Innovation Beverage Group Ltd F-1/A, filed Aug 29, 2023
Innovation Beverage Group Ltd (IBG)
As filed with the Securities and Exchange Commission on August 29, 2023
Registration No. 333-266965
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 17 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, 31st 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, 31st Floor New York, NY 10036 Tel: (212) 930-9700 Fax: (212) 930 9725 |
Leslie Marlow, Esq. Patrick J. Egan, Esq. Hank Gracin, Esq. Blank Rome LLP 1271 Avenue of the Americas New York, New York 10020 |
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. ☒
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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. ☐
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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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be used in connection with the initial public offering of 1,500,000 units, each unit consisting of one ordinary share and one warrant to purchase one ordinary share (including ordinary shares and/or warrants, which may be issued on exercise of a 45-day option granted to the underwriter to cover over-allotments, if any) through the underwriter named on the cover page of this prospectus (the “IPO Prospectus”) and one to be used in connection with the potential resale by certain selling stockholders of an aggregate amount up to 1,339,378 ordinary shares (the “Resale Prospectus”). The IPO Prospectus and the Resale Prospectus will be identical in all respects except for the alternate pages for the Resale Prospectus included herein which are labeled “Alternate Pages for Resale Prospectus.”
The Resale Prospectus is substantively identical to the IPO Prospectus, except for the following principal points:
| ● | they contain different outside and inside front covers; | |
| ● | they contain different Offering sections in the Prospectus Summary section; | |
| ● | they contain different Use of Proceeds sections; | |
| ● | the Capitalization section is deleted from the Resale Prospectus; | |
| ● | the Dilution section is deleted from the Resale Prospectus; | |
| ● | a Selling Stockholder section is included in the Selling Stockholder Prospectus; | |
| ● | the Underwriting section from the IPO Prospectus is deleted from the Resale Prospectus and a Plan of Distribution is inserted in its place; and | |
| ● | the Legal Matters section in the Resale Prospectus deletes the reference to counsel for the underwriter. |
We have included in this Registration Statement, after the financial statements, a set of alternate pages to reflect the foregoing differences of the Resale Prospectus as compared to the IPO Prospectus.
While the selling stockholders have expressed an intent not to sell the ordinary shares registered pursuant to the Resale Prospectus concurrently with the initial public offering, the sales of our ordinary shares registered in the IPO Prospectus and the Resale Prospectus may result in two offerings taking place concurrently, which could affect the price and liquidity of, and demand for, our ordinary shares. This risk and other risks are included in “Risk Factors” beginning on page 8 of the IPO Prospectus.
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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 AUGUST 29, 2023 |
1,500,000 Units
Each Unit Consisting of
One Ordinary Share and One Warrant to Purchase One Ordinary Share
INNOVATION BEVERAGE GROUP LIMITED
This is a firm commitment initial public offering of 1,500,000 units (“units’) of Innovation Beverage Group Limited. Each unit consists of one ordinary share and one tradeable warrant to purchase one ordinary share (each a “warrant,” collectively, “warrants”). We anticipate that the initial public offering price of our units will be $4.125 per unit. The units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The ordinary shares and the warrants are immediately separable and will be issued separately in this offering. Each warrant offered as part of this offering is immediately exercisable on the date of issuance and will expire five years from the date of issuance.
Prior to this offering, there has been no public market for our ordinary shares or warrants. We have applied to list the ordinary shares and warrants under the symbol “IBG” and “IBGW,” respectively, on the Nasdaq Capital Market. 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 and warrants 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 16 of this prospectus.
| Per Unit | 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 reimburse the underwriter for other out-of-pocket expenses related to the offering. In addition, Maxim Group LLC, (“Maxim”) will receive warrants to purchase up to a total of 75,000 ordinary shares (equal to five percent (5%) of the ordinary shares sold in this offering, or 86,250 ordinary shares if the underwriter exercises its over-allotment option in full) and exercisable at a price per share equal to 110% 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 underwriter, see “Underwriting.” |
We have granted the underwriter an option, exercisable for forty-five (45) days from the date of this prospectus, to purchase up to an additional 225,000 ordinary shares and/or up to an additional 225,000 warrants, in any combination thereof, to cover over-allotments, if any. For a description of the other compensation to be received by the underwriter, see “Underwriting.”
The underwriter expects to deliver the securities against payment in U.S. dollars on or about [ ], 2023.
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
Maxim Group LLC
The date of this prospectus is ____, 2023
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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 underwriter 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 securities in our company.
For investors outside the United States: Neither we, nor the underwriter, 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 securities 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 units 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.
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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 launched Twisted Shaker in the U.S. in November 2022. Currently, we are in the process of identifying distributors in Australia and the U.S.
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, 2020, 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, June 14, 2021, and October 21, 2022 (“2020 Manufacturing Agreement”). 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.
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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).
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.
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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 $1.235 billion in revenue during our last two fiscal periods (the years ended December 31, 2021 and 2022), 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 $1.235 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.
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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; | |
| ● | 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; | |
| ● | The exercise of warrants would result in dilution to our shareholders; | |
| ● | 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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| Units offered | 1,500,000 units, each unit consisting of one ordinary share and one warrant to purchase one ordinary share for an assumed exercise price of $4.125 per share (100% of the assumed $4.125 offering price per unit). The warrants are exercisable from the date of issuance until the fifth anniversary of such date. The actual number of units we will offer will be determined based on the actual offering price. The units will not be certificated or issued in stand-alone form. The ordinary shares and the warrants are immediately separable upon issuance and will be issued separately in this offering. | |
| Description of the warrants | The assumed exercise price of the warrants is $4.125 per share (100% of the initial public offering price per unit) (the “Initial Exercise Price”). Each warrant is exercisable for one ordinary share, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the ordinary shares as described in this prospectus. Each warrant will be exercisable immediately upon issuance and will expire five years after the initial issuance date. The terms of the warrants will be governed by a warrant agency agreement, dated as of the effective date of this offering, between us and VStock Transfer, LLC, as the warrant agent (the “warrant agent”). This prospectus also relates to the ordinary shares issuable upon exercise of the warrants. | |
| Over-allotment Option to purchase additional units from us |
We have granted the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 225,000 additional ordinary shares at a price of $4.125 and/or warrants to purchase up to an aggregate of 225,000 ordinary shares at a price of $0.01, in any combination thereof, less underwriting discount and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any. | |
| Ordinary shares outstanding before this offering | 7,744,013 ordinary shares(1) | |
| Ordinary shares outstanding after this offering | 9,244,013 ordinary shares (assuming the underwriter does not exercise its over-allotment option and excluding ordinary shares underlying the warrants) | |
| Use of Proceeds | We intend to use the net proceeds from this offering to pay 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 | Maxim Group LLC | |
| Underwriter’s Warrants | We have agreed to issue to Maxim warrants to purchase up to a total of 86,250 ordinary shares (equal to five percent (5%) of the aggregate number of ordinary shares sold in this offering assuming the over-allotment option is exercised in full), which are exercisable at a price per share of $4.54 (equal to 110% of the offering price per share). | |
| 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 underwriter 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. | |
| Trading symbol | We have applied for listing of our ordinary shares and warrants on the Nasdaq Capital Market under the symbol “IBG” and “IBGW,” respectively. The offering will not proceed unless our ordinary shares and warrants are accepted for listing on the Nasdaq Capital Market. | |
| Risk Factors | Investing in our 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, 2022 and 2021, and the summary consolidated balance sheets as of December 31, 2022 and 2021 have been derived from our consolidated audited 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 audited 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, 2022 and 2021:
| For
the year ended December 31, 2022 (US$) |
For
the year ended December 31, 2021 (US$) | |||||||
| Revenue, net | $ | 4,530,396 | $ | 3,748,281 | ||||
| Cost of goods sold | 2,124,828 | 1,255,877 | ||||||
| Gross profit | 2,405,568 | 2,492,404 | ||||||
| Operating expenses | ||||||||
| Other general and administrative | 1,809,501 | 910,319 | ||||||
| Salary and wages | 1,918,206 | 800,186 | ||||||
| Sales and marketing | 846,956 | 424,992 | ||||||
| Contracted services | 1,167,489 | 302,740 | ||||||
| Impairment loss | 951,802 | - | ||||||
| Total operating expenses | 6,693,954 | 2,438,237 | ||||||
| Income (loss) from operations | (4,288,386 | ) | 54,167 | |||||
| Other income (expenses): | ||||||||
| Finance cost | (80,000 | ) | — | |||||
| Other income (expenses) | (17,871 | ) | (5,775 | ) | ||||
| Interest income | 31,322 | 72,446 | ||||||
| Interest expense | (122,898 | ) | (32,549 | ) | ||||
| Total other income (expenses) | (189,447 | ) | 34,122 | |||||
| Income (loss) before taxes | (4,477,833 | ) | 88,289 | |||||
| Income tax expense (benefit) | (350,063 | ) | 56,526 | |||||
| Net income (loss) | (4,127,770 | ) | 31,763 | |||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | (68,493 | ) | (147,514 | ) | ||||
| Total other comprehensive income (loss) | $ | (4,196,263 | ) | $ | (115,751 | ) | ||
| Basic and diluted earnings (loss) per share | $ | (0.56 | ) | $ | 0.00 | |||
| Weighted average shares outstanding – basic and diluted | 7,433,014 | 6,449,014 | ||||||
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The following table presents our summary consolidated balance sheets data as of December 31, 2022 and 2021.
| As of December 31, 2022 (US$) | As of December 31, 2021 (US$) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 91,986 | $ | 1,559,172 | ||||
| Accounts receivable | 988,267 | 995,666 | ||||||
| Inventory, at cost | 1,411,908 | 1,070,275 | ||||||
| Prepaid expenses | 260,733 | 180,133 | ||||||
| Loan to Shareholders (current) | 622,442 | — | ||||||
| Total current assets | 3,375,336 | 3,805,246 | ||||||
| Deposits | 34,688 | 36,762 | ||||||
| Finance right of use asset | 18,375 | 29,621 | ||||||
| Operating right of use asset | 195,677 | 330,759 | ||||||
| Due from related parties | — | 697,127 | ||||||
| Equipment, net | 157,523 | 189,272 | ||||||
| Intangible assets, net | 392,488 | 421,565 | ||||||
| Goodwill | — | 951,802 | ||||||
| Deferred tax asset | 388,916 | 50,895 | ||||||
| Total assets | $ | 4,563,003 | $ | 6,513,049 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 2,140,526 | $ | 1,505,899 | ||||
| Deferred revenue | 159,508 | 170,832 | ||||||
| Related party note payable | 412,722 | — | ||||||
| Notes payable, less related party portion | 1,101,151 | 708,063 | ||||||
| Current portion of finance lease liability | 5,090 | 23,631 | ||||||
| Current portion of operating lease liability | 148,171 | 143,015 | ||||||
| Other liabilities | 164,688 | — | ||||||
| Total current liabilities | 4,131,856 | 2,551,440 | ||||||
| Accrued employee benefits, non-current | 18,464 | 18,237 | ||||||
| Finance lease liability, less current portion | — | 5,593 | ||||||
| Operating lease liability, less current portion | 69,725 | 243,186 | ||||||
| Notes payable, less current portion | 47,258 | — | ||||||
| Total liabilities | 4,267,303 | 2,818,456 | ||||||
| Stockholders’ equity | ||||||||
| Ordinary shares, no par value; no authorization limited; 7,522,480 and 7,280,031 ordinary shares issued and outstanding at December 31, 2022 and 2021 respectively | 4,631,507 | 3,942,069 | ||||||
| Accumulated other comprehensive loss | (112,934 | ) | (44,441 | ) | ||||
| Accumulated deficit | (4,222,873 | ) | (203,035 | ) | ||||
| Total stockholders’ equity | 295,700 | 3,694,593 | ||||||
| Total liabilities and stockholders’ equity | $ | 4,563,003 | $ | 6,513,049 | ||||
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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 and/or warrants 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. In 2022, distribution and sales of our bitters under the Australian Bitters Company brand accounted for approximately 40% 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.
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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). 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.
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 2022, 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, 2022,we impaired our entire goodwill of USD$951,802 and have a zero balance at December 31, 2022.
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.
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The market price of our ordinary shares and warrants may be highly volatile, and you could lose all or part of your investment.
The trading price of our ordinary shares and warrants is likely to be volatile. Upon the consummation of this offering, we will have a relatively small public float due to the relatively small size of this offering, and the concentrated ownership of our ordinary shares among our executive officers, directors and greater than 5% stockholders. As a result of our small public float, our ordinary shares and warrants may be less liquid and have greater stock price volatility than the ordinary shares and warrants of companies with broader public ownership.
Our stock price could be subject to wide fluctuations in response to a variety of other factors, which include:
| ● | whether we achieve our anticipated corporate objectives; | |
| ● | changes in financial or operational estimates or projections; | |
| ● | termination of the lock-up agreement or other restrictions on the ability of our stockholders to sell shares after this offering; and | |
| ● | general economic or political conditions in the United States or elsewhere. |
In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Such rapid and substantial price volatility, including any stock run-up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our ordinary shares and warrants. This volatility may prevent you from being able to sell your ordinary shares and/or warrants at or above the price you paid for them. If the market price of our ordinary shares and/or warrants after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.
There has been no prior public market for our ordinary shares or warrants, the price of our ordinary shares or warrants may be volatile or may decline regardless of our operating performance, and you may not be able to resell your ordinary shares or warrants at or above the offering price.
There has been no public market for our ordinary shares or warrants prior to this offering. The offering price for our units will be determined through negotiations between the underwriter and us and may vary from the market price of our ordinary shares or warrants following this offering. If you purchase units in this offering, you may not be able to resell the ordinary shares or warrants at or above the offering price. An active or liquid market in our ordinary shares or warrants 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 or warrants in the future and may impair our ability to enter into strategic partnerships or acquire companies or products by using our ordinary shares or warrants as consideration.
An investment in our ordinary shares and warrants is speculative and there can be no assurance of any return on any such investment.
An investment in our ordinary shares and warrants 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.
Our warrants may not have any value.
Each warrant will have an assumed exercise price equal to $4.125 (100% of the assumed $4.125 offering price per unit). The warrants will be exercisable from the date of issuance until the fifth anniversary of the issue date. In the event the price or our ordinary shares does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
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 or warrants 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 or warrants 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.
The exercise of our warrants would increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders.
To the extent our warrants are exercised, additional ordinary shares will be issued, which will result in dilution to the holders of ordinary shares and potentially increase the number of shares eligible for resale in the public market, which could cause a decline in the price of our ordinary shares. Sales of substantial numbers of ordinary shares in the public market could adversely affect the market price of our ordinary shares.
Holders of the warrants will have no rights as a holder of our ordinary shares until they exercise their warrants and acquire our ordinary shares.
Until holders of our warrants acquire our ordinary shares upon exercise of such warrants, warrant holders will have no rights with respect to the ordinary shares issuable upon exercise of any warrants. Upon exercise of warrants, holders will be entitled to exercise the rights of a holder of our ordinary shares as to the security exercised only as to matters for which the record date occurs after the exercise.
Because certain shareholders own a large percentage of our voting stock, other shareholders’ voting power may be limited.
As of April 30, 2023, two (2) of our shareholders own or control approximately 45% 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 or warrants 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 the shares of our ordinary shares and warrants on the Nasdaq Capital Market, under the symbol “IBG” and “IBGW,” respectively. 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 or warrants 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 or warrants. 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 or warrants are not traded on a national securities exchange.
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.
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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 $1.235 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.
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.
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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 $5,317,500, after deducting the underwriting discounts and commissions, non-accountable expense allowance 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$0.6947 for the year ended December 31, 2022 and AUD$0.7514 for the year ended December 31, 2021, and for the balance sheet items we have translated at closing rate as of December 31, 2022 which is AUD$0.6775 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 December 31, 2022:
| ● | On an actual basis; and | |
| ● | On a pro forma basis to give effect to the conversion of debt of US$630,000, which occurred in April 2023 for the issuance of 221,533 ordinary shares; and | |
| ● | On a pro forma basis to give effect to the sale of 1,500,000 units by us in this offering at the assumed initial public offering price of $4.125 per unit, and to reflect the application of the proceeds after deducting the estimated eight percent (8%) underwriting discounts and commissions, 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 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.
| December 31, 2022 | ||||||||||||
| Actual | Pro Forma | Pro Forma As Adjusted(2)(3) | ||||||||||
| Cash and cash equivalents | $ | 91,986 | $ | 91,986 | $ | 4,809,486 | ||||||
| Notes payable | 1,561,131 | 931,131 | 331,131 | (1) | ||||||||
| Shareholders’ Equity: | ||||||||||||
| Ordinary shares, no par value; no authorization limit; 7,522,480 ordinary shares issued and outstanding actual; 7,744,013 ordinary shares issued and outstanding pro forma, 9,244,013 ordinary shares issued and outstanding pro forma as adjusted assuming the over-allotment option is not exercised | 4,631,507 | 5,261,507 | 10,579,007 | |||||||||
| Accumulated deficit | (4,222,873 | )(4) | (4,222,873 | ) | (4,222,873 | ) | ||||||
| Accumulated other comprehensive loss | (112,934 | ) | (112,934 | ) | (112,934 | ) | ||||||
| Total Shareholders’ Equity | 295,700 | 925,700 | 6,243,200 | |||||||||
| Total Capitalization | $ | 1,856,831 | $ | 1,856,831 | $ | 6,574,331 | ||||||
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| (1) | Notes payable includes USD$600,000 to be paid out of the net proceeds from the unit offering to the seller of Reg Liquors LLC d/b/a/ Wired for Wine, which we acquired on November 3, 2021. | |
| (2) | Assumes the option to purchase additional securities is not exercised by the underwriter and no value is attributed to the Underwriter’s Warrants. 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. | |
| (3) | Reflects the sale of units in this offering at an assumed initial public offering price of $4.125 per unit, 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. | |
| (4) | We
had a net loss of ($4,127,770) for the year ended December 31, 2022, included in the accumulated deficit
in the table above, which includes the following non-recurring and one-time costs that occurred during
fiscal 2022: (i) an impairment loss of ($951,802);
(ii) ($190,409) related to the issuance of ordinary shares to officers;
(iii) ($817,356) related to terminated redundant services and employees;
(iv) ($480,140) for professional services;
(v) ($266,063) for new product development, mainly for design and launch of Drummerboy, our new line of non-alcoholic products; and
(vi) ($245,500) related to reduction of income tax. |
The number of ordinary shares on an as adjusted basis set forth in the table above is based on ordinary shares outstanding as of December 31, 2022, and assumes:
| ● | none of the warrants underlying the units in this offering have been exercised; | |
| ● | no exercise of the Underwriter’s warrants; and | |
| ● | no ordinary shares or warrants will be issued pursuant to the over-allotment option. |
Each $1.00 increase or decrease in the assumed initial public offering price of $4.125 per unit, assuming no change in the number of units to be sold, would increase or decrease the net proceeds that we receive in this offering and each of total shareholders’ equity and total capitalization by approximately $1,380,000, after deducting estimated offering expenses payable by us.
Similarly, a 100,000 unit increase or decrease in the number of Units offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us by approximately $379,500, assuming the assumed public offering price of $4.125 per unit remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the warrants issued pursuant to this offering.
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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. Such calculation does not reflect any dilution associated with the sale and exercise of the warrants. 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 historical net tangible book value as of December 31, 2022, was ($96,788), or ($0.01) per ordinary share,. 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. Our pro forma net tangible book value as of December 31, 2022, was $533,212 , or $0.07 per ordinary share, as adjusted to give effect to the conversion of debt of $630,000 which occurred in April 2023 for the issuance of 221,533 ordinary shares.
After giving effect to the pro forma adjustments set forth above and our sale of 1,500,000 units in this offering based on the assumed initial public offering price of $4.125 per unit, after deduction of the estimated underwriting discounts and the estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2022, would have been $5,850,712, or $0.63 per outstanding ordinary share. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.56 per ordinary share to the existing shareholders, and an immediate dilution in pro forma as adjusted net tangible book value of $3.49 per ordinary share to investors purchasing ordinary shares in this offering. The as pro forma adjusted information discussed above is illustrative only.
A $1.00 change in the assumed public offering price of $4.125 per unit would, in the case of an increase, increase and, in the case of a decrease, decrease our pro forma as adjusted net tangible book value after giving effect to the offering by $1.38 million, the pro forma as adjusted net tangible book value per ordinary share after giving effect to this offering by $0.15 and the dilution in pro forma as adjusted net tangible book value per ordinary share to new investors in this offering by $0.15 assuming no change to the number of units 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 pro forma as adjusted net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our units and other terms of this offering determined at pricing.
Similarly, a 100,000 unit increase or decrease in the number of Units offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us by approximately $379,500, assuming the assumed public offering price of $4.125 per unit remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the warrants issued pursuant to this offering.
The following table illustrates the estimated net tangible book value per share after this offering and the per share dilution to persons purchasing units 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 unit | $ | 4.125 | $ | 4.125 | ||||
| Net tangible book value per ordinary share as of December 31, 2022 | (0.01 | ) | (0.01 | ) | ||||
| Increase in pro forma as adjusted net tangible book value per ordinary share attributable to payments by new investors | 0.64 | 0.72 | ||||||
| Pro forma as adjusted net tangible book value per ordinary share immediately after this offering | 0.63 | 0.71 | ||||||
| Amount of dilution in net tangible book value per ordinary share to new investors in the offering | $ | 3.495 | $ | 3.415 | ||||
The following tables summarize, on a pro forma as adjusted basis as of December 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 units 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 underwriter’s over-allotment option and does not take into account any warrants to be sold in this offering.
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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 | 7,744,013 | 84 | % | $ | 4,340 | 41 | % | $ | 0.56 | |||||||||||
| New investors | 1,500,000 | 16 | % | 6,188 | 59 | % | 4.13 | |||||||||||||
| Total | 9,244,013 | 100 | % | $ | 10,528 | 100 | % | $ | 1.14 | |||||||||||
| Ordinary Shares purchased | Total consideration | Average price per Ordinary | ||||||||||||||||||
| Over-allotment option exercised in full | Number | Percent | Amount | Percent | Share | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Existing shareholders | 7,744,013 | 82 | % | $ | 4,340 | 38 | % | $ | 0.56 | |||||||||||
| New investors | 1,725,000 | 18 | % | 7,116 | 62 | % | 4.13 | |||||||||||||
| Total | 9,469,013 | 100 | % | $ | 11,456 | 100 | % | $ | 1.21 | |||||||||||
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 units 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 2021 and 2022 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, 2022 and 2021
Revenues for the year ended December 31, 2022, were $4,530,396 compared to revenues of $3,748,281 for the year ended December 31, 2021. The following table summarizes the results of our sales for the years ended December 31, 2022 and 2021, respectively.
| 12 Months Ended December 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Australian Bitters Company | $ | 1,811,574 | 40 | % | $ | 2,264,574 | 60 | % | ||||||||
| BitterTales and others | $ | 613,507 | 14 | % | $ | 742,654 | 20 | % | ||||||||
| Total Brand Products | $ | 2,425,081 | 54 | % | $ | 3,007,228 | 80 | % | ||||||||
| Spirits | $ | 154,160 | 3 | % | $ | 185,989 | 5 | % | ||||||||
| Wines | $ | 1,951,155 | 43 | % | $ | 555,154 | 15 | % | ||||||||
| Total E-Commerce | $ | 2,105,315 | 46 | % | $ | 741,053 | 20 | % | ||||||||
| Grand Total | $ | 4,530,396 | 100 | % | $ | 3,748,281 | 100 | % | ||||||||
The $782,115, or approximately 21%, 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 consistent sale of our “Australian Bitters Company” bitters.
We have two reportable geographic segments – Australia and United States. All inter-segment revenues are eliminated. Revenue for the year ended December 31, 2022, in Australia and United States, were $2,579,241 and 1,951,155, respectively, compared to revenue of $3,193,127 and $555,154 for the year ended December 31, 2021. The increase in the contribution of U.S. geographic segments is due to the Wine sales as suggested in above table made by Wired For Wine.com that is counted in the U.S. market.
