulations around the world that apply to our businesses. We are in compliance with the Australian Taxation Office (ATO) which regulates the manufacture, importation, licensing, distribution within Australia, and exportation of all products which we produce. We are in compliance with the state of New South Wales which regulates the sale of our alcohol products as a wholesale producer directly to consumers over the age of 18 years. (The legal alcohol consumption age in New South Wales, Australia is 18 years of age). We are in compliance with all state and federal licenses granted to us.
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United States
The conduct of our businesses, including the production, importation, under-bond storage/warehousing, distribution, sale, display, advertising, marketing, labeling, content, quality, safety, transportation, packaging, disposal, recycling and use of our products, as well as our employment and occupational health and safety practices and protection of personal information, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States. It is our policy to abide by the laws and regulations around the world that apply to our businesses. We are in compliance with the federal government (FDA and ATF-TTB) and with each state’s local regulatory requirements for the sale of wine and spirits.
In addition, certain jurisdictions have either imposed, or are considering imposing, product labeling or warning requirements or other limitations on the marketing or sale of certain of our products as a result of ingredients or substances contained in such products or the audience to whom products are marketed. These types of provisions have required that we highlight perceived concerns about a product, warn consumers to avoid consumption of certain ingredients or substances present in our products, restrict the age of consumers to whom products are marketed or sold or limit the location in which our products may be available. It is possible that similar or more restrictive requirements may be proposed or enacted in the future.
In addition, certain jurisdictions have either imposed or are considering imposing regulations designed to increase recycling rates or encourage waste reduction. These regulations vary in scope and form from deposit return systems designed to incentivize the return of beverage containers, to extended producer responsibility policies and even bans on the use of some types of single-use plastics. It is possible that similar or more restrictive requirements may be proposed or enacted in the future.
Property and Facilities
The Company leases office space in two locations. We are headquartered in Seven Hills, New South Wales, Australia where we lease a distillery and beverage manufacturing facility, including office space, of approximately 2,000 square meters (approximately 21,528 square feet) (“Seven Hills Lease”). We lease a warehouse at 255 Highland Cross, Rutherford, New Jersey of approximately 1,500 square feet (“Highland Cross Lease”). The Seven Hills Lease commenced on July 1, 2018 and ends on June 30, 2024; the monthly lease payments are $13,916. The Highland Cross Lease was assumed in our acquisition of Reg Liquors, LLC d/b/a Wired For Wine.com. The Highland Cross Lease commenced on January 1, 2019 and expires on September 1, 2023; the monthly lease payments are $1,500 per month.
We believe that our existing facilities are generally adequate to meet our current of future needs, but we expect to seek additional space as needed to accommodate future growth.
Employees
As of August 17, 2022, we had 16 full time employees located in Australia and the United States. These employees are engaged in manufacturing, sales and marketing, customer support, finance, and general management. We rely upon and engage consultants on a contract basis to provide services to assist us to carry on our technical development, administrative, shareholder communication and marketing activities.
Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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The following table sets forth the name, age and position of each of our directors and executive officers as of the date of this prospectus. The address for our directors and executive officers is c/o Innovation Beverage Group Limited, 29 Anvil Rd, Seven Hills, New South Wales 2147, Australia.
| Name | Age | Position | ||
| Dean Huge | 66 | Chief Executive Officer | ||
| Sahil Beri | 35 | Chief Operating Officer and Chairman | ||
| Eric Yu | 41 | Chief Financial Officer | ||
| Clive Coleman | 43 | Chief Commercial Officer | ||
| Kristopher Salinger | 40 | Director | ||
| Sally Cardillo | 69 | Director | ||
| Sameer Sethi | 56 | Director |
Dean Huge has been the Chief Executive Officer since February 2022 and is primarily located in Fort Lauderdale, Florida, United States . During his 35-year career as a high-impact, hands-on finance executive, Dean Huge has built a track record of growing profitable operations and implementing successful turnarounds as CEO, CFO, Director, and Treasurer at public and private companies in industries including beverage, financial services, manufacturing, distribution, and SAAS. Most recently, Mr. Huge was CFO of Splash Beverage Group (NYSE American:SBEV) where within five years (between June 2017 to February 2022) he led the company from start-up to a NYSE uplisting. Prior to that, Mr. Huge, through D&H Energy Development, was a consultant for the creation of alternative energy projects in Ghana from May 2013 to April 2017. In 2012, he became CFO for Discovery Gold Corporation (OTCQB:DCGD.OB). From 2009 to 2012, Mr. Huge was a financial consultant for Pan Asia Group of Companies in Hong Kong and Shanghai, which included serving as CFO for China Chemical Corporation (OTCBB:CHCC.OB). During the period of 2000 to 2009, Mr. Huge was a business consultant for IPA Management Consultants and Major Marketing Concepts, Inc. helping companies organize their marketing and financial structure which included raising funds. Also during the same period, Mr. Huge contacted/closed major banks for the creation of reward programs which became enterprise solutions for cross selling of additional banking products and services. During the period of 1996 to 2000, Mr. Huge was Controller of D&H Wholesalers, Inc., an international wholesaler of non-perishable name brand products. During the period of 1993 to 1996, Mr. Huge worked for AK Trading as Chief Operating officer. Prior to that role, Mr. Huge served as Vice President of First Capital Resource Corporation, a financial company funding wholesalers’ accounts receivable. During the period of 1988 to 1990, he served as Chief Operating Officer for PACER Energy Corporation to turnaround of a delisted company, previously called National Royalty Corporation (NASDAQ:NROC). Mr. Huge was one of the first employees hired at Catalyst Energy Corporation where he was integrally involved in all aspects of financial management, controls, and SEC filings. From 1982 to 1984, Mr. Huge was an Associate/Accountant of special projects for A.G. Becker & Co., Inc., the commercial paper division of Becker Paribas.
Throughout his career, Mr. Huge has led multiple going-public transactions, including CFO and CEO, raised money through private placements, IPOs, RTOs, primary and secondary offerings, partnerships, and off-balance sheet funds. Mr. Huge’s experience spans the globe, including working at international investment bank of BNP Paribas and private equity and investment funds in New York, Hong Kong, and Shanghai. Mr. Huge obtained a Bachelor of Science in Accounting and a Bachelor of Science in Finance from Southern Illinois University.
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Sahil Beri has been the Chief Operating Officer and Chairman of the Board of Directors since April 2022 and is primarily located in Sydney, NSW, Australia. From August 2018 through April 2022, Mr. Beri served as Innovation Beverage Group’s Australian Managing/Executive Director. Mr. Beri is a highly experienced executive officer, focused on operational excellence in the beverage industry with around 10 years of experience in multiple facets of the beverage industry, with a primary focus on creating and commercializing new innovative beverages. He has strong formulation, new product development, commercialization, and business development skills. Mr. Beri has in his career, across several beverage companies he has been involved in, launched a significant number of products. Prior to his role at Innovation Beverage Group, Mr. Beri was the Executive Director and Chief Technology Officer at Sway Energy Corporation between December 2019 through March 2022, where he was responsible for the creation of all beverage systems for formulations, manufacturing systems, new innovation development and commercialization for a range of alcohol and non-alcohol beverages. Between September 2016 and July 2018, Mr. Beri was the New Product Development Manager at Europa International Pty Ltd, another beverage company headquartered in Sydney, Australia. Between January 2017 till March 2020, Mr. Beri also served as a non-executive director on the board of Cannhealth Group Limited, an Australian nutraceutical company. Mr. Beri is a registered Pharmacist who completed his Master of Pharmacy in 2012 from the University of Newcastle, Australia and concurrently worked in both the beverage industry as well as the pharmaceutical industry for several years. Mr. Beri also completed his Master in Biochemistry in 2009 from Australia’s Bond University and a Bachelor of Arts and Science in 2008 from the University of Sydney, Australia.
Eric Yu has served as the Chief Financial Officer since July 2021 and is primarily located in Sydney, NSW, Australia. Mr. Yu has over 15 years of experience of working at the big four accounting firms, in large-scale management consulting companies and commercial corporations within the food and beverage industry. Mr. Yu has substantial experience in both private companies and public companies listed on the Australian Securities Exchange Ltd (ASX). He has worked in both Australia and China where he supported a wide range of businesses to manage end-to-end accounting functions and identify finance transformation, value creation and performance improvement opportunities. Before joining Innovation Beverage Group in July 2021, Mr. Yu was a Senior Manager with EY Oceania from August 2019 to July 2021 where he worked alongside advisory leaders and drew his skills in leading teams to support a diverse range of clients with their accounting needs and implementation of finance transformation initiatives. From June 2016 to February 2019, Mr. Yu was Head of Finance of the Bindaree Food Group where he lead a team that managed the full-cycle finance, internal control, capital raising, compliance and reporting of this vertically-integrated fast-moving consumer goods companies (FMCG) with an AUD$600 million annual turnover. Mr. Yu obtained his Masters of Accounting degree from the Australian National University. He is also a member of the Chartered Accountants Australia & New Zealand (CA ANZ).
Clive Coleman has served as the Chief Commercial Officer since October 2021 and is primarily located in Sydney, NSW, Australia. Mr. Coleman is a highly-experienced General Manager in the beverage industry with more than twenty (20) years of experience. He has strong commercial, marketing, and business development skills and a proven history of driving sales and profit growth. Most recently, from August 2019 to October 2021, Mr. Coleman was General Manager at Weston’s Australia where he was responsible for the P&L, and the sales, operations, and marketing team. From September 2017 to August 2019, he was the Regional Brand Director at Treasury Wines Estates where he led the brand and commercial strategy for the luxury, millennials, and refreshment portfolio. Other positions that Mr. Coleman has held include Head of Marketing and Export at Casella Family Brands (Yellowtail), and General Manager of Contemporary Brands at Carlton United Breweries.
Kristopher Salinger has served as a director since April 2022 and is primarily located in Miami, Florida, United States. He has over fifteen (15) years of investment banking and capital markets experience on Wall Street, having raised over $50 billion of common stock, debt and hybrid capital for corporate and sponsor clients. He is the Co-Founder, current director and Chief Financial Officer of Battery Future Acquisition Corp (NYSE: BFAC), a special purpose acquisition corporation targeting critical elements and technologies within the electric vehicle supply chain. From May 2016 to September 2021, Mr. Salinger was a Senior Vice President at Roth Capital Partners. Prior to his role at Roth Capital, Mr. Salinger spent six (6) years and was a Vice President at Citigroup in New York from October 2009 to February 2016, including within the Equity Capital Markets team that led the initial public offerings of General Motors, Facebook, Palo Alto Networks, Zillow, Allison Transmission and Delpha Automotive plc. Prior to his time at Citigroup, Mr. Salinger was an associate within the Debt & Hybrid Capital Markets group at ABN AMRO from March 2005 to February 2008. Mr. Salinger holds an Master of Business Administration and Bachelor of Commerce from the University of Sydney and a Master of Finance from the Securities Institute of Australia.
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Sally Cardillo has served as a director since April 2022 and is primarily located in Hobe Sound, Florida, United States. Ms. Cardillo has over thirty (30) years of accounting experience having served as a Certified Public Accountant since 1988. Since her retirement in October 2016, she has provided accounting consultancy services to individuals and corporate clients. From 1988 to 2016, Ms. Cardillo was a CPA with Braund, Eiler and Vasko (“Braund Eiler”) and Herbein + Company, Inc., which acquired Braund Eiler in 2014. At the beginning of her career, Ms. Cardillo spent eleven (11) years in industrial engineering, production planning, and systems analysis for the Jones and Laughlin Steel Company in Pittsburgh, Pennsylvania. Then in 1988, she became a Certified Public Accountant and began providing accounting, consulting, and audit services for a variety of individual and corporate clients for the remainder of her career. Ms. Cardillo holds a Bachelor of Science in Mathematics from The Pennsylvania State University.
Sameer Sethi has served as a director since April 2022 and is primarily located in Sydney, NSW, Australia. Mr. Sethi is a Principal and Founder of Chess Finance and Capital Pty Limited, a financial group focused on delivering and executing strategic plans for the corporate and middle market organizations that also provides Financial Advisory, Structuring and Managing Investment & Syndication strategies in a diversified investment portfolio. These investments spread across Real Estate development (Residential and Industrial), Child Care, and Hospitality. Mr. Sethi has over twenty (20) years of experience with National Australia Bank, Sydney, where he held the position of Senior Business Manager in the Commercial Real Estate division and managed a business portfolio of AUD$600 million. He holds a Graduate Diploma in Business and Marketing Management from BIMTECH, New Delhi, India and a Bachelor of Arts in Psychology from Kurukshetra University, India.
2022 Equity Incentive Plan
Innovation Beverage Group adopted the 2022 Equity Incentive Plan (“Plan”) to provide an additional means through the grant of awards of ordinary shares and stock options to attract, motivate, retain and reward selected key employees and other eligible persons. The below is a summary of the Plan’s terms. As of the date of this prospectus, no awards have been granted under the Plan.
Shares Subject to the Equity Incentive Plan
A total of 3,400,000 shares of ordinary shares is available for the grant of awards under the Plan (the “Total Share Reserve”). Subject to adjustment as provided in the Plan, the Total Share Reserve automatically increases on January 1st of each calendar year, beginning on April 29, 2022 and ending on December 31, 2030 (each, an “Evergreen Date”) in an amount equal to 20% of the total number of shares of the Company’s ordinary shares outstanding on December 31st of the immediately preceding Evergreen Date (the “Evergreen Increase”). Notwithstanding the foregoing, the Board may act prior to the Evergreen Date of a given year to provide that there will be no Evergreen Increase for such year, or that the Evergreen Increase for such year will be a lesser number of shares of the Company’s ordinary shares than would otherwise occur pursuant to the preceding sentence. During the terms of any awards, the Company will keep available at all times the number of shares of Ordinary Shares required to satisfy such awards. Shares of ordinary shares available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Any shares of ordinary shares subject to an award that expires or is cancelled, forfeited, or terminated without issuance of the full number of shares of ordinary shares to which the award related shall again be available for issuance of awards or delivery under the Plan.
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Administration of the Equity Incentive Plan
The Plan is administered by a committee of one or more directors appointed by the Board to administer the Plan (the “Committee”) or, in the Board’s sole discretion, by the Board. As stated in the Plan, the Committee has the authority to: (a) to construe and interpret the Plan and apply its provisions; (b) to promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (c) to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; (d) to delegate its authority to one or more officers of the Company with respect to awards that do not involve “insiders” within the meaning of Section 16 of the Exchange Act; (e) to determine when awards are to be granted under the Plan and the applicable grant date; (f) from time to time to select, subject to the limitations set forth in this Plan, those eligible award recipients to whom awards shall be granted; (g) to determine the number of shares of ordinary shares to be made subject to each award; (h) to determine whether each option grant is to be an incentive stock option or a non-qualified stock option; (i) to prescribe the terms and conditions of each award, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the award agreement relating to such grant; (j) to determine the target number of performance shares to be granted pursuant to a performance share award, the performance measures that will be used to establish the performance goals, the performance period(s) and the number of performance shares earned by a participant; (k) to amend any outstanding awards, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding award; provided, however, that if any such amendment impairs a participant’s rights or increases a participant’s obligations under his or her award or creates or increases a participant’s federal income tax liability with respect to an award, such amendment shall also be subject to the participant’s consent; (l) to determine the duration and purpose of leaves of absences which may be granted to a participant without constituting termination of their employment for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to employees under the Company’s employment policies; (m) to make decisions with respect to outstanding awards that may become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments; (n) to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or award granted under, the Plan; and (o) to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the Plan.
Participation
Awards under the Plan may be granted to Employees, directors and consultants of Innovation Beverage Group and its subsidiaries and such other individuals designated by the committee who are reasonably expected to become employees, consultants and directors after the receipt of awards.
Types of Awards
Awards that may be granted under the plan include: (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted awards, (e) performance share awards, (f) cash awards, and (g) other equity-based awards.
Change in Control
In the event of a Change in Control (as defined in the Plan), (a) all outstanding options and stock appreciation rights shall become immediately exercisable with respect to 100% of the shares subject to such options or stock appreciation rights, and/or the Restricted Period (as defined in the Plan) shall expire immediately with respect to 100% of the outstanding shares of restricted stock or restricted stock units; and (b) with respect to performance share awards and cash awards, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met. The Committee may in its discretion and upon at least 10 days’ advance notice to the affected persons, cancel any outstanding awards and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such awards based upon the price per share of ordinary shares received or to be received by other shareholders of the Company in the event. In the case of any option or stock appreciation right with an exercise price (or exercise price in the case of a stock appreciation right) that equals or exceeds the price paid for a share of ordinary shares in connection with the Change in Control (as defined in the Plan), the Committee may cancel the option or stock appreciation right without the payment of consideration therefor.
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Amendment and Termination
The Board at any time, and from time to time, may amend or terminate the Plan. However, except as provided in the Plan relating to adjustments upon changes in ordinary shares, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy any applicable laws. At the time of such amendment, the Board shall determine, upon advice from counsel, whether such amendment will be contingent on shareholder approval.
Compensation of Directors and Officers
The following table sets forth information regarding the compensation paid to our directors and our executive officers during the year ended December 31, 2021.
| Short Term Employment Benefits | Post Employment Benefits | Total | ||||||||||||||||||||||
| Salary & fees | Cash bonus | Non monetary benefits | Super -annuation | Retirement benefits | ||||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||
| Directors | ||||||||||||||||||||||||
| Sahil Beri | — | — | — | — | — | — | ||||||||||||||||||
| Meena Beri | 68,666 | — | — | 6,867 | — | 75,533 | ||||||||||||||||||
Amit Beri | — | — | — | — | — | — | ||||||||||||||||||
| Total Directors | 68,666 | — | — | 6,867 | — | 75,533 | ||||||||||||||||||
| Officer | ||||||||||||||||||||||||
Amit Beri | — | — | — | — | — | — | ||||||||||||||||||
| Steve Dixon | 86,463 | — | — | 8,646 | — | 95,109 | ||||||||||||||||||
| Tianyi Eric Yu | 58,956 | — | — | 5,896 | — | 64,852 | ||||||||||||||||||
| Clive Coleman | 45,855 | — | — | 4,585 | — | 50,440 | ||||||||||||||||||
| Total Officer | 191,273 | — | — | 19,127 | — | 210,401 | ||||||||||||||||||
| Totals | 191,273 | — | — | 19,127 | — | 210,401 | ||||||||||||||||||
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Family Relationships
There are no family relationships among our directors and executive officers. There are no arrangements or understanding between or among our executive officers and directors pursuant to which any director or executive officer or is to be selected as a director or executive officer
Founder History
The Company was formed on April 20, 2018, and the founders were family members. Meena Beri is the mother of Amit Beri and Sahil Beri, who are brothers. Amit Beri was a former director and the former CEO from April 2018 through April 2022 and April 2018 through February 2022, respectively. Meena Beri was a former director from September 2018 through April 2022. Sahil Beri was the former Managing/Executive Director from August 2018 through April 2022, and is our current Chief Operating Officer and Chairman.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past 10 years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.
Board of Directors and Board Committees
Corporate Governance
We are incorporated under the laws of Australia. Our governing documents consist of our Constitution and we have implemented a corporate governance framework that is guided by The Corporate Governance Principles and Recommendations (4th Edition) as published by the Australian Securities Exchange’s Corporate Governance Council.
We qualify as a “foreign private issuer” as defined in Section 405 of the Securities Act. As a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose disclosure requirements as well as procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, the members of our board of directors and senior management are not subject to short-swing profit and insider trading reporting obligations under Section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules, to the extent applicable.
The foreign private issuer exemption will also permit us to follow home country corporate governance practices or requirements instead of certain Nasdaq listing requirements required for U.S. domestic issuers, including the following:
| ● | We expect to rely on an exemption from the requirement that our independent directors meet regularly in executive sessions under Nasdaq listing rules. The Corporations Act does not require the independent directors of an Australian company to have such executive sessions, accordingly, we plan to claim this exemption. |
| ● | We expect to rely on an exemption from the quorum requirements applicable to meetings of shareholders under Nasdaq listing rules. In compliance with Australian law, three shareholders present, in person or by proxy, attorney or a representative, shall constitute a quorum for a general meeting. Nasdaq listing rules require that an issuer provide for a quorum as specified in its by-laws for any meeting of the holders of ordinary shares, which quorum may not be less than 33 1/3% of the outstanding voting ordinary shares. Accordingly, because applicable Australian law and rules governing quorums at shareholder meetings differ from Nasdaq’s quorum requirements, we plan to claim this exemption. |
| ● | We expect to rely on an exemption from the requirement to disclose third-party director and director nominee compensation under Nasdaq listing rules. The Corporations Act does not have a similar requirement, accordingly, we plan to claim this exemption. |
| ● | We expect to rely on an exemption from the independence requirements for a majority of our board of directors as prescribed by Nasdaq listing rules. The Corporations Act does not require us to have a majority of independent directors although ASX Corporate Governance Principles and Recommendations do recommend a majority of independent directors. During fiscal 2021, we did not have a majority of directors who were “independent” as defined in the ASX Corporate Governance Principles and Recommendations, which definition differs from Nasdaq’s definition. Accordingly, because Australian law regarding director independence differ to the independence requirements under Nasdaq listing rules, we plan to claim this exemption. |
See “Prospectus Summary — We are a “foreign private issuer” and may have disclosure obligations that are different from those of U.S. domestic reporting companies. As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which could limit the information publicly available to our shareholders.
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Board Composition and Election of Directors
Our board of directors (“Board”) currently consists of four (4) directors. Our Board will facilitate its exercise of independent supervision over management by ensuring that a majority of its members are “independent” following this offering. Under our Constitution, at each annual general shareholder meeting one-third of the directors, other than the Managing Director, or if their number is not a multiple of three, then the number nearest to one-third (rounded upwards in case of doubt) of the directors must retire.
Notwithstanding the above, no director, other than the Managing Director, shall hold office for a period in excess of 3 years, or until the third annual general meeting following his or her appointment, whichever is the longer, without submitting himself for re-election.
Under our Constitution, at the next shareholder annual general meeting, (i) all Board-appointed directors must present themselves for election and (ii) one third of shareholder-elected directors must present themselves for re-election. Accordingly, as each of our current directors was appointed by the Board, each stands for election at the next shareholder annual general meeting, which is anticipated to occur within five (5) months of the end of our fiscal year, December 31, 2022.
A retiring director remains in office until the relevant shareholder meeting and will be eligible for re-election at that meeting.
A director who has a material interest in a matter before our board of directors or any committee on which he or she serves is required to disclose such interest as soon as the director becomes aware of it. In situations where a director has a material interest in a matter to be considered by our board of directors or any committee on which he or she serves, such director may be required to remove himself or herself from the meeting while discussions and voting with respect to the matter are taking place.
Meetings of Directors
Our board of directors is responsible for the stewardship of the Company and providing oversight as to the management of our business and affairs, including providing guidance and strategic oversight to management by, among other things:
| ● | Developing and reviewing the Company’s strategic and operating objectives, business plans and budgets as developed by the Board and management giving consideration to any recommendations made to the Board by any committees; | |
| ● | Overseeing the Company’s process for making timely and balanced disclosure of all material information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities | |
| ● | Reviewing and approving the Company’s financial position, systems of risk management and internal compliance and control, codes of conduct and legal compliance and ensuring the integrity and effectiveness of those systems by conducting annual internal reviews of the systems including reviewing the results of any review by the Audit Committee; | |
| ● | Annually reviewing internal and external audit reports to ensure that, where deficiencies in controls or procedures have been identified, appropriate remedial action is taken by management. | |
| ● | Appointing and removing the Chief Executive Officer; | |
| ● | Monitoring and undertaking annual performance evaluations of the Chief Executive Officer and key senior executives; | |
| ● | Ensuring that the Company has an effective corporate governance system in place which includes ensuring that policies and procedures in place are consistent with the Company’s objectives and corporate governance standards; |
Remuneration and Borrowing
The directors may receive such remuneration as our Board of Directors may determine from time to time. Each director is entitled to be repaid or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our Board of Directors or committees of our Board of Directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The Nomination and Remuneration Committee will assist the directors in reviewing and approving the compensation structure for the directors. Our Board of Directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock, and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.
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Board Committees
In light of the Company’s size and nature, we believe that the current size of the board of directors is a cost effective and practical method of directing and managing the Company. As our activities develop in size, nature and scope, the size of the board, the formation of board committees and the implementation of additional corporate governance policies and structures will be reviewed.
To assist with the effective discharge of its duties, our board of directors established an Audit Committee and a Nomination and Remuneration Committee. The Audit Committee and Nomination and Remuneration Committee operate under their respective charters, each of which was approved by our board of directors.
Audit Committee
The members of our Audit Committee are Sally Cardillo, Sameer Sethi and Kristopher Salinger. Our board of directors has determined that Ms. Cardillo, Mr. Salinger and Mr. Sethi satisfy the independence requirements under Nasdaq listing standards and Rule 10A-3(b)(1) of the Exchange Act. Ms. Cardillo is the chairperson of our Audit Committee. Our board of directors has determined that Ms. Cardillo is an “audit committee financial expert” within the meaning of SEC regulations. Each member of our Audit and Risk Committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, our board of directors has examined each member’s scope of experience and the nature of his or her employment.
The Audit Committee’s duties and responsibilities are specified in our Audit Committee Charter, and include, but not be limited to:
| ● | To (1) select and retain an independent registered public accounting firm to act as the Company’s independent auditors for the purpose of auditing the Company’s annual financial statements, books, records, accounts and internal controls over financial reporting, (2) set the compensation of the Company’s independent auditors, (3) oversee the work done by the Company’s independent auditors and (4) terminate the Company’s independent auditors, if necessary. | |
| ● | At least annually, to obtain and review a report by the Company’s independent auditors that describes (1) the accounting firm’s internal quality control procedures, (2) any material issues raised by the most recent internal quality control review, peer review or Public Company Accounting Oversight Board review or inspection of the firm or by any other inquiry or investigation by governmental or professional authorities in the past five (5) years regarding one or more audits carried out by the firm and any steps taken to deal with any such issues, and (3) all relationships between the firm and the Company or any of its subsidiaries; and to discuss with the independent auditors this report and any relationships or services that may impact the objectivity and independence of the auditors. | |
| ● | To assure the regular rotation of the lead audit partner at the Company’s independent auditors and consider regular rotation of the accounting firm serving as the Company’s independent auditors. | |
| ● | To review and discuss with the Company’s independent auditors (1) the auditors’ responsibilities under generally accepted auditing standards and the responsibilities of management in the audit process, (2) the overall audit strategy, (3) the scope and timing of the annual audit, (4) any significant risks identified during the auditors’ risk assessment procedures and (5) when completed, the results, including significant findings, of the annual audit. | |
| ● | To review and discuss with the Company’s independent auditors (1) all critical accounting policies and practices to be used in the audit; (2) all alternative treatments of financial information within generally accepted accounting principles (“GAAP”) that have been discussed with management, the ramifications of the use of such alternative treatments and the treatment preferred by the auditors; and (3) other material written communications between the auditors and management. | |
| ● | To review with management and the Company’s independent auditors: any major issues regarding accounting principles and financial statement presentation, including any significant changes in the Company’s selection or application of accounting principles; any significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including the effects of alternative GAAP methods; and the effect of regulatory and accounting initiatives and off-balance sheet structures on the Company’s financial statements. | |
| ● | To review with management and the Company’s independent auditors the adequacy and effectiveness of the Company’s financial reporting processes, internal control over financial reporting and disclosure controls and procedures, including any significant deficiencies or material weaknesses in the design or operation of, and any material changes in, the Company’s processes, controls and procedures and any special audit steps adopted in light of any material control deficiencies, and any fraud involving management or other employees with a significant role in such processes, controls and procedures, and review and discuss with management and the Company’s independent auditors disclosure relating to the Company’s financial reporting processes, internal control over financial reporting and disclosure controls and procedures, and the independent auditors’ report on the effectiveness of the Company’s internal control over financial reporting and the required management certifications to be included in or attached as exhibits to the Company’s annual report on Form 20-F. | |
| ● | To review, approve and oversee any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K) and any other potential conflict of interest situations on an ongoing basis, and to develop policies and procedures for the Committee’s approval of related party transactions. |
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Nomination and Remuneration Committee
We established a Nomination and Remuneration Committee, which will be comprised of our non-executive directors Sally Cardillo, Sameer Sethi and Kristopher Salinger, all of whom the Board has determined to satisfy the independence requirements of our board charter. Ms. Cardillo is the chair of the Nomination and Remuneration Committee.