Summary information with respect to the Group’s geographic operating segments is as follows:
| 12 Months Ended December 31, | ||||||||||||||||
| Revenue | 2022 | 2021 | ||||||||||||||
| Australia | $ | 2,579,241 | 57 | % | $ | 3,193,127 | 85 | % | ||||||||
| United States | $ | 1,951,155 | 43 | % | $ | 555,154 | 15 | % | ||||||||
| Total Revenue | $ | 4,530,396 | 100 | % | $ | 3,748,281 | 100 | % | ||||||||
| 12 Months Ended December 31, | ||||||||
| Income (loss) from operations | 2022 | 2021 | ||||||
| Australia | $ | (2,577,773 | ) | $ | 143,547 | |||
| United States | $ | (1,710,613 | ) | $ | (89,380 | ) | ||
| Total income (loss) from operations | $ | (4,288,386 | ) | $ | 54,167 | |||
Cost of goods sold for year ended December 31, 2022, were $2,124,828 compared to cost of goods sold for the year ended December 31, 2021, of $1,255,877. The increase in cost of goods sold for the year ended December 31, 2022, was primarily due to our increased sales. Gross profit percentage (GP%) for our brand products was kept as high as 70%, the group’s overall GP% is approximately 53% on average along with the increased contribution of Wired For Wine, whose GP% usually ranges from 20% to 25%. The increased contribution of Wired For Wine (lower margin products compared with branded products) sales is the reason for the drop of group’s GP% from 66% in 2021 to 53% in 2022.
| 12 Months Ended December 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Other General and Administrative | $ | 1,809,501 | 27 | % | $ | 910,319 | 37 | % | ||||||||
| Salaries and Wages | $ | 1,918,206 | 29 | % | $ | 800,186 | 33 | % | ||||||||
| Sales and Marketing | $ | 846,956 | 13 | % | $ | 424,992 | 17 | % | ||||||||
| Contracted Services | $ | 1,167,489 | 17 | % | $ | 302,740 | 12 | % | ||||||||
| Impairment loss | $ | 951,802 | 14 | % | $ | — | 0 | % | ||||||||
| Total Operating Expenses | $ | 6,693,954 | 100 | % | $ | 2,438,237 | 100 | % | ||||||||
Operating expenses for the year ended December 31, 2022, were $6,693,954 compared to $2,438,237 for the year ended December 31, 2021. The increase in our operating expenses was primarily a result of recording increased expenses relating to:
| ● | New Product Development ($226,063 increase) as part of Other General and Administrative, mainly for design and launch of Drummerboy, our new non-alcholic products. | |
| ● | Contracted services ($864,749 increase), for hiring external professionals to help the company with the likes of fundraising, this offering, human resources, corporate governance, and eCommerce strategy. All these activities and improvement are demanded and incurred in year 2022 as necessary of the next stage growth; | |
| ● | Sales and Marketing ($421,964 increase), consists of brand marketing campaigns through various online platforms, including email, digital, website, social media, search engine optimization, as well as celebrities’ ambassadorship; and | |
| ● | Salaries and Wages ($1,118,020 increase) represents our efforts to build up a more experienced and robust team in IPO and sales & marketing departments. | |
| ● | Impairment Loss ($951,802). Purchase price allocation was performed for the year ended December 31, 2022. The recognition of this goodwill impairment loss was primarily due to the acquired subsidiary's business transformation from a low-margin to higher-margin market. This strategic transformation required the company to invest more in marketing, consulting, and human resources; and, as a result, the subsidiary did not generate sufficient cash inflow in 2022 to pass the goodwill impairment test which is orientated by the conservatism principle in accounting. The group’s management is working on the turnaround plan for the U.S. subsidiaries. |
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| 12 Months Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Impairment loss | $ | (951,802 | ) | — | ||||
| Finance cost | $ | (80,000 | ) | — | ||||
| Other | $ | (17,871 | ) | $ | (5,775 | ) | ||
| Interest income | $ | 31,322 | $ | 72,446 | ||||
| Interest expense | $ | (122,898 | ) | $ | (32,549 | ) | ||
| Total other income / (expenses) | $ | (189,447 | ) | $ | 34,122 | |||
| Net Income (loss) | $ | (4,127,770 | ) | $ | 31,763 | |||
The other expense for the year ended December 31, 2022, was $189,447 as compared to the other income of $34,122 for the year ended December 31, 2021. The other expense is mainly due to $951,802 Goodwill impairment and $80,000 finance costs incurred as interests expense.
The net loss for the year ended December 31, 2022, was $4,127,770 as compared to the net income of $31,763 for the year ended December 31, 2021. The net loss is mainly due to the increase in operating expenses invested in sales, marketing, and new product development for the company’s long-term growth as well as the recognition of goodwill impairments.
Liquidity and Capital Resources
Cash Flow
Fiscal Years Ended December 31, 2022 and 2021
As of December 31, 2022, we had total cash and cash equivalents of $91,986 as compared with $1,559,172 at December 31, 2021. The following table summarizes our sources and uses of cash for each of the periods presented:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash from operating activities | $ | (2,861,671 | ) | $ | (843,591 | ) | ||
| Net cash from investing activities | $ | 36,958 | $ | (1,758,226 | ) | |||
| Net cash from financing activities | $ | 1,342,048 | $ | 3,905,017 | ||||
| Impact of changes in foreign currency on cash | $ | 15,479 | $ | (147,514 | ) | |||
| Net increase (decrease) in cash and cash equivalents | $ | (1,467,186 | ) | $ | 1,155,686 | |||
The decrease of $2.6m was primarily due to the fact that last year we raised $3.9m from the Series A Financing as financing activities net off by $1.2m business and intangible assets acquisition (investing activities) which was not happened in current year.
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Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements for the years ended December 31, 2022 and 2021 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 adopted it 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 and 40% of our revenues in 2022, which reflects the revenue contribution by Wired For Wine after its acquisition in November 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:
| 2022
(USD) |
2021 (USD) |
2020 (USD) |
2019 (USD) | |||||||||||||
| Australian Market | $ | 1,965,734 | $ | 2,386,798 | $ | 1,598,822 | $ | 2,248,941 | ||||||||
| U.S. Market(1) | $ | 2,564,662 | $ | 1,361,483 | $ | 582,932 | — | |||||||||
| Total Revenue | $ | 4,530,396 | $ | 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.
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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 a non-exclusive, non-transferable, non-sublicensable license 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
|
| 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, non-exclusive, non-transferable, non-sublicensable 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, IBG 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
|
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. |
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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 launched Twisted Shaker in the U.S. in November 2022. Currently, we are in the process of identifying distributors in Australia and the U.S.
[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 55-64 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
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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., were AUD$936,960 (approx. USD$679,858) in 2021 and AUD$883,122 (approx. USD$598,315) in 2022.
On July 31, 2020, 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, June 14, 2021 and October 21, 2022 (“2020 Manufacturing Agreement”). For further details about the 2020 Manufacturing Agreement, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Material Agreements.”
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 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. |
Weaknessess
| ● | 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 |
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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”), 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”) and that certain Amendment Agreement dated October 21, 2022 (“October 2022 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, June 14, 2021 and October 21, 2022, sections of the agreement were amended by that certain March 2021 Amendment Agreement, the June 2021 Amendment Agreement and the October 21, 2022 Amendment Agreement.
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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.
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.
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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.
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. The chart also reflects amendments under the October 2022 Amendment Agreement. Pursuant to the October 2022 Amendment Agreement, a purchase option previously granted by IBG to Sway whereby, 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 held 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). The October 2022 Amendment removed the purchase option and the exclusivity of certain licenses granted to Sway with respect to the Australian Bitters Company, BitterTales and VOCO brands.
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| 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 non-exclusive, non-transferable and non-sublicensable 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, IBG has a distribution arrangement with Sway whereby Sway pays USD$60 per case.
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Elegance pays USD$60 per case of Australian Bitters Company products. |
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 (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. |
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.
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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 a non-exclusive, non-transferable and non-sublicensable license 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 non-exclusive, non-transferable and non-sublicensable 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, IBG 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 |
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 April 21, 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 October 1, 2013 and expires on December 31, 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 March 30, 2023, we had 13 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 | 67 | Chief Executive Officer | ||
| Sahil Beri | 36 | Chief Operating Officer and Chairman | ||
| Eric Yu | 42 | Chief Financial Officer | ||
| Clive Coleman | 44 | Chief Commercial Officer | ||
| Kristopher Salinger | 41 | Director | ||
| Sally Cardillo | 69 | Director | ||
| Sameer Sethi | 57 | 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 4,904,496 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 years ended December 31, 2022 and 2021.
| Short Term Employment Benefits | Post Employment Benefits | Total | ||||||||||||||||||||
| Salary & fees | Cash bonus | Non monetary benefits | Super -annuation | Retirement benefits | ||||||||||||||||||
| Year | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
| Directors | ||||||||||||||||||||||
| Sahil Beri | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Sally Cardillo (1) | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Kristopher Salinger (1) | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Sameer Sethi (1) | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Amit Beri (2) | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Meena Beri (3) | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | 68,666 | — | — | 6,867 | — | 75,533 | ||||||||||||||||
| Officers | ||||||||||||||||||||||
| Amit Beri (2) | 2022 | — | — | — | — | — | — | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Dean Huge (4) | 2022 | 249,792 | — | — | — | — | 249,792 | |||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||
| Tianyi Eric Yu | 2022 | 125,046 | — | 69,470 | 12,817 | — | 207,334 | |||||||||||||||
| 2021 | 58,956 | — | — | 5,896 | — | 64,852 | ||||||||||||||||
| Clive Coleman | 2022 | 237,535 | — | 92,627 | 24,375 | — | 354,537 | |||||||||||||||
| 2021 | 45,855 | — | — | 4,585 | — | 50,440 | ||||||||||||||||
| (1) | Joined the Board in April 2022. |
| (2) | Amit Beri resigned as chief executive officer on February 24, 2022 and resigned as a director on April 29, 2022. |
| (3) | Meena Beri resigned as a director on April 29, 2022. |
| (4) | Dean Huge was appointed as chief executive officer on February 24, 2022. |
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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. |
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 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. |
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, 2020, 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 February 2022, he resigned as the CEO. Then in April 2022, Amit Beri transferred all of his ordinary shares in IBG and resigned as a director 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.
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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, 2021 (“March 2021 Amendment Agreement”), 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”) and that certain Amendment Agreement dated October 21, 2022 (“October 2022 Amendment Agreement”)
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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
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.
Note Purchase Agreement between Innovation Beverage Group Limited and Dean Huge dated as of July 14, 2022
On July 14, 2022, pursuant to a note purchase agreement (“D. Huge Agreement”) between IBG and Dean Huge, the Chief Executive Officer of our Company, dated as of July 14, 2022 (the “D. Huge Promissory Note”), IBG issued to Dean Huge a promissory note in the principal amount of US$50,000 bearing an interest rate of 12% per annum to finance the Company’s operations. Pursuant to the D. Huge Promissory Note, the principal is payable on the one-year anniversary of its issuance, or July 14, 2023, and accrued and unpaid interest is due and payable quarterly in arrears in cash. Also pursuant to the D. Huge Agreement, IBG agreed to issue after the consummation of an initial public offering a number of ordinary shares equal to 50% of the original principal amount of the D. Huge Promissory Note divided by the offering price of the initial public offering. As of the date of this prospectus, the original principal and the accrued and unpaid interest are outstanding.
Note Purchase Agreement between Innovation Beverage Group Limited and Anil Beri dated as of July 19, 2022
On July 19, 2022, pursuant to a note purchase agreement (“A. Beri Agreement”) between IBG and Anil Beri, the father of our Chief Operating Officer and Chairman, Sahil Beri, dated as of July 19, 2022 (the “A. Beri Promissory Note”), IBG issued to Anil Beri a promissory note in the principal amount of AUD$200,000 bearing an interest rate of 12% per annum to finance the Company’s operations. Pursuant to the A. Beri Promissory Note, the principal is payable on the one-year anniversary of its issuance, or July 19, 2023, and accrued and unpaid interest is due and payable quarterly in arrears in cash. Also pursuant to the A. Beri Agreement, IBG agreed to issue after the consummation of an initial public offering a number of ordinary shares equal to 50% of the original principal amount of the A. Beri Promissory Note divided by the offering price of the initial public offering. As of the date of this prospectus, the original principal and the accrued and unpaid interest are outstanding.
Note Purchase Agreement between Innovation Beverage Group Limited and Elizabeth Beri dated as of October 11, 2022
On October 11, 2022, pursuant to a note purchase agreement (“E. Beri Agreement”) between IBG and Elizabeth Beri, a shareholder of our Company, dated as of October 11, 2022 (the “E. Beri Promissory Note”), IBG issued to Elizabeth Beri a promissory note in the principal amount of US$50,000 bearing an interest rate of 12% per annum to finance the Company’s operations. Pursuant to the E. Beri Promissory Note, the principal is payable on the one-year anniversary of its issuance, or October 11, 2023, and accrued and unpaid interest is due and payable quarterly in arrears in cash. Also pursuant to the E. Beri Agreement, IBG agreed to issue after the consummation of an initial public offering a number of ordinary shares equal to 50% of the original principal amount of the E. Beri Promissory Note divided by the offering price of the initial public offering. As of the date of this prospectus, the original principal and the accrued and unpaid interest are outstanding.
Note Purchase Agreement between Innovation Beverage Group Limited and Clive Coleman dated as of November 15, 2022
On November 13, 2022, pursuant to a note purchase agreement (“Coleman Agreement”) between IBG and Clive Coleman, the Chief Commercial Officer of our Company, dated as of November 15, 2022 (the “Coleman Promissory Note”), IBG issued to Clive Coleman a promissory note in the principal amount of US$50,000 bearing an interest rate of 12% per annum to finance the Company’s operations. Pursuant to the Coleman Promissory Note, the principal is payable on the one-year anniversary of its issuance, or November 15, 2023, and accrued and unpaid interest is due and payable quarterly in arrears in cash. Also pursuant to the Coleman Agreement, IBG agreed to issue after the consummation of an initial public offering a number of ordinary shares equal to 50% of the original principal amount of the Coleman Promissory Note divided by the offering price of the initial public offering. As of the date of this prospectus, the original principal and the accrued and unpaid interest are outstanding.
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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 based on 7,744,013 ordinary shares outstanding as of August 25, 2023:
| ● | 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 August 25, 2023, 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 7,744,013 ordinary shares outstanding at August 25, 2023. The table also lists the percentage ownership after this offering based on 9,244,013 ordinary shares outstanding immediately after the completion of this offering, assuming no exercise of the underwriter’s 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 | 1,501,136 | 19.38 | % | 1,501,136 | 16.23 | % | ||||||||||
| Sahil Beri, Chief Operating Officer and Director | 617,284 | 7.97 | % | 617,284 | 6.67 | % | ||||||||||
| Samstock SZRT LLC (1) | 603,567 | 7.79 | % | 603,567 | 6.52 | % | ||||||||||
| 114 Assets Inc. (2) | 1,993,827 | 25.75 | % | 1,993,827 | 21.56 | % | ||||||||||
| Officers and Directors | ||||||||||||||||
| Dean Huge, Chief Executive Officer(3) | — | — | % | — | — | % | ||||||||||
| Sahil Beri, Chief Operating Officer and Director | 617,284 | 7.97 | % | 617,284 | 6.67 | % | ||||||||||
| Tianyi Eric Yu, Chief Financial Officer | 19,596 | * | % | 19,596 | * | % | ||||||||||
| Clive Coleman, Chief Commercial Officer | 32,673 | * | % | 32,673 | * | % | ||||||||||
| Kristopher (Kris) Laurens Salinger, Director | — | — | % | — | — | % | ||||||||||
| Sally Cardillo, Director | — | — | % | — | — | % | ||||||||||
| Sameer Sethi, Director | — | — | % | — | — | % | ||||||||||
| All officers and directors as a group | 669,553 | 8.65 | % | 669,553 | 7.24 | % | ||||||||||
| 5% or greater beneficial owners | 4,715,814 | 60.90 | % | 4,715,814 | 50.98 | % | ||||||||||
* 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. |
| (3) | This table does not include the ordinary shares that Mr. Huge may receive from the Company pursuant to the D. Huge Promissory Note in the original principal amount of US$50,000 dated July 14, 2022. The promissory note provides Mr. Huge with the right to receive a number of ordinary shares equal to 50% of the original principal amount divided by the offering price of the initial public offering. |
As of August 25, 2023, there were thirty (30) 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.
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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.
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 August 25, 2023, the number of ordinary shares issued, outstanding and fully paid was 7,744,013, 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).
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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.
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.
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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 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 6, 2022, we issued to one employee 10,582 ordinary shares (as adjusted to reflect the reverse split) with a value of AUD$33,333. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
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.
On December 6, 2022, we issued to one employee 19,608 ordinary shares with a value of AUD$61,765. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On February 7, 2023, we issued to one employee 6,533 ordinary shares with a value of AUD$33,318.30. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On April 28, 2023, we issued an aggregate of 215,000 ordinary shares to two investors in connection with the conversion of an aggregate debt amount of US$630,000. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
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 realized 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 capitalize 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 realization 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 capitalized 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.
As a public company under the Australian Corporations Act with more than 50 shareholders – the Australian Corporations Act (subject to certain exceptions) restricts the acquisition by any person (irrespective of jurisdiction) of a “relevant interest” in a “voting share” of the Company where, because of a transaction, that person or someone else’s percentage “voting power” in the Company increases above 20% of the total voting shares or, where the person’s voting power was already above 20% and below 90%, increases more than 3% in any six month period.
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.
DESCRIPTION OF THE SECURITIES WE ARE OFFERING
Units
We are offering up to 1,500,000 units in this offering at the assumed public offering price of $4.125 per unit. Each unit includes one ordinary share and one warrant to purchase one ordinary share at an exercise price equal to $4.125 per ordinary share, which is 100% of the public offering price per unit). Our units will not be certificated and the ordinary shares and warrants consisting of such units are immediately separable and will be issued separately in this offering. We are also registering the ordinary shares issuable upon conversion of the warrants. These securities are being issued pursuant to an underwriting agreement between us and the representative of the underwriters. You should review the underwriting agreement, the form of warrant, and the Warrant Agency Agreement, each of which are filed, or will be filed, as exhibits to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the Units, the ordinary shares and the warrants.
Ordinary Shares
The material terms of our ordinary shares are described under the caption “Description of Shares Capital Stock and Constitution” in this prospectus.
Warrants
Warrants Included in the Units
The following summary of certain terms and provisions of the warrants offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the warrant agency agreement between us and V-Stock Transfer, LLC, as warrant agent, and the form of warrant certificate, both of which are filed as exhibits to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions set forth in the warrant agency agreement, including the annexes thereto, and form of warrant certificate.
Exercisability. The warrants are exercisable at any time after their original issuance and at any time up to the date that is five years after their original issuance. The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (except in the case of a cashless exercise), by certified or official bank check payable to us, for the number of warrants being exercised. If we fail to maintain the effectiveness of the registration statement and current prospectus relating to the ordinary shares issuable upon exercise of the warrants, the holders of the warrants shall have the right to exercise the warrants solely via a cashless exercise feature provided for in the warrants, until such time as there is an effective registration statement and current prospectus.
Exercise Price. The exercise price of $4.125 per ordinary share purchasable upon exercise of the warrants is 100% of the assumed offering price of the units. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our ordinary shares and also upon any distributions of assets, including cash, stock or other property to our shareholders.
Exercise Limitation. A
holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially
own in excess of 4.99% of the number of ordinary shares outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease such percentage to
any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until
61 days following notice from the holder to us.
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Fractional Shares. The Company will not issue fractions of warrants or distribute warrant certificates which evidence fractional warrants. Whenever any fractional warrant would otherwise be required to be issued or distributed, the actual issuance or distribution shall reflect a rounding of such fraction to the nearest whole warrant (rounded down).
Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We have applied for listing of our ordinary shares and intend to apply for listing of our tradeable warrants on The Nasdaq Capital Market under the symbols “IBG,” and “IBGW,” respectively. No assurance can be given that our listing application will be approved.
Global Certificate. The warrants will be issued in registered form under a warrant agency agreement between the warrant agent and us. The warrants shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., as nominee of DTC, or as otherwise directed by DTC.
Fundamental Transactions. In the event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization or reclassification of our ordinary shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding ordinary shares or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding ordinary shares, the holders of the warrants will be entitled to receive the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. The holders of the warrants may also require us or any successor entity to purchase the warrants from the holders by paying to the holder an amount in cash (or other types or form of consideration in special circumstances listed in the warrant) equal to the Black Scholes value of the remaining unexercised portion of the warrant on the date of the fundamental transaction.
Rights as a Shareholder. The warrant holders do not have the rights or privileges of holders of ordinary shares or any voting rights until they exercise their warrants and receive ordinary shares. After the issuance of ordinary shares upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders.
Governing Law. The warrants and the warrant agency agreement are governed by the law of the State of New York.
Underwriter’s Warrants
At the close of this offering, we have agreed to issue to Maxim or its designees warrants to purchase up to a total of 75,000 ordinary shares (equal to five percent (5%) of the ordinary shares sold in this offering), at an exercise price of $4.54 per share (equal to 110% of the offering price per share in this offering). Such warrants are exercisable for a five-year period commencing six (6) months from the commencement of sales in the offering. See “Underwriting–Underwriter’s Warrants” for a more detailed description of the terms of the underwriter’s warrants.
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, including shares issued upon exercise of outstanding warrants, 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 9,244,013 ordinary shares. The amount of shares outstanding upon completion of this offering assumes no exercise of the underwriter’s 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 underwriter 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 Maxim on behalf of the underwriter.
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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 77,440 ordinary shares immediately after this offering (based on 7,744,013 ordinary shares outstanding as of August 1, 2023, and assuming no exercise of the warrants and no exercise by the underwriter of their over-allotment option to purchase additional ordinary shares), 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 and warrants (hereinafter sometimes referred to as “securities”). 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 securities.
WE URGE POTENTIAL PURCHASERS OF OUR SECURITIES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SECURITIES.
United States Federal Income Taxation
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The following discussion describes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our securities as of the date hereof. This discussion applies only to U.S. Holders (as defined below) that hold our securities 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 our securities 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 securities 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 securities by vote or value, | |
| ● | persons required to accelerate the recognition of any item of gross income with respect to our securities as a result of such income being recognized on an “applicable financial statement” (as defined by the Code), | |
| ● | persons who acquired our securities pursuant to the exercise of any employee ordinary share option or otherwise as consideration for services, or | |
| ● | persons holding our securities 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 our securities, 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 our securities 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, foreign currency gains or losses, 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 securities.
Taxation of Dividends and Other Distributions on our Securities
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the securities (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 As a general rule, 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 securities, 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 (i) such corporation is eligible for the benefits of a comprehensive income tax treaty with the United States or (ii) the dividends are paid on securities that are readily tradable on an established securities market in the United States. The Internal Revenue Service has determined that the U.S. – Australian tax treaty is a comprehensive tax treaty and we believe that we are eligible for benefits under it. Moreover, we will apply to list our securities on the Nasdaq Capital Market, and U.S. Treasury Department guidance indicates that securities that are so listed will be treated as readily tradable on an established securities market in the United States. Therefore, we believe that dividends paid by us will be subject to reduced rates of taxation. 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 securities.
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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.
A U.S. Holder may be subject to Australian withholding taxes on dividends paid on our securities. 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 our securities 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.
Adjustments with Respect to Warrants
The terms of the warrants provide for an adjustment to the number of ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. An adjustment that has the effect of preventing dilution generally is not taxable. However, the U.S. Holders of the warrants would be treated as receiving a constructive distribution from us if the adjustment increased the warrant holders’ proportionate interest in our assets or earnings and profits (e.g., through a decrease in the exercise price of the warrants). Such constructive distribution would be subject to tax as described under “Taxation of Dividends and Other Distributions on our Securities” , above in the same manner as if the U.S. Holders of the warrants received a cash distribution from us equal to the fair market value of such increased interest.
Taxation of Dispositions of Securities
For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of our securities in an amount equal to the difference between the amount realized (in U.S. dollars) and your tax basis (in U.S. dollars) in the securities. 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 securities 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.
For U.S. federal income tax purposes, each holder of our securities must allocate the purchase price paid by the holder for such securities between the ordinary shares and the warrants based on the relative fair market value of each at the time of issuance. Under U.S. federal income tax law, each investor must make his or her own determination of such value based on all the relevant facts and circumstances. Therefore, we strongly urge you to consult your tax adviser regarding the determination of value for these purposes. The price properly allocated to each ordinary share or warrant will be your tax basis in such share or warrant and any gain or loss on a disposition of an ordinary share or warrant will be the difference between the amount realized on the disposition and your tax basis in the property disposed of. Any disposition of a security (ordinary share plus warrant) should be treated for U.S. federal income tax purposes as a disposition of the share of common stock and of the warrant comprising the security, and the amount realized on such disposition will be allocated between the share of common stock and the warrant based on their respective relative fair market values at the time of disposition (as determined by you based on all relevant facts and circumstances).
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Exercise or Lapse of a Warrant
Subject to the PFIC rules discussed below, a U.S. Holder generally will not recognize gain or loss upon the exercise of a warrant for cash. An ordinary share acquired pursuant to the exercise of a warrant for cash generally will have a tax basis equal to the U.S. Holder’s tax basis in the warrant, increased by the amount paid to exercise the warrant. The holding period of such ordinary share generally would begin on the day after the date of exercise of the warrant. If a warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of warrants are unclear and could differ from the consequences described above. It is possible that a cashless exercise could be a taxable event. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of the cashless exercise of warrants, including with respect to whether the exercise is a taxable event, and their holding period and tax basis in the ordinary shares received.
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 securities 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 our securities, you will generally continue to be subject to the special rules described below for all succeeding years during which you hold our securities (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 securities 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.
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If we are a PFIC for any taxable year during which you hold our securities, 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 securities, 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 securities will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the securities, | |
| ● | 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 securities cannot be treated as capital, even if you hold the securities 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.
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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 our securities 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 securities 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 our securities 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 securities and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect to our securities and proceeds from the sale, exchange or other disposition of our securities 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.
Certain U.S. Holders are required to report information relating to our securities, subject to certain exceptions, by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold our securities.
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 of ordinary shares and warrants in Innovation Beverage Group Ltd (Company). 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) or shares and warrants/options held on revenue account or as trading stock.
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This section is purposely general in nature and 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 and warrants. This summary is based upon the assumption that the holder is not an Australian resident for tax purposes and is not carrying on business in Australia through a permanent establishment (referred to as a “Non-Australian Holder” in this summary). It does not consider any other factual scenarios. In addition, this summary does not discuss any non-Australian or Australian 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 for any particular shareholder, and no representations with respect to the income tax consequences for any particular shareholder are made or may be relied upon by an investor or potential investor. This summary is not exhaustive of all Australian Federal/Commonwealth income tax issues. Accordingly, you should consult your own tax advisor with respect to your particular circumstances.
Non- resident for Australian tax purposes may be liable to pay Australian tax on income derived from Australian sources. One mechanism by which that tax can be 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 an Australian tax resident company to a shareholder that is resident of the United States of America who is entitled to the benefits of the Australia/U.S. Double Tax Agreement (DTA) and is beneficially entitled to the dividends are subject to withholding tax at the rate of 15% to the extent the dividends are "unfranked". This assumes that:
| · | no shareholder beneficially entitled to the dividends: |
| o | holds directly at least 10 percent of the voting power in the Company paying the dividends; or |
| o | has owned shares representing 80 per cent or more of the voting power of the Company paying the dividends for a 12 month period ending on the date the dividend is declared; or |
| · | the Company is not a Regulated Investment Company or a Real Estate Investment Trust or a Listed Australian Property Trust (as those terms are defined for the purpose of the DTA). |
To the extent that dividends paid by an Australia tax resident company to non-residents have been franked, such dividends are not subject to withholding tax.[1]
“Franked dividends” refers to dividends that have been paid out of profits which have been taxed at company level and where that tax has been allocated to the dividend.
Accordingly, an Australian tax resident company paying a fully franked dividend 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.
To the extent that the dividend is partially franked, dividend withholding tax will apply to the unfranked portion in the manner outlined above.
The 15% dividend withholding tax rate 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 permanent establishment or fixed base. Such dividends may be taxed and included in assessable income as business income or independent personal services income as the case may be.