The Committee shall provide assistance to the Board in fulfilling its corporate governance and oversight responsibilities, however, ultimate responsibility for the Company's nomination and remuneration practices remains with the Board. The main functions and responsibilities of the Committee include the following:
| ● | assisting the Board in examining the selection and appointment practices of the Company; | |
| ● | ensuring remuneration arrangements are equitable and transparent and enable the Company to attract and retain executives and directors (executive and non-executive) who will create sustainable value for members and other stakeholders; | |
| ● | ensuring the Board is of an effective composition, size and commitment to adequately discharge its responsibilities and duties; | |
| ● | reviewing Board succession plans and Board renewal; | |
| ● | reviewing the processes for evaluating the performance of the Board, its committees and individual directors and ensuring that a fair and responsible reward is provided to executives and directors having regard to their performance evaluation; | |
| ● | reviewing levels of diversity within the Company and Board and reporting on achievements pursuant to any diversity policy developed by the Board; | |
| ● | reviewing the Company's remuneration, recruitment, retention and termination policies for the Board and senior executives; and | |
| ● | complying with all relevant legislation and regulations. |
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Code of Conduct
We have adopted a Code of Conduct applicable to all of our directors, officers and employees. We post on our website all disclosures that are required by law or the listing standards of Nasdaq concerning any amendments to, or waivers from, any provision of the Code of Conduct. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of, this prospectus.
Monitoring Compliance with the Code of Business Conduct and Ethics
Our board of directors is responsible for reviewing and evaluating the Code of Conduct periodically and will make any necessary changes thereto. Our board of directors is also charged with the monitoring of compliance with the Code of Conduct and will be responsible for considering any waivers of the Code of Conduct.
Interests of Directors
A director who has a material interest in a matter before our board of directors or any committee on which he or she serves is required to disclose such interest as soon as the director becomes aware of it. In situations where a director has a material interest in a matter to be considered by our board of directors or any committee on which he or she serves, such director may be required to excuse himself or herself from the meeting while discussions and voting with respect to the matter are taking place. Directors will also be required to comply with the relevant provisions of the Corporations Act regarding conflicts of interest and any material personal interest in a matter that relates to the affairs of the Company. Under the Corporations Act, the Company may be required to obtain approval of shareholders before providing certain financial benefits to directors, unless an exemption set out in the Corporations Act applies.
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Complaint Reporting and Whistleblower Policy
In order to foster a climate of openness and honesty in which any concern or complaint pertaining to a suspected violation of the law, our Code of Conduct or any of our policies or any unethical or questionable act or behavior, the board of directors adopted a whistleblower policy that requires that our employees promptly report such violation or suspected violation. In order to ensure that violations or suspected violations can be reported without fear of retaliation, harassment or an adverse employment consequence, our whistleblower policy will contain procedures that are aimed to facilitate confidential, anonymous submissions by our employees.
We describe below related party transactions, since January 1, 2019, to which we were a party or will be a party, in which the amounts involved exceeded or will exceed USD$120,000 and any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock had or will have a direct or indirect material interest.
IBG was formed in April 2018 as a family-operated business by Amit Beri, the Chief Executive Officer, his brother, Sahil Beri, and his mother, Meena Beri. In addition to IBG, Amit Beri has also managed other companies, Elegance Brands Inc. (now Sway Energy Corp.) and Europa International Pty Ltd, with which IBG has entered into business agreements. The history and current status of these relationships are described in the following chart. The business agreements between the companies are related party transactions, and the agreements between them are described in this section.
Due to the previous common ownership and control by Amit Beri of Australian Boutique Spirits Pty Ltd (now known as Innovation Beverage Group Limited), Elegance Brands Inc. (now known as Sway Energy Corp.), and Europa International Pty Ltd (a liquidated company as of November 2020), there were potential conflicts of interest with respect to these related party transactions. In April 2022, Amit Beri transferred all of his ordinary shares in IBG and resigned as the CEO of IBG, and Meena Beri resigned as a director of IBG.
Currently, our Chief Operating Officer and Chairman of our board of directors is Sahil Beri, who is the brother of Amit Beri, the Chief Executive Officer and a director of Sway Energy Corp, which presents a potential conflict of interest.
Australian Boutique Spirits (now Innovation Beverage Group Limited) (Incorporated in Australia on April 20, 2018) |
Elegance Brands Inc. (now Sway Energy Corp.) (Incorporated in Delaware on October 30, 2017) |
Europa International Pty Ltd (Incorporated in Australia on June 5, 2009. Liquidation proceeding commenced in September 2018, which completed in November 2020.) | |
| Amit
Beri |
Director from April 2018 through April 2022. | Director from inception to present. | Director from inception at June 2009 through September 2012, then December 2017 through April 2018. |
CEO from April 2018 through February 2022.
|
CEO from inception to present.
|
CEO from 2008 through July 2018. | |
| At the time of formation, Amit Beri was issued 300 ordinary shares, which subsequent to a recapitalization of the Company on May 13, 2021, he then held 5,000,000 ordinary shares, or 42.29% of IBG. As of April 25, 2022, Amit Beri does not own any shares in IBG. | Amit Beri owns an aggregate of 58,917,477 shares in Class A and Class B common stock of Sway Energy Corp. (“Sway”), or 43.1% of Sway. | Amit Beri owned 300 ordinary shares in Europa International Pty Ltd (“Europa”), or 50% of Europa. | |
| Sahil
Beri |
Managing/Executive Director from August 2018 through April 2022. Chairman, Director, April 2022 to present. |
Executive Director from December 2019 through March 2022. | Sahil Beri was not a director at Europa. |
Chief Operating Officer from April 2022 till present.
|
Chief Technology Officer from December 2019 through March 2022.
|
Sahil Beri was not an executive officer at Europa.
| |
| At the time of formation, Sahil Beri was issued 80 ordinary shares, which subsequent to a recapitalization of the Company on May 13, 2021, he then held 1,000,000 ordinary shares, or 8.23% of IBG, which he currently holds. | Sahil Beri owns an aggregate of 2,500,000 shares of Class A and Class B common stock of Sway, or 0.9% of Sway. | Sahil Beri did not own ordinary shares in Europa | |
| Meena
Beri |
Director from September 2018 through April 2022. | Meena Beri was not an executive officer or director at Sway. | Director from June 2009 through May 2013. |
| At the time of formation, Meena Beri was issued 220 ordinary shares, which subsequent to a recapitalization of the Company on May 13, 2021, she then held 4,000,000 ordinary shares, or 32.94% of IBG, which she currently holds. | Meena Beri has not held shares in Sway at any time. | Meena Beri owned 220 ordinary shares in Europa, or 36.7% of Europa. |
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Deed of Novation by and between Europa International Pty Ltd.,, Coca-Cola Amatil (Australia) Pty Ltd and Australian Boutique Spirits Pty Ltd
A description of the key terms of the Europa-CCA-ABS Novation Agreement may be found at “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
BevMart Agreement, and Termination of BevMart Agreement and Amendment to Manufacturing Agreement
On December 31, 2020, Australian Boutique Spirits Pty Ltd (“ABS”) (now known as Innovation Beverage Group) and Elegance Brands, Inc. (“Elegance Brands”) entered into a management, supply and license agreement (the “BevMart.com.au Agreement”) concerning the management and licensing of Bevmart.com.au, an online beverage retailer owned by Elegance Brands at the time.
The BevMart Agreement provided that ABS would have the sole and exclusive right to manage the BevMart.com.au business and the BevMart.com.au website. In addition, under the terms of the BevMart Agreement, Elegance Brands granted to ABS a non-exclusive and perpetual right and license to use all of Elegance Brands’ intellectual property in exchange for a royalty of 2.5% of the net retail sales from the BevMart.com.au website.
On June 14, 2021, ABS and Elegance Brands entered into the Termination of BevMart Agreement and Amendment to Manufacturing Agreement (the “June 2021 Amendment Agreement”) to terminate the BevMart Agreement and amend the terms of the Elegance Manufacturing Supply and License Agreement. Pursuant to the June 2021 Agreement, Elegance Brands waived any right to receive royalty payments and, in exchange for ABS’ payment to Elegance Brands of USD$188,631, which represented 100% of the costs and expenses incurred by Elegance Brands in relation to the development of BevMart.com.au and its formulations, ABS obtained the sole and exclusive right to own and operate the BevMart.com.au website and any other internet website established by Elegance Brands to enable BevMart to market the BevMart Brands online and the Australian Bitters Company brand-name products, produce the BevMart Brands and engage in the BevMart business in Australia. The “BevMart Brands” refers to (a) Cheeky Vodka and flavor variants, (b) Coventry Estate Gin and flavor variants, (c) Geo Liqueurs in multiple variants, and (d) Cheeky Espresso Martini in multiple variants. A table concerning intellectual property arrangements amended by the June 2021 Amendment Agreement may be found at “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
Share Purchase Agreement by and between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc. dated December 3, 2019, as amended on April 8, 2020, May 19, 2020, July 27, 2020 and December 11, 2020.
Share Purchase Agreement by and between ABS and Elegance Brands, dated December 3, 2019, as amended on April 8, 2020, May 19, 2020, July 27, 2020 and December 11, 2020 (the “Share Purchase Agreement”) pursuant to which Elegance Brands intended to acquire 100% of the ordinary shares of ABS from its sole shareholder, Amit Beri. On March 12, 2021, ABS, Elegance Brands and Mr. Beri terminated the Share Purchase Agreement pursuant to a termination agreement (“Termination Agreement”), which provided for a refunding of an AUD$1,712,500 deposit made by Elegance Brands as the buyer to Mr. Beri as the sole shareholder of ABS that has been fully repaid as of the date of this prospectus.
Manufacturing, Supply and License Agreement between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc. dated July 31, 2020, as amended (“2020 Manufacturing Agreement”) by that certain Amendment Agreement dated March 10, 2021and that certain Termination of BevMart Agreement and Amendment to Manufacturing Agreement between Australian Boutique Spirits Pty Ltd and Elegance Brands, Inc. dated June 14, 2021 (“June 2021 Amendment Agreement”)
Upon termination of the 2020 Manufacturing Agreement, two licenses granted thereunder will expire: (i) IBG’s royalty-free license to Twisted Shaker to manufacture, use and sell the product throughout the world, except the U.S., its territories and possessions; and (ii) Sway’s royalty-free license to use the intellectual property rights associated with VOCO to manufacture, use and sell the brand in the U.S., its territories and possessions. For a description of the key terms of the 2021 Manufacturing Agreement, please see the section at “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
Loan Agreement between Australian Boutique Spirits Pty Ltd and Amit Beri as of June 30, 2021, as novated to Meena Beri on December 27, 2021
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On June 30, 2021, ABS and Amit Beri entered into an unwritten loan agreement for the aggregate amount of AUD$2,853,105 for loans received from the Company between January 2020 through such date (the “Beri Loan”) bearing an interest rate of 4.52%. . The repayment term was such that in lieu of a cash payment by Mr. Beri to ABS, ABS would offset the loan against the dividend declared for the period to June 30, 2021. In accordance with the Corporations Act (Cth), the Board declared a dividend of AUD$2,138,610 from ABS’ historical retained earnings as of June 30, 2021 and offset the dividend against the loan owing from Mr. Beri.
Subsequently on December 27, 2021, ABS, Mr. Beri and Meena Beri entered into a novation agreement (“Novation of Debt Agreement”) whereby the Beri Loan was novated to Ms. Beri such that the repayment of the remaining balance of AUD$960,759.60 was assumed by Ms. Beri, which is repayable upon demand by ABS.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following section and tables set forth certain information with respect to the beneficial ownership of our ordinary shares and as adjusted to reflect the sale of the ordinary shares offered by us in our initial public offering and the 1-for-1.62 reverse split of our ordinary shares effective September 12, 2022, for:
| ● | each shareholder known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares, |
| ● | each of our directors, |
| ● | each of our named executive officers, and |
| ● | all of our directors and executive officers as a group. |
We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, beneficial ownership includes any ordinary shares over which the individual has sole or shared voting power or investment power as well as any ordinary shares that the individual has the right to subscribe for within 60 days of September 6, 2022, through the exercise of any warrants or other rights. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all ordinary shares that they beneficially own, subject to applicable community property laws. None of the shareholders listed in the table are a broker-dealer or an affiliate of a broker dealer.
Applicable percentage ownership prior to the offering is based on 7,502,872 ordinary shares outstanding at September 6, 2022, as adjusted for the reverse split, effective September 12, 2022. The table also lists the percentage ownership after this offering based on 9,627,872 ordinary shares outstanding immediately after the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional ordinary shares from us in this offering. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Innovation Beverage Group Limited, 29 Anvil Road, Seven Hills, New South Wales 2147, Australia.
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| Beneficial Ownership Prior to Offering | Beneficial Ownership After Offering | |||||||||||||||
| Name of Beneficial Owner | Ordinary shares | Percentage | Ordinary shares | Percentage | ||||||||||||
| 5% Shareholders | ||||||||||||||||
| Meena Beri | 2,469,136 | 32.91 | % | 2,469,136 | 25.65 | % | ||||||||||
| Sahil Beri, Chief Operating Officer and Director | 617,284 | 8.23 | % | 617,284 | 6.41 | % | ||||||||||
| Samstock SZRT LLC (1) | 603,567 | 8.04 | % | 603,567 | 6.27 | % | ||||||||||
| 114 Assets Inc. (2) | 1,993,827 | 26.57 | % | 1,993,827 | 20.71 | % | ||||||||||
| Officers and Directors | ||||||||||||||||
| Dean Huge, Chief Executive Officer | — | — | % | — | — | % | ||||||||||
| Sahil Beri, Chief Operating Officer and Director | — | — | % | — | — | % | ||||||||||
| Eric Yu, Chief Financial Officer | 19,596 | * | % | 19,596 | * | % | ||||||||||
| Clive Coleman, Chief Commercial Officer | 6,532 | * | % | 6,532 | * | % | ||||||||||
| Kristopher (Kris) Laurens Salinger, Director | — | — | % | — | — | % | ||||||||||
| Sally Cardillo, Director | — | — | % | — | — | % | ||||||||||
| Sameer Sethi, Director | — | — | % | — | — | % | ||||||||||
| All officers and directors as a group | 643,412 | 8.58 | % | 643,412 | 6.68 | % | ||||||||||
| 5% or greater beneficial owners | 5,683,813 | 75.76 | % | 5,683,813 | 59.04 | % | ||||||||||
* Represents beneficial ownership of less than one percent (1%) of the outstanding ordinary shares.
| (1) | The ordinary shares are indirectly held by the Samuel Zell Revocable Trust, an Illinois revocable trust (“Samuel Zell Trust”), which has discretionary authority to vote and dispose of the ordinary shares held by Samstock SZRT LLC. The beneficial owner of the Samuel Zell Trust is Samuel Zell. The Samuel Zell Trust has a business address of Two North Riverside Plaza, Suite 600, Chicago, Illinois 60654 |
| (2) | The ordinary shares are indirectly held by 114 Trust, which is administered by Poonam Arora as Trustee who has full voting power over all trust assets. The beneficial owners of this trust are Elizabeth Lee Beri (50%) and Rohan Anil Beri (50%). The business address of 114 Assets Inc. is Lennox Paxton Chambers, 3 Bayside Executive Park, West Bay Street and Blake Road, Nassau, Bahamas. |
As of September 6, 2022, there were twenty-two (22) holders of record entered in our share register. The number of individual holders of record is based exclusively upon our share register and does not address whether ordinary shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of ordinary shares in our company.
To our knowledge, other than as set forth above, no other shareholder beneficially owns more than 5% of our ordinary shares. Our company is not owned or controlled directly or indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. Our major shareholders do not have any special voting rights.
DESCRIPTION OF SHARE CAPITAL AND CONSTITUTION
We are an Australian public limited company and governed by our Constitution and the Corporations Act 2001 (Cth). As of the date of this prospectus, our authorized share capital is comprised of ordinary shares. Our board of directors may determine the prices and terms for shares or other securities, and may further determine any other provision relating to such issue of shares or securities. We may also issue redeemable securities on such terms and in such manner as our board of directors shall determine.
On April 29, 2021, the Company’s Board of Directors and shareholders approved of a recapitalization of the Company by increasing the share capital from 600 ordinary shares to 10,000,000 ordinary shares, effective July 29, 2021.
On August 12, 2022, the Company’s shareholders approved of a reverse split of our ordinary shares determined at the discretion of the Board of Directors. On September 10, 2022, our Board of Directors approved a 1-for-1.62 reverse split of our ordinary shares, effective September 12, 2022, pursuant to which shareholders received one (1) ordinary share for every 1.62 ordinary shares held as of such date. The reverse split proportionally reduced the number of authorized share capital.
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General
Australian law does not limit the authorized share capital that may be issued by a corporation and does not recognize the concept of par value. As of the date of this prospectus, the authorized share capital of Innovation Beverage Group was comprised of ordinary shares. As of September 12, 2022, the number of ordinary shares issued, outstanding and fully paid was 7,502,872, which reflects the reverse split of our ordinary shares, effective September 12, 2022. Subject to our Constitution, the Corporations Act, and the rules governing the listing of our securities on the Nasdaq Capital Market, our directors are entitled to issue shares in our capital, grant options over unissued shares, and settle the manner in which fractions of a share are to be dealt with. The directors may decide the persons to whom, and the terms on which, shares are issued or options are granted as well as the rights and restrictions that attach to those shares or options subject to our Constitution, the Corporations Act 2001 (Cth) and the rules governing the listing of our securities on the Nasdaq Capital Market.
Ordinary shares
Holders of our ordinary shares have the right to: attend and vote at all meetings of the company and on a show of hands or poll to vote for every share held; participate in the dividends (if any) determined by the directors to be paid on that share; participate in a winding up of the company - the right to repayment of the paid issue price of such share and to participate in the division of surplus assets or profits of the company and in this regard to rank equally with all other shareholders so entitled; and any other rights in the Corporations Act 2001 (Cth).
Voting Rights
Holders of our ordinary shares are entitled to receive notice of and to be present to vote and participate at general meetings. Subject to the Constitution and to any rights or restrictions attached to any shares, at a general meeting, on a show of hands, every holder present has one vote; and on a poll, each holder present has (i) one vote for each fully paid share held and a fraction of a vote for each partly paid share held equivalent to the proportion to which the share is paid up. Voting may be in person or by proxy, attorney or representative.
No business may be transacted at any general meeting, except the election of a chairperson and the adjournment of the meeting, unless a quorum is present when the meeting proceeds to business. Three or more holders present personally or separately represented by proxy representative or attorney shall be a quorum for a general meeting.
Dividend Rights
Holders of our ordinary shares are entitled to receive such dividends as may be declared by the directors, subject to and in accordance with the Corporations Act. The directors may declare and pay such interim and final dividends as, in their judgment, the financial position of the Company justifies and may fix the time for payment. The directors when declaring a dividend may pay any dividend required to be paid under the terms of issue of a share.
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Underwriter’s Warrants
At the close of this offering, we have agreed to issue to EF Hutton or its designees warrants to purchase up to a total of 106,250 ordinary shares (equal to five percent (5%) of the ordinary shares sold in this offering, or 122,187 ordinary shares if the underwriter exercises its over-allotment option in full), at an exercise price of $6.00 per ordinary share (equal to 120% of the offering price per share in this offering). Such warrants are exercisable for a four and a half-year period commencing six (6) months from the effective date of this registration statement.
Rights of Non-Resident or Foreign Shareholders
There are no specific limitations in the Corporations Act which restrict the acquisition, ownership, or disposal of shares in an Australian company by non-resident or foreign shareholders. The Foreign Acquisitions and Takeovers Act 1975 (Cth) regulates investment in Australian companies and may restrict the acquisition, ownership, and disposal of our ordinary shares by non-resident or foreign shareholders.
History of Share Capital
During the last three years, the following changes have been made to our ordinary share capital.
On April 29, 2021, the Company’s Board of Directors and shareholders approved of a recapitalization of the Company by increasing the share capital from 600 ordinary shares to 10,000,000 ordinary shares, effective July 29, 2021.
From June 2019 through July 2021, Innovation Beverage Group made no issuances of share capital.
Between August 2021 and April 2022, as set out in detail under Item 7 “Recent Sales of Unregistered Securities,” Innovation Beverage Group issued 2,103,413 ordinary shares for an aggregate consideration of AUD$6,625,751 in connection with a private placement offering conducted in reliance on Regulation S or Regulation D (“Series A Financing”).
In connection with the Series A Financing, the holders entered into a shareholders’ deed, which will terminate upon this offering and admission of our ordinary shares on the Nasdaq Capital Market (“Shareholders’ Deed”). As set forth in the Shareholders’ Deed, the business of IBG is the sale, manufacture and distribution of a portfolio of alcohol brands within Australia and internationally. The Shareholders’ Deed contains the agreed upon voting rights of shareholders of the Company and the voting rights of any directors nominated to the Board.
Pursuant to the Shareholders’ Deed, the holders have, among other entitlements, the following voting rights:
| ● | each shareholder of at least 20% of the total number of issued and outstanding ordinary shares is entitled to appoint one director to the board of directors, and may appoint or replace such director upon notice to the Company; and |
| ● | certain matters, outside the ordinary course of business, are reserved for shareholder vote, such as rights attached to shares, related party transactions, indebtedness, reorganization, issuance of new securities, and director compensation, and approval requires 80% or more of the votes cast on any such resolution; and |
| ● | shareholders, by way of a simple majority, may nominate a person as an observer to the Board who is entitled to attend, as an observer, board meetings of the Company and is entitled to receive all documents and notices which a director of the Company receives. |
On April 29, 2022, Innovation Beverage Group issued ordinary shares to two consultants for services rendered and one employee in an aggregate amount of 40,658 with an aggregate value of AUD$128,073. On September 6, 2022, we issued to one employee 10,582 ordinary shares with a value of AUD$33,333. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On August 12, 2022, the Company’s shareholders approved of a reverse split of our ordinary shares determined at the discretion of the Board of Directors. On September 10, 2022, our Board of Directors approved a 1-for-1.62 reverse split of our ordinary shares, effective September 12, 2022, pursuant to which shareholders received one (1) ordinary share for every 1.62 ordinary shares held as of such date. The reverse stock split proportionally reduced the number of authorized share capital.
Our Constitution
Innovation Beverage Group Limited (ACN 625 701 420) is a public company listed by shares registered under the Corporations Act 2001 (Cth). The Australian Securities and Investments Commission (“ASIC”) is Australia’s corporate regulator and is an independent government body. The Company’s corporate affairs are principally governed by our Constitution and the Corporations Act.
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The Australian law applicable to our Constitution is not significantly different than a U.S company’s charter document. However, an important difference exists in that IBG does not have a limit on our authorized share capital and the concept of par value is not recognized under Australian law.
Subject to restrictions on the issue of securities in our Constitution and the Corporations Act and any other applicable law, the Company may at any time issue shares and grant options or warrants on any terms, with the rights and restrictions and for the consideration that the Company’s Board determines.
The Company’s Constitution is similar in nature to the bylaws of a U.S corporation. It does not provide for or prescribe any specific objectives or purposes of Innovation Beverage Group Limited. It may be amended by special resolution which is 75% of the votes cast by shareholders of the company entitled to vote on the resolution and who vote at the meeting in person or by proxy (if proxies are allowed).
Under Australian law, a company has the legal capacity and powers of an individual both within and outside Australia.
The material provisions of our Constitution are summarized below. This summary is not intended to be complete not to constitute a definitive statement of the rights and liabilities of the Company’s shareholders. The Company’s Constitution is filed as an exhibit to this registration statement.
Directors
The Company shall not have less than three (3) directors.
The shareholders of the Company may by ordinary resolution elect any natural person to be a director either as an addition to the existing directors or as otherwise provided in the Constitution. An election of directors must take place each annual general meeting.
Pursuant to our Constitution, at the Company’s annual general meeting in every year, one-third of the directors for the time being, or, if their number is not a multiple of 3, then the number nearest one-third (rounded upwards in case of doubt), must retire from office, provided always that no director except a Managing Director shall hold office for a period in excess of 3 years, or until the third annual general meeting following his or her appointment, whichever is the longer, without submitting himself for re-election. The directors to retire at an annual general meeting are those who have been longest in office since their last election.
The directors can also appoint a person to be a director in addition, to fill a casual vacancy.
Interested Directors
Subject to the Company’s Constitution and the Corporations Act, no director or proposed director is disqualified by that office from entering into a contract, agreement or arrangement with the Company or becoming or remaining a director of any company in which the Company is in any way interested or which is in any way interested in the Company.
A director who enters into a contract, agreement or arrangement in which the director has an interested or is a director of the other company with which the Company has entered into the contract, agreement or arrangement is not liable to account to the Company for any profits or remuneration realised by that director as a result of their being interested. No contract, agreement or arrangement in which a director is in any way interested, entered into by or on behalf of the Company can be avoided.
A director who, due to holding an office or property may have duties or interests whether directly or indirectly in conflict with their duties as director or the interests of the Company must declare at a meeting of the directors the fact and the nature, character and extent of the conflict.
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A director who has a material personal interest in a matter that is being considered at a meeting of directors must not be present while the matter is being considered at the meeting or vote on that matter unless the directors who do not have a material person interest in the matter have passed a resolution that identifies the director, the nature and extent of the director’s interest in the matter and its relation to the affairs of the Company, and states that the directors voting for the resolution are satisfied that the interest should not disqualify the director from considering or voting on the matter or ASIC has given a declaration or order in accordance with the Corporations Act that the director may be present or vote or the interest does not need to be disclosed pursuant to the Corporations Act.
The Corporations Act does, however, provide that where there is a financial benefit given to a related party (that includes a director), the shareholders must approve that transaction unless it falls within an exception. Examples of exceptions include where the transaction is at arm’s length and where it is in respect to remuneration, that the remuneration is reasonable.
A director is not required to hold shares in the Company to be qualified to hold that appointment.
Compensation
Each director is entitled to such remuneration out of the funds of the Company as the directors determine. However, the remuneration of nonexecutive directors may not exceed in aggregate in any year the amount fixed by the Company in a general meeting for that purpose. The remuneration payable by the Company to a director must not include a commission on, or percentage of operating revenue.
Additionally, the directors are entitled to be paid all travelling and other expenses properly incurred by them in connection with the affairs of the Company, including attending and returning from general meetings of the Company or meetings of the directors or of committees. If a director renders or is called upon to perform extra services in connection with the affairs of the Company, the directors may arrange for a special remuneration to be paid.
Borrowing
The directors may exercise all the powers of the Company to borrow or otherwise raise money, to charge any property or business of the Company or all or any of its uncalled capital and to issue debentures or give any other security for a debt, liability or obligation of the Company or of any other person.
Rights and restrictions on classes of shares
Subject to the Corporations Act, the rights attaching to the Company’s shares are detailed in our Constitution.
The Constitution provides that the directors may issue, allot or grant options in respect of, or otherwise dispose of, shares to such persons, for such price, on such conditions, at such times and with such preferred, deferred or other special rights or special restrictions, whether in relation to dividends, voting, return of capital, participation in the property of the Company on a winding up or otherwise.
Subject to the Corporations Act, any rights and restrictions attached to a class of shares, the Company may issue further shares on such terms and conditions as the shareholders resolve.
Dividend Rights
Subject to the Corporations Act, the Company’s Board may from time to time determine to pay any interim, special or final dividends to shareholders, fix the amount of dividend, the record date for determining entitlements to, and for payment of, a dividend and the method of payment of a dividend.
Voting Rights
Subject to the Company’s Constitution and any rights or restrictions attached to any shares or classes of shares, at a general meeting on a show of hands, every shareholder present has one vote and on a poll, every shareholder present has one vote for each fully paid share held by the shareholder and a fraction of a vote for each partly paid share held by a shareholder, equivalent to the proportion which the amount is paid up (not credited) on the share bears to the total amounts paid and payable. Shareholders may vote by proxy. The Constitution does not allow for cumulative voting.
Under Australian law, shareholders of a public company are not permitted to approve corporate matters by written consent.
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Power to buy back ordinary shares
The Company may buy back ordinary shares in itself in any manner permitted by the Corporations Act.
Rights to share in Company’s profits
Subject to any rights or restrictions attached to any shares or class of shares, the directors may capitalise and distribute among such of the shareholders as would be entitled to receive dividends and in the same proportions, any amount forming part of the undivided profits of the Company, representing profits arising from an ascertained accretion to capital or from a revaluation of the assets of the Company, arising from the realisation of any assets of the Company or otherwise available for distribution as a dividend. The directors may resolve that all or any part of the capitalised amount is to be applied in paying up in full at a price determined by the resolution any unissued shares in or other securities of the Company or in paying up any amounts unpaid on shares or other securities held by the shareholders.
Rights to share in any surplus in the event of liquidation
Subject to this Constitution and to the rights or restrictions attached to any shares or class of shares if the Company is wound up and the property of the Company available for distribution among the shareholders is more than sufficient to pay all of the debts and liabilities of the Company and the costs, charges and expenses of the winding up, the excess must be divided among the shareholders in proportion to the shares held by them, irrespective of the amounts paid or credited as paid on the shares. If the Company is wound up, the liquidator may, with the sanction of a special resolution, divide among the shareholders the whole or any part of the property of the Company and determine how the division is to be carried out as between the shareholders or different classes of shareholders.