[1] Section 128B(3) of the Income Tax Assessment Act 1936 (Cth)
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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, 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 be subject to capital gains tax in Australia on the disposal of shares in an Australian tax resident company unless the Non-Australian Holder disposes of an "indirect Australian real property interest".
An “indirect Australian real property interest” includes a membership interest held by an entity (known as the holding entity) in another entity (known as the test entity) if:
| ● | at that time or throughout a 12 month period that begins no earlier than 24 months before that time and ends no later than that time, the interest passes the “non-portfolio interest test”; and | |
| ● | the interest passes the “principal asset test”. |
The non-portfolio test is satisfied where the sum of the “direct participation interests” held by the holding entity and its associates is 10 per cent or more.
The principal asset test is effectively satisfied where more than 50% of the market value of the test entity’s assets is attributable to taxable Australian real property.
Dual Residency
If an investor is a tax resident of both Australia and the United States, 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 the DTA, the Australian tax applicable would be limited by the DTA. 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 securities in the United States. The public offering price for our units will be determined through negotiations between us and the underwriter. 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 underwriter 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 securities will trade in the public market subsequent to this offering or that an active trading market for our securities will develop and continue after this offering.
Maxim Group LLC is acting as the sole underwriter in this offering. We have entered into an underwriting agreement dated , 2023 with the underwriter. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriter named below and the underwriter named below has agreed 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 units.
| Underwriter | Units | |||
| Maxim Group LLC | ||||
| Total | ||||
Over-Allotment Option
If the underwriter sells more units than the total number set forth in the table above, we have granted the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 225,000 additional ordinary shares at the anticipated price of $4.125 and/or warrants to purchase up to an aggregate of 225,000 ordinary shares at a price of $0.01, in any combinations thereof, less underwriting discount and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any.
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Discounts and Expenses
The following table shows the underwriting discounts payable to the underwriter 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 underwriter):
| Per Unit | Total Without Exercise of Over-Allotment Option | Total With Exercise of Over-Allotment Option | ||||||||||
| Public offering price | $ | |||||||||||
| Underwriting discounts (8%)(1) | $ | |||||||||||
| Proceeds, before expenses, to us | $ | |||||||||||
| (1) | Does not include (i) the underwriter warrant to purchase ordinary shares equal to five percent (5%) of the number of units sold in the offering, or (ii) certain out-of-pocket expenses, each as described below. |
We have also agreed to pay the following expenses relating to this offering: (a) all filing fees and expenses relating to the registration with the SEC of the securities sold in this offering; (b) all FINRA public offering filing fees; (c) all fees and expenses relating to the listing of the Company’s equity or equity-linked securities on the Nasdaq Stock Exchange; (d) 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 Maxim 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 Maxim’s counsel) unless such filings are not required in connection with the Company’s proposed listing with Nasdaq; (e)all fees, expenses and disbursements relating to the registration, qualification or exemption of the securities under the securities laws of such foreign jurisdictions as Maxim may reasonably designate; (f) the costs of all mailing and printing of the offering documents; (g) transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to Maxim; (h) the fees and expenses of the Company’s accountants; and (i) the reasonable legal fees and disbursements for Maxim’s counsel; provided, however, that all such costs and expenses that are incurred by Maxim and the underwriters and for which we shall be responsible shall not exceed $125,000 in the aggregate.
We estimate that the total expenses of the offering payable by us, excluding the total underwriting discount will be approximately $375,000.
Underwriter’s Warrant
We have agreed to issue warrants to the underwriter 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 110% 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, commencing six (6) months after the commencement of sales of securities in this offering and ending five (5) years after the commencement of sales in the offering, at a price per ordinary share equal to 110% of the public offering price per ordinary share, in compliance with FINRA Rule 5110(g)(8(A). The warrants also provide for customary anti-dilution provisions, one-time demand registration rights at our expense, an additional demand registration right at the warrant holder’s expense 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 5 (five) years from the commencement of sales of the public offering. The ordinary shares underlying the warrants are being registered under this Registration Statement.
The underwriter warrants and the underlying shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e)(1). In accordance with FINRA Rule 5110(e)(1), neither the underwriter warrants nor any of our shares issued upon exercise of the underwriter 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 from commencement of sales of securities in this offering. The warrants to be received by the underwriter and related persons in connection with this offering fully comply with lock-up restrictions pursuant to FINRA Rule 5110(e)(1).
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Right of First Refusal
Subject to the closing of this offering, for a period of twenty-four (24) months from the closing of this offering, Maxim Group LLC shall have the right of first refusal to act as sole book-running manager, sole underwriter or sole placement agent for any and all public or private equity, equity linked or debt (excluding commercial bank debt) offerings for which the Company retains the service of an underwriter, agent, advisor, finder or other person or entity in connection with such offering undertaken during such period by us or nay of our successors or subsidiaries.
Pricing of the Offering
Prior to this offering, there has been no public market for the ordinary shares or warrants. In determining the initial public offering price of the units, we and the underwriter consider a number of factors, including:
| ● | the information set forth in this prospectus and otherwise available to the underwriter; |
| ● | 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 underwriter 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 underwriter can assure investors that an active trading market will develop for our ordinary shares or warrants, 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 underwriter against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments that the underwriter may be required to make for these liabilities.
Securities Issuance Standstill
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 underwriter, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part.
Lock-Up Agreements
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 underwriter 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.
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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 underwriter 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 underwriter 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.
Tail Financing
We have agreed to the same compensation arrangement of underwriting discount and non-accountable expense allowance, as well as issuance of underwriter warrants, for any capital raising financing, private or public, of equity or equity-linked securities (“Tail Financing”) to the extent that such financing or capital is provided to the Company by investors whom Maxim had contacted, or introduced to the Company, during the term of the engagement agreement with the underwriter, if such Tail Financing is consummated at any time within the twenty four (24) month period following the closing of this offering or expiration or termination such engagement agreement (other than termination for Cause, as defined in the engagement agreement).
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act:
| ● | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
| ● | Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. |
| ● | Syndicate covering transactions involve purchases of the ordinary shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the 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. A naked short position occurs if the underwriters sell more shares than could be covered by the over-allotment option. This position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering. | |
| ● | Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the ordinary shares originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our ordinary shares or preventing or retarding a decline in the market price of the ordinary shares. As a result, the price of our ordinary shares may be higher than the price that might otherwise exist in the open market. These transactions may be discontinued at any time.
Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our shares of ordinary shares. In addition, neither we nor the underwriters make any representation that the underwriters will engage in these transactions or that any transaction, if commenced, will not be discontinued without notice.
Electronic Distribution
This prospectus in electronic format may be made available on websites or through other online services maintained by the underwriters, or by their respective affiliates. Other than this prospectus in electronic format, the information on the underwriters’ respective websites and any information contained in any other websites maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any of the underwriters in their capacity as underwriters, and should not be relied upon by investors.
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Passive Market Making
In connection with this offering, the underwriter 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 underwriter and its affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which it may receive customary fees and reimbursement of expenses. In the ordinary course of its various business activities, the underwriter and its 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 its own accounts and for the accounts of its customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriter and is 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.
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Selling Restrictions
Other than in the United States, no action has been taken by us or the underwriter 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 underwriter; 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.
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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 underwriter are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
124
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 | $ | 225,000 | ||
| Accounting fees and expenses | $ | 75,000 | ||
| Transfer agent and warrant agent fees and expenses | $ | 0 | ||
| Printing fees and expenses | $ | 29,000 | ||
| Miscellaneous | $ | 0 | ||
| Total | $ | 375,000 |
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The validity of the securities 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. Blank Rome LLP, New York, New York is acting as counsel for the underwriter 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, 2022 and 2021, as set forth in this prospectus and elsewhere in the registration statement have been so included in reliance on the report 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 securities 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 securities 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 are available on the SEC’s website located at www.sec.gov.The SEC website also contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
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INNOVATION BEVERAGE GROUP LIMITED
(FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LTD)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Innovation Beverage
Group
Limited (Formerly Australian
Boutique Spirits Pty Limited)
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
December 31, 2022 and 2021
127
INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) FOR THE YEAR ENDED DECEMBER 31, 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Innovative Beverage Group Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Innovative Beverage Group Limited (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the two years ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for the two years ended December 31, 2022, 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 opinions.
| /s/ Accell Audit & Compliance, P.A. | |
| We have served as the Company’s auditor since 2021. | |
| Tampa, Florida | |
| May 10, 2023 | |
| F-2 |
| INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) | |||
| CONSOLIDATED BALANCE SHEETS |
| December 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 91,986 | $ | 1,559,172 | ||||
| Accounts receivable | 988,267 | 995,666 | ||||||
| Inventory, at cost | 1,411,908 | 1,070,275 | ||||||
| Prepaid expenses | 260,733 | 180,133 | ||||||
| Current portion of loan to shareholders | 622,442 | — | ||||||
| Total current assets | 3,375,336 | 3,805,246 | ||||||
| Deposits | 34,688 | 36,762 | ||||||
| Finance right of use asset | 18,375 | 29,621 | ||||||
| Operating right of use asset | 195,677 | 330,759 | ||||||
| Due from related parties | — | 697,127 | ||||||
| Equipment, net | 157,523 | 189,272 | ||||||
| Intangible assets, net | 392,488 | 421,565 | ||||||
| Goodwill | — | 951,802 | ||||||
| Deferred tax asset | 388,916 | 50,895 | ||||||
| Total assets | $ | 4,563,003 | $ | 6,513,049 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 2,140,526 | $ | 1,505,899 | ||||
| Deferred revenue | 159,508 | 170,832 | ||||||
| Related party notes payable | 412,722 | — | ||||||
| Notes payable, less related party portion | 1,101,151 | 708,063 | ||||||
| Current portion of finance lease liability | 5,090 | 23,631 | ||||||
| Current portion of operating lease liability | 148,171 | 143,015 | ||||||
| Other liabilities | 164,688 | — | ||||||
| Total current liabilities | 4,131,856 | 2,551,440 | ||||||
| Accrued employee benefits, non-current | 18,464 | 18,237 | ||||||
| Finance lease liability, less current portion | — | 5,593 | ||||||
| Operating lease liability, less current portion | 69,725 | 243,186 | ||||||
| Notes payable, less current portion | 47,258 | — | ||||||
| Total liabilities | 4,267,303 | 2,818,456 | ||||||
| STOCKHOLERS’ EQUITY | ||||||||
| Ordinary share s, no par value; no authorization limit; 7,522,480 and 7,280,031 shares issued and outstanding at December 31, 2022 and 2021, respectively | 4,631,507 | 3,942,069 | ||||||
| Accumulated other comprehensive loss | (112,934 | ) | (44,441 | ) | ||||
| Accumulated deficit | (4,222,873 | ) | (203,035 | ) | ||||
| Total stockholders’ equity | 295,700 | 3,694,593 | ||||||
| Total liabilities and stockholders’ equity | $ | 4,563,003 | $ | 6,513,049 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) | |||
| CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS |
| For the year ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Revenues, net | $ | 4,530,396 | $ | 3,748,281 | ||||
| Cost of goods sold | 2,124,828 | 1,255,877 | ||||||
| Gross profit | 2,405,568 | 2,492,404 | ||||||
| Operating expenses | ||||||||
| Other general and administrative | 1,809,501 | 910,319 | ||||||
| Salaries and wages | 1,918,206 | 800,186 | ||||||
| Sales and marketing | 846,956 | 424,992 | ||||||
| Contracted services | 1,167,489 | 302,740 | ||||||
| Impairment loss | 951,802 | — | ||||||
| Total operating expenses | 6,693,954 | 2,438,237 | ||||||
| Income (loss) from operations | (4,288,386 | ) | 54,167 | |||||
| Other income (expenses): | ||||||||
| Finance cost | (80,000 | ) | — | |||||
| Other | (17,871 | ) | (5,775 | ) | ||||
| Interest income | 31,322 | 72,446 | ||||||
| Interest expense | (122,898 | ) | (32,549 | ) | ||||
| Total other income (expenses) | (189,447 | ) | 34,122 | |||||
| Income (loss) before taxes | (4,477,833 | ) | 88,289 | |||||
| Income tax expense (benefit) | (350,063 | ) | 56,526 | |||||
| Net income (loss) | (4,127,770 | ) | 31,763 | |||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | (68,493 | ) | (147,514 | ) | ||||
| Total comprehensive income (loss) | $ | (4,196,263 | ) | $ | (115,751 | ) | ||
| Basic and diluted income (loss) per share | (0.56 | ) | 0.00 | |||||
| Weighted average shares outstanding - basic and diluted | 7,433,014 | 6,449,014 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| INNOVATION BEVERAGE GROUP LIMITED (FORMERLY AUSTRALIAN BOUTIQUE SPIRITS PTY LIMITED) | ||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 |
| Ordinary | Accumulated Other Comprehensive Income (Loss) | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| Balance December 31, 2020 | 6,172,840 | $ | 420 | $ | 103,073 | $ | 1,360,875 | $ | 1,464,368 | |||||||||||
| Sale of ordinary share, 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 | |||||||||
| Sale of ordinary shares , net of issuance costs | 191,211 | 512,295 | — | — | 512,295 | |||||||||||||||
| Issuance of ordinary shares for services | 51,238 | 177,143 | — | — | 177,143 | |||||||||||||||
| Foreign currency translation adjustment | — | — | (68,493 | ) | 107,932 | 39,439 | ||||||||||||||
| Net loss | — | — | — | (4,127,770 | ) | (4,127,770 | ) | |||||||||||||
| Balance December 31, 2022 | 7,522,480 | $ | 4,631,507 | $ | (112,934 | ) | $ | (4,222,873 | ) | $ | 295,700 | |||||||||
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 STATEMENT OF CASH FLOWS |
| For the years ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income/(loss) | $ | (4,127,770 | ) | $ | 31,763 | |||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Depreciation and amortization | 244,880 | 158,242 | ||||||
| Stock compensation | 23,961 | — | ||||||
| Share insurance for services | 177,143 | — | ||||||
| Goodwill Impairment Loss | 951,802 | — | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 7,399 | (959,660 | ) | |||||
| Inventory, at cost | (341,633 | ) | (318,177 | ) | ||||
| Prepaid expenses | (80,600 | ) | (154,517 | ) | ||||
| Operating right of use assets | (169,124 | ) | (21,888 | ) | ||||
| Deferred tax asset | (338,021 | ) | (14,497 | ) | ||||
| Deposits | 2,074 | 2,259 | ||||||
| Accounts payable and accrued expenses | 799,315 | 255,816 | ||||||
| Deferred revenue | (11,324 | ) | 170,832 | |||||
| Accrued employee benefits, non-current | 227 | 6,236 | ||||||
| Net cash from operating activities | (2,861,671 | ) | (843,591 | ) | ||||
Cash Flows from Investing Activities | ||||||||
| Net cash paid to acquire business | — | (748,762 | ) | |||||
| Purchase of equipment | (10,351 | ) | (46,318 | /0 | ||||
| Purchase of intangibles | (27,375 | ) | (469,667 | ) | ||||
| Net activity on due from related parties | 74,685 | (493,479 | ) | |||||
| Net cash from investing activities | 36,958 | (1,758,226 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Issuance of ordinary share, net of issuance costs | 512,295 | 3,941,649 | ||||||
| Payments on finance lease liability | (23,315 | ) | (32,174 | ) | ||||
| Payments on notes payable | 853,068 | (4,458 | ) | |||||
| Net cash from financing activities | 1,342,048 | 3,905,017 | ||||||
| Impact of changes in foreign currency on cash | 15,479 | (147,514 | ) | |||||
| Change in cash and cash equivalents | (1,467,186 | ) | 1,155,686 | |||||
| Cash and cash equivalents at beginning of period | 1,559,172 | 403,486 | ||||||
| Cash and cash equivalents at end of period | $ | 91,986 | $ | 1,559,172 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | 5,732 | $ | 32,549 | ||||
| Cash paid for income taxes | $ | — | $ | 158,202 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
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 BevMart 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 consolidated 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, BevMart USA, LLC and W4W (collectively, the “Group”) are prepared in conformity with U.S. GAAP. 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 consolidated 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.
| F-7 |
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.
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 Other general and administrative 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 December 31, 2022 and 2021. The Group has extensive historical experience with producing and delivering standard products to its contracted customers with a 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 as of December 31, 2022 or December 31, 2021.
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.
| F-8 |
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, 2022 or December 31, 2021.
Intangible Assets
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.
| Customer contracts | Liquor license | Software Development costs | |
| Useful lives Goodwill |
Finite (15 years) | Finite (15 years) | Finite (5 years) |
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 assesses 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 half year ended December 31, 2022, 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 $846,956 and $155,560 in sales and marketing expenses for the year ended December 31, 2022 and 2021, 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.
| F-9 |
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.
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.
| F-10 |
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 2022 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 ASU 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-11 |
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 a known public exchange 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 | $ | 1,412 | ||
| Inventory, at fair value | 489,683 | |||
| Prepaid expenses | 14,052 | |||
| Current assets | 505,147 | |||
| Equipment | 2,552 | |||
| Intangible asset | 66,119 | |||
| Brand Names | 439,307 | |||
| Goodwill | 367,430 | |||
| Total assets | 1,380,555 | |||
| Accounts payable and accrued expenses | (30,000 | ) | ||
| Other liabilities | (1,793 | ) | ||
| Total liabilities | (31,793 | ) | ||
| Purchase consideration | $ | 1,348,762 |
Purchase price allocation was performed for the year ended December 31, 2022. The Company recognized a goodwill impairment loss of $951,802 during the year ended December 31, 2022. The impairment loss was primarily due to the acquired subsidiary’s business transformation. The impairment loss was recognized in the consolidated statement of operations and comprehensive income for the year ended December 31, 2022.
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 year ended December 31, 2021, as if the business combination had occurred as of January 1, 2021. 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, 2021. 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 the Group’s results of operations for the year period ended December 31, 2021 (on an unaudited pro forma basis):
| Net revenue | $ | 5,919,405 | ||
| Net income | $ | 31,2864 | ||
| Net income per share- basic and diluted | $ | 0.00 | ||
| Weighted average number of shares of ordinary stock outstanding- basic and diluted | 6,449,014 |
| F-12 |
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, 2022 and 2021 are as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | 608,003 | $ | 414,958 | ||||
| Finished goods | 731,905 | 655,317 | ||||||
| Inventories, at cost | $ | 1,411,908 | $ | 1,070,275 | ||||
| 5. | Equipment |
Equipment consisted of the following at December 31, 2022 and 2021:
| December 31, 2022 | December 31, 2021 | |||||||
| Equipment | $ | 274,988 | $ | 264,958 | ||||
| Less: accumulated depreciation | (117,465 | ) | (75,686 | ) | ||||
| Equipment, net | $ | 157,523 | $ | 189,272 | ||||
Depreciation expense was $41,779 and $23,084 for the years ended December 31, 2022 and 2021, respectively.
| 6. | Intangible assets |
Intangible assets consisted of the following at December 31, 2022 and 2021:
| December 31, 2022 | December 31, 2021 | |||||||
| Contract rights | $ | 432,246 | $ | 431,924 | ||||
| Software development costs | 64,601 | 37,421 | ||||||
| Liquor license | 66,119 | 66,119 | ||||||
| 562,966 | 535,464 | |||||||
| Less: accumulated amortization | (170,478 | ) | (113,899 | ) | ||||
| Intangible assets – net | $ | 392,488 | $ | 421,565 | ||||
Amortization expenses were $56,579 and $113,899 for the years ended December 31, 2022 and 2021, respectively.
| F-13 |
| 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 $17,603 AUD (approximately $12,500 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 year ended December 31, 2022 and 2021, the Group recorded $79,799 and $163,414, respectively as operating lease expense which is included in other general and administrative expenses on the consolidated statement of operations.
Operating right of use assets are summarized below:
| As of December 31, 2022 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 659,997 | $ | 37,735 | $ | 697,732 | ||||||
| Less accumulated amortization | (482,519 | ) | (19,536 | ) | (502,055 | ) | ||||||
| Operating right of use asset | $ | 177,478 | $ | 18,199 | $ | 195,677 | ||||||
| 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 | ||||||
Operating lease liabilities are summarized below:
| As of December 31, 2022 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 206,036 | $ | 11,860 | $ | 217,896 | ||||||
| Less: current portion | (136,312 | ) | (11,860 | ) | (148,171 | ) | ||||||
| Long term portion | $ | 69,724 | $ | — | $ | 69,725 | ||||||
| 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 | ||||||
| F-14 |
Operating lease liabilities are summarized below:
| Seven Hills | Highland Cross | Total | ||||||||||
| 12-month period ending December 31, 2023 | $ | 145,158 | $ | 12,000 | $ | 157,158 | ||||||
| 12-month period ending December 31, 2024 | 72,473 | — | 72,473 | |||||||||
| Total future minimum lease payments | 217,631 | 12,000 | 229,631 | |||||||||
| Less imputed interest | (11,595 | ) | (140 | ) | (11,735 | ) | ||||||
| PV of payments | $ | 206,036 | $ | 11,860 | $ | 217,896 | ||||||
Finance leases
The Group
leases three pieces
of equipment under
finance leases with
combined monthly payments
of $3,059 AUD
(approximately $2,125 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 | As of | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Equipment lease | $ | 77,519 | $ | 77,519 | ||||
| Less accumulated amortization | (59,144 | ) | (47,898 | ) | ||||
| Finance right of use asset | $ | 18,375 | $ | 29,621 | ||||
Amortization expense was $11,246 and $10,630 for the year ended December 31, 2022and 2021, respectively.
Finance lease liabilities are summarized below:
| As of | As of | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Equipment lease | $ | 5,090 | $ | 29,224 | ||||
| Less: current portion | (5,090 | ) | (23,631 | ) | ||||
| Long term portion | $ | — | $ | 5,593 | ||||
| Equipment Lease | ||||
| 12-month period ending December 31, 2023 | $ | 5,286 | ||
| 12-month period ending December 31, 2024 | — | |||
| Total future minimum lease payments | 5,286 | |||
| Less imputed interest | (196 | ) | ||
| PV of payments | $ | 5,090 | ||
| F-15 |
| 8. | Notes payable |
Notes payable are summarized below:
As
of 2022 |
As
of 2021 | |||||||
| Notes payable | ||||||||
| Loan 1 (a) | $ | — | $ | 94,328 | ||||
| Loan 2 (b) | 23,725 | 13,735 | ||||||
| Loan 3 (c) | 600,000 | 600,000 | ||||||
| Loan 4 (d) | 412,722 | — | ||||||
| Loan 5 (e) | 524,684 | — | ||||||
| Total notes payable | $ | 1,561,131 | $ | 708,063 | ||||
Future maturities of the note payable are as follows:
| 2023 | $ | 1,513,873 | |||
| 2024 | $ | 47,258 | |||
| Total notes payable | $ | 1,561,131 |
| (a) | Loan 1 |
The Group entered a loan with a face value of $250,000 AUD. The loan is interest free and payable on demand. During the year ended 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. On April 22, 2022, the group paid off the outstanding balance in the amount of AUD $130,000 ($95,355 USD based on the spot rate on the date of the payment).
| (b) | Loan 2 |
During the year ended December
31, 2022, the Group entered an unsecured insurance financing arrangement with a face value of
$52,527 AUD due on May 31, 2023, repaid borrowings in the amount of $29,182 AUD and recorded
$4,244 AUD in interest expense related to this note.