Redemption provisions
There are no redemption provisions in our Constitution in relation to Ordinary Shares. Under our Constitution and subject to the Corporations Act, any preference shares may be issued on the terms that they are, or may at our option be, liable to be redeemed.
Liability to further capital calls by the Company
The directors may make any calls from time to time upon shareholders in respect of all monies unpaid on partly-paid shares (if any), subject to the terms upon which any of the partly-paid shares have been issued. Each shareholder is liable to pay the amount of each call in the manner, at the time, and at the place specified by the directors. Calls may be made payable by instalment. Failure to pay a call will result in interest becoming payable on the unpaid amount and ultimately, forfeiture of those shares. As of the date of this prospectus, all of our issued shares are fully paid.
Restricted Securities
In the Constitution, Restricted Securities has the meaning given in the listing rules of any securities exchange as amended or replaced from time to time.
The holder of Restricted Securities cannot dispose of those Restricted Securities during the escrow period relating to those Restricted Securities except as permitted by the listing rules. The Constitution provides that the Company must refuse to acknowledge, deal with or accept a disposal (including registering a transfer of Restricted Securities) which is or might be in breach of the listing rules or any restriction agreement entered into by the Company under the listing rules relating to the escrow of Restricted Securities. During a breach of the listing rules relating to Restricted Securities, or a breach of a restriction agreement entered into by the Company under the listing rules relating to the escrow of Restricted Securities, the shareholder holding the Restricted Securities in question ceases to be entitled to any dividend or distribution, or any voting rights in respect of those Restricted Securities.
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Variation or cancellation of share rights
All or any of the rights or privileges attached to the class of share may be varied, whether or not the Company is being wound up, only with the consent in writing of the holders of three quarters of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class.
General meetings of Shareholders
The directors may, whenever they think fit, convene a general meeting. Subject to the Constitution and to the rights or restrictions attached to any shares or class of shares at least 28 days’ notice of a general meeting must be given to each person who is at the date of the notice a shareholder, a director or an auditor of the Company and the Securities Exchange. Section 249D of the Corporations Act also provides other mechanisms for the call of a meeting.
Ownership threshold
There are no provisions in the Constitution that require a shareholder to disclose ownership above a certain threshold. Section 671B(1) of the Corporations Act provides that a person who obtains a “substantial holding” being five percent (5 %) in a listed public company to disclose the interest to the company within two (2) days of acquiring the interest and serve a copy of the disclosure on the relevant market operator.
Foreign Ownership Regulation
There are no limitations on the rights to own securities imposed by our Constitution. However, acquisitions and proposed acquisitions of shares in Australian companies may be subject to review and approval by the Australian Federal Treasurer under the Foreign Acquisitions and Takeovers Act 1975, or the FATA, which generally applies to acquisitions or proposed acquisitions by a foreign person (as defined in the FATA) or associated foreign persons that would result in such persons having an interest in 20% or more of the issued shares of, or control of 20% or more of the voting power in, an Australian company and by non-associated foreign persons that would result in such foreign person having an interest in 40% or more of the issued shares of, or control of 40% or more of the voting power in, an Australian company. The Company is currently not classified as a foreign person or an Australian land corporation for the purposes of the FATA.
Whether prior approval of the Australian Federal Treasurer is required for an investor to be issued shares in the Company is an assessment which must be undertaken by each investor, as compliance with the FATA in those circumstances is the investor’s obligation. Separate and stricter rules apply for foreign government investors (defined by the FATA).
Generally, foreign government investors must seek prior FIRB approval where they acquire a direct interest in an entity or business. The term ‘direct interest’ has a very broad meaning under the Foreign Acquisitions and Takeovers Regulations 2015 and ranges from a 10% interest in an entity to an interest of any percentage in an entity which gives the foreign government investor the ability to influence or participate in the central management and control of the entity or business or determine its policy.
The Australian Federal Treasurer may prevent a proposed acquisition in the above categories or impose conditions on such acquisition if the Treasurer is satisfied that the acquisition would be contrary to the national interest. If a foreign person acquires shares or an interest in shares in an Australian company in contravention of the FATA, the Australian Federal Treasurer may take a number of actions including imposing civil or criminal penalties or ordering the divestiture of such person’s shares or interest in shares in the Company. The Australian Federal Treasurer may order divestiture pursuant to the FATA if he determines that the acquisition has resulted in that foreign person, either alone or together with other non-associated or associated foreign persons, controlling the Company and that such control is contrary to the national interest.
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Stock Transfer Agent
VStock Transfer, LLC is our company’s stock transfer agent. The address for VStock Transfer is 18 Lafayette Place, Woodmere, New York, 11598 and the telephone number is (212) 828-8436.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a public limited company incorporated under the laws of Australia. Some of our directors and executive officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for you to: effect service of process within the United States upon our non-U.S. resident directors or on IBG; enforce in U.S. courts judgments obtained against our non-U.S. resident directors or IBG in the U.S. courts in any action, including actions under the civil liability provisions of U.S. securities laws; enforce in U.S. courts judgments obtained against our non-U.S. resident directors or IBG in courts of jurisdictions outside the United States in any action, including actions under the civil liability provisions of U.S. securities laws.
With that noted, there are no treaties between Australia and the United States that would affect the recognition or enforcement of foreign judgments in Australia.
The disclosure in this section is not based on the opinion of counsel.
ORDINARY SHARES ELIGIBLE FOR FUTURE SALE
Before our initial public offering, there has not been a public market for our ordinary shares. Future sales of substantial amounts of our ordinary shares in the public market after our initial public offering, or the possibility of these sales occurring, could cause the prevailing market price for our ordinary shares to fall or impair our ability to raise equity capital in the future. We are unable to estimate the number of ordinary shares that may be sold in the future.
Upon the completion of this offering, we will have outstanding 9,627,872 ordinary shares. The amount of shares outstanding upon completion of this offering assumes no exercise of the underwriters’ option to purchase additional ordinary shares. All of the ordinary shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by one of our affiliates as that term is defined in Rule 144 under the Securities Act, which generally includes directors, officers or ten percent (10%) shareholders.
Lock-Up
Our executive officers, directors and certain shareholders of five percent (5%) and more of our outstanding ordinary shares have agreed with the underwriters not to offer, sell, dispose of or hedge our ordinary shares, subject to specified limited exceptions and extensions described elsewhere in this prospectus, during the period continuing through the date that is 180 days after the date of this prospectus, except with the prior written consent of EF Hutton on behalf of the underwriters.
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Rule 144
Ordinary shares held by any of our affiliates, as that term is defined in Rule 144 of the Securities Act, as well as ordinary shares held by our current shareholders, may be resold only pursuant to further registration under the Securities Act or in transactions that are exempt from registration under the Securities Act. In general, under Rule 144 as currently in effect, beginning 180 days after our Form F-1 Registration Statement becomes effective, any of our affiliates would be entitled to sell, without further registration, within any three-month period a number of ordinary shares that does not exceed the greater of:
| ● | 1% of the number of ordinary shares then outstanding, which will equal approximately ordinary shares immediately after this offering, or |
| ● | the average weekly trading volume of the ordinary shares during the four calendar weeks preceding the filing of a Form 144 with respect to the sale. |
Sales under Rule 144 by our affiliates will also be subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
The following sets forth the material Australian and U.S. federal income tax matters related to an investment in our ordinary shares. It is based on laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This description does not address all possible tax consequences relating to an investment in our ordinary shares.
WE URGE POTENTIAL PURCHASERS OF OUR ORDINARY SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR ORDINARY SHARES.
United States Federal Income Taxation
The following discussion describes certain U.S. federal income tax consequences of the purchase, ownership and disposition of the ordinary shares as of the date hereof. This discussion applies only to U.S. Holders (as defined below) that hold ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below. The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of ordinary shares and you are, for U.S. federal income tax purposes, any of the following:
| ● | an individual citizen or resident of the United States, |
| ● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia, |
| ● | an estate the income of which is subject to U.S. federal income taxation regardless of its source, or |
| ● | a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
The following does not represent a detailed description of the U.S. federal income tax consequences applicable to any particular investor or to persons subject to special tax treatment under the U.S. federal income tax laws, such as:
| ● | banks, |
| ● | financial institutions, |
| ● | insurance companies, |
| ● | regulated investment companies, |
| ● | real estate investment trusts, |
| ● | broker-dealers, |
| ● | traders that elect to mark to market, |
| ● | U.S. expatriates, |
| ● | tax-exempt entities, |
| ● | persons liable for alternative minimum tax, |
| ● | persons holding our ordinary shares as part of a straddle, hedging, conversion or integrated transaction or constructive sale, |
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| ● | persons that actually or constructively own 10% or more of our ordinary shares by vote or value, |
| ● | persons required to accelerate the recognition of any item of gross income with respect to the ordinary shares as a result of such income being recognized on an “applicable financial statement” (as defined by the Code), |
| ● | persons who acquired our ordinary shares pursuant to the exercise of any employee ordinary share option or otherwise as consideration for services, or |
| ● | persons holding our ordinary shares through partnerships or other pass-through entities for U.S. federal income tax purposes. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Prospective purchasers that are partners of a partnership holding ordinary shares should consult their tax advisors.
This discussion does not contain a detailed description of all the U.S. federal income tax consequences to a prospective purchaser in light of his, her or its particular circumstances and does not address the Medicare contribution tax on net investment income, U.S. federal estate and gift taxes, or the effects of any state, local or non-U.S. tax laws. Prospective purchasers are urged to consult their tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our ordinary shares.
Taxation of Dividends and Other Distributions on our Ordinary shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date actually or constructively received by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. However, we do not intend to calculate our earnings and profits in accordance with U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be treated as a dividend. Such dividends will not be eligible for the dividends-received deduction allowed to corporations under the Code.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation will be treated as a qualified foreign corporation for this purpose if the dividends are paid on shares that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that the ordinary shares (which we will apply to list on the Nasdaq Capital Market) will be readily tradable on an established securities market in the United States once they are so listed. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares.
In addition, notwithstanding the foregoing, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign investment company (a “PFIC”) in the taxable year in which such dividends are paid or in the preceding taxable year. As discussed under “— Passive Foreign Investment Company” below, we do not believe we were a PFIC for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or in the foreseeable future, although there can be no assurance in this regard.
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A U.S. Holder may be subject to withholding taxes on dividends paid on our ordinary shares. Subject to certain conditions and limitations (including a minimum holding period requirement), any withholding taxes on dividends may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares will be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
Taxation of Dispositions of Ordinary shares
For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of ordinary shares in an amount equal to the difference between the amount realized (in U.S. dollars) for the ordinary shares and your tax basis (in U.S. dollars) in the ordinary shares. Subject to the passive foreign investment company rules discussed below, such gain or loss will generally be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you will be eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source gain or loss for foreign tax credit limitation purposes.
Passive Foreign Investment Company
Based on the past and projected composition of our income and assets, and the valuation of our assets, we do not believe we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or in the foreseeable future, although there can be no assurance in this regard. In general, we will be a PFIC for any taxable year in which:
| ● | at least 75% of our gross income is passive income, or |
| ● | at least 50% of the value of our assets (based on an average of the quarterly values of our assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
For this purpose, passive income generally includes dividends, interest, income equivalent to interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). Cash is treated as an asset that produces or is held for the production of passive income. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.
The determination of whether we are a PFIC is made annually after the close of each taxable year. As a result, we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. In particular, because we have valued our goodwill based on the market price of our ordinary shares, our PFIC status will depend in large part on the market price of our ordinary shares. Accordingly, fluctuations in the market price of the ordinary shares may cause us to become a PFIC. In addition, composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold ordinary shares, you will generally continue to be subject to the special rules described below for all succeeding years during which you hold ordinary shares (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you may avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if your ordinary shares had been sold on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisor about this election.
If we are a PFIC for any taxable year during which you hold ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
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| ● | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares, |
| ● | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| ● | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to such years cannot be offset by any net operating losses for such years, and gains realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets. |
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the special tax rules discussed above. If you make an effective mark-to-market election for the ordinary shares, for each taxable year that we are a PFIC you will include in income an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of the taxable year over your adjusted basis in such ordinary shares. You are allowed a deduction for the excess, if any, of your adjusted basis in the ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of the net amount previously included in income as a result of the mark-to-market election. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net amount of previously included income as a result of the mark-to-market election. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “Taxation of Dividends and Other Distributions on our Ordinary shares” generally would not apply.
The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), which includes the Nasdaq Capital Market. If the ordinary shares are regularly traded on the Nasdaq Capital Market and if you are a holder of ordinary shares, the mark-to-market election would be available to you were we to be or become a PFIC. However, there can be no assurance that the ordinary shares will be traded in sufficient volumes to be considered “regularly traded” for purposes of the mark-to-market election. If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares are no longer regularly traded on a qualified exchange or other market, or the Service consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to avoid the special tax rules discussed above. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election.
If we are a PFIC for any taxable year during which you hold ordinary shares and any of our non-U.S. subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. You will not be able to make the mark-to-market election described above in respect of any lower-tier PFIC. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.
If you hold ordinary shares in any year in which we are a PFIC, you will generally be required to file U.S. Internal Revenue Service Form 8621. You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our ordinary shares and the elections discussed above.
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Information Reporting and Backup Withholding
Dividend payments with respect to our ordinary shares and proceeds from the sale, exchange or other disposition of our ordinary shares that are paid to you within the United States (and in certain cases, outside the United States) will be subject to information reporting to the U.S. Internal Revenue Service, unless you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend or interest income.
Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information.
Australian Taxation
In this section, we discuss the material Australian income tax, stamp (or transfer) duty and goods and services tax considerations related to the acquisition, ownership and disposal by the absolute beneficial owners of the ordinary shares. It is based upon existing Australian tax law as of the date of this registration statement, which is subject to change, possibly retrospectively. This discussion does not address all aspects of Australian tax law which may be important to particular investors in light of their individual investment circumstances, such as shares held by investors subject to special tax rules (for example, financial institutions, insurance companies or tax-exempt organizations).
Prospective investors are urged to consult their tax advisors regarding the Australian and non-Australian income and other tax considerations of the acquisition, ownership and disposition of the ordinary shares. This summary is based upon the premise that the holder is not an Australian tax resident and is not carrying on business in Australia through a permanent establishment (referred to as a “Non-Australian Holder” in this summary). In addition, this summary does not discuss any non-Australian or state tax considerations, other than transfer duty.
This summary is of a general nature only and is not, and is not intended to be, legal or tax advice to any particular shareholder, and no representations with respect to the income tax consequences to any particular shareholder are made. This summary is not exhaustive of all Australian federal income tax considerations. Accordingly, you should consult your own tax advisor with respect to your particular circumstances.
Non-Australian residents may be liable to pay Australian tax on income derived from Australian sources. One mechanism by which that tax is paid (for non-residents who have no permanent establishment or fixed base in Australia or where the income is not connected with a permanent establishment or fixed base) is known as withholding tax. Dividends paid by a resident Australian company to a resident of the United States of America who is entitled to the benefits of the Australia/U.S. double tax treaty and is beneficially entitled to the dividends are subject to withholding tax at the rate of 15% to the extent the dividends are ‘unfranked’. The rate of withholding tax on dividends is normally 30%, but since the United States has concluded a double tax treaty agreement with Australia, the rate is reduced to 15% where the benefits of the treaty apply. It should be noted, however, that under Section 128B(3) of the Income Tax Assessment Act 1936 (Cth), to the extent that dividends paid to non-residents have been franked (generally where a company pays tax itself), such dividends are exempt from withholding tax. “Franked dividends” is the expression given to dividends when the profits out of which those dividends are paid have been taxed at company level and such tax is allocated to the dividend. Accordingly, an Australian company paying fully franked dividends to a non-resident is not required to deduct any withholding tax. Dividends on which withholding tax has been paid are generally not subject to any further Australian tax. In other words, the withholding tax should represent the final Australian tax liability in relation to those dividends.
The pertinent provisions of the double tax treaty between Australia and the United States provide that dividends are primarily liable for tax in the country of residence of the beneficial owner of the dividends. However, the source country, in this case Australia, may also tax them, but in such case the tax will be limited to 15% if the benefits of the treaty apply. Where the beneficial owner is a United States resident corporation that directly holds at least 10% of the voting power in us, the tax will be limited to 5%. The 15% limit does not apply to dividends derived by a resident of the United States of America who has a permanent establishment or fixed base in Australia, if the holding giving rise to the dividends is effectively connected with that establishment or base. Such dividends are taxed on a net assessment basis as business income or independent personal services income as the case may be.
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We have not paid any cash dividends since our inception and we do not anticipate the payment of cash dividends in the foreseeable future. See “Item 8.A. Financial Statements and Other Financial Information–Dividend Policy.”
A Non-Australian Holder will not generally be subject to capital gains tax in Australia as the Non-Australian Holder is unlikely to have an indirect interest in Australian real property. An indirect interest in Australian real property will only occur where more than 50% of the market value of our assets are attributable to Australian real property.
Dual Residency
If an investor were a resident of both Australia and the United States under those countries’ domestic taxation laws, that investor may be subject to tax as an Australian resident. If, however, the shareholder is determined to be a United States resident for the purposes of Australia/U.S. double tax treaty, the Australian tax applicable would be limited by the Australia/U.S. double tax treaty. Shareholders should obtain specialist taxation advice in these circumstances.
Transfer Duty
Any transfer of shares through trading on the Nasdaq should not be subject to transfer duty.
Inheritance and Estate Taxes in Australia
Australia does not have estate or death duties. Generally, no capital gains tax liability is realized upon the inheritance of a deceased person’s shares. The disposal of inherited shares by beneficiaries, may, however, give rise to a capital gains tax liability.
Goods and Services Tax
The issue or transfer of shares will not incur Australian goods and services tax and does not require a stockholder to register for Australian goods and services tax purposes.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has not been a public market for our ordinary shares in the United States. The public offering price for our ordinary shares will be determined through negotiations between us and the representative. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. We offer no assurances that the initial public offering price will correspond to the price at which our ordinary shares will trade in the public market subsequent to this offering or that an active trading market for our ordinary shares will develop and continue after this offering.
EF Hutton, division of Benchmark Investments, LLC, is acting as the lead underwriter and representative of the underwriters in this offering. We have entered into an underwriting agreement dated September [ ], 2022 with the representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters named below and the underwriters named below have agreed severally to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the following respective number of ordinary shares.
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| Underwriter | Shares | |
| EF Hutton, division of Benchmark Investments, LLC | ||
| Total |
If the underwriters sell more ordinary shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for forty-five (45) days from the closing of this offering, to purchase up to an additional fifteen percent (15%) of the total number of ordinary shares offered at the public offering price less the underwriting discount. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, in connection with this offering. Any ordinary shares issued or sold under the option will be issued and sold on the same terms and conditions as the other ordinary shares that are the subject of this offering.
In connection with the offering, the underwriters may purchase and sell ordinary shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
| ● | Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering. |
| ● | “Covered” short sales are sales of shares in an amount up to the number of shares represented by the Underwriter’s over-allotment option. |
| ● | “Naked” short sales are sales of shares in an amount in excess of the number of shares represented by the Underwriter’s over-allotment option. |
| ● | Covering transactions involve purchases of shares either pursuant to the over-allotment option or in the open market after the distribution has been completed in order to cover short positions. |
| ● | To close a naked short position, the underwriters must purchase shares in the open market after the distribution has been completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
| ● | To close a covered short position, the underwriters must purchase shares in the open market after the distribution has been completed or must exercise the over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. |
| ● | Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum. |
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for its own account, may have the effect of preventing or retarding a decline in the market price of the ordinary shares. They may also cause the price of the ordinary shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
Discounts and Expenses
The following table shows the underwriting discounts payable to the underwriters by us in connection with this offering (assuming both the exercise and non-exercise of the over-allotment option that we have granted to the underwriters):
| Per Share | Total Without Exercise of Over-Allotment Option | Total With Exercise of Over-Allotment Option | |||||||||||
| Public offering price | $ | ||||||||||||
| Underwriting discounts(1) | $ | ||||||||||||
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(1) Does not include (i) the warrant to purchase ordinary shares equal to five percent (5%) of the number of ordinary shares sold in the offering, or (ii) certain out-of-pocket expenses, each as described below.
We have agreed to issue warrants to the representative to purchase a number of ordinary shares equal to five percent (5.0%) of the total number of shares sold in this offering at an exercise price equal to 120% of the public offering price of the shares sold in this offering. These warrants will be exercisable at any time, and from time to time, in whole or in part, during the four (4) and a half-year period commencing six (6) months from the effective date of the offering, at a price per share equal to 120% of the public offering price per share. The warrants also provide for customary anti-dilution provisions, one-time demand registration rights and unlimited “piggyback” registration rights with respect to the registration of the ordinary shares underlying the warrants. In accordance with FINRA Rule 5110(g)(8)(C) & (D), the demand registration rights will have a duration of 5 (five) years from the commencement of sales of the public offering and the “piggyback” registration rights will have a duration of 7 (seven) years from the commencement of sales of the public offering. The ordinary shares underlying the warrants are being registered under this Registration Statement.
The representative warrants and the underlying shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the representative warrants nor any of our shares issued upon exercise of the representative warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the effective date of this Registration Statement pursuant to which the representative warrants are being issued, subject to certain exceptions. The warrants to be received by the representative and related persons in connection with this offering: (i) fully comply with lock-up restrictions pursuant to FINRA Rule 5110(g)(1); and (ii) fully comply with transfer restrictions pursuant to FINRA Rule 5110(g)(2)(A)(ii).
We have agreed to pay EF Hutton a non-accountable expense allowance of one percent (1%) of the public offering price at the closing, excluding any amount sold pursuant to the over-allotment option.
We have also agreed to pay the following expenses relating to this offering: (a) all filing fees and expenses relating to the registration of the shares sold in this offering with the SEC; (b) all fees and expenses relating to the listing of the shares sold in this offering on a national exchange, if applicable; (c) all fees, expenses and disbursements relating to the registration or qualification of the shares sold in this offering under the “blue sky” securities laws of such states and other jurisdictions as EF Hutton may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of our “blue sky” counsel, which will be EF Hutton’s counsel) unless such filings are not required in connection with our proposed listing on a national exchange, if applicable; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption of the shares sold in this offering under the securities laws of such foreign jurisdictions as EF Hutton may reasonably designate; (e) the costs of all mailing and printing of this offering’s documents; (f) transfer and/or stamp taxes, if any, payable upon the transfer of the shares sold in this offering from us to EF Hutton; (g) the fees and expenses of our accountants; (h) all filing fees and communication expenses associated with the review of this offering by FINRA; (i) up to twenty thousand dollars ($20,000) of EF Hutton’s actual accountable road show expenses for this offering; (j) the twenty-nine thousand five hundred dollar ($29,500) cost associated with EF Hutton’s use of Ipreo’s book building, prospectus tracking and compliance software for the offering; (k) the costs associated with bound volumes of this offering materials as well as commemorative mementos and lucite tombstones in an aggregate amount not to exceed five thousand dollars ($5,000); and (l) the fees for EF Hutton’s legal counsel, in an amount not to exceed one hundred and thirty-five thousand dollars ($135,000).
We will provide an expense advance to EF Hutton of $25,000 that shall be paid in advance of the closing of this offering. Such advance payment will be returned to us to the extent such out-of-pocket expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
We estimate that the total expenses of the offering payable by us, excluding the total underwriting discount and non-accountable expense allowance, will be approximately $500,000.
In addition, the Company agrees that it shall provide the representative the right of first refusal for six (6) months from the closing of this offering to act as sole investment banker, sole book runner and/or sole placement agent for any and all future public or private equity, equity-linked or debt offerings during such six (6) month period of the Company or any successor to or any subsidiary of the Company; provided, however, that the representative shall not be entitled to have such right of first refusal if this offering is not consummated.
Prior to this offering, there has been no public market for the ordinary shares. In determining the initial public offering price of the ordinary shares, we and the underwriters consider a number of factors, including:
| ● | the information set forth in this prospectus and otherwise available to the underwriters; |
| ● | our prospects and the history and prospects for the industry in which we compete; |
| ● | an assessment of our management; |
| ● | our prospects for future earnings; |
| ● | the general condition of the securities markets at the time of this offering; |
| ● | the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and |
| ● | other factors deemed relevant by the underwriters and us. |
The estimated initial public offering price set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriters can assure investors that an active trading market will develop for our ordinary shares, or that the shares or warrants will trade in the public market at or above the initial public offering price.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments that the underwriters may be required to make for these liabilities.
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Pricing of the Offering
Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price of the ordinary shares has been negotiated between us and the underwriters. Among the factors considered in determining the initial public offering price of the ordinary shares, in addition to the prevailing market conditions, are our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
No Sales of Similar Securities
We have agreed not to offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or any securities convertible into or exercisable or exchangeable for ordinary shares or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our ordinary shares, whether any such transaction is to be settled by delivery of ordinary shares or such other securities, in cash or otherwise, without the prior written consent of the representative, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part.
In addition, our directors, executive officers and certain holders of more than five percent (5%) of our ordinary shares will enter into lock-up agreements with the representative prior to the commencement of this offering pursuant to which each of these persons or entities, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part, agree not to: (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or any securities convertible into, exercisable or exchangeable for or that represent the right to receive ordinary shares (including ordinary shares which may be deemed to be beneficially owned by such person in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired; (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the foregoing securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of ordinary shares or such other securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to, the registration of any ordinary shares or any security convertible into or exercisable or exchangeable for ordinary shares; or (4) publicly disclose the intention to do any of the foregoing.
The lock-up restrictions described in the immediately preceding paragraph do not apply with respect to any transfer:
| (i) | as a bona fide gift or gifts, |
| (ii) | to any trust for the direct or indirect benefit of the holder or the immediate family of the holder, |
| (iii) | if the holder is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate of the holder or (2) distributions of our ordinary shares or any security convertible into or exercisable for our ordinary shares to limited partners, limited liability company members or stockholders of the holder, |
| (iv) | if the holder is a trust, transfers to the beneficiary of such trust, |
| (v) | by testate succession or intestate succession; or |
| (vi) | pursuant to the underwriting agreement; |
provided, in the case of clauses (i)-(v), that (x) such transfer will not involve a disposition for value, (y) the transferee agrees in writing with the representative to be bound by the terms of a lock-up agreement, and (z) no filing by any party under Section 16(a) of the Exchange Act will be required or will be made voluntarily in connection with such transfer. Furthermore, notwithstanding the foregoing, the holder may transfer ordinary shares in a transaction not involving a public offering or public resale; provided that (x) the transferee agrees in writing with the representative to be bound by the terms of a lock-up agreement, and (y) no filing by any party under Section 16(a) of the Exchange Act is required or is made voluntarily in connection with such transfer.
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Tail Financing
The representative is entitled to a cash fee of seven percent (7%) of the gross proceeds received by the Company from the sale of any equity, debt and/or equity derivative instruments to any investor actually introduced by the representative to the Company during the later of six (6) months from the date of engagement or the final closing of this offering (the “Engagement Period”), in connection with any public or private financing or capital raise (each a “Tail Financing”), and such Tail Financing is consummated at any time during the Engagement Period or within the twelve (12) month period following the expiration or termination of the Engagement Period (the “Tail Period”), provided that such Tail Financing is by a party actually introduced to the Company in an offering in which the Company has direct knowledge of such party’s participation. Notwithstanding anything else herein to the contrary, the representative shall not be entitled to fees from the sales of securities to affiliates.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members, if any, participating in this offering and the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of ordinary shares to selling group members for sale to their online brokerage account holders. The ordinary shares to be sold pursuant to Internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters, and should not be relied upon by investors.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our ordinary shares. Specifically, the underwriters may sell more ordinary shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of ordinary shares available for purchase by the underwriters under option to purchase additional ordinary shares. The underwriters can close out a covered short sale by exercising the option to purchase additional ordinary shares or purchasing ordinary shares in the open market. In determining the source of ordinary shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of ordinary shares compared to the price available under the option to purchase additional shares. The underwriters may also sell ordinary shares in excess of the option to purchase additional ordinary shares, creating a naked short position. The underwriters must close out any naked short position by purchasing ordinary shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ordinary shares in the open market after pricing that could adversely affect investors who purchase in the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our ordinary shares in this offering because the underwriter repurchases those ordinary shares in stabilizing or short covering transactions.
Finally, the underwriters may bid for, and purchase, our ordinary shares in market making transactions, including “passive” market making transactions as described below.
These activities may stabilize or maintain the market price of our ordinary shares at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market, or otherwise.
Passive Market Making
In connection with this offering, the underwriters may engage in passive market making transactions in our ordinary shares on the Nasdaq Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the ordinary shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Potential Conflicts of Interest
The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
104
Selling Restrictions
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
European Economic Area
In relation to each member state of the European Economic Area (each a “Relevant State”), no securities have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to such securities which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation: (a) to any legal entity which is a qualified investor as defined under the Prospectus Regulation; (b) to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the underwriters; or (c) in any other circumstances falling within Article 1(4) of the Prospectus Regulation, provided that no such offer of any securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation. For the purposes of this provision, the expression an “offer to the public” in relation to any securities in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase or subscribe for any securities, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
United Kingdom
In relation to the United Kingdom, no securities have been offered or will be offered pursuant to this offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the securities that either (i) have been approved by the Financial Conduct Authority, or (ii) is to be treated as if it had been approved by the Financial Conduct Authority in accordance with the transitional provision in Regulation 74 of the Prospectus (Amendment etc.) (EU Exit) Regulations 2019, except that offers of the securities may be made to the public in the United Kingdom at any time under the following exemptions under the UK Prospectus Regulation: (a) to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation; (b) to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of representatives for any such offer; or (c) in any other circumstances falling within Section 86 of the Financial Services and Markets Act 2000 (the “FSMA”), provided that no such offer of ordinary shares shall require us or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to any securities in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase or subscribe for any securities, and the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
105
In addition, this prospectus is only being distributed to, and is only directed at, and any investment or investment activity to which this prospectus relates is available only to, and will be engaged in only with, persons who are outside the United Kingdom or persons in the United Kingdom (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”); and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the securities in the United Kingdom within the meaning of the FSMA.
Australia
This document: (a) does not constitute a disclosure document or a prospectus under Chapter 6D.2 of the Corporations Act 2001 (Cth) (the “Corporations Act”); (b) has not been, and will not be, lodged with the Australian Securities and Investments Commission (“ASIC”), as a disclosure document for the purposes of the Corporations Act and does not purport to include the information required of a disclosure document for the purposes of the Corporations Act; and (c) may only be provided in Australia to select investors who are able to demonstrate that they fall within one or more of the categories of investors available under section 708 of the Corporations Act (“Exempt Investors”).
The securities may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the securities may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any securities may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the securities, you represent and warrant to us that you are an Exempt Investor.
As any offer of the securities under this document will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section 707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the securities you undertake to us that you will not, for a period of 12 months from the date of issue of the securities, offer, transfer, assign or otherwise alienate those securities to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the ordinary shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
106
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (“FINMA”), and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of securities.
Israel
In the State of Israel, this prospectus shall not be regarded as an offer to the public to purchase securities under the Israeli Securities Law, 5728 – 1968, which requires a prospectus to be published and authorized by the Israel Securities Authority, if it complies with certain provisions of Section 15 of the Israeli Securities Law, 5728 – 1968, including, inter alia, if: (i) the offer is made, distributed or directed to not more than 35 investors, subject to certain conditions (the “Addressed Investors”); or (ii) the offer is made, distributed or directed to certain qualified investors defined in the First Addendum of the Israeli Securities Law, 5728 –1968, subject to certain conditions (the “Qualified Investors”). The Qualified Investors shall not be taken into account in the count of the Addressed Investors and may be offered to purchase securities in addition to the 35 Addressed Investors. The Company has not and will not take any action that would require it to publish a prospectus in accordance with and subject to the Israeli Securities Law, 5728 – 1968. We have not and will not distribute this prospectus or make, distribute or direct an offer to subscribe for our securities to any person within the State of Israel, other than to Qualified Investors and up to 35 Addressed Investors.
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses payable by us in connection with the offering described in this registration statement (other than the placement discounts and commissions) will be as follows. With the exception of the filing fees for the U.S. Securities Exchange Commission, FINRA and Nasdaq, all amounts are estimates.
| U.S. Securities and Exchange Commission registration fee | $ | 1,440.77 | ||
| FINRA filing fee | $ | 2,523 | ||
| Nasdaq listing fee | $ | 50,000 | ||
| Legal fees and expenses | $ | 339,500 | ||
| Accounting fees and expenses | $ | 75,000 | ||
| Transfer agent fees and expenses | $ | 0 | ||
| Printing fees and expenses | $ | 29,000 | ||
| Miscellaneous | $ | 2536 | ||
| Total | $ | 500,000 |
107
The validity of the ordinary shares to be issued in this offering and certain legal matters relating to the offering as to Australian law will be passed upon for us by K&L Gates, Melbourne, Victoria, Australia. Certain matters as to U.S. federal law and New York state law in connection with this offering will be passed upon for us by Sichenzia Ross Ference LLP, New York, New York. Carmel, Milazzo & Feil LLP, New York, New York, has acted as counsel for the underwriters with respect to this offering.
The financial statements of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Limited) for the fiscal years ended December 31, 2021 and 2020 and of Reg Liquors, LLC (d/b/a Wired For Wine) for the fiscal years ended December 31, 2020 and 2019, as set forth in this prospectus and elsewhere in the registration statement have been so included in reliance on the reports herein of Accell Audit & Compliance, P.A., an independent registered public accounting firm, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the ordinary shares offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the ordinary shares offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance, we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon closing of our initial public offering, we will be required to file periodic reports (including an annual report on Form 20-F, which we will be required to file within 120 days from the end of each fiscal year), and other information with the SEC pursuant to the Exchange Act. A copy of the registration statement and the exhibits filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
108
INNOVATION BEVERAGE GROUP LIMITED
(FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LTD)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
Innovation Beverage Group Limited
(Formerly Australian Boutique Spirits Pty Limited)
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
December 31, 2021 and 2020
| F-2 |
INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED)
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-3 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Innovation Beverage Group Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Ltd) (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Business Acquisition
As described in Note 3 to the Company’s consolidated financial statements, the Company completed a business combination during the year. The Company accounted for the acquisition in accordance with ASC 805, Business Combinations.
We identified the Company’s accounting for the business acquisitions as a critical audit matter. The principal considerations for our determination of this critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these judgments and assumptions by the Company involves auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
The primary procedures we performed to address these critical audit matters included the following:
| ● | We obtained the acquisition agreements and performed the following procedures: |
| – | Reviewed agreements for all relevant terms, consideration and other relevant information. | |
| – | Tested supporting documentation related to the acquired companies in determining the identifiable assets and liabilities. | |
| – | Reviewed the guidance related to ASC 805 to determine the acquisitions were appropriately accounted for by the Company. |
| /s/ Accell Audit & Compliance, P.A. |
| We have served as the Company’s auditor since 2022. |
| Tampa, Florida |
September 15, 2022 |
3001 N. Rocky Point Dr. East, Suite 200 ● Tampa, Florida 33607 ● 813.367.3527
| F-4 |
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,559,172 | $ | 403,486 | ||||
| Accounts receivable | 995,666 | 15,036 | ||||||
| Inventory, at cost | 1,070,275 | 428,449 | ||||||
| Prepaid expenses | 180,133 | 11,564 | ||||||
| Total current assets | 3,805,246 | 858,535 | ||||||
| Deposits | 36,762 | 39,021 | ||||||
| Finance right of use asset | 29,621 | 50,880 | ||||||
| Operating right of use asset | 330,759 | 423,849 | ||||||
| Due from related parties | 697,127 | 1,884,577 | ||||||
| Equipment, net | 189,272 | 163,164 | ||||||
| Intangible assets, net | 421,565 | — | ||||||
| Goodwill | 951,802 | — | ||||||
| Deferred tax asset | 50,895 | 34,986 | ||||||
| Total assets | $ | 6,513,049 | $ | 3,455,012 | ||||
| Commitments and contingencies (Note 9) | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,505,899 | $ | 1,219,662 | ||||
| Deferred revenue | 170,832 | — | ||||||
| Notes payable | 708,063 | 197,777 | ||||||
| Current portion of finance lease liability | 23,631 | 32,489 | ||||||
| Current portion of operating lease liability | 143,015 | 118,267 | ||||||
| Total current liabilities | 2,551,440 | 1,568,195 | ||||||
| Accrued employee benefits, non-current | 18,237 | 12,001 | ||||||
| Finance lease liability, less current portion | 5,593 | 26,545 | ||||||
| Operating lease liability, less current portion | 243,186 | 383,903 | ||||||
| Total liabilities | 2,818,456 | 1,990,644 | ||||||
| Stockholders' equity | ||||||||
| Ordinary shares, no par value; no authorization limit; 7,280,031 and 6,172,840 ordinary shares issued and outstanding at December 31, 2021 and 2020, respectively | 3,942,069 | 420 | ||||||
| Accumulated other comprehensive income (loss) | (44,441 | ) | 103,073 | |||||
| Retained earnings (accumulated deficit) | (203,035 | ) | 1,360,875 | |||||
| Total stockholders' equity | 3,694,593 | 1,464,368 | ||||||
| Total liabilities and stockholders' equity | $ | 6,513,049 | $ | 3,455,012 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) |
| CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
| For the years ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues, net | $ | 3,748,281 | $ | 2,181,754 | ||||
| Cost of goods sold | 1,255,877 | 441,710 | ||||||
| Gross profit | 2,492,404 | 1,740,044 | ||||||
| Operating expenses | ||||||||
| Other general and administrative | 910,319 | 354,713 | ||||||
| Salary and wages | 800,186 | 492,189 | ||||||
| Sales and marketing | 424,992 | 24,438 | ||||||
| Contracted services | 302,740 | 183,416 | ||||||
| Total operating expenses | 2,438,237 | 1,054,756 | ||||||
| Income from operations | 54,167 | 685,288 | ||||||
| Other income (expenses): | ||||||||
| Other income/(expense) | (5,775 | ) | 109,812 | |||||
| Interest income | 72,446 | 36,877 | ||||||
| Interest expense | (32,549 | ) | (6,145 | ) | ||||
| Total other income (expenses) | 34,122 | 140,544 | ||||||
| Income before taxes | 88,289 | 825,832 | ||||||
| Income tax expense | 56,526 | 230,066 | ||||||
| Net income | 31,763 | 595,766 | ||||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | (147,514 | ) | 82,824 | |||||
| Total other comprehensive income (loss) | $ | (115,751 | ) | $ | 678,590 | |||
| Basic and diluted earnings per ordinary share | $ | 0.00 | $ | 0.10 | ||||
| Weighted average shares outstanding - basic and diluted | 6,449,014 | 6,172,840 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
| FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 |
| Accumulated Other | Retained Earnings | |||||||||||||||||||
| Comprehensive | (Accumulated | |||||||||||||||||||
| Ordinary Shares | Income (Loss) | Deficit) | Total | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| Balance December 31, 2019 | 6,172,840 | $ | 420 | $ | 20,249 | $ | 765,109 | $ | 785,778 | |||||||||||
| Foreign currency translation adjustment | — | — | 82,824 | — | 82,824 | |||||||||||||||
| Net income | — | — | 595,766 | 595,766 | ||||||||||||||||
| Balance December 31, 2020 | 6,172,840 | 420 | 103,073 | 1,360,875 | 1,464,368 | |||||||||||||||
| Sale of ordinary shares, net of issuance costs | 1,107,191 | 3,941,649 | — | — | 3,941,649 | |||||||||||||||
| Dividends | — | — | — | (1,595,673 | ) | (1,595,673 | ) | |||||||||||||
| Foreign currency translation adjustment | — | — | (147,514 | ) | — | (147,514 | ) | |||||||||||||
| Net income | — | — | 31,763 | 31,763 | ||||||||||||||||
| Balance December 31, 2021 | 7,280,031 | $ | 3,942,069 | $ | (44,441 | ) | $ | (203,035 | ) | $ | 3,694,593 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
| INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the years ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income | $ | 31,763 | $ | 595,766 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 158,242 | 46,273 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (959,660 | ) | 101,559 | |||||
| Inventory, at cost | (318,177 | ) | (285,921 | ) | ||||
| Prepaid expenses | (154,517 | ) | (967 | ) | ||||
| Operating right of use assets | (21,888 | ) | 76,633 | |||||
| Deferred tax assets | (14,497 | ) | (1,773 | ) | ||||
| Deposits | 2,259 | (3,526 | ) | |||||
| Accounts payable and accrued expenses | 255,816 | 500,749 | ||||||
| Deferred revenue | 170,832 | (37,607 | ) | |||||
| Accrued employee benefits, non-current | 6,236 | 12,001 | ||||||
| Net cash (used in) provided by operating activities | (843,591 | ) | 1,003,187 | |||||
| Cash Flows from Investing Activities | ||||||||
| Net cash paid to acquire business | (748,762 | ) | — | |||||
| Purchase of equipment | (46,318 | ) | (4,255 | ) | ||||
| Purchase of intangibles | (469,667 | ) | — | |||||
| Payments to related parties | (493,479 | ) | (704,571 | ) | ||||
| Net cash used in investing activities | (1,758,226 | ) | (708,826 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Issuance of ordinary shares, net of issuance costs | 3,941,649 | — | ||||||
| Payments on finance lease liability | (32,174 | ) | (27,835 | ) | ||||
| Net payments on notes payable | (4,458 | ) | — | |||||
| Net borrowings on notes payable | — | 22,627 | ||||||
| Net cash provided by (used in) financing activities | 3,905,017 | (5,208 | ) | |||||
| Impact of changes in foreign currency on cash | (147,514 | ) | 82,824 | |||||
| Change in cash and cash equivalents | 1,155,686 | 371,977 | ||||||
| Cash and cash equivalents at beginning of year | 403,486 | 31,509 | ||||||
| Cash and cash equivalents at end of year | $ | 1,559,172 | $ | 403,486 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | 32,549 | $ | 6,145 | ||||
| Cash paid for income taxes | $ | 158,202 | $ | — | ||||
| Non-cash financing and investing activities: | ||||||||
| Residual consideration to be paid for business acquisition | $ | 600,000 | $ | — | ||||
| Note payable settled via offset in due from related party | $ | 85,256 | $ | — | ||||
| Dividends in settlement of amounts due from related party | $ | 1,595,673 | $ | — | ||||
| Assets acquired via finance lease | $ | — | $ | 19,515 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-8 |
INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Nature of operations |
Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Limited) (“IBG” or the “Company”) is a developer, manufacturer and exporter of a growing portfolio of alcoholic and non-alcoholic brands of beverages. Our distribution capabilities include sales to large distributors and high-margin direct-to-consumer sales. IBG is located in Seven Hills, New South Wales, Australia.
IBG has partnered with Coca Cola Europacific Partners (CCEP), the world’s largest Coca-Cola bottler, to exclusively distribute IBG Bitters in Australia while retaining the rights throughout the rest of the world.
IBG focuses on direct-to-consumer (DTC) sales through its network of technology-focused retail marketplaces and established BevMart, a DTC marketplace, in Australia in May 2021 and in the United States in November 2021. On November 3, 2021, IBG acquired 100% of the outstanding equity interests in REG Liquors, LLC d/b/a Wired for Wine (“W4W”), located in Stockton, New Jersey. W4W and IBG USA, LLC are wholly owned subsidiaries of IBG.
Effective July 1, 2021 and September 12, 2022, the Company effectuated a 1 to 16,667 stock split and a 1 to 1.62 reverse stock split respectively. All shares throughout these financial statements have been adjusted to reflect the splits.
| 2. | Summary of significant accounting policies |
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of Presentation and Principles of Consolidation
The consolidated financial statements, which include the accounts of IBG, and its subsidiaries, IBG USA LLC and W4W (collectively, the “Group”) are prepared in conformity with U.S. GAAP, with the results of operations of W4W included from November 3, 2021. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting and presented in U.S. dollars. The year end is December 31.
Concentration of Credit Risk
Financial instruments that potentially subject the Group to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Group places its cash in what it believes to be credit-worthy financial institutions. The Group controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Group routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Revenue Recognition
The Group recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from contracts with customers,” (Topic 606). Revenue is recognized upon the Group’s satisfaction of a single performance obligation when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Group expects to receive in exchange for those goods. The Group applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Group satisfies each performance obligation. The Group’s main revenue stream is from sales of products. The Group recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Group’s performance obligations are transferred to customers at a point in time, typically upon delivery.
| F-9 |
Revenue is measured as the amount of consideration the Group expects to receive in exchange for transferring goods. The amount of consideration the Group receives and revenue the Group recognizes varies with changes in customer incentives the Group offers to its customers. These incentives and discounts include cash discounts, price allowance, volume-based rebates, product placement fees and other financial support items such as trade promotions, displays, new products, consumer incentives and advertising assistance. Sales tax and other similar taxes are excluded from revenue. Cost associated with shipping and handling activities are included in expenses as revenue is recognized. The Group estimates the amount of variable consideration by using the “expected value” method, which considers factors such as experiences with products, predictability of market conditions and competition, the current stage in the product life cycle and historical, current, and projected demand. The Group evaluated those factors and concluded that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and no constraint was necessary on the variable consideration as of 31 December, 2021. The Group has extensive historical experience with producing and delivering standard products to our contracted customers with pre-determined price. The Group performs similar analysis on variable consideration and the related constraint (or lack thereof) at each reporting period.
The Group’s revenue stream is mainly from (1) Creating, marketing and scaling lifestyle focused beverage brands with a focus on Bitters, Non-Alcohol Spirits, Bottles cocktails and other high margin innovative products exclusively developed at IBG and sold via large distribution partners in Australia and around the globe and (2) Sales of wine and spirits via IBG’s owned on-line marketplaces namely wiredforwine.com, bevmart.com and bevmart.com.au. The Group has 21 days payment terms for brand products sales. E- commerce sales are direct-to-consumers. The Group typically provides warranties for general replacement of defects that existed at the time of sale, as required by law. Based on historical information, management does not believe a sales return or warranty allowance is necessary and no allowance for either has been recorded on December 31, 2021 or 2020.
Fair Value Measurements
Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements, clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2: Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3: Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Fair Value of Financial Instruments
ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Group are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
Cash and Cash Equivalents
The Group considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Group had no cash equivalents at December 31, 2021 and 2020.
Intangible Assets
At December 31, 2021, the Group’s intangible assets consisted of customer contracts, software development costs and a liquor license. The customer contracts and liquor license were acquired in a business combination. Useful lives of intangible assets are determined after considering the specific facts and circumstances related to each intangible asset. Factors that will be considered when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Indefinite life intangibles are reviewed for impairment when circumstances suggest there could be an impairment, but at least annually.
| F-10 |
A summary of the estimated useful lives applied to the Group’s intangible assets is as follows:
| Customer contracts | Liquor license | Software Development costs | |
| Useful lives | Finite (15 years) | Finite (15 years) | Finite (5 years) |
Goodwill
Goodwill is the excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business combination. The Group assess goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. For the year ended December 31, 2021 and 2020, the Group determined that there was no goodwill impairment.
Sales and Marketing
The Group follows the policy of charging the costs of advertising, marketing, and public relations to expense as incurred. The Group has recognized $424,992 and $24,438 in sales and marketing expenses for the years ended December 31, 2021 and 2020, respectively.
Equipment
Equipment is carried at historical cost. Depreciation is calculated on the straight-line method over the estimated useful lives of 10 years.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Group recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Group records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. Our federal tax return and any state tax returns are not currently under examination.
The Group has adopted FASB ASC 740-10, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Inventory
Raw materials and finished goods are stated at the lower of cost and net realizable value on a ‘first in first out’ basis. Cost comprises of direct materials and delivery costs, direct labor, import duties and other taxes, and an appropriate allocation of variable and fixed overhead expenditure based on normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable.
Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Accounts Receivable
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
| F-11 |
Earnings Per Ordinary Share
The Group computes earnings per ordinary share, in accordance with FASB ASC Topic 260, Earnings Per Share, which requires dual presentation of basic and diluted earnings per share. Basic income or loss per ordinary share is computed by dividing net income or loss by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per ordinary share is computed by dividing net income by the weighted average number of ordinary shares outstanding, plus the issuance of ordinary shares, if dilutive, that could result from the exercise of outstanding stock options and warrants.
Comprehensive Income (loss)
ASC Topic 220 (SFAS No. 130) establishes standards for reporting comprehensive income and its components. Comprehensive income or loss is defined as the change in equity during a period from transactions and other events from non-owner sources.
Foreign Currencies
The Group determined that its functional currency is the U.S. dollar since the U.S. dollar is the currency of the environment in which the Group primarily generates and expends cash. Foreign currency transaction gains and losses represent gains and losses resulting from transactions entered into in a currency other than the functional currency of the Group. These transaction gains and losses are included in results of operations.
Leases
Operating lease right of use (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Group uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the statements of operations.
Finance lease right of use assets represents the right to use the leased asset for the lease term and finance lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The initial liability for a finance lease will subsequently be adjusted to reflect interest expense incurred (increase of the liability), and lease payments made (decrease of the liability). Interest should be recognized equal to an amount that produces a constant periodic discount rate on the remaining balance of the liability during the lease term (i.e., the effective interest method). The ROU asset should be amortized on a straight-line basis from the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term. If, however, ownership of the ROU asset is transferred to the lessee at the end of the lease term or it is reasonably certain the lessee will exercise a purchase option for the ROU asset, then the lessee should amortize the ROU asset from commencement of the lease to the end of the useful life of the ROU asset.
COVID-19 Disclosure
The 2021 and 2020 operations reflect the impact of COVID-19 throughout the periods. Restrictions continued to impact the Group’s global operations, with key sales channels remaining in varied states of impact and recovery. During the pandemic, non e-commerce sales channels experienced varying levels of disruption. COVID-19 also caused a shortage of certain raw materials, prolonged logistics and delayed progress on the Company’s fund raising.
Recent Accounting Pronouncements
On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
The new guidance; (i) eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an organization’s current estimate of all expected credit losses over the contractual term of its financial assets, (ii) broadens the information that an entity can consider when measuring credit losses to include forward-looking information, (iii) increases usefulness of the financial statements by requiring timely inclusion of forecasted information in forming expectations of credit losses, (iv) increases comparability of purchased financial assets with credit deterioration (PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets because credit losses that are expected will be recorded through an allowance for credit losses for all assets, (v) increases users’ understanding of underwriting standards and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage), and (vi) aligns the income statement recognition of credit losses, for available-for-sale debt securities, with the reporting period in which changes occur by recording credit losses (and subsequent changes in credit losses) through an allowance rather than a write down.
| F-12 |
The new guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. It affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.
For public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application is permitted. The Group will adopt beginning January 1, 2023. The Group does not believe the adoption of this pronouncement will have a material impact on its consolidated financial statements
The Group has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
| 3. | Business acquisition |
On November 3, 2021, IBG acquired 100% of the outstanding equity interests in W4W in exchange for $1,348,762 in cash. Of the consideration, $600,000 shall be paid to seller of W4W within 30 days of the Group listing its shares on The Nasdaq Capital Market or within 12 months of this note (i.e. November 3, 2022), whichever is sooner and is currently recorded in notes payables (Note 8). This outstanding balance bears no interest. There were no related equity issuances for the acquisition of W4W. IBG analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination. The preliminary purchase price allocation of the purchase consideration to net assets acquired is as follows:
| Accounts receivable | $ | 20,970 | ||
| Inventory | 323,649 | |||
| Prepaid expenses | 15,464 | |||
| Current assets | 360,083 | |||
| Equipment | 2,552 | |||
| Intangible asset | 66,119 | |||
| Goodwill | 951,802 | |||
| Total assets | 1,380,556 | |||
| Accounts payable and accrued expenses | (30,000 | ) | ||
| Other liabilities | (1,794 | ) | ||
| Total liabilities | (31,794 | ) | ||
| Purchase consideration | $ | 1,348,762 |
Management is in the process of completing the full purchase price allocation. The current allocation is based on the preliminary fair value of the identifiable tangible assets and liabilities, as of the acquisition date.
The following unaudited pro forma financial results reflects the historical operating results of the Group, including the unaudited pro forma results of W4W for the years ended December 31, 2021 and 2020, respectively, as if the business combination had occurred as of January 1, 2020. The pro forma financial information set forth below reflects adjustments to the historical data of the Group to give effect to W4W acquisition as if the acquisition had occurred on January 1, 2020. The pro forma information presented below does not purport to represent what the actual results of operations would have been for the periods indicated, nor does it purport to represent the Group’s future results of operations. The following table summarizes on an unaudited pro forma basis the Group’s results of operations for the years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Net revenue | $ | 5,919,405 | $ | 5,956,854 | ||||
| Net income | $ | 31,286 | $ | 982,798 | ||||
| Net income per share- basic and diluted | $ | 0.00 | $ | 0.16 | ||||
| Weighted average number of shares of ordinary shares outstanding- basic and diluted | 6,449,014 | 6,172,840 | ||||||
| F-13 |
The calculations of pro forma net revenue and pro forma net income give effect to the business combinations for the period from January 1, 2020 until the respective closing date for (i) the historical net revenue and net income, as applicable, of the acquired businesses, (ii) incremental depreciation and amortization for each business combination based on the fair value of property, equipment and identifiable intangible assets acquired and the related estimated useful lives, and (iii) recognition of accretion of discounts on obligations with extended payment terms that were assumed in the business combinations.
| 4. | Inventories |
The composition of the Group’s inventories at December 31, 2021 and 2020 are as follows:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | 414,958 | $ | 63,768 | ||||
| Finished goods | 655,317 | 364,681 | ||||||
| Inventories, at cost | $ | 1,070,275 | $ | 428,449 | ||||
| 5. | Equipment |
Equipment consisted of the following at December 31, 2021 and 2020:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Equipment | $ | 264,958 | $ | 215,766 | ||||
| Less: Accumulated depreciation | (75,686 | ) | (52,602 | ) | ||||
| Equipment, net | $ | 189,272 | $ | 163,164 | ||||
Depreciation expense was $23,084 and $23,845 for the years ended December 31, 2021 and 2020, respectively.
| 6. | Intangible assets |
Intangible assets consisted of the following at December 31, 2021 and 2020:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Contract rights | $ | 431,924 | $ | — | ||||
| Software development costs | 37,421 | — | ||||||
| Liquor license | 66,119 | — | ||||||
| 535,464 | — | |||||||
| Less: accumulated amortization | (113,899 | ) | — | |||||
| Intangible assets net | $ | 421,565 | $ | — | ||||
Amortization expense was $113,899 and $0 for the years ended December 31, 2021 and 2020, respectively.
| F-14 |
| 7. | Lease right-of-use assets and lease liabilities |
Operating leases
The Group leases office space in Australia (“Seven Hills”) and in New Jersey (“Highland Cross”). The Seven Hills lease commenced on July 1, 2018 and ends on June 30, 2024, with monthly lease payments of $13,916 AUD (approximately $10,000 USD). The Highland Cross lease was assumed in the acquisition of W4W. The lease commenced on January 1, 2019 and expires on September 1, 2023, with monthly lease payments of $1,500.
Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 5.95% (Seven Hills) and 2.95% (Highland Cross), as the interest rate implicit in most of the leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the years ended December 31, 2021 and 2020, the Group recorded $163,414 and $154,352 as operating lease expense which is included in other general and administrative expenses on the statements of income.
Operating right of use assets are summarized below:
| As of December 31, 2021 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 659,997 | $ | 37,735 | $ | 697,732 | ||||||
| Less accumulated amortization | (364,155 | ) | (2,818 | ) | (366,973 | ) | ||||||
| Operating right of use asset | $ | 295,842 | $ | 34,917 | $ | 330,759 | ||||||
| As of | ||||
| December 31, | ||||
| 2020 | ||||
| Seven Hills | ||||
| Office Lease | $ | 659,997 | ||
| Less accumulated amortization | (236,148 | ) | ||
| Operating right of use asset | $ | 423,849 | ||
Operating lease liabilities are summarized below:
| As of December 31, 2021 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 357,012 | $ | 29,189 | $ | 386,201 | ||||||
| Less: current portion | (125,686 | ) | (17,329 | ) | (143,015 | ) | ||||||
| Long term portion | $ | 231,326 | $ | 11,860 | $ | 243,186 | ||||||
As of December 31, 2020 | ||||
| Seven Hills | ||||
| Office Lease | $ | 502,170 | ||
| Less: current portion | (118,267 | ) | ||
| Long term portion | $ | 383,903 | ||
| F-15 |
Operating lease liabilities are summarized below:
Seven Hills
| Highland Cross | Total
| ||||||||||
| Year ending December 31, 2022 | $ | 149,484 | $ | 18,000 | $ | 167,484 | ||||||
| Year ending December 31, 2023 | 155,463 | 12,000 | 167,463 | |||||||||
| Year ending December 31, 2024 | 80,581 | — | 80,581 | |||||||||
| Total future minimum lease payments | 385,528 | 30,000 | 415,528 | |||||||||
| Less imputed interest | (28,516 | ) | (811 | ) | (29,327 | ) | ||||||
| PV of payments | $ | 357,012 | $ | 29,189 | $ | 386,201 | ||||||
Finance leases
The Group leases three pieces of equipment under finance leases with combined monthly payments of $3,059 AUD (approximately
$2,200 USD). Two leases mature in December 2022 and the third one matures in December 2023. Finance right of use assets are summarized below:
| As of December 31, 2021 | As of December 31, 2020 | |||||||
| Equipment lease | $ | 77,519 | $ | 77,519 | ||||
| Less accumulated amortization | (47,898 | ) | (26,639 | ) | ||||
| Finance right of use asset | $ | 29,621 | $ | 50,880 | ||||
Amortization expense was $21,259 and $22,428 for the years ended December 31, 2021 and 2020, respectively.