During the year ended December 31, 2021, the Group entered 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 AUD and recorded $2,499 AUD in interest expense related to this note. The remaining balance of this loan of $13,735 AUD was repaid during the year ended December 31, 2022.
| (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 a known public exchange. This outstanding balance bears no interest.
| (d) | Loan 4 |
During the year ended December 31, 2022, the Group entered four loans from shareholders or executive officers, with the total face value is $250,000 AUD and $230,166 USD; the interest accrued in the year is $ 11,589.04 AUD and $5,329 USD respectively.
| (e) | Loan 5 |
During the year ended December 31, 2022, the Group entered six loans from 3rd parties (one has been paid off by December 31, 2022), with the total face value and interests accrued is $524,684 USD.
| F-16 |
| 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, 2022, the Group is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.
| 10. | Income taxes |
A reconciliation of the effective tax rate to the statutory rate is shown below:
| December 31, 2022 | December 31, 2021 | |||||||
| Australian income before taxes | $ | (2,602,131 | ) | $ | 177,668 | |||
| United States loss before taxes | (1,875,702 | ) | (89,379 | ) | ||||
| Income before taxes | $ | (4,477,833 | ) | $ | 88,289 | |||
| Expected Australian income tax expense at statutory rate of 25% (December 31, 2021: 26%) | $ | (650,533 | ) | $ | 46,194 | |||
| Expected United States income tax expense at statutory rate of 21% | (393,897 | ) | (18,770 | ) | ||||
| Increase (decrease) in income taxes resulting from: | ||||||||
| Entertainment | 19 | 932 | ||||||
| Unrecognized deferred tax assets - tax losses | 393,897 | 23,174 | ||||||
| Deferred tax rate change | 1,958 | 2,035 | ||||||
| Employee shared based payment | 40,524 | |||||||
| Goodwill Impairment | 237,951 | |||||||
| Other items, net | 20,018 | 2,961 | ||||||
| Income tax expense | $ | (350,063 | ) | $ | 56,526 | |||
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Deferred tax assets (liabilities): | ||||||||
| Equipment | $ | 2,902 | $ | (2,807 | ) | |||
| Leases | 52,564 | (2,105 | ) | |||||
| Customer contracts | — | 28,298 | ||||||
| Superannuation | 6,888 | 6,268 | ||||||
| Accrued expenses | 1,124 | 9,433 | ||||||
| Foreign currency changes | 6,609 | 1,124 | ||||||
| Accrued employee benefits, non-current | 15,871 | 10,684 | ||||||
| Software | 375 | — | ||||||
| Carried forward losses | 347,740 | — | ||||||
| ROU asset | (43,287 | ) | — | |||||
| Capitalized IPO cost | (1,869 | ) | — | |||||
| Net deferred tax asset | $ | 388,916 | $ | 50,895 | ||||
As of December 31, 2022, the Group had approximately $347,740 net operating loss or tax credit carryforwards. As of December 31, 2022 and 2021, 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-17 |
| 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:
| Year Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Revenue | ||||||||
| Australia | $ | 2,579,241 | $ | 3,193,127 | ||||
| United States | 1,951,155 | 555,154 | ||||||
| Total revenue | $ | 4,530,396 | $ | 3,748,281 | ||||
| Year Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Income (loss) from operations | ||||||||
| Australia | $ | (2,577,773 | ) | $ | 143,547 | |||
| United States | (1,710,613 | ) | (89,380 | ) | ||||
| Total income (loss) from operations | $ | (4,288,386 | ) | $ | 54,167 | |||
A reconciliation of the Group’s geographic segment operating income to consolidated earnings before income taxes is as follows:
| Year Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Income from operations | $ | (4,288,386 | ) | $ | 54,167 | |||
| Finance cost | (80,000 | ) | — | |||||
| Other | (17,871 | ) | (5,775 | ) | ||||
| Interest income | 31,322 | 72,446 | ||||||
| Interest expense | (122,898 | ) | (32,549 | ) | ||||
| Income (loss) before income taxes | (4,477,833 | ) | 88,289 | |||||
| Income tax expense (benefit) | (350,063 | ) | 56,526 | |||||
| Net income (loss) | $ | (4,127,770 | ) | $ | 31,763 | |||
| F-18 |
| Year Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Depreciation and Amortization | ||||||||
| Australia | $ | 223,540 | $ | 156,697 | ||||
| United States | 21,147 | 1,545 | ||||||
| Total | $ | 244,687 | $ | 158,242 | ||||
| Year Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Capital Expenditures | ||||||||
| Australia | $ | 37,727 | $ | 515,985 | ||||
| Equipment | 10,351 | — | ||||||
| Intangibles | 27,375 | 515,985 | ||||||
| United States | — | — | ||||||
| Equipment | — | — | ||||||
| Intangibles | — | — | ||||||
| Total | $ | 37,727 | $ | 515,985 | ||||
| As Of | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Total Assets | ||||||||
| Australia | $ | 4,949,557 | $ | 6,370,454 | ||||
| United States | 570,417 | 1,491,358 | ||||||
| Eliminations | (956,971 | ) | (1,348,763 | ) | ||||
| Total | $ | 4,563,003 | $ | 6,513,049 | ||||
b. Set out below is the disaggregation of the Group’s revenue based on the two distribution channels, brand products and e-commerce products1.
| Year Ended | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Revenue | ||||||||
| Brand products – Australia | $ | 2,425,081 | $ | 3,007,228 | ||||
| Brand products – United States | 273613 | — | ||||||
| Total brand products | 2,698,694 | 3,007,228 | ||||||
| E-commerce - Australia | 154,160 | 185,900 | ||||||
| E-commerce - United States | 1,677,542 | 555,153 | ||||||
| Total e-commerce products | 1,831,702 | 741,053 | ||||||
| Total revenue | $ | 4,530,396 | $ | 3,748,281 | ||||
1 This is based on geographical segment of reporting entity’s operation, rather than sales destination.
| F-19 |
| 12. | Customer Concentration |
During the year ended December 31, 2022, the Group had net sales to each of two major customers that constituted in excess of 10% of its net sales. Net sales to these two customers represented approximately 39.99% and 13.54% of the Group’s net sales, for the year ended December 31, 2022. During the year ended December 31, 2021, the Group had net sales to one major customer represented approximately 96.8% of the Group’s net sales.
At December 31, 2022, one customer constituted at least 10% of the Group’s gross trade accounts receivable. The groups trade accounts receivable balances for this customer represent approximately 82.12% of the Group’s gross trade accounts receivable at December 31, 2022. At December 31, 2021, one major customer represent approximately 96.0% of the Group’s gross trade accounts receivable.
| 13. | Related party disclosures |
At December 31, 2022, the Company had accounts receivable and accounts payable balances with a related company in the amounts of $820,894 (December 31, 2021: $718,586) and $159,508 (December 31, 2021: $170,832), respectively. During the year ended December 31, 2022 and 2021, the Company recorded revenue of $613,507 and $704,048, respectively.
All loans to and from related parties at the year end are unsecured and settlement generally occurs in cash. Details are as follows:
| Loan A issuance, interest, and repayment schedule (in AUD) (Interest 4.52%) |
| Opening balance Dec 2021 | $ | 960,760 | ||
| Loan issued: | — | |||
| Interest income accrued? | 44,482 | |||
| Total repayment by 31 December 2022 | (86,506 | ) | ||
| Closing balance Dec 2022 | $ | 918,735 |
| Loan B issuance, interest, and repayment schedule (in USD) (Interest 0%) |
| Opening balance Dec 2021 | $ | — | ||
| Loan issued | 90,000 | |||
| Interest income accrued | — | |||
| Total repayment by 31 December 2022 | (90,000 | ) | ||
| Closing balance Dec 2022 | $ | — |
| Loan C issuance, interest, and repayment schedule (in AUD) (Interest 12%) |
| Opening balance Dec 2021 | $ | — | ||
| Loan issued | 50,000 | |||
| Interest expense accrued | 740 | |||
| Total repayment by 31 December 2022 | — | |||
| Closing balance Dec 2022 | $ | 50,740 |
| Loan D issuance, interest, and repayment schedule (in AUD) (Interest 12%) |
| Opening balance Dec 2021 | $ | — | ||
| Loan issued | 200,000 | |||
| Interest expense accrued | 10,849 | |||
| Total repayment by 31 December 2022 | — | |||
| Closing balance Dec 2022 | $ | 210,849 |
| Loan E issuance, interest, and repayment schedule (in USD) (Interest 12%) |
| Opening balance Dec 2021 | $ | — | ||
| Loan issued | 125,166 | |||
| Interest expense accrued | 2,795 | |||
| Total repayment by 31 December 2022 | (5,000 | ) | ||
| Closing balance Dec 2022 | $ | 122,961 |
| Loan F issuance, interest, and repayment schedule (in USD) (Interest 12%) |
| Opening balance Dec 2021 | $ | — | ||
| Loan issued | 110,000 | |||
| Interest expense accrued | 2,535 | |||
| Total repayment by 31 December 2022 | — | |||
| Closing balance Dec 2022 | $ | 112,535 |
| 14. | Subsequent events |
Related parties’ loan E was settled by the issuance of 115,000 company’s ordinary shares on April 28, 2023.
In accordance with ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2022, through the date when the consolidated 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-20 |
Subject To Completion, Date August 10, 2023
1,500,000 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
PROSPECTUS
Maxim Group LLC
Sole Bookrunning Manager
Through and including _________, 2023 (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.
[_______________], 2023
[BACK COVER OF PROSPECTUS]
[RESALE PROSPECTUS ALTERNATE PAGE]
The information in this prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED AUGUST 29, 2023 |
1,339,378 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
This prospectus relates to 1,339,378 of our ordinary shares of Innovation Beverage Group Limited (the “Company,” “we,” “us” or “our) that may be sold from time to time by the selling shareholders named in this prospectus ,that are selling a portion of their ordinary shares pursuant to this prospectus (the “Resale Shareholders”).
Our securities are presently not traded on any market or securities exchange. We have applied to list our ordinary shares on the Nasdaq Capital Market under the symbol “IBG”.
Since there is currently no public market established for our securities, the Resale Shareholders will sell at a price $4.00 per ordinary share, the price at which we sell shares in our public offering pursuant to the registration statement of which this prospectus is a part. Once, and if, our ordinary shares are listed on the Nasdaq Capital Market and there is an established market for these resale shares, the Resale Shareholders may sell the resale shares from time to time at the market price prevailing on the Nasdaq Capital Market at the time of offer and sale, or at prices related to such prevailing market prices or in negotiated transactions or a combination of such methods of sale directly or through brokers.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Investing in our ordinary shares involves a high degree of risk, including the risk of losing your entire investment. See Risk Factors beginning on page 14 to read about factors you should consider before buying our ordinary shares.
We are an “emerging growth company” and a “foreign private issuer” under applicable U.S. federal securities laws and, as such, are eligible for reduced public company reporting requirements. Please see “Implications of Our Being an Emerging Growth Company” and “Implications of Our Being a Foreign Private Issuer” beginning on page 12 of this prospectus for more information.
Upon completion of this offering and the 1,339,378 ordinary shares to be offered by us and certain selling shareholder in a “firm commitment” public offering concurrently herewith, our issued and outstanding shares will consist of 9,244,013 ordinary shares.
You should not assume that the information contained in the registration statement to which this prospectus is a part is accurate as of any date other than the date hereof, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares being registered in the registration statement of which this prospectus forms a part.
No dealer, salesperson or any other person is authorized to give any information or make any representations in connection with this offering other than those contained in this prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the offer or solicitation is not authorized or is unlawful.
| Alt-1 |
The date of this prospectus is _____________, 2023.
[RESALE PROSPECTUS ALTERNATE PAGE]
Until ______, 2023 (the 25th day after the date of this prospectus), all dealers that effect transactions in these Or ordinary shares, 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 an underwriter and with respect to their unsold allotments or subscriptions.
| Alt-2 |
[RESALE PROSPECTUS ALTERNATE PAGE]
EXPLANATORY NOTE
Concurrent with this offering, the Company is registering 1,339,378 ordinary shares in connection with an initial public offering underwriters. Sales by shareholders that purchased shares from the initial public offering may reduce the price of our ordinary shares, demand for our shares and, as a result, the liquidity of your investment.
| Alt-3 |
[RESALE PROSPECTUS ALTERNATE PAGE]
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of our ordinary shares by the Resale Shareholders. In addition, the underwriter will not receive any compensation from the sale of the ordinary shares by the Resale Shareholders. The Resale Shareholders will receive all of the net proceeds from the sales of ordinary shares offered by them under this prospectus. We have agreed to bear the expenses relating to the registration of the ordinary shares for the Resale Shareholders.
| Alt-4 |
[RESALE PROSPECTUS ALTERNATE PAGE]
RESALE SHAREHOLDERS
The ordinary shares being offered for resale by the Resale Shareholders consist of a total of 1,339,378 ordinary shares.
The following table sets forth the name of the Resale Shareholders, the number and percentage of ordinary shares beneficially owned by each Resale Shareholder, the number of ordinary shares that may be sold in this offering and the number and percentage of ordinary shares each Resale Shareholder will own after the offering. The information appearing in the table below is based on information provided by or on behalf of each named Resale Shareholder. We will not receive any proceeds from the sale of the ordinary shares by each Resale Shareholder.
| Name of Resale Shareholders | Ordinary Shares Beneficially Owned Prior to Offering |
Percentage
Ownership Prior to Offering(1) |
Number of
Ordinary Shares to be Sold Pursuant to this Prospectus |
Number
of Ordinary Shares Owned After Offering |
Percentage Ownership After Offering(1) | |||||||||||||||
| Ali Hydar Sayed | 300,000 | * | % | 300,000 | — | — | % | |||||||||||||
| Anup Puri | 350,000 | * | % | 350,000 | — | — | % | |||||||||||||
| Joginder Pal Singh Lamba | * | — | — | |||||||||||||||||
| Lambda | 318,000 | % | 318,000 | — | % | |||||||||||||||
| Blair Eiler | 41,152 | * | % | 41,152 | — | — | % | |||||||||||||
| Keith Hennessey | 41,152 | * | % | 41,152 | — | — | % | |||||||||||||
| Darrin Ocasio | 100,000 | * | % | 100,000 | — | — | % | |||||||||||||
| Cachafa Holdings | * | — | — | |||||||||||||||||
| LLC(2) | 189,074 | % | 189,074 | % | ||||||||||||||||
*Represents beneficial ownership of less than 1%.
| (1) | Based on 7,744,013 ordinary shares issued and outstanding immediately prior to and after the offering by the Resale Shareholders and do not include the sale of 1,500,000 ordinary shares concurrent to this offering. | |
| (2) | Gustavo Chavez has voting and dispositive power over the shares held by the Resale Shareholder. |
The Resale Shareholders named above acquired its ordinary shares from the Company.
| Alt-5 |
[RESALE PROSPECTUS ALTERNATE PAGE]
PLAN OF DISTRIBUTION
Since there is currently no public market established for our securities, the Resale Shareholders will sell at a price of $4.00 ordinary shares per ordinary share, the price at which we sell shares in our public offering pursuant to the registration statement of which this prospectus is a part. Once, and if, our ordinary shares are listed on the Nasdaq Capital Market American and there is an established market for these resale shares, the Resale Shareholders may sell the resale shares from time to time at the market price prevailing on the Nasdaq Capital Market at the time of offer and sale, or at prices related to such prevailing market prices or in negotiated transactions or a combination of such methods of sale directly or through brokers.
The Resale Shareholders may use any one or more of the following methods when disposing of shares or interests therein:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC; | |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | broker-dealers may agree with the Resale Shareholders to sell a specified number of such shares at a stipulated price per share; and | |
| ● | a combination of any such methods of sale. |
The Resale Shareholders may, from time to time, pledge or grant a security interest in some or all of the ordinary shares owned by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the ordinary shares, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus. The Resale Shareholders also may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our ordinary shares or interests therein, the Resale Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the ordinary shares in the course of hedging the positions it assumes. The Resale Shareholders may also sell our ordinary shares short and deliver these securities to close out it short positions, or loan or pledge the ordinary shares to broker-dealers that in turn may sell these securities. The Resale Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to each Resale Shareholder from the sale of the ordinary shares offered by it will be the purchase price of the ordinary shares less discounts or commissions, if any. Each Resale Selling Shareholder reserves the right to accept and, together with its agents from time to time, to reject, in whole or in part, any proposed purchase of ordinary shares to be made directly or through agents. We will not receive any of the proceeds from this offering.
| Alt-6 |
The Resale Shareholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that it meets the criteria and conforms to the requirements of that rule.
Any underwriters, agents, or broker-dealers, and any selling shareholder who are affiliates of broker-dealers, that participate in the sale of the ordinary shares or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling shareholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. We know of no existing arrangements between each Resale Shareholder and any other shareholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares, nor can we presently estimate the amount, if any, of such compensation. See “Resale Shareholders” for description of any material relationship that a shareholder has with us and the description of such relationship.
To the extent required, the shares of our ordinary shares to be sold, the name of the Resale Shareholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the ordinary shares may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the ordinary shares may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
We have advised the Resale Shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of each Resale Shareholder and its affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the Resale Shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Resale Shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
| Alt-7 |
[RESALE PROSPECTUS ALTERNATE PAGE]
LEGAL MATTERS
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.
| Alt-8 |
[RESALE PROSPECTUS ALTERNATE PAGE]
1,339,378 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
PROSPECTUS
, 2023
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. |
| II-1 |
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 underwriter 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.
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 underwriter, 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.
| II-2 |
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.
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 (as adjusted to reflect the reverse split) 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.
On December 6, 2022, we issued to an employee 19,608 ordinary shares at a price of AUD$3.15 per share with an aggregate value of AUD$61,765.
On February 7, 2023, we issued to one employee 6,533 ordinary shares at a price of AUD$5.10 per share with an aggregate value of AUD$33,318.30.
On April 28, 2023, we issued an aggregate of 215,000 ordinary shares to two investors in connection with the conversion of an aggregate debt amount of US$630,000 at a price of AUD$5.10 (US$3.37) per share.
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 underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter 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.”
| II-4 |
| 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.
| II-5 |
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 August 29, 2023.
| INNOVATION BEVERAGE GROUP LIMITED | ||||
| By: | /s/ Dean Huge | |||
| Name: | Dean Huge | |||
| Title: | Chief Executive Officer (Principal Executive Officer) | |||
| By: | /s/ Tianyi Eric Yu | |||
| Name: | Tianyi Eric Yu | |||
| Title: | Chief Financial Officer (Principal Financial Officer and Controller) | |||
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) | August 29, 2023 | ||
| Dean Huge | ||||
| /s/ Tianyi Eric Yu | Chief Financial Officer (Principal Financial Officer and Controller) | August 29, 2023 | ||
| Tianyi Eric Yu | ||||
| /s/ * | Chief Operating Officer and Chairman | August 29, 2023 | ||
| Sahil Beri | ||||
| /s/ * | Director | August 29, 2023 | ||
| Sally Cardillo | ||||
| /s/ * | Director | August 29, 2023 | ||
| Kristopher Laurens Salinger | ||||
| /s/ * | Director | August 29, 2023 | ||
| Sameer Sethi | ||||
| *By: /s/ Dean Huge | ||||
| Name: Dean Huge | ||||
| Attorney-in-fact |
| II-6 |
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 August 29, 2023.
| Authorized U.S. Representative | ||||
| Dean Huge | ||||
| By: | /s/ Dean Huge | |||
| Name: | Dean Huge | |||
| Title: | Chief Executive Officer | |||
II-7
EXHIBIT 1.1
[______] UNITS
EACH UNIT CONSISTING OF
ONE ORDINARY SHARE
AND
oNE WARRANT TO PURCHASE ONE ORDINARY SHARE
INNOVATION BEVERAGE GROUP LIMITED
UNDERWRITING AGREEMENT
[_______], 2023
Maxim Group LLC
Investment Banking
300 Park Avenue, 16th Floor
New York, New York 10022
As Representative of the Several Underwriters, if any, named in Schedule I hereto
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 the several underwriters (such underwriters, including the Representative (as defined below), the “Underwriters” and each an “Underwriter”) named in Schedule I hereto for which MAXIM GROUP LLC (“Maxim”) is acting as representative to the several Underwriters (in such capacity, the “Representative” and if there are no Underwriters other than the Representative, references to multiple Underwriters shall be disregarded and the term Representative as used herein shall have the same meaning as Underwriter) on the terms and conditions set forth herein.
It is understood that the several Underwriters are to make a public offering of the Firm Securities and, if any, the Option Securities, as soon as the Representative deems it advisable to do so. The Firm Securities are to be initially offered to the public at the public offering price set forth in the Prospectus.
It is further understood that Maxim will act as the Representative for the Underwriters in the offering and sale of the Firm Securities and, if any, the Option Securities in accordance with this Agreement.
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“Action” shall have the meaning ascribed to such term in Section 3.1(l).
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“Advance” shall have the meaning ascribed to such term in Section 4.6(d).
“Affiliate” means with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person as such terms are used in and construed under Rule 405 under the Securities Act.
“Applicable Laws” shall have the meaning ascribed to such term in Section 3.1(hh).
“ATO” shall have the meaning ascribed to such term in Section 3.1(hh).
“Australian Company Counsel” means K&L Gates, with offices located at [________].
“Authorizations” shall have the meaning ascribed to such term in Section 3.1(b).
“Blank Rome LLP” means Blank Rome LLP, counsel to the Underwriters, with offices located at 1271 Avenue of the Americas, New York, New York 10020.
“Board of Directors” means the board of directors of the Company.
”Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided that banks shall not be deemed to be authorized or obligated to be closed due to a “shelter in place,” “non-essential employee” or similar closure of physical branch locations at the direction of any governmental authority if such banks’ electronic funds transfer systems (including for wire transfers) are open for use by customers on such day.
“Closing” means the closing of the purchase and sale of the Firm Shares pursuant to Section 2.1.
“Closing Date” means the hour and the date on the Trading Day on which all conditions precedent to (i) the Underwriters’ obligations to pay for Closing Purchase Price and (ii) the Company’s obligations to deliver the Firm Shares, in each case, have been satisfied or waived, but in no event later than 10:00 a.m. (New York City time) on the second (2nd) Trading Day following the date hereof or at such earlier time as shall be agreed upon by the Representative and the Company.
“Commission” means the United States Securities and Exchange Commission.
“Company Auditor” means Accell Audit & Compliance, P.A., with offices located at 4806 W. Gandy Blvd., Tampa, Florida 33611.
“Company IT Systems” shall have the meaning ascribed to such term in Section 3.1(ss).
”EDGAR” shall have the meaning ascribed to such term in Section 3.1(f).
“Emerging Growth Company” shall have the meaning ascribed to such term in Section 3.1(vv).
“Environmental Laws” shall have the meaning ascribed to such term in Section 3.1(o).
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“Effective Date” means the date and time as of which the Registration Statement became effective in accordance with the rules and regulations under the Securities Act.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Execution Date” shall mean the date on which the parties execute and enter into this Agreement.
“Exempt Issuance” means the issuance of (a) Ordinary Shares, restricted Ordinary Shares, restricted Ordinary Share units or options to employees, officers, consultants, other service providers or directors of the Company pursuant to any Ordinary Share or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, for services rendered to the Company, (b) the Representative’s Warrant and the Representative’s Warrant Shares, (c) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into Ordinary Shares issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with automatic price resets, share splits, adjustments or combinations as set forth in such securities) or to extend the term of such securities and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 4.21(a) herein, and provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.
“FDA” shall have the meaning ascribed to such term in Section 3.1(hh).
“FDCA” shall have the meaning ascribed to such term in Section 3.1(hh).
“FINRA” means the Financial Industry Regulatory Authority.
“Firm Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b) which aggregate purchase price shall be net of underwriting discounts and commissions.
“Firm Securities” shall have the meaning ascribed to such term in Section 2.1(a)(iii).
“Firm Shares” shall have the meaning ascribed to such term in Section 2.1(a)(ii).
“Firm Units” shall have the meaning ascribed to such term in Section 2.1(a)(i).
“Firm Warrants” shall have the meaning ascribed to such term in Section 2.1(a)(iii).
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“GAAP” shall have the meaning ascribed to such term in Section 3.1(i).
“General Disclosure Package” shall have the meaning ascribed to such term in Section 3.1(f).
“Hazardous Materials” shall have the meaning ascribed to such term in Section 3.1(o).
“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.
“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(r).
“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Lock-Up Agreements” means the lock-up agreements that are delivered on the date hereof by each of the Company’s officers and directors, each holder of Ordinary Shares and Ordinary Share Equivalents holding, on a fully-diluted basis, more than 5.0% of the Company’s issued and outstanding Ordinary Shares, in the form of Exhibit A attached hereto.
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material Permit” shall have the meaning ascribed to such term in Section 3.1(hh).
“Offering” shall have the meaning ascribed to such term in Section 2.1(c).
“Option Closing Date” shall have the meaning ascribed to such term in Section 2.2(c).
“Option Closing Purchase Price” shall have the meaning ascribed to such term in Section 2.2(b), which aggregate purchase price shall be net of the underwriting discounts and commissions.
“Option Securities” shall have the meaning ascribed to such term in Section 2.2(a).
“Option Shares” shall have the meaning ascribed to such term in Section 2.2(a).
“Option Units” shall have the meaning ascribed to such term in Section 2.2(a).
“Option Warrants” shall have the meaning ascribed to such term in Section 2.2(a).
“Ordinary Shares” means the ordinary shares of the Company, no par value per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
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“Ordinary Share Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“Over-Allotment Option” shall have the meaning ascribed to such term in Section 2.2(a).
“Permitted Free Writing Prospectus” shall have the meaning ascribed to such term in Section 4.2(c).
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preliminary Prospectus” shall have the meaning ascribed to such term in Section 3.1(f).
“Privacy and Data Security Laws” shall have the meaning ascribed to such term in Section 3.1(p).
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Prospectus” shall have the meaning ascribed to such term in Section 3.1(f).
“Public Securities” means, collectively, the Firm Securities and, if any, the Option Securities.
“Registration Statement” shall have the meaning ascribed to such term in Section 3.1(f).
“Representative’s Securities” shall have the meaning ascribed to such term in Section 2.5.
“Representative’s Warrants” shall have the meaning ascribed to such term in Section 2.5.
“Representative’s Warrant Shares” shall have the meaning ascribed to such term in Section 2.5.
“Representative’s Warrant Agreement” shall have the meaning ascribed to such term in Section 2.5.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 462 Registration Statement” shall have the meaning ascribed to such term in Section 3.1(f).
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“Securities” means the Firm Securities, the Option Securities, the Warrant Shares and the Representative’s Securities.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares is listed or quoted for trading on the date in question: the OTCQB Venture Market, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
“Transaction Documents” means this Agreement and all exhibits and schedules hereto, the Warrants, the Warrant Agency Agreement, the Representative’s Warrant Agreement, the Lock-Up Agreements, and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer Agent” means VStock Transfer LLC, with a mailing address of 18 Lafayette Place, Woodmere, New York 11598, and any successor transfer agent of the Company.
“Underwriters’ Information” shall have the meaning ascribed to such term in Section 6.1.
“Units” shall have the meaning ascribed to such term in Section 2.1(a).
“Unit Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“U.S.
Company Counsel” means Sichenzia Ross Ference LLP, with offices located
at 1185 Avenue of the Americas, 31st Floor, New York, New York 10036.
“Warrant Agent” means the Transfer Agent.
“Warrant Agency Agreement” means the warrant agency agreement by and between the Company and VStock Transfer LLC, as warrant agent, dated on or before the Closing Date, for the purpose of administering the Warrants, in the form of Exhibit G attached hereto.
“Warrant Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Warrant Shares” means the Ordinary Shares issuable upon exercise of the Warrants.
“Warrants” means, collectively, the Ordinary Shares purchase warrants delivered to the Underwriters in accordance with Section 2.1(a)(iii) and Section 2.2(a), which Warrants shall be exercisable immediately and have a term of exercise equal to five (5) years, in the form of Exhibit F attached hereto.
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ARTICLE II.
PURCHASE AND SALE
2.1 Purchase and Sales of Firm Securities.
(a) 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, in the aggregate [ ] units (the “Firm Units”), with each Firm Unit consisting of one of the Company’s ordinary shares, no par value per share (the “Ordinary Shares”), and one Warrant to purchase one Ordinary Share, subject to the terms and conditions stated herein, and each Underwriter agrees to purchase, severally and not jointly, at the Closing, the following securities of the Company:
(i) the number of Units (the “Firm Units”) set forth opposite the name of such Underwriter on Schedule I hereof; and
(ii) the number of Ordinary Shares (the “Firm Shares”) set forth opposite the name of such Underwriter on Schedule I hereof included in the Firm Units; and
(iii) the number of Warrants (“Firm Warrants”) to purchase Ordinary Shares set forth opposite the name of such Underwriter on Schedule I hereof included in the Firm Units, which shall have an exercise price of $[ ] (subject to adjustment as provided therein) (collectively with the Firm Units and the Firm Shares, the “Firm Securities”).