Finance lease liabilities are summarized below:
As of December 31, 2021 | As of December 31, 2020 | |||||||
| Equipment lease | $ | 29,224 | $ | 59,034 | ||||
| Less: current portion | (23,631 | ) | (32,489 | ) | ||||
| Long term portion | $ | 5,593 | $ | 26,545 | ||||
| F-16 |
| Equipment Lease | ||||
| Year ending December 31, 2022 | $ | 26,635 | ||
| Year ending December 31, 2023 | 6,354 | |||
| Total future minimum lease payments | 32,989 | |||
| Less imputed interest | (3,765 | ) | ||
| PV of payments | $ | 29,224 | ||
| 8. | Notes payable |
As of December31, 2021 | As of December 31, 2020 | |||||||
| Notes payable | ||||||||
| Loan 1 (a) | $ | 94,328 | $ | 192,550 | ||||
| Loan 2 (b) | 13,735 | 5,227 | ||||||
| Loan 3 (c) | 600,000 | — | ||||||
| Total notes payable | $ | 708,063 | $ | 197,777 | ||||
(a) Loan 1
The Group entered into a loan with a face value of $250,000 AUD. The loan is interest free and payable on demand. During the year end December 31, 2021, the Group entered into an agreement to offset $120,000 AUD ($85,256 USD based on the spot rate on the date of the agreement) against the Due from Related Party balance (Note 12).
(b) Loan 2
During the year ended December 31, 2021, the Group entered into an unsecured insurance financing arrangement with a face value of $53,071 AUD due on April 30, 2022. During the year ended December 31, 2021, the Group repaid borrowings in the amount of $26,022 and recorded $2,499 in interest expense related to this note.
(c) Loan 3
On November 3, 2021, IBG acquired 100% of the outstanding equity interests in W4W in exchange for $1,348,762 in cash. Of the consideration, $600,000 shall be paid to seller of W4W within 30 days of the Group listing its shares on The Nasdaq Capital Market or within 12 months from November 3, 2021 (i.e. November 3, 2022), whichever is sooner. This outstanding balance bears no interest. (Note 3).
| 9. | Commitments and contingencies |
During the normal course of business, the Group may be exposed to litigation. When the Group becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Group evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Group determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of December 31, 2021 and 2020, the Group is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.
| F-17 |
| 10. | Income taxes |
A reconciliation of the effective tax rate to the statutory rate is shown below:
| December 31, 2021 | December 31, 2020 | |||||||
| Australian income before taxes | $ | 177,668 | $ | 825,832 | ||||
| United States loss before taxes | (89,379 | ) | — | |||||
| Income before taxes | $ | 88,289 | $ | 825,832 | ||||
| Expected Australian income tax expense at statutory rate of 26% (December 31, 2020: 27.5%) | $ | 46,194 | $ | 227,104 | ||||
| Expected United States income tax expense at statutory rate of 21% | (18,770 | ) | — | |||||
| Increase (decrease) in income taxes resulting from: | ||||||||
| Entertainment | 932 | 155 | ||||||
| Unrecognized deferred tax assets - tax losses | 23,174 | — | ||||||
| Deferred tax rate change | 2,035 | — | ||||||
| Other items, net | 2,961 | 2,807 | ||||||
| Income tax expense | $ | 56,526 | $ | 230,066 | ||||
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Deferred tax assets (liabilities): | ||||||||
| Equipment | $ | (2,807 | ) | $ | 6,471 | |||
| Leases | (2,105 | ) | (2,326 | ) | ||||
| Customer contracts | 28,298 | — | ||||||
| Superannuation | 6,268 | 3,566 | ||||||
| Accrued expenses | 9,433 | 15,197 | ||||||
| Annual leave | 5,942 | 7,696 | ||||||
| Foreign currency changes | 1,124 | 1,262 | ||||||
| Accrued employee benefits, non-current | 4,742 | 3,120 | ||||||
| Net deferred tax asset | $ | 50,895 | $ | 34,986 | ||||
As of December 31, 2021 and 2020, the Group had no material net operating loss or tax credit carryforwards. As of December 31, 2021 and 2020, the Group had no provision for uncertain tax positions and no provisions for penalties or interest. In addition, the Group does not believe that there are any uncertain tax benefits that could be recognized in the near future that would impact the Group’s effective tax rate.
| F-18 |
| 11. | Reportable segments |
a. The Group currently has two reportable geographic segments - Australia and United States. All inter-segment revenues are eliminated.
Summary information with respect to the Group’s geographic operating segments is as follows:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Australia | 3,193,127 | 2,181,754 | ||||||
| United States | 555,154 | — | ||||||
| Total revenue | $ | 3,748,281 | $ | 2,181,754 | ||||
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Income (loss) from operations | ||||||||
| Australia | $ | 143,547 | $ | 685,288 | ||||
| United States | (89,380 | ) | — | |||||
| Total income from operations | $ | 54,167 | $ | 685,288 | ||||
A reconciliation of the Group’s geographic segment operating income to consolidated earnings before income taxes is as follows:
Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Income from operations | $ | 54,167 | $ | 685,288 | ||||
| Other income (expense) | (5,775 | ) | 109,812 | |||||
| Interest income | 72,446 | 36,877 | ||||||
| Interest expense | (32,549 | ) | (6,145 | ) | ||||
| Income before income taxes | 88,289 | 825,832 | ||||||
| Income tax expense | 56,526 | 230,066 | ||||||
| Net income | $ | 31,763 | $ | 595,766 | ||||
| F-19 |
Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Depreciation and Amortization | ||||||||
| Australia | $ | 156,697 | $ | 46,273 | ||||
| United States | 1,545 | — | ||||||
| Total | $ | 158,242 | $ | 46,273 | ||||
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Capital Expenditures | ||||||||
| Australia | $ | 515,985 | $ | 4,255 | ||||
| United States | — | — | ||||||
| Total | $ | 515,985 | $ | 4,255 | ||||
| December 31, 2021 | December 31, 2020 | |||||||
| Total Assets | ||||||||
| Australia | $ | 6,370,454 | $ | 3,455,012 | ||||
| United States | 1,491,358 | — | ||||||
| Eliminations | (1,348,763 | ) | — | |||||
| Total | $ | 6,513,049 | $ | 3,455,012 | ||||
c. Set out below is the disaggregation of the Group’s revenue based on the two distribution channels, brand products and e-commerce products1.
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Brand products Australia | $ | 3,007,228 | $ | 2,181,754 | ||||
| Brand products United States | — | — | ||||||
| Total brand products | 3,007,228 | 2,181,754 | ||||||
| E-commerce - Australia | 185,900 | — | ||||||
| E-commerce - United States | 555,153 | — | ||||||
| Total e-commerce products | 741,053 | — | ||||||
| Total revenue | $ | 3,748,281 | $ | 2,181,754 | ||||
1 This is based on geographical segment of reporting entity’s operation, rather than sales destination.
| F-20 |
| 12. | Related party disclosures |
Note 1 provides information about the Group’s structure, including details of the subsidiaries and the holding company.
For the period between January 2020 through August 2021, the former chief executive officer (“CEO”) borrowed an aggregate of AUD$2,853,105 from the Company. There are related party receivable of USD$697,127 outstanding as of December 31, 2021, and USD$1,884,577 outstanding as of December 31, 2020. Interests is charged at 4.52% per annum. A portion of the loan amount was offset against the dividend declared in the amount of AUD$2,138,610 for the period to June 30, 2021. Subsequently on December 27, 2021, the remaining balance of the loan as at that date, AUD$960,760, was novated to the CEO’s mother, a former director of the Company. Outstanding balances at the year end are unsecured and settlement generally occurs in cash.
| Loan issuance, interest, and repayment schedule (in AUD) | ||||||
| Opening balance | $ | 1,684,279 | ||||
| Loan issued: | ||||||
| Jan-20 | 35,000 | |||||
| Feb-20 | 14,000 | |||||
| Mar-20 | 20,000 | |||||
| May-20 | 38,000 | |||||
| Jun-20 | 50,000 | |||||
| Aug-20 | 10,000 | |||||
| Sep-20 | 420,000 | |||||
| Oct-20 | 586,362 | |||||
| Nov-20 | 25,000 | |||||
| Dec-20 | 20,000 | |||||
| Interest income accrued | 53,127 | |||||
| Total repayment during 2020 | (508,900 | ) | ||||
| Closing balance Dec 2020 | $ | 2,446,868 | ||||
| Loan issued: | ||||||
| Jan-21 | $ | 20,000 | ||||
| Feb-21 | 266,000 | |||||
| Mar-21 | 50,000 | |||||
| Apr-21 | 20,000 | |||||
| Jun-21 | 500 | |||||
| Jul-21 | 100,500 | |||||
| Aug-21 | 230,000 | |||||
| Interest income accrued | 96,407 | 60,642 was accrued by 30 June 2021 | ||||
| Loan offset (Note 8(a)) | (120,000 | ) | ||||
| Dividends issued as repayment of loan | (2,138,610 | ) | ||||
| Total repayment during 2021 | (10,905 | ) | 10,905 was repaid by 30 June 2021 | |||
| Closing balance Dec 2021 | $ | 960,760 | ||||
| 13. | Subsequent events |
Subsequent to year end, the Group paid off its note payable (see note 8 – Loan 1) in the amount of $94,328. The Company also issued 258,004 shares of ordinary shares for $594,538. The Company changed its name to Innovation Beverage Group Limited effective from June 2022.
In accordance with ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2020, through the date when the financial statements were available to be issued, and has determined that it does not have any additional material subsequent events to disclosure in these financial statements.
| F-21 |
Innovation Beverage Group Limited
(Formerly Australian Boutique Spirits Pty Limited)
Unaudited Pro Forma Combined Financial Information
For the Years Ended
December 31, 2020 and 2021
| F-22 |
INNOVATION BEVERAGE GROUP LIMITED
(FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED)
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2021
INDEX TO PRO FORMA COMBINED FINANCIAL INFORMATION
| F-23 |
| INNOVATION
BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) |
| PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION |
On November 3, 2021, Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Limited) (“IBG”) acquired 100% of the outstanding equity interests in REG Liquors, LLC d/b/a Wired for Wine (“W4W”) in exchange for $1,348,762 in cash. As a result of the Exchange Agreement, W4W became a wholly owned subsidiary of IBG. There were no related equity issuances for the acquisition of W4W.
The unaudited pro forma condensed combined statements of operations are based on the historical statements of IBG and combine the results of operations giving effect to the transactions as if it occurred on January 1,2020 and reflecting the pro forma adjustments expected to have a continuing impact on the combined results.
The following unaudited pro forma condensed combined statements of operations reflect the historical operating results of IBG and its controlled entities (collectively the “Group”), including the unaudited pro forma results of W4W for the years ended December 31, 2020 and 2021, as if the business combination had occurred as of January 1, 2020. The pro forma financial information set forth below reflects adjustments to the historical data of the Group to give effect to W4W acquisition as if the acquisition had occurred on January 1, 2020. The pro forma information presented below does not purport to represent what the actual results of operations would have been for the periods indicated, nor does it purport to represent the Group’s future results of operations.
| F-24 |
IBGL
| REG Liquors, LLC | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
| Revenues, net | $ | 2,181,754 | $ | 3,775,100 | $ | — | $ | 5,956,854 | ||||||||
| Cost of goods sold | 441,710 | 2,420,181 | — | 2,861,891 | ||||||||||||
| Gross profit | 1,740,044 | 1,354,919 | — | 3,094,963 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Other general and administrative | 354,713 | 681,499 | 6,177 | 1,042,389 | ||||||||||||
| Salary and wages | 492,189 | 58,149 | — | 550,338 | ||||||||||||
| Sales and marketing | 24,438 | 219,732 | — | 244,170 | ||||||||||||
| Contracted services | 183,416 | — | — | 183,416 | ||||||||||||
| Total operating expenses | 1,054,756 | 959,380 | 6,177 | 2,020,313 | ||||||||||||
| Income from operations | 685,288 | 395,539 | (6,177 | ) | 1,074,650 | |||||||||||
| Other income (expenses): | ||||||||||||||||
| Depreciation | — | (74 | ) | 74 | — | |||||||||||
| Amortization | — | (6,103 | ) | 6,103 | — | |||||||||||
| Other income/(expense) | 109,812 | — | — | 109,812 | ||||||||||||
| Interest income | 36,877 | — | — | 36,877 | ||||||||||||
| Interest expense | (6,145 | ) | (2,330 | ) | — | (8,475 | ) | |||||||||
| Total other income (expenses) | 140,544 | (8,507 | ) | 6,1771 | 138,214 | |||||||||||
| Income before taxes | 825,832 | 387,032 | — | 1,212,864 | ||||||||||||
| Income tax expense | 230,066 | — | — | 230,066 | ||||||||||||
| Net income | 595,766 | 387,032 | — | 982,798 | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | 82,824 | — | — | 82,824 | ||||||||||||
| Total other comprehensive income (loss) | $ | 678,590 | $ | 387,032 | — | $ | 1,065,622 | |||||||||
| Basic and diluted earnings per share | $ | 0.10 | — | — | $ | 0.16 | ||||||||||
| Weighted average shares outstanding- basic and diluted | 6,172,840 | — | — | 6,172,840 | ||||||||||||
1 Reclassification of depreciation and amortisation from other income (expenses) to Operating expenses to align with IBGL’s presentation.
| F-25 |
IBGL2
| REG Liquors, LLC (for the period ended September 30 2021)
| REG Liquors, LLC (for the period between October 1 and November 2 2021) | Pro Forma Combined
| |||||||||||||
| Revenues, net | $ | 3,748,281 | $ | 1,948,887 | $ | 222,237 | $ | 5,919,405 | ||||||||
| Cost of goods sold | 1,255,877 | 1,344,094 | 149,344 | 2,749,315 | ||||||||||||
| Gross profit | 2,492,404 | 604,793 | 72,893 | 3,170,090 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Other general and administrative | 910,319 | 150,794 | 21,901 | 1,083,014 | ||||||||||||
| Salary and wages | 800,186 | 28,873 | 3,207 | 832,266 | ||||||||||||
| Sales and marketing | 424,992 | 434,328 | 48,260 | 907,580 | ||||||||||||
| Contracted services | 302,740 | — | — | 302,740 | ||||||||||||
| Total operating expenses | 2,438,237 | 613,995 | 73,368 | 3,125,600 | ||||||||||||
| Income from operations | 54,167 | (9,202 | ) | (475 | ) | 44,490 | ||||||||||
| Other income (expenses): | ||||||||||||||||
| Depreciation | — | (55 | ) | 55 | — | |||||||||||
| Amortization | — | (4,577 | ) | 4,577 | — | |||||||||||
| Gain on forgiveness of PPP loan | — | 9,200 | — | 9,200 | ||||||||||||
| Other income/(expense) | (5,775 | ) | — | — | (5,775 | ) | ||||||||||
| Interest income | 72,446 | — | — | 72,446 | ||||||||||||
| Interest expense | (32,549 | ) | — | — | (32,549 | ) | ||||||||||
| Total other income (expenses) | 34,122 | 4,568 | 4,6323 | 43,322 | ||||||||||||
| Income before taxes | 88,289 | (4,634 | ) | 4,157 | 87,812 | |||||||||||
| Income tax expense | 56,526 | — | — | 56,526 | ||||||||||||
| Net income/(loss) | 31,763 | (4,634 | ) | 4,157 | 31,286 | |||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | (147,514 | ) | — | — | (147,514 | ) | ||||||||||
| Total other comprehensive income (loss) | $ | (115,751 | ) | $ | (4,634 | ) | $ | 4,157 | $ | (116,228 | ) | |||||
| Basic and diluted earnings per share | $ | 0.00 | — | $ | — | $ | 0.00 | |||||||||
| Weighted average shares outstanding basic and diluted | 6,449,014 | — | — | 6,449,014 | ||||||||||||
2 IBGL results include the amounts of REG Liquors, LLC (i.e., post-acquisition).
3 Reclassification of depreciation and amortisation from other income (expenses) to Operating expenses to align with IBGL’s presentation.
| F-26 |
REG LIQUORS, LLC
D/B/A
WIRED FOR WINE
FINANCIAL STATEMENTS AND
Independent auditors’ report
As of December 31, 2020 and 2019
| F-27 |
INDEPENDENT AUDITORS’ REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Audit Committee
Innovation Beverage Group Limited
Report on Financial Statements
We have audited the accompanying financial statements of Reg Liquors, LLC (D/B/A Wired for Wine) (the “Company”), which comprise of the balance sheets as of December 31, 2020 and 2019, and the related statements of operations and member’s equity and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Companies’ preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Reg Liquors, LLC (D/B/A Wired for Wine) as of December 31, 2020 and 2019, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Accell Audit & Compliance, P.A.
Tampa, Florida
June 15, 2022
3001 N. Rocky Point Dr. East, Suite 200 ● Tampa, Florida 33607 ● 813.367.3527
| F-28 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
AS OF DECEMBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 294,000 | $ | 44,239 | ||||
| Accounts receivable, net | 46,645 | 53,335 | ||||||
| Inventory, at cost | 435,572 | 459,817 | ||||||
| Prepaid expenses | 4,128 | 3,373 | ||||||
| Total current assets | 780,345 | 560,764 | ||||||
| Property and equipment, net | 2,607 | 2,681 | ||||||
| Right of use asset | 44,584 | 61,304 | ||||||
| Intangible assets, net | 70,696 | 76,799 | ||||||
| Total assets | $ | 898,232 | $ | 701,548 | ||||
| LIABILITIES AND MEMBERS' CAPITAL | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 350,682 | $ | 358,447 | ||||
| Line of credit | — | 167,549 | ||||||
| Current portion of operating lease liability | 18,000 | 18,000 | ||||||
| Paycheck Protection Program loan | 9,200 | — | ||||||
| Member loan payable | 38,432 | 46,393 | ||||||
| Total current liabilities | 416,314 | 590,389 | ||||||
| Operating lease liability, less current portion | 27,981 | 44,254 | ||||||
| Total liabilities | 444,295 | 634,643 | ||||||
| MEMBERS' CAPITAL | 453,937 | 66,905 | ||||||
| Total liabilities and members' capital | $ | 898,232 | $ | 701,548 | ||||
See accompanying notes to the financial statements and independent auditors’ report.
| F-29 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
STATEMENTS OF OPERATIONS AND MEMBER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| Revenues, net | $ | 3,775,100 | $ | 2,434,696 | ||||
| Cost of goods sold | 2,420,181 | 1,873,231 | ||||||
| Gross profit | 1,354,919 | 561,465 | ||||||
| Selling, general and administrative expenses | 959,380 | 677,787 | ||||||
| Income from operations | 395,539 | (116,322 | ) | |||||
| Other expenses | ||||||||
| Interest expense | 2,330 | 5,107 | ||||||
| Depreciation | 74 | 73 | ||||||
| Amortization | 6,103 | 6,104 | ||||||
| Total other expenses | 8,507 | 11,284 | ||||||
| Net income (loss) | 387,032 | (127,606 | ) | |||||
| Beginning member's capital | 66,905 | 194,511 | ||||||
| Ending member's capital | $ | 453,937 | $ | 66,905 | ||||
| See accompanying notes to the financial statements and independent auditors’ report. |
| F-30 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
FOR THE YEAR ENDED DECEMBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 387,032 | $ | (127,606 | ) | |||
| Adjustment to reconcile net income to net cash flows from operating activities: | ||||||||
| Depreciation and amortization | 6,177 | 6,177 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 6,690 | (4,880 | ) | |||||
| Inventory | 24,245 | (115,173 | ) | |||||
| Prepaid expenses | (755 | ) | 377 | |||||
| Right of use asset | 16,720 | 16,720 | ||||||
| Accounts payable and accrued expenses | (7,765 | ) | 147,780 | |||||
| Lease liabilities | (16,273 | ) | (15,769 | ) | ||||
| Net change from operating activities | 416,071 | (92,374 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Activity on line of credit, net | (167,549 | ) | 106,000 | |||||
| Proceeds from Paycheck Protection Program loan | 9,200 | — | ||||||
| Repayments of member loan payable | (7,961 | ) | (11,625 | ) | ||||
| Net change from operating activities | (166,310 | ) | 94,375 | |||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 249,761 | 2,001 | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period | 44,239 | 42,238 | ||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 294,000 | $ | 44,239 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Adoption of lease accounting standard | $ | — | $ | 78,023 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for taxes | $ | — | $ | — | ||||
| See accompanying notes to the financial statements and independent auditors’ report. |
| F-31 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 1 BUSINESS ORGANIZATION
REG Liquors, LLC d/b/a Wired for Wine (the “Company”) was formed in August 2016 as a Limited Liability Company and is an online distributor of wine. The Company is a wholly-owned subsidiary of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Ltd) effective from November 3, 2021. The Company is located in Stockton, New Jersey, with warehouse operations in Rutherford, New Jersey.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
Basis of Presentation
The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents and accounts receivable.
Cash and cash equivalents are deposited in various financial institutions. At times, amounts on deposit may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.
The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Concentration of Market Risk
During the years ended December 31, 2020 and 2019, the Company has two and four vendors, respectively, that represented approximately 36% and 98%, respectively, of all inventory purchases. A major supplier is considered one that represents more than 10% of total annual purchases.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company adopted this ASU on January 1, 2019, using the modified retrospective approach. The impact of adopting this ASU was not material to the financial statements.
| F-32 |
| REG LIQUORS, LLC (D/B/A WIRED FOR WINE) |
| NOTES TO THE FINANCIAL STATEMENTS |
| DECEMBER 31, 2020 AND 2019 |
Revenue is recognized when, or as, the Company satisfies its performance obligations by transferring promised goods to customers. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.
The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods.
Leases
On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). Based on this standard, the Company determines if an agreement is a lease at inception. Operating lease right of use (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the statements of operations.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivables are expected payments from vendors under their rebate incentive programs. Management does not expect any amounts to be written off as uncollectible. Therefore, no allowance for doubtful accounts has been provided for as of December 31, 2020 or 2019; however, actual write-offs might occur.
Inventory
Inventory is stated at the lower of cost (determined using the first-in, first-out method) or net realizable value and consists entirely of finished goods.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated depreciation. Expenditures for additions and improvements that substantially extend the useful life of property and equipment or increase its operating effectiveness are capitalized. Repair and maintenance costs are expenses as incurred. The Company depreciates the cost of property and equipment over the estimated useful lives of the assets, currently at 39 years, using the straight-line method.
Intangible Assets
Intangible assets consist of the Company’s liquor license, which is stated at historical cost, less accumulated amortization. The Company amortizes the liquor license over its term of 15 years, using the straight-line method.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or circumstances warrant such a review pursuant to the provisions Accounting Standards Codification (“ASC”) 360 Property, Plant, and Equipment.
Income Taxes
The Company is a single member limited liability company under the Internal Revenue Code. Accordingly, the financial statements do not include a provision for federal income taxes. The Company’s earnings and losses are included in the member’s personal income tax return and the income tax thereon, if any, is paid by the member. Management has evaluated tax positions in accordance with FASB ASC 740, Income Taxes, and has not identified any tax positions, other than being taxed as a pass through entity, that require disclosure. No separate tax return is filed by the Company.
| F-33 |
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2020 and 2019 amounted to $219,732 and $194,679, respectively.
Subsequent Events
In accordance with FASB ASC 855, Subsequent Events, the Company evaluated subsequent events through June 15, 2022; the date the financial statements were available for issue.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2020 and 2019:
| Estimated Useful Life (in years) | 2020 | 2019 | ||||||||||
| Improvements | 39 | 2,874 | 2,874 | |||||||||
| Less: Accumulated depreciation | (267 | ) | (193 | ) | ||||||||
| $ | 2,607 | $ | 2,681 | |||||||||
Related depreciation expense for the years ended December 31, 2020 and 2019 was $74 and $74, respectively.
NOTE 4 INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 2020 and 2019:
Related amortization expense for the years ended December 31, 2020 and 2019 was $6,103 and $6,103, respectively.
NOTE 5 LIne of Credit
The Company had a $1,000,000 line of credit with a bank that matured October 31, 2020. The balance at December 31, 2020 and 2019 was $0 and $167,549, respectively.
| F-34 |
| REG LIQUORS, LLC (D/B/A WIRED FOR WINE) |
| NOTES TO THE FINANCIAL STATEMENTS |
| DECEMBER 31, 2020 AND 2019 |
NOTE 6 Paycheck Protection Program Loan
During 2020, the Company received a $9,200 Paycheck Protection Program loan. The loan accrues interest at 1% annually. The Company was notified in August 2021 that the loan and accrued interest was forgiven in full.
NOTE 7 mEMBER’S CAPITAL
At December 31, 2020 and 2019, the Company had a single member who owned all of the membership interest in the Company.
Note 8 related party transactions
At December 31, 2020 and 2019, the Company had a non-interest bearing on-demand loan to its member for $38,432 and $46,393, respectively.
NOTE 9 Commitments
Warehouse lease
The Company leases warehouse facilities in New Jersey. The lease is $1,500 per month through September 2023. Rent expense for each of the years ended December 31, 2020 and 2019 was $18,000. At December 31, 2020 and 2019, the Company had a right of use asset of $44,584 and $61,304, respectively, and a corresponding liability of $45,981 and $62,254, respectively. The schedule below is the future minimum rent payments under the operating lease.
NOTE 10 Contingencies
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. Certain insurance policies held by the Company may reduce the cash outflows with respect to an adverse outcome of certain of these litigation matters.
NOTE 11 Concentrations of risks and uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency of COVID-19 outbreak. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic.
The 2020 operations reflect the impact of COVID-19 throughout the period. Restrictions continued to impact the Company’s operations, with key sales channels remaining in varied states of impact and recovery. During the pandemic, non e-commerce sales channels experienced varying levels of disruption. COVID-19 also caused a shortage of certain raw materials and prolonged logistics
Management continues actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.
| F-35 |
| REG LIQUORS, LLC (D/B/A WIRED FOR WINE) |
| NOTES TO THE FINANCIAL STATEMENTS |
| DECEMBER 31, 2020 AND 2019 |
NOTE 12 subsequent events
The ownership of the Company changed on November 3, 2021, with the sale of the business to an unrelated third party, Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Ltd).
| F-36 |
REG LIQUORS, LLC
D/B/A
WIRED FOR WINE
FINANCIAL STATEMENTS
As of SEPTEMBER 30, 2021
| F-37 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 225,866 | $ | 294,000 | ||||
| Accounts receivable, net | 21,285 | 46,645 | ||||||
| Inventory, at cost | 406,655 | 435,572 | ||||||
| Prepaid expenses | 3,821 | 4,128 | ||||||
| Member loan receivable | 829 | — | ||||||
| Total current assets | 658,456 | 780,345 | ||||||
| Property and equipment, net | 2,552 | 2,607 | ||||||
| Right of use asset | 32,045 | 44,584 | ||||||
| Intangible assets, net | 66,119 | 70,696 | ||||||
| Total assets | $ | 759,172 | $ | 898,232 | ||||
| Commitments and contingencies | ||||||||
| LIABILITIES AND MEMBER’S CAPITAL | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 282,185 | $ | 350,682 | ||||
| Current portion of operating lease liability | 18,000 | 18,000 | ||||||
| Paycheck Protection Program loan | — | 9,200 | ||||||
| Member loan payable | — | 38,432 | ||||||
| Total current liabilities | 300,185 | 416,314 | ||||||
| Operating lease liability, less current portion | 15,436 | 27,981 | ||||||
| Total liabilities | 315,621 | 444,295 | ||||||
| MEMBER’S CAPITAL | 443,551 | 453,937 | ||||||
| Total liabilities and members’ capital | $ | 759,172 | $ | 898,232 | ||||
See accompanying notes to the unaudited financial statements.
| F-38 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
STATEMENTS OF OPERATIONS AND MEMBER’S EQUITY
UNAUDITED
| For the nine months ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues, net | $ | 1,948,887 | $ | 2,891,527 | ||||
| Cost of goods sold | 1,344,094 | 1,983,937 | ||||||
| Gross profit | 604,793 | 907,590 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative expenses | 613,995 | 734,921 | ||||||
| Income from operations | (9,202 | ) | 172,669 | |||||
| Other income (expenses): | ||||||||
| Payroll protection program loan forgiven | 9,200 | — | ||||||
| Depreciation | (55 | ) | (55 | ) | ||||
| Amortization | (4,577 | ) | (4,577 | ) | ||||
| Total other income (expenses) | 4,568 | (4,632 | ) | |||||
| Net income (loss) | (4,634 | ) | 168,037 | |||||
| Beginning member’s capital | 453,937 | 66,905 | ||||||
| Member distribution | (5,752 | ) | — | |||||
| Beginning member’s capital | $ | 443,551 | $ | 234,942 | ||||
See accompanying notes to the unaudited financial statements.
| F-39 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
UNAUDITED
| For the nine months ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 4,634 | $ | (168,037 | ) | |||
| Adjustment to reconcile net income to net | ||||||||
| cash flows from operating activities: | ||||||||
| Depreciation and amortization | 4,632 | 4,632 | ||||||
| Payroll protection program loan forgiven | (9,200 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 25,360 | 53,335 | ||||||
| Inventory | 28,917 | — | ||||||
| Prepaid expenses | 307 | (3,283 | ) | |||||
| ROU Asset | 12,539 | — | ||||||
| Accounts payable | (68,497 | ) | (148,245 | ) | ||||
| Lease liability | (12,545 | ) | — | |||||
| Cash flows from operating activities | (13,853 | ) | (261,598 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Member loan receivable | (829 | ) | — | |||||
| Cash flows from investing activities | (829 | ) | — | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from PPP loan | — | 9,200 | ||||||
| Line of credit activity, net | — | (132,106 | ) | |||||
| Repayments of member loan | (53,452 | ) | 411,657 | |||||
| Cash flows from financing activities | (53,452 | ) | 288,751 | |||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (68,134 | ) | 27,153 | |||||
| CASH AND CASH EQUIVALENTS, beginning of period | 294,000 | 44,239 | ||||||
| CASH AND CASH EQUIVALENTS, end of period | 225,866 | 71,392 | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
See accompanying notes to the unaudited financial statements.
| F-40 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
UNAUDITED
NOTE 1 BUSINESS ORGANIZATION
REG Liquors, LLC d/b/a Wired for Wine (the “Company”) was formed in August 2016 as a Limited Liability Company and is an online distributor of wine. The Company is a wholly-owned subsidiary of Innovation Beverage Group Pty Limited (formerly Australian Boutique Spirits Pty Ltd) effective from November 3, 2021, and is located in Stockton, New Jersey, with warehouse operations in Rutherford, New Jersey.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
Basis of Presentation
The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents and accounts receivable.
=-
Cash and cash equivalents are deposited in various financial institutions. At times, amounts on deposit may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company adopted this ASU on January 1, 2019, using the modified retrospective approach. The impact of adopting this ASU was not material to the financial statements.
Revenue is recognized when, or as, the Company satisfies its performance obligations by transferring promised goods to customers. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.
Leases
On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). Based on this standard, the Company determines if an agreement is a lease at inception. Operating lease right of use (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is presented on the statements of operations.
| F-41 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
UNAUDITED
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are expected payments from vendors under their rebate incentive programs. Management does not expect any amounts to be written off as uncollectible. Therefore, no allowance for doubtful accounts has been provided for as of September 30, 2021 and December 31, 2020; however, actual write-offs might occur.
Inventory
Inventory is stated at the lower of cost (determined using the first-in, first-out method) or market and consists entirely of finished goods.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated depreciation. Expenditures for additions and improvements that substantially extend the useful life of property and equipment or increase its operating effectiveness are capitalized. Repair and maintenance costs are expenses as incurred. The Company depreciates the cost of property and equipment over the estimated useful lives of the assets, currently at 39 years, using the straight-line method.
Intangible Assets
Intangible assets consist of the Company’s liquor license, which is stated at historical cost, less accumulated amortization. The Company amortizes the liquor license over its term of 15 years, using the straight-line method.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or circumstances warrant such a review pursuant to the provisions Accounting Standards Codification (“ASC”) 360 Property, Plant, and Equipment.
Income Taxes
The Company is a single member limited liability company under the Internal Revenue Code. Accordingly, the financial statements do not include a provision for federal income taxes. The Company’s earnings and losses are included in the member’s personal income tax return and the income tax thereon, if any, is paid by the member. Management has evaluated tax positions in accordance with FASB ASC 740, Income Taxes, and has not identified any tax positions, other than being taxed as a pass through entity, that require disclosure. No separate tax return is filed by the Company.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the nine-months ended September 30, 2021 and 2020 amounted to $80,187 and $188,380, respectively.
Subsequent Events
In accordance with FASB ASC 855, Subsequent Events, the Company evaluated subsequent events through June 17, 2022; the date the financial statements were available for issue.
| F-42 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
UNAUDITED
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2021 and December 31, 2020:
| Estimated Useful Life (in years) | September 30, 2021 | December 31, 2020 | ||||||||||
| Improvements | 39 | $ | 2,874 | $ | 2,874 | |||||||
| Less: Accumulated depreciation | (322 | ) | (267 | ) | ||||||||
| $ | 2,552 | $ | 2,607 | |||||||||
Related depreciation expense for the nine months ended September 30, 2021 and 2020 was $55.
NOTE 4 INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 2021 and December 31, 2020:
| Estimated Useful Life (in years) | September 30, 2021 | December 31, 2020 | ||||||||||
| Liquor license | 15 | $ | 91,549 | $ | 91,549 | |||||||
| Less: Accumulated amortization | (25,430 | ) | (20,853 | ) | ||||||||
| $ | 66,119 | $ | 70,696 | |||||||||
Related amortization expense for the nine months ended September 30, 2021 and 2020 was $4,577.
NOTE 5 Paycheck Protection Program Loan
During 2020, the Company received a $9,200 Paycheck Protection Program loan. The loan accrues interest at 1% annually. The Company was notified in August 2021 that the loan and accrued interest was forgiven in full. As a result, the Company recorded a gain on the forgiveness of PPP loan in the amount of $9,200.
NOTE 6 Commitments
Warehouse lease
The Company leases warehouse facilities in New Jersey. The lease is $1,500 per month through September 2023. Rent expense for the nine months ended September 30, 2021 and 2020 was $13,500. At September 30, 2021 and December 31, 2020, the Company had a right of use asset of $32,045 and $44,584, respectively, and a corresponding liability of $33,436 and $45,981, respectively. The schedule below is the future minimum rent payments under the operating lease.
| F-43 |
REG LIQUORS, LLC (D/B/A WIRED FOR WINE)
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
UNAUDITED
| Year ending December 31: | ||||||
| 2021 | $ | 4,500 | ||||
| 2022 | 18,000 | |||||
| 2023 | 13,500 | |||||
| Total future minimum lease payments | 36,000 | |||||
| Less imputed interest | (2,564 | ) | ||||
| Total operating lease liability | $ | 33,436 |
NOTE 7 Contingencies
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. Certain insurance policies held by the Company may reduce the cash outflows with respect to an adverse outcome of certain of these litigation matters.
NOTE 8 Concentrations of risks and uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as a virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for the fiscal year 2021.
NOTE 9 subsequent events
The ownership of the Company changed on November 4, 2021, with the sale of the business to an unrelated third party.
| F-44 |
Subject To Completion, Date [ ], 2022
1,700,000 Ordinary Shares
PROSPECTUS
Innovation Beverage Group LIMItEd
Until [_], (25 days after commencement of our initial public offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
EF HUTTON,
Division of Benchmark Investments
Sole Bookrunning Manager
Through and including _________, 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in the ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
[BACK COVER OF PROSPECTUS]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 6. | Indemnification of Directors and Officers |
Australian law
Australian law provides that a company or a related body corporate of the company may provide for indemnification of officers and directors for liabilities and costs incurred while acting as a director or officer of the company, subject to restrictions imposed under the Corporations Act which provides that a company or a related body corporate of the company must not indemnify an officer or director against any of the following liabilities incurred as an officer or director of the company:
| ● | a liability owed to the company or a related body corporate of the company; |
| ● | a liability for certain pecuniary penalty orders or compensation orders; |
| ● | a liability that is owed to someone other than the company or a related body corporate of the company and did not arise out of conduct in good faith; or |
| ● | as to legal costs, legal costs incurred in defending an action for a liability incurred as an officer or director of the company if the costs are incurred: |
| o | in defending or resisting proceedings in which the officer or director is found to have a liability for which they could not be indemnified by reason of the limitations on indemnification set out above; |
| o | in defending or resisting criminal proceedings in which the officer or director is found guilty; |
| o | in defending or resisting proceedings brought by the Australian Securities & Investments Commission or a liquidator for a court order if the grounds for making the order are found by the court to have been established (except costs incurred in responding to actions taken by the Australian Securities & Investments Commission or a liquidator as part of an investigation before commencing proceedings for a court order); or |
| o | in connection with proceedings for relief to the officer or director under the Corporations Act, in which the court denies the relief. |
Constitution
Our Constitution provides, except to the extent prohibited by law including under the Corporations Act, for the indemnification of every person who is or has been an officer or a director of the Company against any liability (other than conduct involving a lack of good faith on the part of the officer) incurred by that person as an officer or director. This includes any liability incurred by that person in their capacity as an officer or director of a subsidiary of the Company where the Company requested that person to accept that appointment.
SEC Position
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Pursuant to the underwriting agreement for this offering, the form of which is filed as Exhibit 1.1 to this registration statement, the underwriters will agree to indemnify our directors and officers and persons controlling us, within the meaning of the Securities Act, against certain liabilities that might arise out of or are based upon certain information furnished to us by any such underwriter.
II-1
Item 7. Recent Sales of Unregistered Securities
Set forth below is information regarding ordinary shares issued by us during the last three years, which were not registered under the Securities Act. Innovation Beverage Group believes that each of such issuances was exempt from registration under the Securities Act in reliance on Regulation S or Regulation D under the Securities Act. Except for the Series A Financing which was underwritten locally by an Australian broker, none of the below described transactions involved any underwriters, underwriting discounts and commissions or commissions, or any public offering.
On August 16, 2021, in connection with our Series A Financing, we issued 952,381 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$3,000,000, to an accredited investor in reliance on Regulation D.
On September 11, 2021, in connection with our Series A Financing, we issued 158,730 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$500,000, to a non-U.S. person in reliance on Regulation S.
On November 18, 2021, in connection with our Series A Financing, we issued 301,587 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$950,000, to a non-U.S. person in reliance on Regulation S.
On November 25, 2021, in connection with our Series A Financing, we issued 111,111 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$350,000, to a non-U.S. person in reliance on Regulation S.
On November 25, 2021, in connection with our Series A Financing, we issued 158,730 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$500,000, to a non-U.S. person in reliance on Regulation S.
On December 14, 2021, in connection with our Series A Financing, we issued 111,111 ordinary shares at AUD$3.15 per share for a total purchase price of AUD$350,000 to an institutional investor in reliance on Regulation D.
On February 11, 2022, in connection with our Series A Financing, we issued 3,175 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$10,001, to an accredited investor in reliance on Regulation D.
On February 13, 2022, in connection with our Series A Financing, we issued 6,349 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$19,999, to a non-U.S. person in reliance on Regulation S.
On February 14, 2022, in connection with our Series A Financing, we issued 3,000 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$9,450, to a non-U.S. person in reliance on Regulation S.
On February 14, 2022, in connection with our Series A Financing, we issued 2,000 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$6,300, to a non-U.S. person in reliance on Regulation S.
On February 16, 2022, in connection with our Series A Financing, we issued 15,873 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$50,000, to a non-U.S. person in reliance on Regulation S.
II-2
On April 29, 2022, in connection with our Series A Financing, we issued 47,619 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$166,963, to a non-U.S. person in reliance on Regulation S.
On April 29, 2022, in connection with our Series A Financing, we issued 35,273 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$111,110, to a non-U.S. person in reliance on Regulation S.
On April 29, 2022, in connection with our Series A Financing, we issued 31,746 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$100,000, to a non-U.S. person in reliance on Regulation S.
On April 29, 2022, in connection with our Series A Financing, we issued 63,492 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$200,000, to an accredited investor in reliance on Regulation D.
On April 29, 2022, in connection with our Series A Financing, we issued 111,111 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$350,000, to a non-U.S. person in reliance on Regulation S.
On April 29, 2022, in connection with our Series A Financing, we issued 25,397 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$80,000, to a non-U.S. person in reliance on Regulation S.
On April 29, 2022, we issued to an employee 31,746 ordinary shares at a price of AUD$3.15 per share with an aggregate value of AUD$100,000.
On April 29, 2022, we issued an aggregate of 8,912 ordinary shares to two consultants for their rendered services at a price of AUD$3.15 per share with an aggregate value of AUD$28,073.
On September 6, 2022, we issued to an employee 10,582 ordinary shares at a price of AUD$3.15 per share with an aggregate value of AUD$33,333.
On September 10, 2022, our Board of Directors approved a 1-for-1.62 reverse split of our ordinary shares, effective September 12, 2022, having obtained shareholder approval on August 12, 2022. Pursuant to the reverse split, our shareholders received one (1) ordinary share for every 1.62 ordinary shares held as of such date.
Item 8. Exhibits and Financial Statement Schedules
(a) Exhibits
See the Exhibit Index attached to this registration statement, which is incorporated by reference herein.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or has been included in the consolidated financial statements or notes thereto.
Item 9. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
II-3
To provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.”
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| EXHIBIT INDEX |
* Previously Filed.
+ Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the U.S. Securities and Exchange Commission, certain portions of this exhibit have been omitted because it is both not material and the type of information that Innovation Beverage Group Limited treats as private or confidential.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the State of Florida, United States on September 15, 2022.
INNOVATION BEVERAGE GROUP LIMITED | ||||
| By: | /s/ Dean Huge | |||
| Name: | Dean Huge | |||
| Title: | Chief Executive Officer (Principal Executive Officer) | |||
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Dean Huge, acting alone, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such person and in his name, place and stead, in any and all capacities, to sign this Registration Statement on Form F-1, or other appropriate form, and all amendments thereto, including post-effective amendments, of Innovation Beverage Group Limited, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that any such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
| NAME | POSITION | DATE | ||
| /s/ Dean Huge | Chief Executive Officer (Principal Executive Officer) | September 15, 2022 | ||
| Dean Huge | ||||
| /s/ Tianyi Eric Yu | Chief Financial Officer (Principal Financial Officer and Controller) | September 15, 2022 | ||
| Tianyi Eric Yu | ||||
| /s/ Sahil Beri | Chief Operating Officer and Chairman | September 15, 2022 | ||
| Sahil Beri | ||||
| /s/ Clive Coleman | Chief Commercial Officer | September 15, 2022 | ||
| Clive Coleman | ||||
| /s/ Sally Cardillo | Director | September 15, 2022 | ||
| Sally Cardillo | ||||
| /s/ Kristopher Laurens Salinger | Director | September 15, 2022 | ||
| Kristopher Laurens Salinger | ||||
| /s/ Sameer Sethi | Director | September 15, 2022 | ||
| Sameer Sethi |
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of the Company has signed this registration statement or amendment thereto in the State of Florida, United States on September 15, 2022.
| Authorized U.S. Representative | ||||
| Dean Huge | ||||
| By: | /s/ Dean Huge | |||
| Name: | Dean Huge | |||
| Title: | Chief Executive Officer | |||
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EXHIBIT 1.1
UNDERWRITING AGREEMENT
between
INNOVATION BEVERAGE GROUP LIMITED
and
EF HUTTON,
DIVISION OF BENCHMARK INVESTMENTS, LLC
AS REPRESENTATIVE OF THE SEVERAL UNDERWRITERS
TABLE OF CONTENTS
| Page | |
| Section 1. Purchase and Sale of Firm Shares and Over-Allotment Option | 3 |
| Section 2. Representations and Warranties of the Company | 5 |
| Section 3. Covenants of the Company | 17 |
| Section 4. Conditions of Underwriters’ Obligations | 22 |
| Section 5. Indemnification | 25 |
| Section 6. Default by an Underwriter | 27 |
| Section 7. Additional Covenants | 28 |
| Section 8. Effective Date of This Agreement and Termination Thereof | 28 |
| Section 9. Miscellaneous | 29 |
LIST OF SCHEDULES AND EXHIBITS
| Schedule 1: List of Underwriters | 32 |
| Schedule 2-A: Pricing Information | 33 |
| Schedule 2-B: Issuer General Use Free Writing Prospectuses | 34 |
| Schedule 2-C: Written Testing-The-Waters Communications | 35 |
| Schedule 3: Lock-Up Parties | 36 |
| Exhibit A – Representative’s Warrant | 37 |
| Exhibit B- Lock-Up Agreement for Officers, Directors, and 5% or Greater Shareholders | 38 |
| Exhibit C- Press Release | 42 |
| Exhibit D- Opinion and Negative Assurance of Sichenzia Ross Ference LLP | 43 |
| Exhibit E – Opinion of K&L Gates | 44 |
| Exhibit F- Officers’ Certificate | 45 |
| Exhibit G- Secretary’s Certificate | 46 |
INNOVATION BEVERAGE GROUP LIMITED
UNDERWRITING AGREEMENT
New York, New York
[●], 2022
EF Hutton,
Division of Benchmark Investments, LLC
As Representative of the several Underwriters named on Schedule 1 attached hereto
590 Madison Avenue, 39th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned, Innovation Beverage Group Limited, a company incorporated under the laws of Australia (the “Company”), hereby confirms its agreement (this “Agreement”) with EF Hutton, division of Benchmark Investments, LLC, (hereinafter referred to as “you” (including its correlatives), or “EF Hutton” or the “Representative”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) for the purchase and sale of the Company’s ordinary shares, no par value (the “Ordinary Shares”) pursuant to the following terms:
Section 1. Purchase and Sale of Ordinary Shares.
1.1 Firm Shares.
1.1.1. Nature and Purchase of Firm Shares.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, severally and not jointly, an aggregate of [●] duly authorized Ordinary Shares (the “Firm Shares”).
(ii) The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares set forth opposite their respective names on Schedule 1 attached hereto at a purchase price of $[•] per share (93% of the per Firm Share offering price). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Payment and Delivery of the Firm Shares.
(i) Delivery and payment for the Firm Shares shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern Time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Carmel, Milazzo & Feil LLP, 55 West 39th Street, 18th Floor, New York, New York 10018 (“Representative Counsel”), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares is called the “Closing Date.”
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(ii) Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters.. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Representative for all of the Firm Shares. The term “Business Day” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay-at-home,” “shelter-in-place,” “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.
1.2 Over-allotment Option.
1.2.1. Option Shares. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Shares, the Company hereby grants to the Underwriters an option to purchase up to [●] additional Ordinary Shares (the “Option Shares”), representing up to fifteen percent (15%) of the Firm Shares sold in the Offering, from the Company (the “Over-allotment Option”). Upon the purchase of such additional Option Shares, the net proceeds will be deposited in the Company’s account. The purchase price to be paid per Option Share shall be equal to $[●]. The Firm Shares and Option Shares are collectively referred to together as the “Public Securities.” The offering and sale of the Public Securities contemplated by this Agreement is referred to herein as the “Offering.”
1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares within 45 days after the Effective Date. The Underwriters shall not be under any obligation to purchase any Option Shares prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or email or other electronic transmission in accordance with Section 9.1 hereof setting forth the number of Option Shares to be purchased and the date and time for delivery of and payment for the Option Shares (the “Option Closing Date”), which shall not be later than the third (3rd) full Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of the Representative Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Shares then being purchased as set forth in Schedule 1 opposite the name of such Underwriter.
1.2.3. Payment and Delivery. Payment for Option Shares shall be made on the applicable Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to the Representative of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares (or through the facilities of DTC) for the account of the Underwriters. The Option Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) full Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares except upon tender of payment by the Representative for applicable Option Shares.
1.3 Representative’s Warrants.
1.3.1 Issuance of Representative’s Warrants. The Company hereby agrees to issue to the Representative (and/or its designees) on the Closing Date and on any Option Closing Date, one or more warrants for the purchase of an aggregate of [●] Ordinary Shares, representing 5% of the number of Firm Shares, in the case of the Closing Date and in the case of an Option Closing Date, 5% of the Option Shares sold on such Option Closing Date, in the form attached hereto as Exhibit A (the “Representative’s Warrants”). The Representative’s Warrants shall be exercisable, in whole or in part, commencing on a date which is six (6) months after the Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per share of $[●] per Ordinary Share, which is equal to 120.0% of the initial public offering price of the Public Securities. The Representative’s Warrants and the Ordinary Shares issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrants and the underlying Ordinary Shares during the one hundred eighty (180) days after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrants, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
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1.3.2 Delivery. Delivery of the Representative’s Warrants shall be made on the Closing Date or the Option Closing Date(s), as applicable, and shall be issued in the name or names and in such authorized denominations as the Representative may request.
Section 2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1 Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-266965), including any related prospectus or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [●], 2022, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering that includes the Rule 430A Information is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
“Applicable Time” means [●] [a.m./p.m.], Eastern Time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including, without limitation, any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
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“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus, and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File No. 333-[●]) providing for the registration of the Ordinary Shares pursuant to section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Form 8-A Registration Statement was declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Ordinary Shares under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2 Stock Exchange Listing. The Ordinary Shares have each been approved for listing on the Nasdaq Capital Market (the “Exchange”), subject only to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, delisting the Ordinary Shares from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing.
2.3 No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4 Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission’s EDGAR filing system (“EDGAR”), except to the extent permitted by Regulation S-T promulgated under the Securities Act (“Regulation S-T”).
(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date and at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict in any material respect with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following: the names of the Underwriters, the information with respect to stabilizing transactions contained in the section “Underwriting - Price Stabilization, Short Positions, and Penalty Bids”, the section “Underwriting – Discounts and Expenses,” the distribution information under “Electronic Offer, Sale and Distribution of Shares”, and the number of Ordinary Shares to be purchased by each Underwriter(the “Underwriters’ Information”).
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(iv) Neither the Prospectus nor any amendment or supplement thereto, as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and except for any unenforceability that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in material default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder except for such defaults that would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). To the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations, that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change as defined in Section 2.5.1 below.
2.4.3. Prior Securities Transactions. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus; or except as may be sold pursuant to the Company’s ongoing series A preferred stock offering.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of material applicable federal, state, local and any applicable foreign laws, rules and regulations relating to the Offering and the Company’s business as currently conducted or contemplated are correct and complete in all material respects and no other such laws, rules or regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.5 Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company, nor, to the Company’s knowledge, any development that, singularly or in the aggregate, would reasonably be expected to result in a material adverse change, in or affecting the condition (financial or otherwise), results of operations, business or assets of the Company (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
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2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities, other than may be issued pursuant to the Company’s ongoing series A preferred stock offering, or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its Ordinary Shares, or series A preferred stock (collectively, the “capital stock”).
2.6 Independent Accountants. To the knowledge of the Company, Accell Audit & Compliance, P.A. (the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. To the knowledge of the Company, the Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in section 10A(g) of the Exchange Act.
2.7 Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules (if any) included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present in all material respects the financial condition and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement, if any, present fairly in all material respects the information required to be stated therein. Except as included therein, no other historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons, if any, that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company, or, other than in the course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.
2.8 Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding share capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted share capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no stock options, or other rights to purchase or otherwise acquire any authorized, but unissued shares of the Company or any security convertible or exercisable into shares of the Company, or any contracts or commitments to issue or sell Ordinary Shares or any such options, rights or convertible securities.
2.9 Valid Issuance of Securities, etc.
2.9.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized Ordinary Shares conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The Company has taken all necessary actions to cause its organizational documents to be in full force and effect in accordance with the relevant laws of Australia, including but not limited to the Constitution and the Corporations Act 2001 (Cth) on the Closing Date. The offers and sales of the outstanding Ordinary Shares were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such shares, exempt from such registration requirements.
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2.9.2. Securities Sold Pursuant to this Agreement. The Public Securities and Representative’s Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof will not be subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are and will be free from the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all Company action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s Securities has been duly and validly taken. The Representative’s Warrants, when issued pursuant to this Agreement, will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the Ordinary Shares underlying the Representative’s Warrants. The Public Securities and Representative’s Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.10 Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any options, rights or other securities exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in the Registration Statement or any other registration statement to be filed by the Company.
2.11 Authorization and Delivery of the Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
2.12 No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or any other agreement or instrument to which the Company is a party or as to which any property of the Company is a party; (ii) result in any violation of the provisions of the Company’s certificate of incorporation, bylaws, or other organizational or charter documents (as the same have been amended or restated from time to time; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof, except in the case of clauses (i) and (iii) for such breach, conflict, default or violation which would not reasonably be expected to cause a Material Adverse Change.
2.13 No Defaults; Violations. Except as may be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject, except for any such default that would not be reasonably expected to result in a Material Adverse Change. The Company is not in violation of its certificate of incorporation, bylaws or other organizational or charter documents, or in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity, except for such violations that would not be reasonably expected to result in a Material Adverse Change.
2.14 Corporate Power; Licenses; Consents.
2.14.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business in all material respects as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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2.14.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement, except (A) the registration under the Securities Act of the Public Securities, which has been effected, (B) the necessary filings and approvals from the Exchange to list the Public Securities, (C) such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws and the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) in connection with the purchase and distribution of the Public Securities by the several Underwriters, (D) such consents and approvals as have been obtained and are in full force and effect, and (E) such consents, approvals, orders, authorizations and filings the failure of which to make or obtain is not reasonably likely to result in a Material Adverse Change.
2.15 D&O Questionnaires. To the Company’s knowledge, all information contained in the director and officer questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.16 Litigation; Governmental Proceedings. There are no actions, suits, proceedings, inquiry, arbitrations, investigations, litigations or governmental proceedings pending or, to the Company’s knowledge, threatened against, or involving the Company which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and actions, suits or proceedings that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change or materially and adversely affect the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by each of the Registration Statement, the Pricing Disclosure Package and the Prospectus or (ii) that are required to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus and are not so described. To the Company’s knowledge, the Company’s listing application for the listing of the Public Securities on the Exchange does not omit any required disclosures with respect to actions suits or proceedings, if any, involving the Company and its executive officer and directors.
2.17 Good Standing. The Company and its subsidiaries are duly incorporated or otherwise organized, validly existing, and in good standing under the laws of the jurisdiction of their incorporation or organization, with the requisite power and authority to own and use their properties and assets and to carry on its business as currently conducted, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.18 Insurance. The Company carries or is entitled to the benefits of insurance, with insurers of recognized financial responsibility, in such amounts and covering such risks which the Company believes are adequate as are customary for companies engaged in similar business, including, but not limited to, directors and officers insurance coverage at least equal to $2,500,000 and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.
2.19 Transactions Affecting Disclosure to FINRA.
2.19.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or, to the Company’s knowledge, any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.
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2.19.2. Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.19.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.19.4. FINRA Affiliation. To the Company’s knowledge, there is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company’s securities or (iii) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.19.5. Information. To the Company’s knowledge, all information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.20 Foreign Corrupt Practices Act. None of the Company or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that could reasonably be expected to (i) subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, have had a Material Adverse Change or (iii) if not continued in the future, adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Compliance with OFAC. None of the Company or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any other person acting on behalf of the Company, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22 Money Laundering Laws. The operations of the Company are and have been conducted at all times in material compliance in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the Company’s knowledge, threatened.
2.23 Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to the Representative or to Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
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2.24 [RESERVED].
2.25 Subsidiaries. All direct and indirect subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business or operations of the Company taken as a whole. The Company’s ownership and control of each subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.26 Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required under the Securities Act and the Securities Act Regulations.
2.27 Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the rules and regulations of the Commission promulgated thereunder (the “Exchange Act Regulations”), the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange, including the phase-in rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.28 Sarbanes-Oxley Compliance.
2.28.1. Disclosure Controls. The Company has developed disclosure controls and procedures that will comply in all material respects with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures will be effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.28.2. Compliance. The Company is and at the Applicable Time and on the Closing Date will be, in compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and has taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the provisions of the Sarbanes-Oxley Act then applicable to the Company.
2.29 Accounting Controls. The Company is in the process of establishing systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that will comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. To the Company’s knowledge, the Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
2.30 No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
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2.31 No Labor Disputes. No labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent.
2.32 Intellectual Property Rights. The Company owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to own, possess or have valid rights to use any of the foregoing would not reasonably be expected to have a material adverse effect on the Company. To the knowledge of the Company, no action or use by the Company necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus would reasonably be expected to involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. The Company has not received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights of any persons.
2.33 Taxes. Except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company, (i) the Company has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof, and (ii) the Company has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company, except those that are being contested in good faith or as would not have, individually or in the aggregate, result in a Material Adverse Change. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no material issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
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2.34 ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.35 Compliance with Laws. The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the business of the Company as currently conducted (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; ; (B) has not received any warning letter, untitled letter or other correspondence or written notice from any Governmental Entity alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws and/or to carry on its business as now conducted (“Authorizations”); (C) possesses all Authorizations and such Authorizations are valid and in full force and effect and are not in violation of any term of any such Authorizations, except where the invalidity of such Authorizations or the failure of such Authorizations to be in full force and effect would not result in a Material Adverse Change; (D) has not received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any activity conducted by the Company is in violation of any Applicable Laws or Authorizations and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding that if brought, would result in a Material Adverse Change; (E) has not received written notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such Governmental Entity has threatened or is considering such action; (F) has filed, obtained, maintained or submitted all reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected or supplemented by a subsequent submission) except where the failure to be so in compliance would not, individually or in the aggregate, result in a Material Adverse Change.