The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Ordinary Shares and the Warrants comprising the Units are immediately separable and will be issued separately in the Offering.
(b) The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Units set forth opposite their respective names on Schedule I attached hereto and made a part hereof at a purchase price of $[ ] per Firm Unit (92% of the public offering price per Firm Unit) (the “Firm Purchase Price”), and the purchase price of each Firm Unit shall be allocated as follows: (i) $[ ] per Firm Share (the “Share Purchase Price”) and (ii) $0.0092 per Firm Warrant (the “Warrant Purchase Price”). The Firm Units are to be offered initially to the public at the price of $[ ] per Firm Unit ($[ ] per Firm Share and $0.01 per Firm Warrant), which offering price is also set forth on the cover page of the Prospectus (as defined in Section 3.1(f) hereof).
(c) On the Closing Date, each Underwriter shall deliver or cause to be delivered to the Company, via wire transfer, immediately available funds equal to such Underwriter’s Firm Purchase Price and the Company shall deliver to, or as directed by, such Underwriter its respective Firm Securities and the Company shall deliver the other items required pursuant to Section 2.3 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.3 and 2.4, the Closing shall take place remotely via the exchange of funds, documents and signatures, or, at the option of the parties, at the offices of Blank Rome LLP or such other location as the Company and Representative shall mutually agree. The Firm Securities are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (the “Offering”). The closing of the Offering is referred to herein as the “Closing”.
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2.2 Over-Allotment
Option.
(a) For the purposes of covering any over-allotments in connection with the distribution and sale of the Option Securities, the Representative is hereby granted an option (the “Over-Allotment Option”) to purchase up to [ ] Ordinary Shares, representing fifteen percent (15%) of the Firm Shares sold as part of the Firm Units sold in the Offering (the “Option Shares”), and/or Warrants to purchase up to [ ] Shares, representing fifteen percent (15%) of the Firm Warrants sold as part of the Firm Units sold in the Offering (the “Option Warrants” and, collectively with the Option Shares, the “Option Securities”), which may be purchased in any combination of Option Shares and/or Option Warrants at the Share Purchase Price and/or Warrant Purchase Price, respectively. The Firm Warrants and the Option Warrants, if any, shall be issued pursuant to, and shall have the rights and privileges set forth in the Warrant Agency Agreement
(b) In connection with an exercise of the Over-Allotment Option, (a) the purchase price to be paid for any Option Shares is equal to the product of the Share Purchase Price multiplied by the number of Option Shares to be purchased and (b) the purchase price to be paid for any Option Warrants is equal to the product of the Warrant Purchase Price multiplied by the number of Option Warrants to be purchased (the aggregate purchase price to be paid on an Option Closing Date, the “Option Closing Purchase Price”).
(c) The Over-Allotment Option granted pursuant to this Section 2.2 may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares and/or Option Warrants in any combination thereof within 45 days after the Execution Date. An Underwriter will not be under any obligation to purchase any Option Securities prior to the exercise of the Over-Allotment Option by the Representative. 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 facsimile or other electronic transmission setting forth the number of Option Shares and/or Option Warrants to be purchased and the date and time for delivery of and payment for the Option Securities (each, an “Option Closing Date”), which will not be later than the earlier of (i) 45 days after the Execution Date and (ii) two (2) full Business Days 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 Blank Rome LLP 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 Securities does not occur on the Closing Date, each Option Closing Date will be as set forth in the notice. Upon exercise of the Over-Allotment Option, the Company will become obligated to convey to the Underwriters, and, subject to the terms and conditions set forth herein, the Underwriters will become obligated to purchase, the number of Option Shares and/or Option Warrants specified in such notice. The Representative may cancel the Over-Allotment Option at any time prior to the expiration of the Over-Allotment Option by written notice to the Company.
2.3 Deliveries. The Company shall deliver or cause to be delivered to each Underwriter (if applicable) the following:
(a) At the Closing Date, the Firm Shares included in the Firm Units and, as to each Option Closing Date, if any, the applicable Option Shares, which shares shall be delivered via The Depository Trust Company Deposit or Withdrawal at Custodian system for the accounts of the several Underwriters as directed by the Representative;
(b) At the Closing Date, the Firm Warrants included in the Firm Units and, as to each Option Closing Date, if any, the applicable Option Warrants, which Warrants shall be delivered via The Depository Trust Company Deposit or Withdrawal at Custodian system for the accounts of the several Underwriters;
| 8 |
(c) At the Closing Date, the executed Representative’s Warrant Agreement(s) shall be issued in the name or names and in such authorized denominations as the Representative may request;
(d) At the Closing Date and at each Option Closing Date, if any, the duly executed and delivered legal opinion and negative assurance letter of U.S. Company Counsel addressed to the Underwriters, dated as of the Closing Date and as to each Option Closing Date, if any, bring-down opinions and negative assurance letters from U.S. Company Counsel addressed to the Underwriters in form and substance reasonably satisfactory to counsel to the Representative;
(e) At the Closing Date and at each Option Closing Date, if any, the duly executed and delivered opinion of Australian Company Counsel for the Company, with respect to certain Australian law matters, addressed to the Underwriters, dated as of the Closing Date and each Option Closing Date, if any, in form and substance reasonably satisfactory to counsel to the Representative;
(f) Contemporaneously herewith, a cold comfort letter, addressed to the Underwriters and in form and substance reasonably satisfactory in all respects to the Representative from the Company Auditor dated, respectively, as of the date of this Agreement and a bring-down letter dated as of the Closing Date and each Option Closing Date, if any;
(g) On the Closing Date and on each Option Closing Date, if any, the duly executed and delivered Officer’s Certificate, substantially in the form required by Exhibit B attached hereto;
(h) On the Closing Date and on each Option Closing Date, if any, the duly executed and delivered Secretary’s Certificate, substantially in the form required by Exhibit C attached hereto;
(i) On the Closing Date and on each Option Closing Date, if any, a duly executed and delivered Chief Financial Officer’s Certificate, substantially in the form required by Exhibit D attached hereto, addressed to the Underwriters;
(j) Contemporaneously herewith, the duly executed and delivered Lock-Up Agreements in the form of Exhibit A attached hereto; and
(k) Such other customary certificates or documents as the Underwriters and Counsel to the Representative may have reasonably requested.
2.4 Closing Conditions. The respective obligations of each Underwriter hereunder in connection with the Closing and each Option Closing Date are subject to the following conditions being met:
(a) the accuracy in all material respects when made and on the date in question (other than representations and warranties of the Company already qualified by materiality, which shall be true and correct in all respects) of the representations and warranties of the Company contained herein (unless as of a specific date therein);
(b) all obligations, covenants and agreements of the Company required to be performed at or prior to the date in question shall have been performed;
(c) the delivery by the Company of the items set forth in Section 2.3 of this Agreement;
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(d) the Registration Statement shall be effective on the date of this Agreement and at each of the Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representative;
(e) by the Execution Date, if required by FINRA, the Underwriters shall have received a notice of no objections from FINRA as to the amount of compensation allowable or payable to and the terms and arrangements for acting as the Underwriters as described in the Registration Statement;
(f) the (i) Ordinary Shares, including the Firm Shares, the Option Shares the Warrant Shares and the Ordinary Shares issuable upon exercise of the Representative’s Warrants, and (ii) Warrants shall have been approved for listing on the Nasdaq Capital Market;
(g) the Company has filed with the Commission a Form 8-A (Accession No. 001-[___]) providing for the registration pursuant to Section 12(b) under the Exchange Act of the Ordinary Shares and the Warrants; and such Form 8-A has become effective under the Exchange Act. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Ordinary Shares or the Warrants under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration; and
(h) 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 or development involving a prospective 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 General Disclosure Package and Prospectus; (ii) no action suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Affiliate of the Company before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement, the General Disclosure Package and Prospectus; (iii) no stop order applicable to the Company shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; (iv) the Company has not incurred any material liabilities or obligations, direct or contingent, nor has it entered into any material transactions not in the ordinary course of business, other than pursuant to this Agreement and the transactions referred to herein; (v) the Company has not paid or declared any dividends or other distributions of any kind on any class of its capital stock; (vi) the Company has not altered its method of accounting; and (vii) the Registration Statement, the General 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 rules and regulations thereunder and shall conform in all material respects to the requirements of the Securities Act and the rules and regulations thereunder, and neither the Registration Statement, the General 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 light of the circumstances under which they were made, not misleading.
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If any of the conditions specified in this Section 2.4 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to the Representative or to Representative’s counsel pursuant to this Section 2.4 shall not be reasonably satisfactory in form and substance to the Representative and to Representative’s counsel, all obligations of the Underwriters hereunder may be delayed until such items are provided to the Representative, and if not promptly provided to the Representative, all obligations of the Underwriters hereunder may be cancelled by the Representative at, or at any time prior to, the consummation of the Closing. Notice of such cancellation shall be given to the Company in writing or orally. Any such oral notice shall be confirmed promptly thereafter in writing.
2.5 Representative’s Warrants.
(a) Warrant Amount; Term. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date at the Closing for an aggregate purchase price of $100.00, warrants (the “Representative’s Warrants”) for the purchase of an aggregate of [___] Ordinary Shares (which is equal to an aggregate of 5.0% of the Firm Shares included in the Firm Units sold in the Offering, including any Option Shares sold in the Over-Allotment Option, if any). The Representative’s Warrants shall be issuable pursuant to the Representative’s Warrant Agreement in the form attached hereto as Exhibit G (the “Representative’s Warrant Agreement”) and exercisable, in whole or in part, beginning on a date that is one hundred eighty (180) days immediately following the commencement of sales of the securities issued in this Offering, which is also the Effective Date, and expiring on the five-year anniversary of the commencement of sales of the securities issued in this Offering at an initial exercise price per share of Ordinary Shares of $[__], which is equal to 110% of the public offering price of each share of Ordinary Shares sold in the Offering. The Representative’s Warrant Agreement and the Ordinary Shares issuable upon exercise of the Representative’s Warrant Agreement (the “Representative’s Warrant Shares”) are sometimes 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 Warrant and the Representative’s Warrant Shares for a period of one hundred eighty (180) days immediately following the commencement of sales of the securities issued in this Offering and by its acceptance thereof each shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant Agreement, or any portion thereof, the Representative’s Warrant Shares, 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 immediately following the commencement of sales of the securities issued in this Offering 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. In addition, the Representative’s Warrants provide for certain demand and piggyback registration rights as more fully described in the Representative’s Warrant Agreement. The Representative’s Warrants may be exercised as to all or a lesser number of Ordinary Shares, will provide for cashless exercise and will contain provisions for one demand registration of the sale of the underlying Ordinary Shares at the Company’s expense, an additional demand registration at the warrant holders’ expense, and unlimited “piggyback” registration rights for a period of five (5) years after the Closing at the Company’s expense. The Underwriter’s Warrants shall further provide for anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.) and future issuance of ordinary shares or ordinary share equivalents at prices (or with exercise and/or conversion prices) below the Offering price.
(b) Delivery. Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date and shall be issued in the name or names and in such authorized denominations as the Representative may request.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Execution Date, as of the Closing Date and as of each Option Closing Date, if any, as follows:
(a) Subsidiaries. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the General Disclosure Package and the Prospectus. Each of the Company’s “subsidiaries” (for purposes of this Agreement, as defined in Rule 405 under the Securities Act) has been duly incorporated or organized, as the case may be, and is validly existing as a corporation, partnership or limited liability company, as applicable, in good standing under the laws of the jurisdiction of its incorporation or organization and has the power and authority (corporate or other) to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus. Each of the Company’s subsidiaries is duly qualified as a foreign corporation, partnership or limited liability company, as applicable, to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business. All of the issued and outstanding capital stock or other equity or ownership interests of each of the Company’s subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or adverse claim. None of the outstanding capital stock or equity interest in any subsidiary was issued in violation of preemptive or similar rights of any securityholder of such subsidiary. The constitutive or organizational documents of each of the subsidiaries comply in all material respects with the requirements of applicable laws of its jurisdiction of incorporation or organization and are in full force and effect. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in the Registration Statement, the General Disclosure Package and the Prospectus.
(b) Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses, filings and permits of, with and from all governmental, judicial, regulatory or administrative agency, body or court, domestic or foreign, having jurisdiction over the Company or any of their assets or business and all third parties, foreign and domestic (collectively, the “Authorizations”), to own and use its properties and assets and to carry on its business as currently conducted and as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus. The Company is not in violation nor default of any of the provisions of the Constitution of Innovation Beverage Group Limited (the “Constitution of the Company”), the Company’s Shareholder’s Deed (the “Shareholder’s Deed”), or other organizational or charter documents. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and its subsidiaries, individually and as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. The Company has not received notice of any investigation or proceedings which, if decided adversely to the Company, could reasonably be expected to result in, the revocation of, or imposition of a materially burdensome restriction on, any such Authorization.
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(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which the Company is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Constitution of the Company, the Shareholder’s Deed or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any of its subsidiaries is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filing with the Commission of the Prospectus, (ii) such filings as are required to be made under applicable state securities laws and (iii) application(s) to each applicable Trading Market for the listing of the Shares and Warrants for trading thereon in the time and manner required thereby (collectively, the “Required Approvals”).
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(f) Registration Statement. The Company has prepared and filed with the Commission the Registration Statement, including any related Preliminary Prospectus or Prospectuses, for the registration of the Securities under the Securities Act, which Registration Statement has 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 registration of the Ordinary Shares and the Warrants (which are included in the Units) under the Exchange Act, in the form previously delivered to the Representative, has been declared effective by the Commission on the date hereof. Copies of such Registration Statement and of each amendment thereto, if any, including the related Preliminary Prospectuses, have been filed with the Commission. The term “Registration Statement” means such registration statement on Form F-1 (File No. 333-266965), as amended, as of the relevant Effective Date, including financial statements, all exhibits and any information deemed to be included or incorporated by reference therein, including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act and deemed to be included pursuant to Rule 430A or Rule 430B of the Securities Act and the rules and regulations thereunder, as applicable. If the Company files a registration statement to register a portion of the Securities and relies on Rule 462(b) of the Securities Act and the rules and regulations thereunder for such registration statement to become effective upon filing with the Commission (the “Rule 462 Registration Statement”), then any reference to the “Registration Statement” shall be deemed to include the Rule 462 Registration Statement, as amended from time to time. The term “Preliminary Prospectus” as used herein means a preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Securities Act and the rules and regulations thereunder as included at any time as part of, or deemed to be part of or included in, the Registration Statement and the Preliminary Prospectus relating to the Securities, if any, as amended or supplemented immediately prior to the Effective Time, is hereafter referred to as the “Pricing Prospectus”. The term “Prospectus” means the final prospectus in connection with this Offering as first filed with the Commission pursuant to Rule 424(b) of the Securities Act and the rules and regulations thereunder or, if no such filing is required, the form of final prospectus included in the Registration Statement at the Effective Date, except that if any revised prospectus or prospectus supplement shall be provided to the Representative by the Company for use in connection with the Securities which differs from the Prospectus (whether or not such revised prospectus or prospectus supplement is required to be filed by the Company pursuant to Rule 424(b)), the term “Prospectus” shall also refer to such revised prospectus or prospectus supplement, as the case may be, from and after the time it is first provided to the Representative for such use. Any reference herein to the terms “amend”, “amendment” or “supplement” with respect to the Registration Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include: (i) the filing of any document under the Exchange Act after the Effective Date, the date of such Preliminary Prospectus or the date of the Prospectus, as the case may be, which is incorporated therein by reference, and (ii) any such document so filed. All references in this Agreement to the Registration Statement, a Preliminary Prospectus and the Prospectus, or any amendments or supplements to any of the foregoing shall be deemed to include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”). The term “General Disclosure Package” means, collectively, the Permitted Free Writing Prospectus(es) (as defined below) issued at or prior to the date hereof and the Pricing Prospectus, and the information included on Schedule I and Schedule II hereto. 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 rules and regulations of the Commission thereunder (the “Securities Act Regulations”). Each Preliminary Prospectus, the Prospectus and any amendment or supplement thereto, 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 EDGAR, except to the extent permitted by Regulation S-T.
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(g) Issuance of Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Warrants are duly authorized. The Warrant Shares are duly authorized and, when issued in accordance with the terms of the Warrants, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Representative’s Warrants are duly authorized. The Representative’s Warrant Shares are duly authorized and, when issued in accordance with the terms of the Representative’s Warrant Agreement, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock the maximum number of Ordinary Shares issuable pursuant to this Agreement, the Warrants and the Representative’s Warrant Agreement. The Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken. The Securities will conform in all material respects to all statements with respect thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(h) Capitalization. As of the dates indicated in the Registration Statement and the Prospectus, the authorized, issued and outstanding shares of capital stock of the Company were as set forth in the Registration Statement, the General Disclosure Package and the Prospectus in the column headed “Actual” under the section thereof captioned “Capitalization” and, after giving effect to the Offering and the other transactions contemplated by this Agreement, the Registration Statement, the General Disclosure Package and the Prospectus (excluding the sale of the Option Shares, if any), will be as set forth in the column headed “As Adjusted” in such section. Except as set forth in, or contemplated by, the Registration Statement, the General Disclosure Package and the Prospectus, as of the Effective Date and on the Closing Date and any Option Closing Date, there will be no share options, warrants, or other rights to purchase or otherwise acquire any authorized but unissued Ordinary Shares of the Company or any security convertible or exercisable into Ordinary Shares of the Company, or any contracts or commitments to issue or sell Ordinary Shares or any such options, warrants, rights or convertible securities. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth in the Registration Statement and as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Ordinary Shares, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional Ordinary Shares or Ordinary Share Equivalents. The issuance and sale of the Securities will not obligate the Company to issue Ordinary Shares or other securities to any Person (other than the Underwriters). There are no outstanding securities or instruments of the Company with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company. The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. The authorized shares of the Company conform in all material respects to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus. The offers and sales of the Company’s securities 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, exempt from such registration requirements. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
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(i) Financial Statements. The financial statements, including the notes thereto, of the Company included in the Registration Statement, the Preliminary Prospectus, the General Disclosure Package, and the Prospectus 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 generally accepted accounting principles applied on a consistent basis during the periods involved (“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 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. There are no historical or pro forma or as adjusted financial statements or supporting schedules which are required to be included in the Registration Statement, the General Disclosure Package and the Prospectus in accordance with Regulation S-X which have not been included as so required. The pro forma and pro forma as adjusted financial information included in the Registration Statement, the General Disclosure Package and the Prospectus has been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Rules and Regulations and include all adjustments necessary to present fairly in accordance with GAAP the pro forma and as adjusted financial position of the respective entity or entities presented therein at the respective dates indicated and their cash flows and the results of operations for the respective periods specified. The assumptions used in preparing the pro forma and pro forma as adjusted financial information included in the Registration Statement, the General Disclosure Package and the Prospectus provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein. The related pro forma and pro forma as adjusted adjustments give appropriate effect to those assumptions; and the pro forma and pro forma as adjusted financial information reflect the proper application of those adjustments to the corresponding historical financial statement amounts. All disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the General Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company Parties with unconsolidated entities or other persons 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 General 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 Parties have not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) other than in the ordinary course of business and consistent with the Company’s prior policies, made 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.
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(j) Agreements. The agreements and documents described in the Registration Statement, the Preliminary Prospectus, the General Disclosure Package, and 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 Preliminary Prospectus, the General Disclosure Package, or 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 any of its subsidiaries 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 General Disclosure Package, or the Prospectus, or (ii) is material to the Company’s or any of its subsidiaries’ business, has been duly authorized and validly executed by the Company or the applicable subsidiary, is in full force and effect in all material respects and is enforceable against the Company or the applicable 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. None of such agreements or instruments has been assigned by the Company or any of its subsidiaries, and neither the Company nor any of its subsidiaries, nor to the best of the Company’s knowledge, any other party is in default thereunder and, to the best of 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 best of the Company’s knowledge, performance by the Company or the applicable 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 or the applicable subsidiary or any of its assets or businesses, including, without limitation, those relating to environmental laws and regulations. To the best of the Company’s knowledge, no director, officer, key employee or consultant to the Company or the applicable subsidiary is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer or prior employer that could materially affect his ability to be and act in his respective capacity with the Company or the applicable subsidiary or be expected to have a Material Adverse Effect. Each officer, key employee or consultant of the Company and each subsidiary has entered into a confidentiality agreement in favor of the Company relating to the protection of the proprietary information and confidential information of the Company.
(k) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the Registration Statement, except as specifically disclosed in the Registration Statement, the Preliminary Prospectus, the General Disclosure Package, the Prospectus, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) neither the Company nor any of its subsidiaries has incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) neither the Company nor any subsidiary has declared or made any dividend or distribution of cash or other property to its stockholders or purchased,
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redeemed or made any agreements to purchase or redeem any shares of its capital stock, (v) neither the Company nor any subsidiary has sustained any material loss or interference with its business or properties from fire, explosion, flood, earthquake, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and (vi) there has not been any material adverse change or any development involving a prospective material adverse change, whether or not arising from transactions in the ordinary course of business, in or affecting the business, general affairs, management, condition (financial or otherwise), results of operations, stockholders’ equity, properties or prospects of the Company, individually or taken as a whole and (vii) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company share option plans and the issuance of Ordinary Share Equivalents as disclosed in the Registration Statement. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company, its subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made. Unless otherwise disclosed in the Registration Statement, the Company has not: (i) issued any securities 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 capital stock.
(l) Litigation. To the knowledge of the Company there is not pending or contemplated, any action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company, nor, to the Company’s knowledge, any director or officer thereof or of any subsidiary, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. To the knowledge of the Company, there has not been, and there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act.
(m) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company or any subsidiary, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s employees is a member of a union that relates to such employee’s relationship with the Company, and the Company is not a party to a collective bargaining agreement, and the Company believes that its relationships with its employees are good. To the knowledge of the Company, no executive officer of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has not received any claim for royalties or other compensation from any Person, including any employee of the Company who made inventive contributions to the Company’s technology or products that are pending or unsettled, and except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, the Company does not and will not have any obligation to pay royalties or other compensation to any Person on account of inventive contributions.
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(n) Compliance. Except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, neither the Company nor any of its subsidiaries: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company or any subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is not in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is not or has not been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(o) Environmental Laws. The Company and each subsidiary (i) is in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) has received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) is in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
(p) Privacy and Data Security Laws and Regulations. Each of the Company and its Subsidiaries has (A) operated and currently operate their respective businesses in a manner compliant with all applicable foreign, federal, state and local laws and regulations, all contractual obligations and all Company or applicable subsidiary policies (internal and posted) related to privacy and data security applicable to the Company’s or applicable subsidiary’s collection, use, handling, transfer, transmission, storage, disclosure and/or disposal of the data of their respective customers, employees and other third parties (the “Privacy and Data Security Laws”), and (B) implemented, monitored and have been and are in compliance with, applicable administrative, technical and physical safeguards and policies and procedures designed to ensure compliance with Privacy and Data Security Laws, except as would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. Except as described in the Registration Statement, the General Disclosure Package or the Prospectus, there has been no loss or unauthorized access, use, modification or breach of security of customer, employee or third party data maintained by or on behalf of the Company and its subsidiaries, and the Company and no subsidiary has not notified, nor has the current intention to notify, any customer, governmental entity or the media of any such event with regard to any material data breach.
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(q) Title to Assets. Except as described in the Registration Statement, the General Disclosure Package or the Prospectus, the Company and each subsidiary has good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company or any subsidiary , in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company is held by them under valid, subsisting and enforceable leases with which the Company is in compliance.
(r) Intellectual Property. Except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and its subsidiaries has, or has rights to use or own or possess, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the Registration Statement, the General Disclosure Package or the Prospectus and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). To the knowledge of the Company, neither the Company nor any subsidiary is now infringing, and upon further development or commercialization, will not infringe, any valid claim of any issued patents, copyrights or trademarks of others. Neither the Company nor any subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement, except where such action would not reasonably be expected to have a Material Adverse Effect. Other than as specifically described in the Registration Statement, the General Disclosure Package or the Prospectus, the Company has not received, since the date of the latest audited financial statements included within the Registration Statement, the General Disclosure Package, or the Prospectus, a written notice of a claim or otherwise has any knowledge that the Company’s or its subsidiaries’ products or planned products as described in the Registration Statement, the General Disclosure Package or the Prospectus violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and each subsidiary has taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(s) Insurance. The Company and its subsidiaries is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and its subsidiaries is engaged, including, but not limited to, directors and officers insurance coverage. The Company does not have any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
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(t) Transactions With Affiliates and Employees. Except as set forth in the Registration Statement, General Disclosure Package or Prospectus, none of the officers or directors of the Company or any subsidiary and, to the knowledge of the Company, none of the employees of the Company or any subsidiary are presently a party to any transaction with the Company or any subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from, any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including share option agreements under any share option plan of the Company.
(u) Sarbanes-Oxley; Internal Accounting Controls. The Company is in compliance in all material respects with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the Execution Date, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective in all material respects as of the Execution Date and as of the Closing Date. The Company has taken all necessary actions to ensure that, in the time periods required, the Company will maintain a system of 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. The Company has taken all necessary actions to ensure that, in the time periods required, the Company will establish disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and design such disclosure controls and procedures to ensure that all material information required to be disclosed by the Company in the reports to be filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms that are then applicable to the Company.
(v) Certain Fees. Except as set forth in the Registration Statement, the General Disclosure Package and Prospectus, no brokerage or finder’s fees or commissions are or will be payable by the Company or Affiliate of the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. There are no other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its stockholders that may affect the Underwriters’ compensation, as determined by FINRA. Other than payments to the Underwriters for this Offering or as disclosed in the Registration Statement, the Company has not made and has no agreements, arrangements or understanding to make 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 180-day period preceding the initial filing of the Registration Statement through the 90-day period after the Effective Date. 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.
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(w) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
(x) Registration Rights. No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.