2.36 Environmental Laws. The Company is in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“Environmental Laws”), except where the failure to comply would not, singularly or in the aggregate, result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or, to the Company’s knowledge, any other entity for whose acts or omissions the Company is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Change. In the ordinary course of business, the Company conducts periodic reviews of the effect of Environmental Laws on its business and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material Adverse Change.
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2.37 Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the Effective Date and at the time of any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the Effective Date, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.38 Real Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real property which are material to the business of the Company and its subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, and under which the Company and its subsidiaries hold properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are, to the Company’s knowledge, in full force and effect, and neither the Company nor any subsidiary has received any written notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company to the continued possession of the leased or subleased premises under any such lease or sublease.
2.39 Title to Personal Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its subsidiaries have good and marketable title to, or have valid rights to lease or otherwise use, all items of personal property (other than Intellectual Property, which is addressed in Section 2.32 hereof) which are material to the business of the Company and its subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are, to the Company’s knowledge, in full force and effect, and neither the Company nor any subsidiary has received any written notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any subsidiary to the continued possession of the leased or subleased personal property under any such lease or sublease.
2.40 Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business), or guarantees or indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.41 Integration. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities issued in such prior offerings under the Securities Act.
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2.42 Smaller Reporting Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.43 Industry Data. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
2.44 Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.
2.45 Testing-the-Waters Communications. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule 2-C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
2.46 Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.47 Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Ordinary Shares to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.48 Dividends and Distributions. Except as disclosed in the Pricing Disclosure Package, Registration Statement and the Prospectus, no subsidiary of the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company.
2.49 Forward-Looking Statements. No forward-looking statement (within the meaning of section 27A of the Securities Act and section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
2.50 Confidentiality and Non-Competitions. To the Company’s knowledge, no director, officer, key employee, or consultant of the Company or any subsidiary is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer (other than the Company) or prior employer that could materially affect his or her ability to be and act in his or her respective capacity of the Company or such subsidiary or be expected to result in a Material Adverse Change.
2.51 Corporate Records. The minute books of the Company have been made available to the Representative and Representative Counsel and such books (i) contain minutes of all material meetings and actions of the Board of Directors (including each board committee) and shareholders of the Company, and (ii) reflect all material transactions referred to in such minutes.
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2.52 Diligence Materials. The Company has provided to the Representative and Representative Counsel all materials required or necessary to respond in all material respects to the diligence request submitted to the Company or Company Counsel by the Representative.
Section 3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1. (a) Financial Statements. The financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package, the Prospectus, conform in all material aspects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the rules and regulations thereunder to be described in the Registration Statement, the Pricing Disclosure Package, the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company or a subsidiary is a party or by which it or such subsidiary is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package, the Prospectus or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company or a subsidiary, respectively, is in full force and effect in all material respects and is enforceable against the Company or such subsidiary and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization, or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. Except as described in the Registration Statement, none of such agreements or instruments has been assigned by the Company or subsidiary, and neither the Company nor, to the Company’s knowledge, a subsidiary or any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. To the Company’s knowledge, performance by the Company or the subsidiary of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order, or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company, a subsidiary, or any of their assets or businesses, including, without limitation, those relating to environmental laws and regulations.
(b) Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will, during the period required to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus, notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under section 8A of the Securities Act in connection with the Offering of the Public Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use commercially reasonable efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
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3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or counsel for the Underwriters shall reasonably object. The Company will make available to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
3.2.3. Exchange Act Registration. For a period of three (3) years after the date of this Agreement, (i) the Company shall use its reasonable best efforts to maintain the registration of the shares of Ordinary Shares under the Exchange Act, and (ii) for a period of two (2) years after the date of this Agreement, the Company shall not deregister any of the Ordinary Shares under the Exchange Act without the prior written consent of the Representative.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representative as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus, there has occurred or is occurring an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication, there occurred or is occurring an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3 Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and counsel for the Representative, without charge, conformed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to each Underwriter, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) upon receipt of a written request therefor from such Underwriter. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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3.5 Effectiveness and Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus for at least 9 months after the Applicable Time, and shall notify the Representative promptly and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall use its commercially reasonable efforts to obtain promptly the lifting of such order.
3.6 Retention of Auditor; Review of Financial Statements. For a period of three (3) years after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.
3.7 Listing. As of the Effective Date and for three (3) years thereafter, the Company shall use its reasonable best efforts to effect and maintain the listing of the Ordinary Shares (including the Public Securities) on the Exchange.
3.8 Financial Public Relations Firm; Financial Printer. As of the Effective Date, the Company shall have retained: (i) a financial public relations firm reasonably acceptable to the Representative and the Company, which shall initially be Gateway IR which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders; and (ii) a financial printer reasonably acceptable to the Representative.
3.9 Transfer Agent. As of the Effective Date and for a period of three (3) years thereafter, the Company shall have retained a transfer agent for the Ordinary Shares reasonable acceptable to the Representative and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. VStock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the Ordinary Shares.
3.10 [RESERVED]
3.11 Payment of Expenses.
3.11.1. General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and expenses relating to the registration of the Securities with the Commission; (b) all fees and expenses relating to the listing of the Ordinary Shares on a national exchange, if applicable; (c) all fees, expenses and disbursements relating to the registration or qualification of the Securities under the “blue sky” securities laws of such states and other jurisdictions as EF Hutton may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of the Company’s “blue sky” counsel, which will be EF Hutton’s counsel) unless such filings are not required in connection with the Company’s proposed listing on a national exchange, if applicable; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Securities under the securities laws of such foreign jurisdictions as EF Hutton may reasonably designate; (e) the costs of all mailing and printing of the Offering documents; (f) transfer and/or stamp taxes, if any, payable upon the transfer of Securities from the Company to EF Hutton; (g) the fees and expenses of the Company’s accountants; (h) all filing fees and communication expenses associated with the review of the Offering by FINRA; (i) up to $20,000 of EF Hutton’s actual accountable road show expenses for the Offering; (j) the $29,500 cost associated with EF Hutton’s use of Ipreo’s book building, prospectus tracking and compliance software for the offering; (k) the costs associated with bound volumes of the Offering materials as well as commemorative mementos and lucite tombstones in an aggregate amount not to exceed $5,000; and (l) the fees for EF Hutton’s legal counsel, in an amount not to exceed $135,000. For the sake of clarity, it is understood and agreed that the Company shall be responsible for EF Hutton’s external counsel legal costs detailed in this Section irrespective of whether the Offering is consummated or not, subject to $50,000 if there is not a Closing. Additionally, the Company previously provided an expense advance (the “Advance”) to EF Hutton of $25,000. The Advance shall be applied towards out-of-pocket accountable expense set forth herein and any portion of the Advance shall be returned to the Company to the extent not actually incurred. EF Hutton may deduct from the net proceeds of the Offering payable to the Company on the date of Closing, or the closing of the Over-Allotment Option, if any, the expenses set forth herein to be paid by the Company to the underwriters.
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3.11.2. Non-accountable Expenses. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.11.1, on the Closing Date, it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1.0%) of the gross proceeds received by the Company from the sale of the Public Securities.
3.12 Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.13 Delivery of Earnings Statements to Security Holders. The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of section 11(a) of the Securities Act.
3.14 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders (without the consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
3.15 Reports to the Representative.
3.15.1. Periodic Reports, etc. On or prior to the date of this Agreement, the Company shall register the Common Shares under the provisions of section 12(b) or 12(g) of the Exchange Act. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) a copy of each registration statement filed by the Company under the Securities Act; (v) a copy of each report or other communication furnished to shareholders and (vi) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request. Documents filed with the Commission pursuant to its EDGAR system shall be deemed to have been delivered to the Representative pursuant to this Section 3.15.1.
3.15.2 Trading Reports. For a period of three (3) years after the date of this Agreement, during such time as the Public Securities are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request.
3.16 FINRA. For a period of sixty (60) days from the later of the Closing Date or the Option Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 10% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.17 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement. The Company agrees that any and all decisions, acts, actions, or omissions with respect to the Offering shall be the sole responsibility of the Company, and that the performance by the Representative and the Underwriters hereunder shall in no way expose the Representative or the Underwriters to any liability for any such decisions, acts, actions or omissions of the Company.
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3.18 Lock-Up Agreements.
3.18.1. Restriction on Sales of Capital Stock. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 180 days after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise. The restrictions contained in this Section 3.18.1 shall not apply to Exempted Securities.
“Exempted Securities” means: (i) the Firm Shares to be sold hereunder, (ii) the issuance by the Company of Ordinary Shares upon the exercise of an outstanding stock option or the conversion of a security outstanding on the date hereof, of which the Representative has been advised in writing, (iii) any issuance of securities disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iv) the issuance by the Company of up to $50 million of senior series A preferred shares in a private placement offering, (v) the issuance of securities issued as part of the purchase price in connection with acquisitions or strategic transactions approved a majority of the disinterested directors of the Company, or securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved a majority of the disinterested directors of the Company, (vi) Ordinary Shares, options or convertible securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction, approved by a majority of the disinterested directors of the Company, but shall not include a transaction in which the Company is primarily issuing such securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities, (vii) Ordinary Shares, options or convertible securities issued to in connection with the provision of goods or services pursuant to transactions approved by a majority of the disinterested directors of the Company, but shall not include a transaction in which the Company is primarily issuing such securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities, (viii) Ordinary Shares, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, investor or public relations, marketing or other similar agreements or strategic partnerships approved a majority of the disinterested directors of the Company, but shall not include a transaction in which the Company is primarily issuing such securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities, or (ix) the issuance by the Company of any Ordinary Shares or standard options to purchase Ordinary Shares to directors, officers, employees or consultants of the Company or its subsidiaries in their capacity as such pursuant to an Approved Stock Plan (as defined below), provided that all of the issuances proposed to be made pursuant to items (v) through (viii) above during the Lock Up Period are approved in advance by the Representative to the extent that such securities so issued are issued at a price per security, and none of the issuances of securities provide for registration rights to any holder or to any holder of an option or convertible security. “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which Ordinary Shares and standard options to purchase Ordinary Shares may be issued to any employee, officer, director or consultant for services provided to the Company or its subsidiaries in their capacity as such.
3.18.2 Insider Lock-Up. The Company’s directors and officers as of the effective date of the Registration Statement as listed on Schedule 3 hereto shall enter into “lock-up” agreements in favor of EH Hutton, in the form set forth in Exhibit B hereto (the “Lock-Up Agreement”), pursuant to which Company shall not during the period ending 180-days after the date of closing of this Offering, and directors and officers shall not during the period ending 180-days after the date of closing of this Offering; offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company, subject to certain exceptions set forth in the Lock-Up Agreement.
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3.19 Blue Sky Qualifications. The Company shall use its commercially reasonable efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.20 Press Releases. Prior to the Closing Date and any Option Closing Date, the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is required by law.
3.21 Sarbanes-Oxley. The Company shall at all times comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.
3.22 IRS Forms. If requested by the Representative, the Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service (“IRS”) Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.
Section 4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:30 p.m., Eastern Time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto shall have been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus shall have been issued and no proceedings for any of those purposes shall have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) under the Securities Act Regulations (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A under the Securities Act Regulations.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Clearance. On the Closing Date, the Company’s Ordinary Shares shall have been approved for listing on the Exchange, subject only to official notice of issuance. On the first Option Closing Date (if any), the Company’s Ordinary Shares, including the Option Shares, shall have been approved for listing on the Exchange, subject only to official notice of issuance.
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4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion of Counsel. On the Closing Date, the Representative shall have received the favorable opinion, and written statement providing certain “10b-5” negative assurances of Sichenzia Ross Ference LLP (“Company Counsel”), U.S, counsel to the Company, as set forth in Exhibit D hereto, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative. On the Closing Date, the Representatives shall have received the favorable opinion of K&L Gates, Australian counsel to the Company, dated the Closing Date and addressed to the Representatives, substantially in the form of Exhibit E attached hereto.
4.2.2. Option Closing Date Opinion of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinion of counsel and negative assurance statement listed in Section 4.2.1, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsel in their respective opinion delivered on the Closing Date.
4.2.3. Reliance. In rendering such opinions, such counsel may reasonably rely: (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Representative Counsel if requested. The opinion of K&L Gates and any opinion relied upon by K&L Gates shall include a statement to the effect that it may be relied upon by Representative Counsel in its opinion delivered to the Underwriters.
4.3 Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed the Representative shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance reasonably satisfactory in all respects to the Representative and to Representative Counsel, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing Date or the Option Closing Date, as applicable.
4.4 Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, as set forth in Exhibit F attached hereto, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer and its Chief Financial Officer stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to their knowledge, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct with the same force and effect as though expressly made at and as of such date, and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure Package, any Material Adverse Change.
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4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively, as set forth in Exhibit G attached hereto, certifying that: (i) that the certificate of incorporation is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; and (iii) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.4.3 Good Standing Certificates. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the secretary of state or other official dated on or about the Closing Date and each Option Closing Date, certifying that the Company is in existence, is active and is in good standing in such jurisdiction.
4.5 No Material Changes. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
4.6 No Material Misstatement or Omission. The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date and any Option Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or that the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of Representative Counsel, is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.
4.7 Corporate Proceedings. All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement, the Public Securities, the Registration Statement, the Pricing Disclosure Package, each Issuer Free Writing Prospectus, if any, and the Prospectus and all other legal matters relating to this Agreement and the transactions contemplated hereby and thereby shall be reasonably satisfactory in all material respects to Representative Counsel, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
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4.8 Delivery of Agreements.
4.8.1 Lock-Up Agreement. Each director and officer has delivered to the Representative an executed Lock-Up Agreement in the form attached hereto as Exhibit B, prior to the execution of this Agreement.
4.8.2 Representative’s Warrants. On the Closing Date and on each Option Closing Date, if any, the Company shall have delivered to the Representative executed copies of the Representative’s Warrants.
4.9 Additional Documents. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representative and Representative Counsel.
Section 5. Indemnification.
5.1 Indemnification of the Underwriters.
5.1.1. The Company shall indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, stockholders, members, managers, employees, representatives, partners, shareholders, affiliates, counsel and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise), joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, the Pricing Disclosure Package, the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus (as from time to time each may be amended and supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (iii) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Pricing Disclosure Package, the indemnity agreement contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter Indemnified Party to the extent that any loss, liability, claim, damage or expense of such Underwriter Indemnified Party (a) is based on the Underwriters’ Information, (b) results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Public Securities to such person as required by the Securities Act and the Securities Act Regulations, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under Section 3.3 hereof, or (c) is found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted primarily from the willful misconduct or gross negligence of such Underwriter Indemnified Party.
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5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the approval of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do so. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the The Company shall not be liable for any settlement of any action effected without its consent (which shall not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party.
5.2 Indemnification of the Company. Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other, from the Offering, or (ii) if, the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other,
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with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the Offering purchased under this Agreement (before deducting expenses) received by the Company, and the total underwriting discount and commissions received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Underwriters, on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 5.3.1 no Underwriter shall be required to contribute any amount in excess of the total discount and commission received by such Underwriter in connection with the Offering less the amount of any damages which such Underwriter has otherwise paid or becomes liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid 15 days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. The Underwriters’ obligations to contribute as provided in this Section 5.3 are several and in proportion to their respective underwriting obligation, and not joint.
Section 6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Shares or Option Shares. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares or the Option Shares, if the Over-allotment Option is exercised hereunder, and if the number of the Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares or Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Common Shares or Option Shares. In the event that the default addressed in Section 6.1 relates to more than 10% of the number of Firm Shares or Option Shares, the Representative may in its discretion arrange for itself or for another party or parties to purchase such Firm Shares or Option Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the number of Firm Shares or Option Shares, the Representative does not arrange for the purchase of such Firm Shares or Option Shares, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to the Representative to purchase said Firm Shares or Option Shares on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Shares or Option Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares, this Agreement will not terminate as to the Firm Shares; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
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6.3 Postponement of Closing Date. In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Firm Shares or Option Shares.
Section 7. Additional Covenants.
7.1 Board Composition and Board Designations. The Company shall ensure as of the Closing Date and the Option Closing Date, if any, that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act, the Exchange Act and the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press Releases and Public Announcements. The Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the fortieth (40th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
7.3 Tail Financing. In the event that the Company receives proceeds from the sale of any equity, debt and/or equity derivative instruments (“Tail Financing”) from any investor actually introduced by the Representative to the Company and the Company has direct knowledge of such investor’s participation, during the period beginning on March 9, 2022 and ending on the closing date of this Offering (the “Engagement Period”) and such Tail Financing is consummated at any time during the Engagement Period or within the twelve (12) month period following the termination of the Engagement Period , the Representative shall be entitled to a cash fee equal to seven percent (7.0%) of the gross proceeds received by the Company (the “Tail Financing”), Notwithstanding anything else herein to the contrary, the Representative shall not be entitled to fees under this Section 8(a) from the sales of securities to Affiliates.
Section 8. Effective Date of this Agreement and Termination Thereof.
8.1 Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2 Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative’s reasonable opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative’s reasonable opinion, make it inadvisable to proceed with the delivery of the Firm Shares or Option Shares ; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of a Material Adverse Change, or an adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
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8.3 Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel) up to $135,000, less the “Advance” and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A). In addition, one percent (1.0%) of the gross proceeds of the Offering shall be provided to the Representative for non-accountable expenses.
8.4 Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
Section 9. Miscellaneous.
9.1 Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by email and confirmed and shall be deemed given when so delivered or emailed and confirmed or if mailed, two (2) days after such mailing.
If to the Representative:
EF Hutton, division of Benchmark Investments, LLC
as Representative of the several Underwriters named on Schedule 1 attached hereto
590 Madison Avenue, 39th Floor
New York, New York 10022
Attn: Mr. Joseph T. Rallo, Head of Investment Banking
Fax:
Email: jrallo@efhuttongroupcm.com
with a copy (which shall not constitute notice) to:
Ross Carmel, Esq.
Carmel, Milazzo & Feil LLP
55 West 39th Street, 18th Floor
New York, New York 10018
Fax: (646) 838-1314
Email: rcarmel@cmfllp.com
If to the Company:
Innovation Beverage Group Limited
29 Anvil Rd
Seven Hills, NSW 2147, Australia
Attn: Mr. Dean Huge
Email: dean@innovationbev.com
with a copy (which shall not constitute notice) to:
Darrin Ocasio, Esq
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31th Floor
New York, NY 10036
Email: dmocasio@srf.law
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9.2 Headings; Interpretation. The headings contained herein are for the sole purpose of convenience of reference and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. References to the Company herein shall include each of its subsidiaries as the context may require.
9.3 Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.5 Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof to the extent that such principles or rules would require or permit the application of the laws of any jurisdiction other than those of the State of New York. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party or parties in any such action shall be entitled to recover from the other party or parties all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its shareholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.7 Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.9 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
[Signature Page Follows]
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If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
| Very truly yours, | |
| INNOVATION BEVERAGE GROUP LIMITED | |
| By: ______________________________________________ | |
| Name: Dean Huge | |
| Title: Chief Executive Officer |
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:
EF HUTTON,
Division of Benchmark Investments, LLC
| By: ________________________________ |
| Name: |
| Title: |
[Signature Page to Underwriting Agreement]
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SCHEDULE 1
| Underwriter | Total Number of Firm Shares to be Purchased | Number of Option Shares to be Purchased if the Over-Allotment Option is Fully Exercised |
| EF Hutton, division of Benchmark Investments, LLC | ||
| TOTAL |
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SCHEDULE 2-A
Pricing Information
Number of Firm Shares: __________
Number of Option Shares: ________
Public Offering Price per Firm Share: $_____
Public Offering Price per Option Share: $_____
Underwriting Discount per Firm Share: $_____
Underwriting Discount per Option Share: $_____
Underwriting Non-accountable expense allowance per Firm Share: $_____
Underwriting Non-accountable expense allowance per Option Share: $_____
Proceeds to Company per Firm Share (before expenses): $______
Proceeds to Company per Option Share (before expenses): $______
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SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
| 34 |
SCHEDULE 2-C
Written Testing-the-Waters Communications
[●]
| 35 |
SCHEDULE 3
Lock-Up Parties
| 1. | [●] |
| 2. | [●] |
| 3. | [●] |
| 4. | [●] |
| 5. | [●] |
| 6. | [●] |
| 36 |
EXHIBIT A
Form of Representative’s Warrant
| 37 |
EXHIBIT B
Form of Lock-Up Agreement
for
Officers, Directors, and Holder(s) of more than 5% Ordinary Shares
[●], 2022
EF HUTTON,
division of Benchmark Investments, LLC
as Representative of the several Underwriters named on Schedule
1 attached hereto
590 Madison Avenue, 39th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned, an officer, director and/or holder of more than [●] ordinary shares (the “Ordinary Shares”), or rights to acquire more than [●] Ordinary Shares s (the “Shares”) of Innovation Beverage Group Limited (the “Company”), understands that you are the representative (the “Representative”) of several underwriters (collectively, the “Underwriters”), named or to be named in the final form of Schedule 1 to the underwriting agreement (the “Underwriting Agreement”) to be entered into among the Underwriters and the Company, providing for the public offering (the “Public Offering”) of securities of the Company (the “Securities”) pursuant to a registration statement (No. 333-[●]) filed (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) on [●].
In consideration of the Underwriters’ agreement to enter into the Underwriting Agreement and to proceed with the Public Offering of the Securities, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Undersigned hereby agrees, for the benefit of the Company, the Representative and the other Underwriters that, without the prior written consent of the Representative, the Undersigned will not, during the period commencing on the date of this Lock-up Agreement and continuing and including the date that is one-hundred and eighty (180) days after the closing of the Public Offering (the “Lock-Up Period”), unless otherwise provided herein, directly or indirectly (a) offer, sell, agree to offer or sell, solicit offers to purchase, grant any call option or purchase any put option with respect to, pledge, encumber, assign, borrow or otherwise dispose of (each a “Transfer”) any Relevant Security (as defined below) or otherwise publicly disclose the intention to do so, or (b) establish or increase any “put equivalent position” or liquidate or decrease any “call equivalent position” with respect to any Relevant Security (in each case within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder) with respect to any Relevant Security or otherwise enter into any swap, derivative or other transaction or arrangement that Transfers to another, in whole or in part, any economic consequence of ownership of a Relevant Security, whether or not such transaction is to be settled by the delivery of Relevant Securities, other securities, cash or other consideration, or otherwise publicly disclose the intention to do so. As used herein, the term “Relevant Security” means any Shares or any other security of the Company or any other entity that is convertible into, or exercisable or exchangeable for, Shares, in each case owned beneficially or otherwise by the Undersigned on the date of closing of the Public Offering or acquired by the Undersigned during the Lock-Up Period.
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The restrictions in the foregoing paragraph shall not apply to (a) any exercise (including a cashless exercise or broker-assisted exercise and payment of tax obligations), vesting or settlement, as applicable, by the Undersigned of options to purchase Shares or other equity awards pursuant to any stock incentive plan or stock purchase plan of the Company; provided that any Shares received by the Undersigned upon such exercise, conversion or exchange will be subject to the Lock-Up Period, (b) any establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the Transfer of Shares (a “Trading Plan”); provided that (i) the Trading Plan shall not provide for or permit any Transfers, sales or other dispositions of Shares during the Lock-Up Period and (ii) the Trading Plan would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made, (c) any Transfer of Shares acquired in open market transactions following the closing of the Public Offering, provided the Transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made, (d) the Transfer of the Undersigned’s Shares or any security convertible into or exercisable or exchangeable for Ordinary Shares to the Company in connection with the termination of the Undersigned’s employment with the Company or pursuant to contractual arrangements under which the Company has the option to repurchase such shares, provided that no filing by any party under the Exchange Act shall be required or shall be made voluntarily within 45 days after the date the Undersigned ceases to provide services to the Company, and after such 45th day, if the Undersigned is required to file a report under the Exchange Act reporting a reduction in beneficial ownership of shares of Ordinary Shares during the Lock-Up Period, the Undersigned shall indicate in the footnotes thereto that the filing relates to the termination of the Undersigned’s employment, and no other public announcement shall be made voluntarily in connection with such transfer (other than the filing on a Form 5 made after the expiration of the Lock-Up Period), (e) the conversion of the outstanding securities into Shares, provided that any such Shares received upon such conversion shall be subject to the restrictions on Transfer set forth in this Lock-Up Agreement, or (f) the Transfer of Shares or any security convertible into or exercisable or exchangeable for Shares pursuant to a bona fide third-party tender offer for securities of the Company, merger, consolidation or other similar transaction that is approved by the disinterested members of the board of directors of the Company, made to all holders of Ordinary Shares involving a change of control (as defined below), provided that all of the Undersigned’s Relevant Securities subject to this Lock-Up Agreement shall remain subject to the restrictions herein. For purposes of this Lock-Up Agreement, “change of control” means any bona fide third party tender offer, merger, consolidation or other similar transaction, in one transaction or a series of related transactions, the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of affiliated persons, other than the Company, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 50% or more of the total voting power of the voting stock of the Company (or the surviving entity).
In addition, the Undersigned further agrees that, except for the Registration Statement or any registration statement on Form S-8, during the Lock-Up Period, the Undersigned will not, without the prior written consent of the Representative: (a) file or participate in the filing with the SEC any registration statement or circulate or participate in the circulation of any preliminary or final prospectus or other disclosure documents, in each case with respect to any proposed offering or sale of a Relevant Security beneficially owned by the Undersigned, or (b) exercise any rights the Undersigned may have to require registration with the SEC of any proposed offering or sale of a Relevant Security beneficially owned by the Undersigned.
In furtherance of the Undersigned’s obligations hereunder, the Undersigned hereby authorizes the Company during the Lock-Up Period to cause the transfer agent for the Relevant Securities to decline to Transfer, and to note stop transfer restrictions on the stock register and other records relating to, Relevant Securities for which the Undersigned is the record owner and the Transfer of which would be a violation of this Lock-Up Agreement and, in the case of the Relevant Securities for which the Undersigned is the beneficial owner but not the record owner, the Undersigned agrees that during the Lock-Up Period it will use its reasonable best efforts to cause the record owner to authorize the Company to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to such Relevant Securities to the extent such transfer would be a violation of this Lock-Up Agreement.
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Notwithstanding the foregoing or anything contained herein to the contrary, the Undersigned may transfer the Undersigned’s Relevant Securities without the prior written consent of the Representative:
| (i) | as a bona fide gift or gifts; | |
| (ii) | To any immediate family member of the Undersigned, or to any trust, partnership, limited liability company, or other legal entity commonly used for estate planning purposes which are established for the direct or indirect benefit of the Undersigned or a member or members of the immediate family of the Undersigned; | |
| (iii) | if the Undersigned is a corporation, partnership, limited liability company, trust or other business entity, (1) to another corporation, partnership, limited liability company, trust, or other business entity that is a direct or indirect Affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of the Undersigned, (2) to partners, limited liability company members or stockholders of the Undersigned or holders of similar equity interests in the Undersigned, or (3) in connection with a sale, merger or transfer of all or substantially all of the assets of the Undersigned or any other change of control of the Undersigned, not undertaken for the purpose of avoiding the restrictions imposed by this Lock-Up Agreement; | |
| (iv) | if the Undersigned is a trust, to the trustee or beneficiary of such trust or to the estate of a beneficiary of such trust; | |
| (v) | by testate or intestate succession; | |
| (vi) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement; | |
| (vii) | pursuant to the Underwriting Agreement; | |
| (viii) | the withholder of Shares by, or surrender of Shares to, the Company pursuant to a “net” or “cashless” exercise or settlement feature to cover taxes due upon or the consideration required in connection with the exercise of securities issued under an equity incentive plan or stock purchase plan of the Company; or | |
| (ix) | to a charity or educational institution; |
provided, in the case of clauses (i)-(vi), that (A) such transfer shall not involve a disposition for value, (B) the transferee agrees in writing with the Underwriters and the Company to be bound by the terms of this Lock-Up Agreement, and (C) such transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made.
For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage, or adoption, not more remote than the first cousin.
If the Undersigned is an officer or director of the Company, (i) the Representative agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a Transfer of Shares, the Representative will notify the Company of the impending release or waiver and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release as set forth in Exhibit C through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
The Undersigned, whether or not participating in the Public Offering, understands that the Underwriters and the Company are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Lock-Up Agreement.