(y) Compliance with Exchange Act. (i) The Ordinary Shares and the Warrants are registered pursuant to Section 12(b) of the Exchange Act and the Company has filed with the Commission a Form 8-A (Accession No. 001-[___]) providing for the registration of the Ordinary Shares and Warrants pursuant to Section 12(b) under the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Ordinary Shares and Warrants under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Ordinary Shares are currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees of the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
(z) Compliance with Listing Requirements. The (i) Ordinary Shares, including the Closing Shares, the Option Shares, the Warrant Shares, and the Representative’s Warrant Shares and (ii) Warrants have been approved for listing on the Nasdaq Stock Market LLC, 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 or the Representative’s Warrant Shares from the Nasdaq Stock Market LLC, nor has the Company received any notification that the Nasdaq Stock Market LLC is contemplating terminating such listing. The Company has taken all necessary actions to ensure that it is in compliance with all applicable corporate governance requirements set forth in the rules of the Nasdaq Stock Market LLC that are in effect. Without limiting the generality of the foregoing: (i) all members of the Company’s board of directors who are required to be “independent” (as that term is defined under applicable laws, rules and regulations), including, without limitation, all members of the audit committee of the Company’s board of directors, meet the qualifications of independence as set forth under applicable laws, rules and regulations and (ii) the audit committee of the Company’s board of directors has at least one member who is an “audit committee financial expert” (as that term is defined under applicable laws, rules and regulations.
(aa) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable as a result of the Underwriters and the Company fulfilling their obligations or exercising their rights under the Transaction Documents.
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(bb) Disclosure; 10b-5. The Registration Statement (and any further documents to be filed with the Commission) contains all exhibits and schedules as required by the Securities Act. Each of the Registration Statement and any post-effective amendment thereto, if any, at the time it became effective, complied in all material respects with the Securities Act and the Exchange Act and the applicable rules and regulations under the Securities Act and did not and, as amended or supplemented, if applicable, will not, contain any 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. The Preliminary Prospectus and the Prospectus, each as of its respective date, comply in all material respects with the Securities Act and the Exchange Act and the applicable rules and regulations. The Prospectus, as amended or supplemented, did not and will not contain as of the date thereof any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in 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. As of its date, the General Disclosure Package did not and does not include any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. No post-effective amendment to the Registration Statement reflecting any facts or events arising after the date thereof which represent, individually or in the aggregate, a fundamental change in the information set forth therein is required to be filed with the Commission. There are no documents required to be filed with the Commission in connection with the transaction contemplated hereby that (x) have not been filed as required pursuant to the Securities Act or (y) will not be filed within the requisite time period. There are no contracts or other documents required to be described in the Preliminary Prospectus or Prospectus, or to be filed as exhibits or schedules to the Registration Statement, which have not been described or filed as required and the agreements and documents described in the Registration Statement, the General Disclosure Package and the Prospectus conform to the descriptions thereof contained therein. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The statistical, industry-related and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources which the Company reasonably and in good faith believes are reliable and accurate, and such data agree with the sources from which they are derived, and the Company has obtained the written consent to the use of such data from such sources, to the extent required.
(cc) No Integrated Offering. 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 this Offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(dd) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s and its subsidiaries existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s and its subsidiaries’ assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, its subsidiaries consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. Neither the Company nor any subsidiary intends to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it or any subsidiary will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Neither the Company nor any subsidiary is in default with respect to any Indebtedness.
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(ee) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each subsidiary (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 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. The term “taxes” mean 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 whatsoever, 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.
(ff) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company or any subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of FCPA. The Company and each subsidiary has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company and each subsidiary to comply in all material respects with the FCPA.
(gg) Accountants. To the knowledge and belief of the Company, the Company Auditor (i) is an independent registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 20-F for the fiscal year ending December 31, 2023.
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(hh) Regulatory; Compliance with laws. (A) The Company and each of its subsidiaries possess all certificates, authorizations and permits issued by the appropriate Australian, state of New South Wales, U.S. federal, state, local or foreign regulatory authorities, including, without limitation, those administered by the Australian Taxation Office (“ATO”), the U.S. Food and Drug Administration (“FDA”) of the U.S. Department of Health and Human Services, or by any foreign, federal, state or local governmental or regulatory authority performing functions similar to those performed by the FDA, or reasonably necessary to conduct their respective businesses as described in the Registration Statement, the General Disclosure Package or the Prospectus, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (each, a “Material Permit”), and the neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. The disclosures in the Registration Statement concerning the effects of federal, state, local and all foreign regulation on the Company’s business and that of each of its subsidiaries as currently contemplated are correct in all material respects. Neither the Company nor any subsidiary has failed to file with the applicable regulatory authorities (including the FDA or any foreign, federal, state or local governmental or regulatory authority performing functions similar to those performed by the FDA) any filing, declaration, listing, registration, report or submission that is required to be so filed for the Company’s business operation as currently conducted. All such filings were in material compliance with applicable laws when filed and no deficiencies have been asserted in writing by any applicable regulatory authority (including, without limitation, the FDA or any foreign, federal, state or local governmental or regulatory authority performing functions similar to those performed by the FDA) with respect to any such filings, declarations, listings, registrations, reports or submissions.
(B) Each of the Company and its subsidiaries: (i) are and at all times has been in substantial compliance with all statutes, rules, or regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, advertising, sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company or any subsidiary, including but not limited to the U.S. Food, Drug and Cosmetic Act (the “FDCA”) (21 U.S.C. § 301 et seq.), the Federal Trade Commission Act (15 U.S.C. § 41-58) and the rules and regulations of the Consumer Product Safety Commission (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (ii) has not received any warning letter, untitled letter or other correspondence or notice from any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any Authorizations; (iii) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (iv) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any governmental authority or third party alleging that any product operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such governmental authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (v) has not received notice that any governmental authority 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 authority is considering such action and the FDA has not sent any warning letters; imposed any fines, penalties or injunctions; or required or requested termination of any distribution of the Company’s or any of its subsidiaries’ products; requested or required any recalls or seizures of products; or withdrawals or suspensions of clearances or approvals, resulting in prohibitions on sales of our products; (vi) has filed, obtained, maintained or submitted all material 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); and (vii) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall, market withdrawal or replacement, safety alert, post-sale warning, or other notice or action relating to the alleged lack of safety or efficacy of any product or any alleged product defect or violation and, to the Company’s knowledge, no third party has initiated, conducted or intends to initiate any such notice or action.
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(C) The Company is not aware of any manufacturing site (whether Company-owned or that of a third-party manufacturer for the Company’s products) that performs manufacturing activity for the Company or any of its subsidiaries is subject to a governmental authority (including the FDA) shutdown or import or export prohibition.
(D) The statements included in the Registration Statement, the General Disclosure Package and the Prospectus under the caption: “Business—Government Regulation” are true and correct in all material respects; and there are no laws, rules or regulations as of this date are material to the business of the Company which is not described in the Registration Statement, the General Disclosure Package or the Prospectus.
(ii) Share Option Plans. Each share option granted by the Company under the Company’s 2022 Equity Incentive Plan and any other equity or share option plan was granted (i) in accordance with the terms of the Company’s 2022 Equity Incentive Plan or share option plan and (ii) with an exercise price at least equal to the fair market value of the Ordinary Shares on the date such share option would be considered granted under GAAP and applicable law. No share option granted under the Company’s share option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, share options prior to, or otherwise knowingly coordinate the grant of share options with, the release or other public announcement of material information regarding the Company or its financial results or prospects.
(jj) Office of Foreign Assets Control. Neither the Company nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department.
(kk) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon the Representative’s request.
(ll) Bank Holding Company Act. Neither the Company nor any Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(mm) Money Laundering. The operations of the Company and each of its subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
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(nn) D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires completed by each of the Company’s directors and officers immediately prior to the Offering is true and correct in all respects and the Company has not become aware of any information which would cause the information disclosed in such questionnaires to become inaccurate and incorrect.
(oo) FINRA Affiliation. No officer, director or any beneficial owner of 5% or more of the Company’s Ordinary Shares or Ordinary Share Equivalents has any direct or indirect affiliation or association with any FINRA member (as determined in accordance with the rules and regulations of FINRA) that is participating in the Offering. Except for securities purchased on the open market, no Company Affiliate is an owner of stock or other securities of any member of FINRA. No Company Affiliate has made a subordinated loan to any member of FINRA. No proceeds from the sale of the Securities (excluding underwriting compensation as disclosed in the Registration Statement and the Prospectus) will be paid to any FINRA member, any persons associated with a FINRA member or an affiliate of a FINRA member. Except as disclosed in the Prospectus, the Company has not issued any warrants or other securities or granted any options, directly or indirectly, to the Representative or any of the Underwriters named on Schedule I hereto within the 180-day period prior to the initial filing date of the Prospectus. Except as disclosed in the Registration Statement and except for securities issued to the Representative as disclosed in the Prospectus and securities sold by the Representative on behalf of the Company, no person to whom securities of the Company have been privately issued within the 180-day period prior to the initial filing date of the Prospectus is a FINRA member, is a person associated with a FINRA member or is an affiliate of a FINRA member. No FINRA member participating in the Offering has a conflict of interest with the Company. For this purpose, a “conflict of interest” exists when a FINRA member, the parent or affiliate of a FINRA member or any person associated with a FINRA member in the aggregate beneficially own 5% or more of the Company’s outstanding subordinated debt or common equity, or 5% or more of the Company’s preferred equity. “FINRA member participating in the Offering” includes any associated person of a FINRA member that is participating in the Offering, any member of such associated person’s immediate family and any affiliate of a FINRA member that is participating in the Offering. “Any person associated with a FINRA member” means (1) a natural person who is registered or has applied for registration under the rules of FINRA and (2) a sole proprietor, partner, officer, director, or branch manager of a FINRA member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a FINRA member. When used in this Section 3.1(oo) the term “affiliate of a FINRA member” or “affiliated with a FINRA member” means an entity that controls, is controlled by or is under common control with a FINRA member. The Company will advise the Representative and Blank Rome LLP if it learns that any officer, director or owner of 5% or more of the Company’s outstanding Ordinary Shares or Ordinary Share Equivalents is or becomes an affiliate or associated person of a FINRA member firm.
(pp) Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to Blank Rome LLP on behalf of the Representative shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
(qq) Board of Directors. The Board of Directors is comprised of the persons set forth under the heading of the Prospectus captioned “Management and Board of Directors.” The qualifications of the persons serving as board members and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder applicable to the Company and the rules of the Trading Market. At least one member of the Board of Directors qualifies as a “financial expert” as such term is defined under the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder and the rules of the Trading Market. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent” as defined under the rules of the Trading Market.
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(rr) ERISA. The Company is not a party to an “employee benefit plan,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which: (i) is subject to any provision of ERISA and (ii) is or was at any time maintained, administered or contributed to by the Company or any of its ERISA Affiliates (as defined hereafter). These plans are referred to collectively herein as the “Employee Plans.” An “ERISA Affiliate” of any person or entity means any other person or entity which, together with that person or entity, could be treated as a single employer under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the “Code”). Each Employee Plan has been maintained in material compliance with its terms and the requirements of applicable law. No Employee Plan is subject to Title IV of ERISA. The Registration Statement, Preliminary Prospectus and the Prospectus identify each employment, severance or other similar agreement, arrangement or policy and each material plan or arrangement required to be disclosed pursuant to the Rules and Regulations providing for insurance coverage (including any self-insured arrangements), workers’ compensation, disability benefits, severance benefits, supplemental unemployment benefits, vacation benefits or retirement benefits, or deferred compensation, profit-sharing, bonuses, share options, stock appreciation rights or other forms of incentive compensation, or post-retirement insurance, compensation or benefits, which: (i) is not an Employee Plan; (ii) is entered into, maintained or contributed to, as the case may be, by the Company or any of its ERISA Affiliates; and (iii) covers any officer or director or former officer or director of the Company or any of its ERISA Affiliates. These agreements, arrangements, policies or plans are referred to collectively as “Benefit Arrangements.” Each Benefit Arrangement has been maintained in material compliance with its terms and with the requirements of applicable law. Except as disclosed in the Registration Statement, Preliminary Prospectus and the Prospectus, there is no liability in respect of post-retirement health and medical benefits for retired employees of the Company or any of its ERISA Affiliates, other than medical benefits required to be continued under applicable law. No “prohibited transaction” (as defined in either Section 406 of ERISA or Section 4975 of the Code) has occurred with respect to any Employee Plan; and each Employee Plan that is intended to be qualified under Section 401(a) of the Code is so qualified, and nothing has occurred, whether by action or by failure to act, which could cause the loss of such qualification.
(ss) IT Systems. Except as would not, individually or in the aggregate, have a Material Adverse Effect, the Company reasonably believes that (i) the Company and each of its subsidiaries owns or has a valid right to access and use all computer systems, networks, hardware, software, databases, websites, and equipment used to process, store, maintain and operate data, information, and functions used in connection with the business of the Company and each of its subsidiaries (the “Company IT Systems”), (ii) the Company IT Systems are adequate for, and operate and perform as required in connection with, the operation of the business of the Company and each of its subsidiaries as currently conducted and (iii) the Company and each of its subsidiaries has implemented reasonable backup, security and disaster recovery technology consistent with applicable regulatory standards;
(tt) [Reserved].
(uu) Ineligible Issuer Status. At the time of filing the Registration Statement and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined under Rule 405 under the Securities Act.
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(vv) Emerging Growth Company. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly in or through any Person authorized to act on its behalf in any Testing-the Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(ww) No Relationships with Customers and Suppliers. No relationship, direct or indirect, exists between or among the Company, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of the Company’s affiliates, on the other hand, which is required to be described in the Registration Statement, the General Disclosure Package and the Prospectus or a document incorporated by reference therein and which is not so described.
(xx) Sanctions. None of the Company, its directors or officers or, to the knowledge of the Company, any agent, employee, affiliate or other person acting on behalf of the Company or any of its subsidiaries has engaged in any activities sanctionable under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, the Iran Sanctions Act of 1996, the National Defense Authorization Act for Fiscal Year 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012 or any Executive Order relating to any of the foregoing (collectively, and as each may be amended from time to time, the “Iran Sanctions”); and the Company will not directly or indirectly use the proceeds of the Offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of engaging in any activities sanctionable under the Iran Sanctions.
(yy) Testing-the-Waters Communications. Each Written Testing-the-Waters Communications did not, as of the Effective Date, and at all times through the completion of the public offer and sale of the Securities will not, include any information that conflicted, conflicts or will conflict with the information contained in the Registration Statement, the General Disclosure Package or the Prospectus. As used herein “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act and “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. Each Written Testing-the-Waters Communication did not, as of the Effective Date, when taken together with the General Disclosure Package, contain 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. No Company Party (a) has engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representative 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 (b) has authorized any third party to engage in Testing-the-Waters Communications. The Company reconfirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. No Company Party has distributed any Written Testing-the-Waters Communications other than those listed on Schedule III hereto. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company Parties engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an Emerging Growth Company.
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(zz) 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 either the Registration Statement, General Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Amendments to Registration Statement. The Company has delivered, or will as promptly as practicable deliver, to the Underwriters complete conformed copies of the Registration Statement and of each consent and certificate of experts, as applicable, filed as a part thereof, and conformed copies of the Registration Statement (without exhibits), the Prospectus, as amended or supplemented, and the General Disclosure Package in such quantities and at such places as an Underwriter reasonably requests. Neither the Company nor any of its directors and officers has distributed and none of them will distribute, prior to the Closing Date, any offering material in connection with the offering and sale of the Securities other than the Prospectus, the General Disclosure Package and the Registration Statement. The Company shall not file any such amendment or supplement to which the Representative shall reasonably object in writing.
4.2 Federal Securities Laws.
(a) Compliance. During the time when a Prospectus is required to be delivered under the Securities Act, the Company will use its best efforts to comply with all requirements imposed upon it by the Securities Act and the rules and regulations thereunder and the Exchange Act and the rules and regulations thereunder, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus. If at any time when a Prospectus relating to the Securities is required to be delivered under the Securities Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or counsel for the Representative, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Securities Act, the Company will notify the Underwriters promptly and prepare and file with the Commission, subject to Section 4.1 hereof, an appropriate amendment or supplement in accordance with Section 10 of the Securities Act.
(b) Exchange Act Registration. For a period of three years from the Execution Date, the Company will use its best efforts to maintain the registration of the Ordinary Shares and the Warrants under the Exchange Act; provided, that such provision shall not prevent a sale, merger or similar transaction involving the Company. The Company will not deregister the Ordinary Shares under the Exchange Act without the prior written consent of the Representative, which consent shall not be unreasonably withheld and provided that such provision shall not prevent a sale, merger or similar transaction involving the Company.
(c) Free Writing Prospectuses. The Company represents and agrees that it has not made and will not make any offer relating to the Securities that would constitute an issuer free writing prospectus, as defined in Rule 433 of the rules and regulations under the Securities Act, without the prior written consent of the Representative. Any such free writing prospectus consented to by the Representative is herein referred to as a “Permitted Free Writing Prospectus.” The Company represents that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus” as defined in the rules and regulations under the Securities Act, and has complied and will comply with the applicable requirements of Rule 433 of the Securities Act, including timely Commission filing where required, legending and record keeping.
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4.3 Filing of the Final Prospectus; Delivery to the Underwriters of Prospectuses. The Company will file the Prospectus (in form and substance reasonably satisfactory to the Representative) with the Commission pursuant to the requirements of Rule 424. The Company will deliver to the Underwriters, without charge, from time to time during the period when the Prospectus is required to be delivered under the Securities Act or the Exchange Act such number of copies of each Prospectus as the Underwriters may reasonably request.
4.4 Effectiveness and Events Requiring Notice to the Underwriters. The Company will use its commercially reasonable efforts to cause the Registration Statement to remain effective with a current prospectus until the Warrants are no longer outstanding, and will notify the Underwriters and holders of the Warrants immediately 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 Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) the electronic filing with the Commission 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 4.4 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the General Disclosure Package or the Prospectus untrue or that requires the making of any changes in the Registration Statement, the General Disclosure Package or the Prospectus in order to make the statements therein, in 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 will make every reasonable effort to obtain promptly the lifting of such order.
4.5 Review of Financial Statements. For a period of three (3) years from the Execution Date, the Company shall file with the Commission all reports required to be filed pursuant to the Exchange Act and, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements included in such reports, provided that such provision shall not prevent a sale, merger or similar transaction involving the Company.
4.6 Reports to the Underwriters; Expenses of the Offering.
(a) Periodic Reports, etc. For a period of two (2) years from the Execution Date, the Company will furnish or make available to the Underwriters 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 or make available to the Underwriters: (i) a copy of each periodic report the Company shall be required to file with the Commission; (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) 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; provided that the Underwriters shall each sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to the Representative in connection with such Underwriter’s receipt of such information. Documents filed with the Commission pursuant to its EDGAR system shall be deemed to have been delivered to the Underwriters pursuant to this Section.
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(b) Transfer Sheets. For a period of two (2) years from the Execution Date, the Company shall retain the Transfer Agent or a transfer and registrar agent acceptable to the Representative and will furnish to the Underwriters at the Company’s sole cost and expense such transfer sheets of the Company’s securities as an Underwriter may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and the DTC.
(c) Trading Reports. For a period of two (2) years from the Execution Date, the Company shall provide to the Underwriters, at the Company’s expense, such reports published by such Trading Market relating to price and trading of the Ordinary Shares, as the Underwriters shall reasonably request.
(d) General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and each 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 communication expenses relating to the registration of the Securities to be sold in the Offering (including the Option Securities) with the Commission; (b) all FINRA Public Offering Filing System fees associated with the review of the Offering by FINRA; all fees and expenses relating to the listing of such Firm Units, Option Shares and Warrant Shares on the Trading Market and such other stock exchanges as the Company and the Representative together determine; (c) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting Agreement and, if appropriate, any Agreement Among Underwriters, any agreements with Selected Dealers, Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (d) the costs of preparing, printing and delivering the Securities; (e) fees and expenses of the Transfer Agent for the Securities (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company); (f) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (g) the fees and expenses of the Company’s accountants; (h) the fees and expenses of the Company’s legal counsel and other agents and representatives; (i) all reasonable fees, expenses and disbursements relating to background checks of the Company’s officers and directors; (j) the fees and expenses associated with the Underwriters’ use of i-Deal’s book-building, prospectus tracking and compliance software (or other similar software) for the Offering; (k) the fees and expenses of the Underwriter’s legal counsel and (l) the Company’s actual “road show” expenses for the Offering. The Underwriters may also deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or each Option Closing Date, if any, all out-of-pocket fees, expenses and disbursements (including legal fees and expenses) of the Underwriters incurred as a result of providing services related to the Offering to be paid by the Company to the Underwriters; provided, however, that all such costs and expenses pursuant to Section 4.6(d), which are incurred by the Underwriters and for which the Company shall be responsible shall not exceed $125,000 in the aggregate in the event of a Closing of the Offering ($25,000 of which has been paid as an advance (the “Advance”) prior to the Execution Date) and a maximum of $40,000 in the event there is not a Closing. In the event the offering is terminated, the Advance received against reasonable out-of-pocket expenses incurred in connection with the offering will be returned to the Company to the extent not actually incurred in accordance with FINRA Rule 5110(g)(4)(A).
4.7 Application of Net Proceeds. The Company will apply the net proceeds from the Offering received by it in a manner consistent with the application described under the caption “Use of Proceeds” in the Prospectus.
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4.8 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 security holders as soon as practicable, but not later than the first day of the fifteenth full calendar month following the Execution Date, an earnings statement (which need not be certified by independent public or independent certified public accountants unless required by the Securities Act or the rules and regulations under the Securities Act, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve consecutive months beginning after the Execution Date.
4.9 Stabilization. Neither the Company, nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken or will take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under 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 Securities.
4.10 Internal Controls. The Company will maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (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 existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
4.11 Accountants. For a period of three (3) years from the Effective Date, the Company shall continue to retain a nationally recognized, independent PCAOB registered public accounting firm. The Underwriters acknowledge that the Company Auditor is acceptable to the Underwriters.
4.12 FINRA. The Company shall advise the Underwriters (who shall make an appropriate filing with FINRA) if it is aware that any officer, director, 5% or greater shareholder of the Company or Person that received the Company’s unregistered equity securities in the past 180 days is or becomes an affiliate or associated person of a FINRA member firm prior to the earlier of the termination of this Agreement or the conclusion of the distribution of the Offering.
4.13 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual and commercial in nature, based on arms-length negotiations and that neither the Underwriters nor their affiliates or any selected dealer 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. Notwithstanding anything in this Agreement to the contrary, the Company acknowledges that the Underwriters may have financial interests in the success of the Offering that are not limited to the difference between the price to the public and the purchase price paid to the Company by the Underwriters for the Public Securities and the Underwriters have no obligation to disclose, or account to the Company for, any of such additional financial interests. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Underwriters with respect to any breach or alleged breach of fiduciary duty by the Underwriters.
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4.14 Representative’s Warrant Shares. If all or any portion of a Warrant or a Representative’s Warrants is exercised at a time when there is an effective registration statement to cover the issuance of the Warrant Shares or the Representative’s Warrant Shares, as the case may be, or if the Warrant or Representative’s Warrants is exercised via cashless exercise at a time when such Warrant Shares or Representative’s Warrant Shares would be eligible for resale under Rule 144 by a non-affiliate of the Company, the Warrant Shares or the Representative’s Warrant Shares issued pursuant to any such exercise shall be issued free of all restrictive legends. If at any time following the date hereof the Registration Statement (or any subsequent registration statement registering the sale or resale of the Warrant Shares or the Representative’s Warrant Shares) is not effective or is not otherwise available for the sale of the Warrant Shares or the Representative’s Warrant Shares, the Company shall immediately notify the holders that have provided it an address of the Warrants or Representative’s Warrant Agreement in writing that such registration statement is not then effective and thereafter shall promptly notify such holders when the registration statement is effective again and available for the sale of the Warrant Shares or the Representative’s Warrant Shares (it being understood and agreed that the foregoing shall not limit the ability of the Company to issue, or any holder thereof to sell, any of the Warrant Shares or Representative’s Warrant Shares in compliance with applicable federal and state securities laws and FINRA rules).
4.15 Board Composition and Board Designations. The qualifications of the persons serving as board members of the Company and the overall composition of the Board of Directors shall comply with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder and with the listing requirements of the Nasdaq Stock Market and, if applicable, at least one member of the Board of Directors must qualify as a “financial expert” as such term is defined under the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder.
4.16 Securities Laws Disclosure; Publicity. At the request of the Representative, by 9:00 a.m. (New York City time) on the date hereof, the Company shall issue a press release disclosing the material terms of the Offering. The Company and the Representative shall consult with each other in issuing any press releases with respect to the Offering, and neither the Company nor any Underwriter shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. The Company will not issue press releases or engage in any other publicity, without the Representative’s prior written consent, which consent will not be unreasonably withheld, for a period ending at 5:00 p.m. (New York City time) on the first business day following the 45th day following the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
4.17 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Underwriter of the Securities is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Underwriter of Securities could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities.
4.18 Reservation of Ordinary Shares. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times while any of the Warrants or Representative’s Warrants are outstanding, free of preemptive rights, a sufficient number of Ordinary Shares for the purpose of enabling the Company to issue Option Shares pursuant to the Over-Allotment Option, Warrant Shares pursuant to any exercise of the Warrants and Representative’s Warrant Shares pursuant to any exercise of the Representative’s Warrants.
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4.19 Listing of Ordinary Shares and Warrants; Electronic Transfer. The Ordinary Shares and Warrants have been approved for trading on the Nasdaq Capital Market. The Company agrees to use its best efforts to effect and maintain the trading of the Ordinary Shares and the Warrants on the Nasdaq Capital Market for at least three (3) years after the Closing Date. The Company further agrees, if the Company applies to have the Ordinary Shares traded on any other Trading Market, it will then include in such application all of the Firm Securities, Option Shares and Representative’s Warrant Shares, and will take such other action as is necessary to cause all of the Firm Securities, Option Shares and Representative’s Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company agrees to maintain the eligibility of the Ordinary Shares for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.20 Right of First Refusal. Upon the Closing of the Offering, for a period of twenty-four (24) months from such Closing, the Company grants Maxim the right of first refusal (the “Right of First Refusal”) to act as sole managing underwriter and sole book runner, sole placement agent, or sole sales agent, for any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings for which the Company retains the service of an underwriter, agent, advisor, finder or other person or entity in connection with such offering during such twenty-four (24) month period of the Company, or any successor to or any subsidiary of the Company (each, a “Subject Transaction”), at Maxim’s sole and exclusive discretion, on terms and conditions customary to Maxim for such Subject Transactions.
4.21 Subsequent Equity Sales.
(a) From the date hereof until six (6) months days after the Closing Date, neither the Company nor any subsidiary of the Company shall not issue, enter into any agreement to issue or announce the issuance or proposed issuance of any Ordinary Shares or Ordinary Share Equivalents.
(b) Notwithstanding the foregoing, this Section 4.21 shall not apply in respect of an Exempt Issuance.
4.22 Capital Changes. Until one-hundred eighty (180) days after the Closing Date and except for reverse stock splits as disclosed in the Registration Statement, the Company shall not undertake a reverse or forward stock split or reclassification of the Ordinary Shares without the prior written consent of Maxim.
4.23 Research Independence. The Company acknowledges that each Underwriter’s research analysts and research departments, if any, are required to be independent from their respective investment banking divisions and are subject to certain regulations and internal policies, and that such Underwriter’s research analysts may hold and make statements or investment recommendations and/or publish research reports with respect to the Company and/or the Offering that differ from the views of its investment bankers. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against such Underwriter with respect to any conflict of interest that may arise from the fact that the views expressed by their independent research analysts and research departments may be different from or inconsistent with the views or advice communicated to the Company by such Underwriter’s investment banking divisions. The Company acknowledges that each Representative is a full service securities firm and as such from time to time, subject to applicable securities laws, may effect transactions for its own account or the account of its customers and hold long or short position in debt or equity securities of the Company.
ARTICLE V.
DEFAULT BY UNDERWRITERS
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If on the Closing Date or any Option Closing Date, if any, any Underwriter shall fail to purchase and pay for the portion of the Firm Securities or Option Securities, as the case may be, which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company), the Representative, or if a Representative is the defaulting Underwriter, the non-defaulting Underwriters, shall use their reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Securities or Option Securities, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours the Representative shall not have procured such other Underwriters, or any others, to purchase the Firm Securities or Option Securities, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of Firm Securities or Option Securities, as the case may be, with respect to which such default shall occur does not exceed 10% of the Firm Securities or Option Securities, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Securities or Option Securities, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Securities or Option Securities, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of Firm Securities or Option Securities, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Securities or Option Securities, as the case may be, covered hereby, the Company or the Representative will have the right to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Article VI hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Article V, the applicable Closing Date may be postponed for such period, not exceeding seven days, as the Representative, or if a Representative is the defaulting Underwriter, the non-defaulting Underwriters, may determine in order that the required changes in the Prospectus or in any other documents or arrangements may be effected. The term “Underwriter” includes any person substituted for a defaulting Underwriter. Any action taken under this Section shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification of the Underwriters. The Company shall indemnify and hold harmless each Underwriter, its affiliates, the directors, officers, employees and agents of such Underwriter, each dealer selected by each underwriter to participate in the offer and sale of the Securities and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, liabilities, expenses and damages (including any and all investigative, legal and other expenses reasonably incurred arising out of, based upon or in connection with, and any amount paid in settlement of, any action, suit or proceeding between any of the indemnified parties and any indemnifying parties or between any indemnified party and any third party, or otherwise, or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on or in connection with (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Securities Act and the rules and regulations thereunder, as applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, any preliminary prospectus supplement, any Permitted Free Writing Prospectus or the Prospectus (or any amendment or supplement to any of the foregoing) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading,(iii) any untrue statement or alleged untrue statement of a material fact contained in any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering of the Securities, including any
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roadshow or investor presentations made to investors by the Company (whether in person or electronically) (collectively, “Marketing
Materials”) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading, or (iv) in whole or in part any inaccuracy
in any material respect in the representations and warranties of the Company contained herein; provided, however,
that the Company shall not be liable to the extent that such loss, claim, liability, expense or damage is based on any untrue
statement or omission or alleged untrue statement or omission made in reliance on and in conformity with Underwriters’ Information.
This indemnity agreement will be in addition to any liability that the Company might otherwise have. The
parties acknowledge and agree that such information (the “Underwriters’ Information”) provided
by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section
of the Prospectus: (i) the table showing the number of Ordinary Shares to be purchased by each Underwriter, and (ii) paragraphs
under the captions “Price Stabilization, Short Positions and Penalty Bids”, “Electronic Offer, Sale and
Distribution of Securities” and “Discretionary Accounts.”
6.2 Indemnification of the Company. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its affiliates, the directors, officers, employees and agents of the Company and each other person or entity, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever, as incurred (including but not limited to reasonable attorneys’ fees and any and all reasonable expenses whatsoever, incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Securities Act and the rules and regulations thereunder, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of them, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense (or action in respect thereof) arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon the Underwriters’ Information; provided, however, that in no case shall any Underwriter be liable or responsible for any amount in excess of the underwriting discount and commissions applicable to the Securities purchased by such Underwriter hereunder.
6.3 Indemnification Procedures. Any party that proposes to assert the right to be indemnified under this Section 6 shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 6, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 6 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable out-of-pocket costs of investigation subsequently incurred by
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the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless
(i) the employment of counsel by the indemnified party has been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnified party has reasonably concluded (based on advice of counsel) that there may
be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the
indemnifying party, (iii) the indemnified party has reasonably concluded that a conflict or potential conflict exists (based on
advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying
party shall not have the right to direct the defense of such action on behalf of the indemnified party), (iv) the indemnifying
party does not diligently defend the action after assumption of the defense, or (v) the indemnifying party has not in fact employed
counsel satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice
of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel shall
be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements
and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified
party or parties. All such fees, disbursements and other charges shall be reimbursed by the indemnifying party promptly as they
are incurred. An indemnifying party shall not be liable for any settlement of any action or claim effected without its written
consent (which consent will not be unreasonably withheld or delayed). No indemnifying party shall, without the prior written consent
of each indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated by this Section 6 (whether or not any indemnified party is a party
thereto), unless (x) such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from
all liability arising or that may arise out of such claim, action or proceeding 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 indemnified party, and (y) the indemnifying party
confirms in writing its indemnification obligations hereunder with respect to such settlement, compromise or judgment. Notwithstanding
the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated
by Section 6(a) effected without its written consent if (A) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (B) such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such settlement.
6.4 Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 6 is applicable in accordance with its terms but for any reason is held to be unavailable, the Company and the Underwriters shall contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the Underwriters, such as persons who control the Company within the meaning of the Securities Act, officers of the Company who signed the Registration Statement and directors of the Company, who may also be liable for contribution), to which the Company and the Underwriter may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the Offering of the Securities pursuant to this Agreement. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the Offering (net of underwriting discount and commissions but before deducting expenses) received by the Company bears to (y) the underwriting discount and commissions received by the Underwriters, in each case as set forth in the table on the cover
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page of the Prospectus. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law,
the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence 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 which resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined
by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this Section 6.4 were to be determined by pro rata
allocation or by any other method of allocation (even if the Underwriters were treated as one entity for such purpose) which 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, liability, expense or damage, or action in respect thereof, referred to above in this Section 6.4
shall be deemed to include, for purpose of this Section 6.4, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this
Section 6.4, no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions
received by it. No person found 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. For purposes of
this Section 6.4, any person who controls a party to this Agreement within the meaning of the Securities Act will have
the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have
the same rights to contribution as the Company, and each director, officer, employee, counsel or agent of an Underwriter will
have the same rights to contribution as such Underwriter, subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 6.4, will notify any such party or parties from whom contribution may be sought,
but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6.4. The obligations of the Underwriters to contribute pursuant to this Section
6.4 are several in proportion to the respective number of Securities to be purchased by each of the Underwriters hereunder
and not joint. No party will be liable for contribution with respect to any action or claim settled without its written consent
(which consent will not be unreasonably withheld).
6.5 Survival. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or any controlling Person thereof, (ii) acceptance of any of the Securities and payment therefor or (iii) any termination of this Agreement.
ARTICLE VII.
MISCELLANEOUS
7.1 Termination.
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(a) Termination Right. The Representative shall have the right to terminate this Agreement by notifying the Company at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in their opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on any Trading Market 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 opinion, make it inadvisable to proceed with the delivery of the Securities, 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 such a material adverse change in the conditions or prospects of the Company, or such 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 Securities or to enforce contracts made by the Underwriters for the sale of the Securities.
(b) Expenses. In the event this Agreement shall be terminated pursuant to Section 7.1(a), within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to Maxim its actual and accountable out of pocket expenses related to the transactions contemplated herein then due and payable up to $40,000 (of which $25,000 has been paid as an Advance prior to the Execution Date) (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).
(c) 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 Article VI shall not be in any way effected by such election or termination or failure to carry out the terms of this Agreement or any part hereof.
7.2 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, any Preliminary Prospectus and the Prospectus, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. Notwithstanding anything herein to the contrary, the Engagement Agreement, dated July 24, 2023 (“Engagement Agreement”), by and between the Company and Maxim, shall continue to be effective and the terms therein, including, without limitation, Section 15 with respect to any future offerings, shall continue to survive and be enforceable by Maxim in accordance with its terms, provided that, in the event of a conflict between the terms of the Engagement Agreement and this Agreement, the terms of this Agreement shall prevail.
7.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number (if any) or e-mail attachment at the email address set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-mail attachment at the e-mail address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
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7.4 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Maxim. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
7.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
7.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.
7.7 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Article VI, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
7.8 Survival. The representations and warranties contained herein shall survive the Closing and the Option Closing, if any, and the delivery of the Securities.
7.9 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
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7.10 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
7.11 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Underwriters and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
7.12 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
7.13 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and Ordinary Shares in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Ordinary Shares that occur after the date of this Agreement.
7.14 Appointment of Agent for Service. The Company has appointed Sichenzia Ross Ference LLP, 1185 Avenue of the Americas, 31st Floor, New York, NY 10036 as its agent for service of process in any suit, action or proceeding described in Section 7.7 and agrees that service of process in any suit, action or proceeding may be made upon it at the office of such agent. The Company waives, to the fullest extent permitted by law, any other requirements of or objections to, and hereby submits to the personal jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan. The Company represents and warrants that such agent has agreed to act as the Company’s agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect.
7.15 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE FOREVER ANY RIGHT TO TRIAL BY JURY.
7.16 No Third Party Beneficiaries. The provisions of this Agreement shall be binding upon and shall inure solely to the benefit of the parties hereto, are not intended to confer upon any Person other than the parties hereto and the Underwriters where so indicated any rights, benefits, remedies, obligations or liabilities hereunder.
7.17 Judgment Currency. The obligation of the Company in respect of any sum due to any Underwriter under this Agreement shall, notwithstanding any judgment in a currency other than U.S. dollars (the “Judgment Currency”), not be discharged until the first business day, following receipt by such Underwriter of any sum adjudged to be so due in the Judgment Currency, on which (and only to the extent that) such Underwriter may in accordance with normal banking procedures purchase U.S. dollars with the Judgment Currency; if the U.S. dollars so purchased are less than the sum originally due to such Underwriter hereunder, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Underwriter against such loss. If the U.S. dollars so purchased are greater than the sum originally due to such Underwriter hereunder, such Underwriter agrees to pay to the Company an amount equal to the excess of the U.S. dollars so purchased over the sum originally due to such Underwriter hereunder.
(Signature Pages Follow)
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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 among the Company and the several Underwriters in accordance with its terms.
| Very truly yours, | ||
| INNOVATION BEVERAGE GROUP LIMITED | ||
| By: | ||
| Name: | ||
| Title: | ||
Address for Notice:
29 Anvil Road
Seven Hills, NSW 2147
Australia
E-mail: [_____]
Attention: [______]
Copy to:
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31st Floor
New York, New York 10036
Tel: (212) 930-9700
Fax: (212) 930 9725
E-mail: [_____].com
Attention: Darrin Ocasio, Esq.
Accepted by the Representative, acting for themselves and
as
Representative of the Underwriters named on Schedule I hereto,
as of the date first above written:
| MAXIM GROUP LLC | ||
| By: | ||
| Name: Clifford A. Teller | ||
| Title: Co-President | ||
Address for Notice:
300 Park Avenue, 16th Floor
New York, New York 10022
Facsimile: (212) 895-3783 or e-mail: cteller@maximgrp.com
Attention: Clifford A. Teller
Copy to:
Blank Rome LLP
1271 Avenue of the Americas
New York, New York 10020
Facsimile: (212) 885-5001 or e-mail: leslie.marlow@blankrome.com
or patrick.egan@blankrome.com
Attention: Leslie Marlow, Esq. and/or Patrick J. Egan, Esq.
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SCHEDULE I
Schedule of Underwriters
| Underwriters | Closing Units | Closing Shares | Closing Warrants |
Closing Purchase Price | ||||||||||||
| Maxim Group LLC | ||||||||||||||||
| Total | ||||||||||||||||
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SCHEDULE II
Pricing Information
Number of Firm Units: [_____]
Number of Firm Shares: [_____]
Number of Firm Warrants: [_____]
Number of Option Shares: [_____]
Number of Option Warrants: [_____]
Public Offering Price per Firm Unit: $[_____]
Public Offering Price per Option Share: $[_____]
Public Offering Price per Option Warrant: $[_____]
Underwriting Discount per Firm Unit: $[_____]
Underwriting Discount per Option Share: $[_____]
Underwriting Discount per Option Warrant: $[_____]
Proceeds to Company per Firm Unit (before expenses): $[_____]
Proceeds to Company per Option Share (before expenses): $[_____]
Proceeds to Company per Option Warrant (before expenses): $[_____]
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SCHEDULE III
Written Testing-the-Waters Communications
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EXHIBIT A
FORM OF LOCK-UP AGREEMENT
[____], 2023
Maxim Group LLC
Investment Banking
300 Park Avenue, 16th Floor
New York, New York 10022
Re: Innovation Beverage Group Limited—Public Offering of Securities
Ladies and Gentlemen:
The undersigned, a holder of ordinary shares, no par value (the “Ordinary Shares”), or rights to acquire Ordinary Shares, of Innovation Beverage Group Limited, a company incorporated under the laws of Australia (the “Company”), understands that you are the representative (the “Representative”) of the several underwriters (collectively, the “Underwriters”) named or to be named in the final form of Schedule I to the underwriting agreement (the “Underwriting Agreement”) to be entered into by and between the Representative and the Company, providing for the public offering (the “Public Offering”) of Ordinary Shares (the “Shares”) and warrants to purchase Ordinary Shares pursuant to a registration statement on Form F-1, as amended (File No. 333-266965), filed with the U.S. Securities and Exchange Commission (the “Commission”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth for them in the Underwriting Agreement.
In consideration of the Underwriters’ agreement to enter into the Underwriting Agreement and to proceed with the Public Offering of the Shares and warrants in the Public Offering, 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 specified in the following paragraph (the “Lock-Up Period”), directly or indirectly, unless otherwise provided herein, (a) offer, sell, agree to offer or sell, hypothecate, pledge, lend, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise dispose of or transfer (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, or (c ) make any demand for, or exercise any right with respect to, the registration of any Ordinary Shares or any security convertible into or exercisable of exchangeable for Ordinary Shares. As used herein, the term “Relevant Security” means any Ordinary Shares, any warrant to purchase Ordinary Shares or any other security of the Company or any other entity that is convertible into, or exercisable or exchangeable for, Ordinary Shares or any other equity security of the Company, 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 any exercise (including a cashless exercise or broker-assisted exercise and payment of tax obligations) of options or warrants to purchase Ordinary Shares; provided that any Ordinary Shares received upon such exercise, conversion or exchange will be subject to this Lock-Up Period. The Lock-Up Period will commence on the date of this Lock-up Agreement and continue and include the date that is six (6) months days after the closing of the Public Offering.
In order to enforce this covenant, the Company shall impose irrevocable stop-transfer instructions preventing the transfer agent of the Company from effecting any actions in violation of this Lock-Up Agreement. The Representative may consent to an early release from the Lock-Up Period in its sole and absolute discretion, including but not limited to when the market for the Shares would not be adversely impacted by sales and in cases of financial emergency.
Notwithstanding the foregoing, the undersigned may transfer the undersigned’s Relevant Securities:
| (i) | as a bona fide gift or gifts, |
| (ii) | to any trust for the direct or indirect benefit of the undersigned or a member of 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 limited partners, limited liability company members or stockholders of 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 beneficiary of such trust, |
| (v) | to the undersigned’s affiliates (within the meaning set forth in Rule 405 under the Securities Act) or to any investment fund or other entity controlled by or under common control or management with the undersigned or its affiliates; |
| (vi) | if the undersigned, directly or indirectly, controls a corporation, partnership, limited liability company or other business entity, any transfers of Relevant Securities to any shareholder, partner or member of, or owner of similar equity interests in, such entity, as the case may be; |
| (vii) | by testate or intestate succession, |
| (viii) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, |
| (ix) | if such Relevant Securities are acquired in open market transactions after the completion of the Company’s initial public offering (provided, that this subsection (ix) shall not apply where any Section 16(a) filing reporting a reduction in beneficial ownership is required to be made by the Company or the undersigned, and provided further that no such filing shall be voluntarily made during the Lock-Up Period); or |
| (x) | pursuant to the Underwriting Agreement; |
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provided, in the case of clauses (i)-(viii), 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.
For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.
In addition, the lock-up restrictions provided above shall not apply to the transfer of any or all of the Relevant Securities owned by the undersigned as follows: (a) pursuant to a tender offer, merger, stock sale, recapitalization, consolidation or similar transaction involving the Company or (b) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act so long as such plan does not permit the transfer of the Relevant Securities during the Restriction Period other than as otherwise allowed pursuant to this Lock-Up Agreement. In addition, notwithstanding the foregoing, this Lock-Up Agreement shall not restrict the undersigned from exercising any share option or other award under the Company’s equity-based incentive plan or warrants, or converting any notes or preferred stock.
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 Relevant Securities, the Representative will notify the Company of the impending release or waiver and (ii) the Company will announce the impending release or waiver by press release 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 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.
The undersigned understands that, if the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares to be sold thereunder, the undersigned shall be released from all obligations under this Lock-Up Agreement.
The undersigned, whether or not participating in the Public Offering, understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Lock-Up Agreement.
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.
[Signature page follows]
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| Very truly yours, | ||
| Signature: | ||
| Name (printed): | ||
| Title (if applicable): | ||
| Entity (if applicable): |
| 50 |
EXHIBIT B
OFFICERS’ CERTIFICATE
INNOVATION BEVERAGE GROUP LIMITED
The undersigned, Dean Huge and Tianyi Eric Yu, the duly elected and duly qualified Chief Executive Officer and Chief Financial Officer, respectively, of Innovation Beverage Group Limited, a company incorporated under the laws of Australia (the “Company”), hereby certify the following on behalf of the Company, in connection with the transactions contemplated by the Underwriting Agreement (the “Underwriting Agreement”), dated [___], 2023, by and between the Company and Maxim Group LLC, as representative of the several Underwriters named on Schedule I thereto:
| 1. | 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 General Disclosure Package or the Prospectus. |
| 2. | As of the Closing Date, the representations and warranties of the Company in the Underwriting Agreement are true and correct 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. |
| 3. | There has not been, subsequent to June 30, 2023, any material adverse change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a Material Adverse Effect. |
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Underwriting Agreement.
This Certificate is to assist the Underwriters in conducting and documenting their investigation of the affairs of the Company in connection with the Offering of the Ordinary Shares and warrants pursuant to the terms of the Underwriting Agreement and the other transactions described in the Transaction Documents, and each of the Underwriters, Blank Rome LLP and Sichenzia Ross Ference LLP is entitled to rely on this Certificate for such purpose and (if applicable) in connection with the delivery by such counsel of their respective legal opinions and negative assurance statement.
This Certificate may be executed in multiple counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed signature page of this certificate by electronic or facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof.
[Signature page follows]
| 51 |
IN WITNESS WHEREOF, the undersigned have executed this Officers’ Certificate on behalf of the Company as of this [__] day of [____], 2023.
| Name: | Dean Huge | |
| Title: | Chief Executive Officer | |
| Name: | Tianyi Eric Yu | |
| Title: | Chief Financial Officer |
[SIGNATURE PAGE TO OFFICERS’ CERTIFICATE]
| 52 |
EXHIBIT C
SECRETARY’S CERTIFICATE
INNOVATION BEVERAGE GROUP LIMITED
[___], 2023
The undersigned, acting solely in his/her capacity as the duly elected, qualified and acting Secretary of Innovation Beverage Group Limited, a company incorporated under the laws of Australia (the “Company”), and not in his/her individual capacity, hereby gives this certificate pursuant to Section 2.3(g) of that certain underwriting agreement, dated [___], 2023, by and between the Company and Maxim Group LLC, as representative of the several Underwriters named on Schedule I thereto (the “Underwriting Agreement”). Unless otherwise defined herein, the capitalized terms used herein shall have the meanings ascribed to them in the Underwriting Agreement.
The undersigned, [______], Secretary of the Company, hereby certifies as of the date hereof as follows:
| 1. | Attached hereto as Exhibit A is a true, correct and complete copy of the Constitution of Innovation Beverage Group Limited, in effect on the date hereof (the “Constitution”). The Constitution is in full force and effect on the date hereof, and no amendments or modifications to the Constitution have been authorized or filed with Australia. |
| 2. | Attached hereto as Exhibit B is a true, correct and complete copy of the Company’s Shareholder’s Deed, in effect on the date hereof (the “Shareholder’s Deed”), and no amendments or modifications to the Bylaws have been authorized. |
| 3. | Attached hereto as Exhibit C is a true, correct and complete copies of resolutions duly adopted by the Company’s board of directors or a committee thereof at meetings held on [_____], 2023 and [____], 2023, in which the transactions contemplated by the Registration Statement, the Prospectus and the Transaction Documents were authorized and approved. Such resolutions are in full force and effect, have not been amended, modified or rescinded and are the only resolutions related to the subject matter thereof. |
| 4. | Each person who, as a director or officer of the Company, signed, and delivered by facsimile, portable document file (.pdf) or otherwise (a) the Underwriting Agreement, (b) the Warrant Agency Agreement, (c) the Transaction Documents and (d) any and all other documents or instruments executed and delivered to the Representative in connection with the transactions contemplated by the Underwriting Agreement, was duly elected or appointed, qualified and acting as such director or officer, and was duly authorized to execute and deliver such documents or other instruments at the respective times of such execution and delivery. |
| 5. | All persons who, as officers or directors of the Company or attorneys-in-fact of such officers or directors, signed, and delivered by facsimile, portable document file (.pdf) or otherwise: (a) the Registration Statement on Form F-1, as amended (File No. 333-266965), that the Company filed with the Commission on [_____], which was subsequently declared effective by the Commission on [____], 2023, and (b) any and all other documents or instruments executed and delivered to the Commission in connection with such Registration Statement were, at the respective times of such signing, delivery or filing, duly elected or appointed, qualified and acting as such director, officer or duly appointed and acting as such attorney-in-fact, and the signatures of such persons appearing on such documents are their genuine signatures or true facsimiles or portable document thereof. |
| 53 |
| 6. | Attached hereto as Exhibit D are true, correct and complete copies of a good standing (or equivalent) certificate as of a recent date for the Company by the relevant authority of its jurisdiction of incorporation or organization, and such certificates attached thereto have not been amended (except as attached thereto) since the date reflected thereon. |
This Certificate is to assist the Underwriters in conducting and documenting their investigation of the affairs of the Company in connection with the Offering of the Ordinary Shares and warrants pursuant to the terms of the Underwriting Agreement and the other transactions described in the Transaction Documents, and each of the Underwriters, Blank Rome LLP and Sichenzia Ross Ference LLP is entitled to rely on this Certificate for such purpose and (if applicable) in connection with the delivery by such counsel of their respective legal opinions and negative assurance statement.
This Certificate may be executed in multiple counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed signature page of this certificate by electronic or facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof.
[Signature page follows]
| 54 |
IN WITNESS WHEREOF, I have hereunder signed my name on this [__] day of [___], 2023.
| Name: [________] | ||
| Title: Secretary |
The undersigned as Chief Executive Officer of the Company hereby certifies that [_____] is the duly elected, appointed, qualified and acting Secretary of the Company, and that the signature appearing above is his genuine signature.
| Dean Huge, Chief Executive Officer |
[Signature page to Innovation Beverage Group Limited Secretary’s Certificate]
| 55 |
Secretary’s Certificate
Exhibit A
Constitution of the Company
| 56 |
Secretary’s Certificate
Exhibit B
Shareholder’s Deed
| 57 |
Secretary’s Certificate
Exhibit C
Board Resolutions
| 58 |
Secretary’s Certificate
Exhibit D
Good Standing Certificates
| 59 |
EXHIBIT E
CHIEF FINANCIAL OFFICER’S CERTIFICATE
INNOVATION BEVERAGE GROUP LIMITED
[____], 2023
In connection with the Underwriting Agreement, dated [___], 2023, by and between Innovation Beverage Group Limited, a company incorporated under the laws of Australia (the “Company”) and Maxim Group LLC (the “Underwriting Agreement”), I, Tianyi Eric Yu, do hereby certify that I am the Chief Financial Officer of the Company , and, in my capacity as such and not in any individual capacity, and based upon a diligent examination of the financial records of the Company, the scope and nature of such examination being designed to identify information relevant to the subjects addressed below, do hereby certify to the Representative (as defined below) that:
| 1. | I am providing this certificate in connection with the offering of securities described in the registration statement on Form F-1, as amended (File No. 333-266965) (the “Registration Statement”), that was filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended, and that was subsequently declared effective by the Commission on [___], 2023. |
| 2. | I am familiar with the accounting, operations and records systems of the Company and I have responsibility for the Company’s financial and accounting matters. I have (i) read the Registration Statement and the Prospectus; and (ii) supervised the compilation of and reviewed the financial information set forth in the Registration Statement and the Prospectus (collectively, the “Financial Information”). Such Financial Information has been derived from the applicable accounting or financial records of the Company, which I believe, to the best of my knowledge, are accurate, complete and reliable. |
| 3. | There were no significant decreases in the Company’s cash and cash equivalents, total current liabilities and operating expenses during the Company’s fiscal quarter ended December 31, 2022 as compared with amounts shown on the Company’s unaudited interim financial statements for the fiscal quarter ended June 30, 2023, except as disclosed in the Registration Statement or the Prospectus. |
| 4. | I have prepared or reviewed the amounts and information identified in the pages of the Registration Statement and the Prospectus [and Company’s presentation], attached as Annex A hereto (collectively, the “Financial and Numerical Information”). To the best of my knowledge, such Financial and Numerical Information, as of the date hereof, matches or is accurately derived from the applicable accounting or financial records of the Company. |
Unless otherwise defined herein, the capitalized terms used herein shall have the meanings ascribed to them in the Underwriting Agreement.