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The Undersigned hereby represents and warrants that the Undersigned has full power and authority to enter into this Lock-Up Agreement and that this Lock-Up Agreement has been duly authorized (if the Undersigned is not a natural person) and constitutes the legal, valid, and binding obligation of the Undersigned, enforceable in accordance with its terms. Upon request, the Undersigned will execute any additional documents necessary in connection with the enforcement hereof. Any obligations of the Undersigned shall be binding upon the successors and assigns of the Undersigned from the date of this Lock-Up Agreement.
This Lock-Up Agreement shall automatically terminate and be of no further effect upon the earliest to occur, if any, of the following: (i) prior to the execution of the Underwriting Agreement, upon such date the Company, on the one hand, or you, on the other hand, notifies the other in writing that it does not intend to proceed with the Public Offering, (ii) the date that the Company withdraws the registration statement related to the Public Offering, or (iii) upon the termination (other than the provisions thereof that survive termination) of the Underwriting Agreement in accordance with the terms thereof prior to payment for and delivery of the Shares to be sold thereunder.
This Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof. Delivery of a signed copy of this Lock-Up Agreement by facsimile or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
In Witness Whereof, the Undersigned hereby agrees to the above on the date set forth above.
| By:______________________________________________ | |
| Name:___________________________________________________ | |
| Title:___________________________________________________ |
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EXHIBIT C
Form of Press Release
INNOVATION BEVERAGE GROUP LIMITED
[●], 2022
Innovation Beverage Group Limited (the “Company”) announced today that EF Hutton, division of Benchmark Investments, LLC, acting as representative for the underwriters in the Company’s recent public offering of [●].
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
| 42 |
EXHIBIT D
Opinion of Sichenzia Ross Ference LLP
| 43 |
EXHIBIT E
Opinion of K&L Gates
| 44 |
EXHIBIT F
OFFICERS’ CERTIFICATE
OF
INNOVATION BEVERAGE GROUP LIMITED
[●], 2022
| 45 |
EXHIBIT G
SECRETARY’S CERTIFICATE
OF
INNOVATION BEVERAGE GROUP LIMITED
[●], 2022
46
EXHIBIT 4.1
EXHIBIT A
Form of Representative’s Warrant Agreement
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO _____________, 2022.
VOID AFTER 5:00 P.M., EASTERN TIME, ___________, 2027.
ORDINARY SHARES PURCHASE WARRANT
For the Purchase of [__] Ordinary Shares
of
INNOVATION BEVERAGE GROUP LIMITED
1. Purchase Warrant. THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of EF Hutton, division of Benchmark Investments, LLC (“Holder”), as registered owner of this Purchase Warrant, Innovation Beverage Group Limited., an Australian public limited company (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement as being subsidiaries (the “Company”), Holder is entitled, at any time or from time to time from _______, 2022 [DATE THAT IS SIX MONTHS FROM THE DATE OF THE COMMENCEMENT OF SALES OF THE PUBLIC SECURITIES IN THIS INITIAL PUBLIC OFFERING] (the “Commencement Date”), and at or before 5:00 p.m., Eastern time, _______, 2027 [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THIS OFFERING] (the “Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [●][1] ordinary shares, no par value, of the Company (the “Shares”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at a price of $___ per Share; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price of $____ per Share (equal to 120% of the initial public offering price) or the adjusted exercise price, depending on the context. The term “Effective Date” shall mean ___________, 2022, the date on which the Registration Statement on Form F-1 (File No. 333-266965) of the Company (“Registration Statement”) was declared effective by the Securities and Exchange Commission (the “Commission”).
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern Time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.
[1] 5% of the aggregate number of ordinary shares sold in the Offering (including Option Shares).
2.2 Cashless Exercise. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:
| X | = | Y(A-B) | |
| A |
| Where, | |||
| X | = | The number of Shares to be issued to Holder; | |
| Y | = | The number of Shares for which the Purchase Warrant is being exercised; | |
| A | = | The fair market value of one Share; and | |
| B | = | The Exercise Price. |
For purposes of this Section 2.2, the fair market value of a Share is defined as follows:
| (i) | if the Company’s ordinary shares is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange on the trading day immediately prior to the exercise form being received by the Company in connection with the exercise of the Purchase Warrant; or | |
| (ii) | if the Company’s ordinary shares is actively traded over-the-counter, the value shall be deemed to be the closing bid price on the trading day prior to the exercise form being received by the Company in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors. |
2.3 Legend. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “Securities Act”):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE LAW. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE LAW WHICH, IN THE OPINION OF COUNSEL TO THE COMPANY, IS AVAILABLE.”
3. Transfer Restrictions.
3.1 General Restrictions. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant for a period of one hundred eighty (180) days following the Commencement Date to anyone other than: (i) EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of EF Hutton or of any such underwriter or selected dealer, in each case in accordance with FINRA Rule 5110(e)(1), or (b) for a period of one hundred eighty (180) days following the Commencement Date, cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and after 180 days after the Commencement Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
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3.2 Restrictions Imposed by the Securities Act. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, the securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of Carmel, Milazzo & Feil LLP shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such securities has been filed by the Company and declared effective by the Commission and compliance with applicable state securities law has been established.
4 Registration Rights.
4.1 Demand Registration.
4.1.1 Grant of Right. The Company, upon written demand (a “Demand Notice”) of the Holders of at least 51% of the Purchase Warrants and/or the underlying Shares, agrees to register, on one (1) occasion, all or any portion of Shares for which the Purchase Warrant is exercisable (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holders to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice. Notwithstanding anything to the contrary, the obligations of the Company pursuant to this Section 4.1 shall not be applicable so long as the Company’s Registration Statement on Form F-1 (File No. 333-266965) covering the Registrable Securities remains effective and such demand registration right will have a duration of 5 (five) years from the commencement of sales of the public offering.
4.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filings required herein to become effective promptly and to qualify or register the Registrable Securities in such states of the Unites States of America or such foreign jurisdictions as may be reasonably requested by the Holders; provided, however, that in no event shall the Company be required to register the Registrable Securities in such states or jurisdictions in which such registration would cause: (i) the Company to be obligated to register or license to do business in such state or jurisdiction or submit to general service of process therein, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion in accordance with FINRA Rule 5110(g)(8)(B) and such demand registration right shall terminate on the third anniversary of the Effective Date in accordance with FINRA Rule 5110(g)(8)(C).
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4.2 “Piggy-Back” Registration.
4.2.1 Grant of Rights. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, for a period of no more than seven (7) years from the Effective Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or Form S-4; equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Registrable Securities which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities. Notwithstanding anything to the contrary, the obligations of the Company pursuant to this Section 4.2 shall not be applicable so long as the Company’s Registration Statement on Form F-1 (File No. 333-266965) covering the Registrable Securities remains effective.
4.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days’ written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; provided, however, that such registration rights shall terminate on the third (3rd) anniversary of the Commencement Date.
4.3 General Terms.
4.3.1 Indemnification. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of section 15 of the Securities Act or section 20(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters (as defined therein) and the Company, dated ___________, 2022 with respect to the Company’s initial public offering of the Shares. The Holders of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
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4.3.2 Exercise of Purchase Warrants. Nothing contained in this Purchase Warrant shall be construed as requiring the Holders to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
4.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditor and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditor, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
4.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares, and their intended methods of distribution.
4.3.5 Documents to be Delivered by Holders. Each of the Holders participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
4.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holders shall, in addition to any other legal or other relief available to the Holders, be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
4.4 Termination of Registration Rights. The registration rights afforded to the Holders under this Section 4 shall terminate on the earliest date when all Registrable Securities of such Holder either: (i) have been publicly sold by such Holder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement on Form F-1 or Form S-3 (or successor form), which may be kept effective as an evergreen Registration Statement, or (iii) may be sold by the Holder (including on a cashless basis) within a 90-day period without registration pursuant to Rule 144 or consistent with applicable SEC interpretive guidance (including CD&I No. 201.04 (April 2, 2007) or similar interpretive guidance).
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5. New Purchase Warrants to be Issued.
5.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
5.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.
6.1.2 Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.
6.1.3 Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares or a variation of share capital of the Company, other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.
6.1.4 Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.
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6.2 Substitute Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.
6.3 Elimination of Fractional Interests. The Company shall not be required to issue fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to list (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.
8.2 Events Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.
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8.4 Transmittal of Notices. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
EF Hutton, division of Benchmark Investments, LLC
590 Madison Avenue, 39th Floor
New York, New York 10022
Attn: Mr. Joseph T. Rallo, Head of Investment Banking
Fax:
Email: jrallo@efhuttongroupcm.com
with a copy (which shall not constitute notice) to:
Ross Carmel, Esq.
Carmel, Milazzo & Feil LLP
55 West 39th Street, 18th Floor
New York, New York 10018
Fax: (646) 838-1314
Email: rcarmel@cmfllp.com
If to the Company:
Innovation Beverage Group Limited
29 Anvil Rd
Seven Hills, NSW 2147, Australia
Attn: Mr. Dean Huge
Email: dean@innovationbev.com
with a copy (which shall not constitute notice) to:
Darrin Ocasio, Esq
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31th Floor
New York, NY 10036
Email: dmocasio@srf.law
9. Miscellaneous.
9.1 Amendments. The Company and EF Hutton may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and EF Hutton may deem necessary or desirable and that the Company and EF Hutton deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.
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9.3 Entire Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction; Trial by Jury. This Purchase Warrant shall be governed by and construed in accordance with the law of the State of New York. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the Supreme Court of the State of New York sitting in the County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to the jurisdiction of such courts and the appellate courts therefrom, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Purchase Warrant or the transactions contemplated hereby.
9.6 Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.
9.8 Exchange Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and EF Hutton enter into an agreement (“Exchange Agreement”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2022.
| INNOVATION BEVERAGE GROUP LIMITED | ||
| By: | ||
| Name: | Dean Huge | |
| Title: | Chief Executive Officer | |
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[Form to be used to exercise Purchase Warrant]
Date: __________, 20___
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ Ordinary Shares (the “Shares”), of , Innovation Beverage Group Limited., an Australian public limited company (the “Company”), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:
| X | = | Y(A-B)
A |
|
| Where, | |||
| X | = | The number of Shares to be issued to Holder; | |
| Y | = | The number of Shares for which the Purchase Warrant is being exercised; | |
| A | = | The fair market value of one Share which is equal to $_____; and | |
| B | = | The Exercise Price which is equal to $______ per share |
The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.
Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
Signature _______________________________________
Signature Guaranteed ______________________________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
| Name: | ||
| (Print in Block Letters) |
| Address: | ||
NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
[Form to be used to assign Purchase Warrant]
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ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto______________ the right to purchase _______________ ordinary shares (the “Shares”) of Innovation Beverage Group Limited., (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement as being subsidiaries (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.
Dated: __________, 20__
| Signature |
| Signature Guaranteed |
NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
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EXHIBIT 5.1
| 15 September 2022 | Partner: Andrew Gaffney |
| andrew.gaffney@klgates.com | |
| T +61 3 9640 4318 | |
| The Board of Directors | Our ref: gaffnea:7393694.00001 |
| Innovation Beverage Group Limited | |
| 29 Anvil Road | |
| SEVEN HILLS NSW 2147 | |
| Australia |
Dear Sirs
Innovation Beverage Group Ltd - F-1 Prospectus
We have been appointed as Australian legal counsel for Innovation Beverage Group Limited ACN 625 701 420, a company incorporated under the laws of the Commonwealth of Australia (“Company”), with respect to an offering for sale of ordinary shares (being “Shares”) to raise up to US$15,000,000 (“Offer”) pursuant to its F-1 Prospectus registered with the U.S. Securities and Exchange Commission dated September 13, 2022 (“F-1 Prospectus”).
Assumptions in providing our opinion
As to various questions of fact relevant to this opinion, we have relied on and assumed the accuracy of, without independent verification:
| ● | an online search of the Company on the Australian Securities and Investments Commission (“ASIC”) records on 14 September 2022 (“ASIC search”); |
| ● | a certificate from the Company’s Company Secretary certifying a copy of the Company’s Board resolution to issue of the Shares and the F-1 Prospectus; and |
|
● | the Company’s Constitution (a certified copy of which was provided to us by the Company’s Secretary). |
For the purpose of the opinions set out below, we have also assumed, with your agreement and without independent investigation or verification, that:
| (a) | all signatures are genuine and all documents, instruments and certificates submitted to us as originals are authentic and conform exactly with the authentic originals of all documents, instruments and certificates submitted to us as copies or forms or originals; | |
| (b) | that each party to each document has all the requisite power and authority (corporate and otherwise) to execute and deliver and perform its obligations there under; | |
| (c) | all matters of internal management required by the constitution of each of the parties to the relevant documents have been duly attended to (including, without limitation, the holding of properly constituted meetings of the boards of directors of each of those parties and the passing at those meetings of appropriate resolutions); |
{00798163.DOCX.1} K&L GATES
Level 25 South Tower 525 Collins Street Melbourne VIC 3000 Australia
GPO Box 4388 Melbourne VIC 3001 DX 405 Melbourne
T +61 3 9205 2000 F +61 3 9205 2055 klgates.com
| (d) | that any documents which purport to be governed by the law of any jurisdiction other than the federal and state laws of the Commonwealth of Australia are legal, valid and binding obligations on all of the parties thereto and under the applicable law and that none of the execution, delivery or performance of any document by any party thereto violates or contravenes or is rendered invalid, not binding or unenforceable under any applicable law under any jurisdiction other than the federal and state laws of the Commonwealth of Australia; | |
| (e) | the Company will not engage in fraudulent or unconscionable conduct or conduct which is misleading or deceptive or which is likely to mislead or deceive in relation to the issuance or sale of Shares; | |
| (f) | there is no bad faith, fraud, undue influence, coercion or duress or similar conduct on the part of the Company in relation to the issuance or sale of Shares under the F-1 Prospectus; | |
| (g) | all information provided to us by or on behalf of officers of the Company was true, correct and complete when provided and remains so at the date of this letter, containing all information required, without us making any separate enquiry or investigation other than viewing the ASIC search, in order for us to provide this opinion; | |
| (h) | no party has contravened or will contravene any provision of the Australian Corporations Act 2001 (including Chapters 2E, 2J, 6 or generally sections 1041H or 1043A) (“Corporations Act”) by the issue of the F-1 Prospectus or giving effect to any transaction in connection with a F-1 Prospectus or undertaking or being involved in a transaction related to or connected with the F-1 Prospectus or generally in any subsequent dealing in the Shares issued under the F-1 Prospectus; | |
| (i) | the Company will at all times duly comply with all its obligations under the Corporations Act, the ASX Listing Rules and otherwise required by law; | |
| (j) | the Company is and will be able to pay its debts as and when they fall due and is otherwise solvent as at the time the Shares are issued or sold; | |
| (k) | the ASIC search we have examined is accurate and that the information disclosed by the search conducted by us is true and complete and that such information has not since then been altered and that such search did not fail to disclose any information which had been delivered for registration or filing against the Company’s records but which did not appear on the public records at the date of our search; and | |
| (l) | the Company will lodge all requisite notices with the ASX in respect of the contemplated issue of securities under Offer. |
Opinion
Based on and subject to the foregoing and in reliance thereof, in our opinion, the Shares which are the subject of the Offer under the F-1 Prospectus -
2
| 1. | have been duly authorized by the Company; and |
| 2. | when issued, will be validly issued, fully paid and non-assessable securities (in the Australian sense of no further monies being owed by the purchasers to the Company for the Shares) of the Company. |
This opinion is limited to the federal and state laws of the Commonwealth of Australia and no opinion or representation is given in respect of the application of any foreign laws to the issue or transfer of the securities or the contents or generally the compliance of the F-1 Prospectus, the Prospectus Supplement or any other matters under any applicable US laws or regulations.
Applicability
This opinion is given as at the date of this letter and we undertake no obligation to advise you of any changes (including but not limited to any subsequently enacted, published or reported laws, regulations or individual decisions) that may occur or come to our attention after the date of this letter which may affect our opinion.
We consent to incorporation by reference of this opinion in the F-1 Prospectus and to the reference of this firm under the caption “Legal Matters”.
Yours faithfully
Andrew Gaffney
Partner
K&L Gates
3
EXHIBIT 5.2
September 15, 2022
Innovation Beverage Group Limited
29 Anvil Road
Seven Hills, NSW 2147
Australia
Re: Registration Statement on Form F-1
File No. 333-266965
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form F-1 (as amended, the “Registration Statement”), under the Securities Act of 1933, as amended (the “Securities Act”), filed by Innovation Beverage Group Limited, an Australian corporation (the “Company”), with the Securities and Exchange Commission (the “Commission”).
The Registration Statement pertains to an underwritten offering and relates to the issuance and sale by the Company of ordinary shares (the “Ordinary Shares”) and warrants to purchase Ordinary Shares to be issued to the representative of the underwriters thereunder (the “Underwriter Warrants”). We understand that the Ordinary Shares and Underwriter Warrants are to be sold as described in the Registration Statement.
We are acting as U.S. securities counsel for the Company in connection with the Registration Statement. We have examined the Registration Statement and the form of Underwriter Warrants and have also examined and relied upon such other documents as we have deemed necessary for purposes of rendering the opinion hereinafter set forth.
In our examination of the foregoing documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, the authenticity of the originals of such latter documents and the legal competence of all signatories to such documents. We are rendering this opinion as to New York law. We are admitted to practice in the State of New York, and we express no opinion as to any matters governed by any law other than the law of the State of New York. In particular, we do not purport to pass on any matter governed by the laws of Australia.
Based upon and subject to the foregoing, we are of the opinion that, when issued and sold in the manner described in the Registration Statement, the Underwriter Warrants will be valid and binding obligations of the Company enforceable against the Company in accordance with their terms
The opinion set forth herein is rendered as of the date hereof, and we assume no obligation to update such opinion to reflect any facts or circumstances which may hereafter come to our attention or any changes in the law which may hereafter occur (which may have retroactive effect). In addition, the foregoing opinions are qualified to the extent that (a) enforceability may be limited by and be subject to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law (including, without limitation, concepts of notice and materiality), and by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ and debtors’ rights generally (including, without limitation, any state or federal law in respect of fraudulent transfers); and (b) no opinion is expressed herein as to compliance with or the effect of federal or state securities or blue sky laws.
This opinion is rendered to you in connection with the filing of the Registration Statement. This opinion may not be relied upon for any other purpose, or furnished to, quoted or relied upon by any other person, firm or corporation for any purpose, without our prior written consent.
We hereby consent to the filing of this opinion as Exhibits 5.2 and 23.3 to the Registration Statement and to the reference to this firm under the caption “Legal Matters” in the Registration Statement and in any Registration Statement pursuant to Rule 462(b) under the Securities Act. In giving such consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.
| Very truly yours, | |
| /s/ Sichenzia Ross Ference LLP Sichenzia Ross Ference LLP |
1185 Avenue of the Americas | 31st Floor | New York, NY | 10036
T (212) 930 9700 | F (212) 930 9725 | WWW.SRF.LAW
EXHIBIT 10.20
Form of Lock-Up Agreement
for
Officers, Directors, and Holder(s) of more than 5% of Ordinary Shares
[●], 2022
EF HUTTON,
division of Benchmark Investments, LLC
as Representative of the several Underwriters named on Schedule
1 attached hereto
590 Madison Avenue, 39th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned, an officer, director and/or holder of more than [●] shares of ordinary shares (the “Ordinary Shares”), or rights to acquire more than [●] shares of Ordinary Shares (the “Shares”) of Innovation Beverage Group Limited (the “Company”), understands that you are the representative (the “Representative”) of several underwriters (collectively, the “Underwriters”), named or to be named in the final form of Schedule 1 to the underwriting agreement (the “Underwriting Agreement”) to be entered into among the Underwriters and the Company, providing for the public offering (the “Public Offering”) of securities of the Company (the “Securities”) pursuant to a registration statement (No. 333-[●]) filed (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) on [●].
In consideration of the Underwriters’ agreement to enter into the Underwriting Agreement and to proceed with the Public Offering of the Securities, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Undersigned hereby agrees, for the benefit of the Company, the Representative and the other Underwriters that, without the prior written consent of the Representative, the Undersigned will not, during the period commencing on the date of this Lock-up Agreement and continuing and including the date that is one-hundred and eighty (180) days after the closing of the Public Offering (the “Lock-Up Period”), unless otherwise provided herein, directly or indirectly (a) offer, sell, agree to offer or sell, solicit offers to purchase, grant any call option or purchase any put option with respect to, pledge, encumber, assign, borrow or otherwise dispose of (each a “Transfer”) any Relevant Security (as defined below) or otherwise publicly disclose the intention to do so, or (b) establish or increase any “put equivalent position” or liquidate or decrease any “call equivalent position” with respect to any Relevant Security (in each case within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder) with respect to any Relevant Security or otherwise enter into any swap, derivative or other transaction or arrangement that Transfers to another, in whole or in part, any economic consequence of ownership of a Relevant Security, whether or not such transaction is to be settled by the delivery of Relevant Securities, other securities, cash or other consideration, or otherwise publicly disclose the intention to do so. As used herein, the term “Relevant Security” means any Shares or any other security of the Company or any other entity that is convertible into, or exercisable or exchangeable for, Shares, in each case owned beneficially or otherwise by the Undersigned on the date of closing of the Public Offering or acquired by the Undersigned during the Lock-Up Period.
The restrictions in the foregoing paragraph shall not apply to (a) any exercise (including a cashless exercise or broker-assisted exercise and payment of tax obligations), vesting or settlement, as applicable, by the Undersigned of options to purchase Shares or other equity awards pursuant to any stock incentive plan or stock purchase plan of the Company; provided that any Shares received by the Undersigned upon such exercise, conversion or exchange will be subject to the Lock-Up Period, (b) any establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the Transfer of Shares (a “Trading Plan”); provided that (i) the Trading Plan shall not provide for or permit any Transfers, sales or other dispositions of Shares during the Lock-Up Period and (ii) the Trading Plan would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made, (c) any Transfer of Shares acquired in open market transactions following the closing of the Public Offering, provided the Transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made, (d) the Transfer of the Undersigned’s Shares or any security convertible into or exercisable or exchangeable for Ordinary Shares to the Company in connection with the termination of the Undersigned’s employment with the Company or pursuant to contractual arrangements under which the Company has the option to repurchase such shares,
provided that no filing by any party under the Exchange Act shall be required or shall be made voluntarily within 45 days after the date the Undersigned ceases to provide services to the Company, and after such 45th day, if the Undersigned is required to file a report under the Exchange Act reporting a reduction in beneficial ownership of shares of Ordinary Shares during the Lock-Up Period, the Undersigned shall indicate in the footnotes thereto that the filing relates to the termination of the Undersigned’s employment, and no other public announcement shall be made voluntarily in connection with such transfer (other than the filing on a Form 5 made after the expiration of the Lock-Up Period), (e) the conversion of the outstanding securities into Shares, provided that any such Shares received upon such conversion shall be subject to the restrictions on Transfer set forth in this Lock-Up Agreement, or (f) the Transfer of Shares or any security convertible into or exercisable or exchangeable for Shares pursuant to a bona fide third-party tender offer for securities of the Company, merger, consolidation or other similar transaction that is approved by the disinterested members of the board of directors of the Company, made to all holders of Ordinary Shares involving a change of control (as defined below), provided that all of the Undersigned’s Relevant Securities subject to this Lock-Up Agreement shall remain subject to the restrictions herein. For purposes of this Lock-Up Agreement, “change of control” means any bona fide third party tender offer, merger, consolidation or other similar transaction, in one transaction or a series of related transactions, the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of affiliated persons, other than the Company, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 50% or more of the total voting power of the voting stock of the Company (or the surviving entity).
In addition, the Undersigned further agrees that, except for the Registration Statement or any registration statement on Form S-8, during the Lock-Up Period, the Undersigned will not, without the prior written consent of the Representative: (a) file or participate in the filing with the SEC any registration statement or circulate or participate in the circulation of any preliminary or final prospectus or other disclosure documents, in each case with respect to any proposed offering or sale of a Relevant Security beneficially owned by the Undersigned, or (b) exercise any rights the Undersigned may have to require registration with the SEC of any proposed offering or sale of a Relevant Security beneficially owned by the Undersigned.
In furtherance of the Undersigned’s obligations hereunder, the Undersigned hereby authorizes the Company during the Lock-Up Period to cause the transfer agent for the Relevant Securities to decline to Transfer, and to note stop transfer restrictions on the stock register and other records relating to, Relevant Securities for which the Undersigned is the record owner and the Transfer of which would be a violation of this Lock-Up Agreement and, in the case of the Relevant Securities for which the Undersigned is the beneficial owner but not the record owner, the Undersigned agrees that during the Lock-Up Period it will use its reasonable best efforts to cause the record owner to authorize the Company to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to such Relevant Securities to the extent such transfer would be a violation of this Lock-Up Agreement.
Notwithstanding the foregoing or anything contained herein to the contrary, the Undersigned may transfer the Undersigned’s Relevant Securities without the prior written consent of the Representative:
| (i) | as a bona fide gift or gifts; | |
| (ii) | To any immediate family member of the Undersigned, or to any trust, partnership, limited liability company, or other legal entity commonly used for estate planning purposes which are established for the direct or indirect benefit of the Undersigned or a member or members of the immediate family of the Undersigned; | |
| (iii) | if the Undersigned is a corporation, partnership, limited liability company, trust or other business entity, (1) to another corporation, partnership, limited liability company, trust, or other business entity that is a direct or indirect Affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of the Undersigned, (2) to partners, limited liability company members or stockholders of the Undersigned or holders of similar equity interests in the Undersigned, or (3) in connection with a sale, merger or transfer of all or substantially all of the assets of the Undersigned or any other change of control of the Undersigned, not undertaken for the purpose of avoiding the restrictions imposed by this Lock-Up Agreement; | |
| (iv) | if the Undersigned is a trust, to the trustee or beneficiary of such trust or to the estate of a beneficiary of such trust; | |
| (v) | by testate or intestate succession; | |
| (vi) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement; | |
| (vii) | pursuant to the Underwriting Agreement; | |
| (viii) | the withholder of Shares by, or surrender of Shares to, the Company pursuant to a “net” or “cashless” exercise or settlement feature to cover taxes due upon or the consideration required in connection with the exercise of securities issued under an equity incentive plan or stock purchase plan of the Company; or | |
| (ix) | to a charity or educational institution; |
provided, in the case of clauses (i)-(vi), that (A) such transfer shall not involve a disposition for value, (B) the transferee agrees in writing with the Underwriters and the Company to be bound by the terms of this Lock-Up Agreement, and (C) such transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made.
For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage, or adoption, not more remote than the first cousin.
If the Undersigned is an officer or director of the Company, (i) the Representative agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a Transfer of Shares, the Representative will notify the Company of the impending release or waiver and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release as set forth in Exhibit C through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
The Undersigned, whether or not participating in the Public Offering, understands that the Underwriters and the Company are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Lock-Up Agreement.
The Undersigned hereby represents and warrants that the Undersigned has full power and authority to enter into this Lock-Up Agreement and that this Lock-Up Agreement has been duly authorized (if the Undersigned is not a natural person) and constitutes the legal, valid, and binding obligation of the Undersigned, enforceable in accordance with its terms. Upon request, the Undersigned will execute any additional documents necessary in connection with the enforcement hereof. Any obligations of the Undersigned shall be binding upon the successors and assigns of the Undersigned from the date of this Lock-Up Agreement.
This Lock-Up Agreement shall automatically terminate and be of no further effect upon the earliest to occur, if any, of the following: (i) prior to the execution of the Underwriting Agreement, upon such date the Company, on the one hand, or you, on the other hand, notifies the other in writing that it does not intend to proceed with the Public Offering, (ii) the date that the Company withdraws the registration statement related to the Public Offering, or (iii) upon the termination (other than the provisions thereof that survive termination) of the Underwriting Agreement in accordance with the terms thereof prior to payment for and delivery of the Shares to be sold thereunder.
This Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof. Delivery of a signed copy of this Lock-Up Agreement by facsimile or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
In Witness Whereof, the Undersigned hereby agrees to the above on the date set forth above.
| By:______________________________________________ | |
| Name:___________________________________________________ | |
| Title:___________________________________________________ |
EXHHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the filing in this Amendment No. 3 to the Registration Statement on Form F-1 of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Ltd) of our report dated September 15, 2022, relating to our audits of the financial statements of the Innovation Beverage Group Limited for the years ended December 31, 2021 and 2020.
We also consent to the reference to our firm under the caption “Experts” in the Prospectus, which is part of this Registration Statement.
/s/ Accell Audit & Compliance, P.A.
Tampa, Florida
September 15, 2022
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the filing in this Amendment No. 3 to Registration Statement on Form F-1 of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Ltd) of our report dated June 15, 2022, relating to our audits of the financial statements of the Reg Liquors, LLC (D/B/A Wired for Wine) for the years ended December 31, 2020 and 2019.
We also consent to the reference to our firm under the caption “Experts” in the Prospectus, which is part of this Registration Statement.
/s/ Accell Audit & Compliance, P.A.
Tampa, Florida
September 15, 2022