This certificate is to assist the Underwriters in conducting and documenting their investigation of the affairs of the Company in connection with the Offering of the Ordinary Shares and warrants pursuant to the terms of the Underwriting Agreement and the other transactions described in the Transaction Documents, and each of the Underwriters, Blank Rome LLP and Sichenzia Ross Ference LLP is entitled to rely on this Certificate for such purpose and (if applicable) in connection with the delivery by such counsel of their respective legal opinions and negative assurance statement.
[Signature page follows]
| 60 |
IN WITNESS WHEREOF, the undersigned has executed and delivered this Chief Financial Officer Certificate on behalf of the Company as of the date first written above.
| INNOVATION BEVERAGE GROUP LIMITED | ||
| By: | ||
| Name: Tianyi Eric Yu | ||
| Title: Chief Financial Officer |
[Signature page to Chief Financial Officer Certificate—Innovation Beverage Group Limited]
| 61 |
EXHIBIT E
FORM OF WARRANT
_____________________________________________________________________________________
EXHIBIT F
FORM OF WARRANT AGENCY AGREEMENT
_____________________________________________________________________________________
| 62 |
EXHIBIT G
FORM OF REPRESENTATIVE’S WARRANT
63
EXHIBIT 4.4
INNOVATION BEVERAGE GROUP LIMITED
and
VSTOCK TRANSFER, LLC, as
Warrant Agent
Warrant Agency Agreement
Dated as of [●], 2023
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WARRANT AGENCY AGREEMENT
WARRANT AGENCY AGREEMENT, dated as of [●], 2023 (“Agreement”), between Innovation Beverage Group Limited, an Australian public limited company (the “Company”), and VStock Transfer, LLC, a corporation organized under the laws of California (the “Warrant Agent”).
W I T N E S S E T H
WHEREAS, pursuant to a registered offering by the Company of _____ Units (the “Offering”), with each Unit consisting of one (1) of the Company’s ordinary shares, no par value per share (the “Ordinary Shares”), and one (1) warrant (the “Warrants”) to purchase one (1) Ordinary Share (the “Warrant Shares”), the Warrants shall have an exercise price of $___ per share (or 100% of the initial public offering price of each Unit sold in the Offering); and
WHEREAS, the Company granted an over-allotment option to the underwriters to purchase up to 15% of the aggregate number of Ordinary Shares and/or Warrants sold, in any combination thereof (the “Over-Allotment Option”) to the Underwriters; and
WHEREAS, upon the terms and subject to the conditions hereinafter set forth and pursuant to an effective registration statement on Form F-1, as amended (File No. 333-266965) (the “Registration Statement”), and the terms and conditions of the Warrant Certificate, the Company wishes to issue the Warrants in book entry form entitling the respective holders of the Warrants (the “Holders,” which term shall include a Holder’s transferees, successors and assigns and “Holder” shall include, if the Warrants are held in “street name,” a Participant (as defined below) or a designee appointed by such Participant); and
WHEREAS, the Ordinary Shares and Warrants to be issued in connection with the Offering shall be immediately separable and will be issued separately, but will be purchased together in the Offering; and
WHEREAS, the Company wishes the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance, registration, transfer, exchange, exercise and replacement of the Warrants and, in the Warrant Agent’s capacity as the Company’s transfer agent, the delivery of the Warrant Shares (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, all capitalized terms not herein defined shall have the meanings hereby indicated:
(a) “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
(b) “Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which the Nasdaq Stock Market is authorized or required by law or other governmental action to close.
(c) “Close of Business” on any given date means 5:00 p.m., New York City time, on such date; provided, however, that if such date is not a Business Day it means 5:00 p.m., New York City time, on the next succeeding Business Day.
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(d) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(e) “Person” means an individual, corporation, association, partnership, limited liability company, joint venture, trust, unincorporated organization, government or political subdivision thereof or governmental agency or other entity.
(f) “Warrant Certificate” means a certificate in substantially the form attached as Exhibit 1 hereto, representing such number of Warrant Shares as is indicated therein, provided that any reference to the delivery of a Warrant Certificate in this Agreement shall include delivery of a Definitive Certificate or a Global Warrant (each as defined below).
All other capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the Warrant Certificate.
Section 2. Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Warrant Agent hereby accepts such appointment.
Section 3. Global Warrants.
(a) The Warrants shall be registered securities and shall be evidenced by a global warrant (the “Global Warrants”), in the form of the Warrant Certificate, which shall be deposited with the Warrant Agent and registered in the name of Cede & Co., a nominee of The Depository Trust Company (the “Depositary”), or as otherwise directed by the Depositary. Ownership of beneficial interests in the Warrants shall be shown on, and the transfer of such ownership shall be effected through, records maintained by (i) the Depositary or its nominee for each Global Warrant or (ii) institutions that have accounts with the Depositary (such institution, with respect to a Warrant in its account, a “Participant”).
(b) If the Depositary subsequently ceases to make its book-entry settlement system available for the Warrants, the Company may instruct the Warrant Agent regarding other arrangements for book-entry settlement. In the event that the Warrants are not eligible for, or it is no longer necessary to have the Warrants available in, book-entry form, the Warrant Agent shall provide written instructions to the Depositary to deliver to the Warrant Agent for cancellation each Global Warrant, and the Company shall instruct the Warrant Agent to deliver to each Holder a Warrant Certificate.
(c) A Holder has the right to elect at any time or from time to time a Warrant Exchange (as defined below) pursuant to a Warrant Certificate Request Notice (as defined below). Upon written notice by a Holder to the Company and the Warrant Agent for the exchange of some or all of such Holder’s Global Warrants for a separate certificate in the form attached hereto as Exhibit 1 (such separate certificate, a “Definitive Certificate”) evidencing the same number of Warrants, which request shall be in the form attached hereto as Exhibit 2 (a “Warrant Certificate Request Notice” and the date of delivery of such Warrant Certificate Request Notice by the Holder, the “Warrant Certificate Request Notice Date” and the surrender by the Holder to the Warrant Agent of a number of Global Warrants for the same number of Warrants evidenced by a Warrant Certificate, a “Warrant Exchange”), the Company shall promptly effect the Warrant Exchange and shall promptly direct the Warrant Agent to issue and deliver to the Holder a Definitive Certificate for such number of Warrants in the name set forth in the Warrant Certificate Request Notice. Such Definitive Certificate shall be dated the original issue date of the Warrants, shall be manually executed by an authorized signatory of the Company, shall be in the form attached hereto as Exhibit 1 and shall be reasonably acceptable in all respects to such Holder. In connection with a Warrant Exchange, the Company agrees to have the Warrant Agent deliver the Definitive Certificate to the Holder within ten (10)
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Business Days of the later of the delivery of the Warrant Certificate Request Notice and the surrender by the Holder to the Warrant
Agent of a number of Global Warrants for the same number of Warrants evidenced by a Warrant Certificate pursuant to the delivery
instructions in the Warrant Certificate Request Notice (“Warrant Certificate Delivery Date”). If the Company
fails for any reason to have the Warrant Agent deliver to the Holder the Definitive Certificate subject to the Warrant Certificate
Request Notice by the Warrant Certificate Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and
not as a penalty, for each $1,000 of Warrant Shares evidenced by such Definitive Certificate (based on the VWAP (as defined in
the Warrants) of the Ordinary Shares on the Warrant Certificate Request Notice Date), $10 per Business Day for each Business Day
after such Warrant Certificate Delivery Date until such Definitive Certificate is delivered or, prior to delivery of such Warrant
Certificate, the Holder rescinds such Warrant Exchange. The Company covenants and agrees that, upon the date of delivery of the
Warrant Certificate Request Notice, the Holder shall be deemed to be the holder of the Definitive Certificate and, notwithstanding
anything to the contrary set forth herein, the Definitive Certificate shall be deemed for all purposes to contain all of the terms
and conditions of the Warrants evidenced by such Warrant Certificate and the terms of this Agreement, other than Sections 3(c),
3(d) and 9 herein, shall not apply to the Warrants evidenced by the Definitive Certificate. The Warrant Agent shall act as warrant
agent with respect to any Definitive Certificate requested and issued pursuant to this section. Notwithstanding anything to the
contrary contained in this Agreement, in the event of inconsistency between any provision in this Agreement and any provision
in a Definitive Certificate, as it may from time to time be amended, the terms of such Definitive Certificate shall control.
(d) A Holder of a Definitive Certificate (pursuant to a Warrant Exchange or otherwise) has the right to elect at any time or from time to time a Global Warrants Exchange (as defined below) pursuant to a Global Warrants Request Notice (as defined below). Upon written notice by a Holder to the Company and the Warrant Agent for the exchange of some or all of such Holder’s Warrants evidenced by a Definitive Certificate for a beneficial interest in Global Warrants held in book-entry form through the Depositary evidencing the same number of Warrants, which request shall be in the form attached hereto as Exhibit 3 (a “Global Warrants Request Notice” and the date of delivery of such Global Warrants Request Notice by the Holder, the “Global Warrants Request Notice Date” and the surrender upon delivery by the Holder of the Warrants evidenced by Definitive Certificates for the same number of Warrants evidenced by a beneficial interest in Global Warrants held in book-entry form through the Depositary, a “Global Warrants Exchange”), the Company shall promptly effect the Global Warrants Exchange and shall promptly direct the Warrant Agent to issue and deliver to the Holder Global Warrants for such number of Warrants in the Global Warrants Request Notice, which beneficial interest in such Global Warrants shall be delivered by the Depositary’s Deposit or Withdrawal at Custodian system to the Holder pursuant to the instructions in the Global Warrants Request Notice. In connection with a Global Warrants Exchange, the Company shall direct the Warrant Agent to deliver the beneficial interest in such Global Warrants to the Holder within ten (10) Business Days of the later of the delivery of the Global Warrants Request Notice and the Definitive Certificate for a beneficial interest in Global Warrants held in book-entry form through the Depositary evidencing the same number of Warrants pursuant to the delivery instructions in the Global Warrant Request Notice (“Global Warrants Delivery Date”). If the Company fails for any reason to have the Warrant Agent deliver to the Holder Global Warrants subject to the Global Warrants Request Notice by the Global Warrants Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares evidenced by such Global Warrants (based on the VWAP (as defined in the Warrants) of the Ordinary Shares on the Global Warrants Request Notice Date), $10 per Business Day for each Business Day after such Global Warrants Delivery Date until such Global Warrants are delivered or, prior to delivery of such Global Warrants, the Holder rescinds such Global Warrants Exchange. The Company covenants and agrees that, upon the date of delivery of the Global Warrants Request Notice, the Holder shall be deemed to be the beneficial holder of such Global Warrants.
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Section 4. Form of Warrant Certificates. The Warrant Certificate, together with the form of election to purchase Ordinary Shares (“Notice of Exercise”) and the form of assignment to be printed on the reverse thereof, shall be in the form of Exhibit 1 hereto.
Section 5. Registration of Definitive Certificates. The Warrant Agent will keep or cause to be kept at one of its offices, books for the registration and transfer of any Definitive Certificates issued. Such Warrant Agent books shall show the names and addresses of the respective Holders of the Definitive Certificates, the number of warrants evidenced on the face of each such Definitive Certificate and the date of each such Definitive Certificate.
Section 6. Transfer, Split Up, Combination and Exchange of Warrant Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates. With respect to the Definitive Certificates, subject to the provisions of the Warrant Certificate and the last sentence of this first paragraph of Section 6 and subject to applicable law, rules or regulations, or any “stop transfer” instructions the Company may give to the Warrant Agent, at any time after the closing date of the Offering, and at or prior to the Close of Business on the Termination Date (as such term is defined in the Warrant Certificate), any Definitive Certificate may be transferred, split up, combined or exchanged for another Definitive Certificate, entitling the Holder to purchase a like number of shares of Ordinary Shares as the Definitive Certificate surrendered then entitled such Holder to purchase. Any Holder desiring to transfer, split up, combine or exchange any Definitive Certificate shall make such request in writing delivered to the Warrant Agent, and shall surrender the Definitive Certificate to be transferred, split up, combined or exchanged at the principal office of the Warrant Agent. Any requested transfer of Warrants, whether in book-entry form or certificate form, shall be accompanied by reasonable evidence of authority of the party making such request that may be required by the Warrant Agent, including, but not limited to, a medallion guarantee. Thereupon the Warrant Agent shall, subject to the last sentence of this first paragraph of Section 6, countersign and deliver to the Person entitled thereto a Definitive Certificate, as so requested. The Company may require payment from the Holder of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of a Definitive Certificate. The Company shall compensate the Warrant Agent per the fee schedule mutually agreed upon by the parties hereto and provided separately on the date hereof.
Upon receipt by the Warrant Agent of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of a Warrant Certificate, which evidence shall include an affidavit of loss, or in the case of mutilated certificates, the certificate or portion thereof remaining, and, in case of loss, theft or destruction, of indemnity in customary form and amount including the posting of a bond by the Holder if requested by the Warrant Agent, and satisfaction of any other reasonable requirements established by Section 8-405 of the Uniform Commercial Code as in effect in the State of Delaware, and reimbursement to the Company and the Warrant Agent of all reasonable expenses incidental thereto, and upon surrender to the Warrant Agent and cancellation of the Warrant Certificate if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor to the Warrant Agent for delivery to the Holder in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Warrants; Exercise Price; Termination Date.
(a) The Warrants shall be exercisable commencing on the Initial Exercise Date. The Warrants shall cease to be exercisable and shall terminate and become void as set forth in the Warrant Certificate. Subject to the foregoing and to Section 7(b) below, the Holder of a Warrant may exercise the Warrant in whole or in part upon surrender of the Warrant Certificate, if required, with the executed Notice of Exercise and payment of the Exercise Price, which may be made, at the option of the Holder, by wire transfer or by certified or official bank check in United States dollars, to the Warrant Agent at the principal office of the Warrant Agent or to the office of one of its agents as may be designated by the Warrant Agent from time
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to time. In the case of the Holder of a Global Warrant, the Holder shall deliver the executed Notice of Exercise and the payment
of the Exercise Price as described herein. Notwithstanding any other provision in this Agreement, a holder whose interest in a
Global Warrant is a beneficial interest in a Global Warrant held in book-entry form through the Depositary (or another established
clearing corporation performing similar functions), shall effect exercises by delivering to the Depositary (or such other clearing
corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that
are required by the Depositary (or such other clearing corporation, as applicable). The Company acknowledges that the bank accounts
maintained by the Warrant Agent in connection with the services provided under this Agreement will be in its name and that the
Warrant Agent may receive investment earnings in connection with the investment at Warrant Agent risk and for its benefit of funds
held in those accounts from time to time. Neither the Company nor the Holders will receive interest on any deposits or Exercise
Price. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or
notarization) of any Notice of Exercise be required. The Company hereby acknowledges and agrees that, with respect to a holder
whose interest in a Global Warrant is a beneficial interest in a Global Warrant held in book-entry form through the Depositary
(or another established clearing corporation performing similar functions), upon delivery of irrevocable instructions to such
holder’s Participant to exercise such warrants, that solely for purposes of Regulation SHO that such holder shall be deemed
to have exercised such warrants.
(b) Upon receipt of a Notice of Exercise for a Cashless Exercise the Company will promptly calculate and transmit to the Warrant Agent the number of Warrant Shares issuable in connection with such Cashless Exercise and deliver a copy of the Notice of Exercise to the Warrant Agent, which shall issue such number of Warrant Shares in connection with such Cashless Exercise.
(c) Upon the exercise of the Warrant Certificate pursuant to the terms of Section 2 of the Warrant Certificate, the Warrant Agent shall cause the Warrant Shares underlying such Warrant Certificate or Global Warrant to be delivered to or upon the order of the Holder of such Warrant Certificate or Global Warrant, registered in such name or names as may be designated by such Holder, no later than the Warrant Share Delivery Date (as such term is defined in the Warrant Certificate). If the Company is then a participant in the DWAC system of the Depositary and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) the Warrant is being exercised via Cashless Exercise, then the certificates for Warrant Shares shall be transmitted by the Warrant Agent to the Holder by crediting the account of the Holder’s broker with the Depositary through its DWAC system. For the avoidance of doubt, if the Company becomes obligated to pay any amounts to any Holders pursuant to Section 2(d)(i) or 2(d)(iv) of the Warrant Certificate, such obligation shall be solely that of the Company and not that of the Warrant Agent. Notwithstanding anything else to the contrary in this Agreement, except in the case of a Cashless Exercise, if any Holder fails to duly deliver payment to the Warrant Agent of an amount equal to the aggregate Exercise Price of the Warrant Shares to be purchased upon exercise of such Holder’s Warrant as set forth in Section 7(a) hereof by the Warrant Share Delivery Date, the Warrant Agent will not obligated to deliver such Warrant Shares (via DWAC or otherwise) until following receipt of such payment, and the applicable Warrant Share Delivery Date shall be deemed extended by one day for each day (or part thereof) until such payment is delivered to the Warrant Agent.
(d) The Warrant Agent shall deposit all funds received by it in payment of the Exercise Price for all Warrants in the account of the Company maintained with the Warrant Agent for such purpose (or to such other account as directed by the Company in writing) and shall advise the Company via email at the end of each day on which notices of exercise are received or funds for the exercise of any Warrant are received of the amount so deposited to its account.
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Section 8. Cancellation and Destruction of Warrant Certificates. All Warrant Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, will be delivered by the Company or its agent to the Warrant Agent for cancellation, or, if surrendered to the Warrant Agent, shall be canceled by it, and no Warrant Certificate shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Warrant Agent for cancellation and retirement, and the Warrant Agent shall so cancel and retire, any other Warrant Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Warrant Agent shall deliver all canceled Warrant Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Warrant Certificates, and in such case shall deliver a certificate of destruction thereof to the Company, subject to any applicable law, rule or regulation requiring the Warrant Agent to retain such canceled certificates. notwithstanding anything to the contrary set forth herein, all cancelled Warrant Certificates shall be handled in accordance with the Warrant Agent’s regular policies and procedures.
Section 9. Certain Representations; Reservation and Availability of Ordinary Shares or Cash.
(a) This Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery hereof by the Warrant Agent, constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, and the Warrants have been duly authorized, executed and issued by the Company and, assuming due authentication thereof by the Warrant Agent pursuant hereto and payment therefor by the Holders as provided in the Registration Statement, constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms and entitled to the benefits hereof; in each case except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(b) As of the date hereof, the Company does not have a limit on its authorized share capital, of which [ ] shares of Ordinary Shares are issued and outstanding Except as disclosed in the Registration Statement, there are no other outstanding obligations, warrants, options or other rights to subscribe for or purchase from the Company any class of capital stock of the Company.
(c) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Ordinary Shares or its authorized and issued shares of Ordinary Shares held in its treasury, free from preemptive rights, the number of shares of Ordinary Shares that will be sufficient to permit the exercise in full of all outstanding Warrants.
(d) Reserved.
(e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the original issuance or delivery of the Warrant Certificates or certificates evidencing Ordinary Shares upon exercise of the Warrants. The Company shall not, however, be required to pay any tax or governmental charge which may be payable in respect of any transfer involved in the transfer or delivery of Warrant Certificates or the issuance or delivery of certificates for Ordinary Shares in a name other than that of the Holder of the Warrant Certificate evidencing Warrants surrendered for exercise or to issue or deliver any certificate for shares of Ordinary Shares upon the exercise of any Warrants until any such tax or governmental charge shall have been paid (any such tax or governmental charge being payable by the Holder of such Warrant Certificate at the time of surrender) or until it has been established to the Company’s reasonable satisfaction that no such tax or governmental charge is due.
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Section 10. Ordinary Shares Record Date. Each Person in whose name any certificate for shares of Ordinary Shares is issued (or to whose broker’s account is credited shares of Ordinary Shares through the DWAC system) upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record for the Ordinary Shares represented thereby on, and such certificate shall be dated, the date on which submission of the Notice of Exercise was made, provided that the Warrant Certificate evidencing such Warrant is duly surrendered (but only if required herein) and payment of the Exercise Price (and any applicable transfer taxes) is received on or prior to the Warrant Share Delivery Date; provided, however, that if the date of submission of the Notice of Exercise is a date upon which the Ordinary Shares transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding day on which the Ordinary Shares transfer books of the Company are open.
Section 11. Adjustment of Exercise Price, Number of Shares of Ordinary Shares or Number of the Company Warrants. The Exercise Price, the number of shares covered by each Warrant and the number of Warrants outstanding are subject to adjustment from time to time as provided in Section 3 of the Warrant Certificate. In the event that at any time, as a result of an adjustment made pursuant to Section 3 of the Warrant Certificate, the Holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than shares of Ordinary Shares, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in Section 3 of the Warrant Certificate and the provisions of Sections 7, 11 and 12 of this Agreement with respect to the shares of Ordinary Shares shall apply on like terms to any such other shares. All Warrants originally issued by the Company subsequent to any adjustment made to the Exercise Price pursuant to the Warrant Certificate shall evidence the right to purchase, at the adjusted Exercise Price, the number of shares of Ordinary Shares purchasable from time to time hereunder upon exercise of the Warrants, all subject to further adjustment as provided herein.
Section 12. Certification of Adjusted Exercise Price or Number of Shares of Ordinary Shares. Whenever the Exercise Price or the number of shares of Ordinary Shares issuable upon the exercise of each Warrant is adjusted as provided in Section 11 or 13, the Company shall (a) promptly prepare a certificate setting forth the Exercise Price of each Warrant as so adjusted, and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Warrant Agent and with each transfer agent for the Ordinary Shares a copy of such certificate and (c) instruct the Warrant Agent to send a brief summary thereof to each Holder of a Warrant Certificate.
Section 13. Fractional Shares of Ordinary Shares.
(a) The Company shall not issue fractions of Warrants or distribute Warrant Certificates which evidence fractional Warrants. Whenever any fractional Warrant would otherwise be required to be issued or distributed, the actual issuance or distribution shall reflect a rounding of such fraction to the nearest whole Warrant (rounded down).
(b) The Company shall not issue fractions of shares of Ordinary Shares upon exercise of Warrants or distribute stock certificates which evidence fractional shares of Ordinary Shares. Whenever any fraction of a share of Ordinary Shares would otherwise be required to be issued or distributed, the actual issuance or distribution in respect thereof shall be made in accordance with Section 2(d)(v) of the Warrant Certificate.
Section 14. Conditions of the Warrant Agent’s Obligations. The Warrant Agent accepts its obligations herein set forth upon the terms and conditions hereof, including the following to all of which the Company agrees and to all of which the rights hereunder of the Holders from time to time of the Warrant Certificates shall be subject:
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| (a) | Compensation and Indemnification. The Company agrees promptly to pay the Warrant Agent the compensation detailed on Exhibit 4 hereto for all services rendered by the Warrant Agent and to reimburse the Warrant Agent for reasonable out-of-pocket expenses (including reasonable counsel fees) incurred without gross negligence or willful misconduct finally adjudicated to have been directly caused by the Warrant Agent in connection with the services rendered hereunder by the Warrant Agent. The Company also agrees to indemnify the Warrant Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence, or willful misconduct on the part of the Warrant Agent, finally adjudicated to have been directly caused by Warrant Agent hereunder, including the reasonable costs and expenses of defending against any claim of such liability. The Warrant Agent shall be under no obligation to institute or defend any action, suit, or legal proceeding in connection herewith or to take any other action likely to involve the Warrant Agent in expense, unless first indemnified to the Warrant Agent’s satisfaction. The indemnities provided by this paragraph shall survive the resignation or discharge of the Warrant Agent or the termination of this Agreement. Anything in this Agreement to the contrary notwithstanding, in no event shall the Warrant Agent be liable under or in connection with the Agreement for indirect, special, incidental, punitive or consequential losses or damages of any kind whatsoever, including but not limited to lost profits, whether or not foreseeable, even if the Warrant Agent has been advised of the possibility thereof and regardless of the form of action in which such damages are sought, and the Warrant Agent’s aggregate liability to the Company, or any of the Company’s representatives or agents, under this Section 14(a) or under any other term or provision of this Agreement, whether in contract, tort, or otherwise, is expressly limited to, and shall not exceed in any circumstances, one (1) year’s fees received by the Warrant Agent as fees and charges under this Agreement, but not including reimbursable expenses previously reimbursed to the Warrant Agent by the Company hereunder. | |
| (b) | Agent for the Company. In acting under this Warrant Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligations or relationship of agency or trust for or with any of the Holders of Warrant Certificates or beneficial owners of Warrants. |
| (c) | Counsel. The Warrant Agent may consult with counsel satisfactory to it, which may include counsel for the Company, and the written advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice of such counsel. | |
| (d) | Documents. The Warrant Agent shall be protected and shall incur no liability for or in respect of any action taken or omitted by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. |
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| (e) | Certain Transactions. The Warrant Agent, and its officers, directors and employees, may become the owner of, or acquire any interest in, Warrants, with the same rights that it or they would have if it were not the Warrant Agent hereunder, and, to the extent permitted by applicable law, it or they may engage or be interested in any financial or other transaction with the Company and may act on, or as depositary, trustee or agent for, any committee or body of Holders of Warrant Securities or other obligations of the Company as freely as if it were not the Warrant Agent hereunder. Nothing in this Warrant Agreement shall be deemed to prevent the Warrant Agent from acting as trustee under any indenture to which the Company is a party. | |
| (f) | No Liability for Interest. Unless otherwise agreed with the Company, the Warrant Agent shall have no liability for interest on any monies at any time received by it pursuant to any of the provisions of this Agreement or of the Warrant Certificates. | |
| (g) | No Liability for Invalidity. The Warrant Agent shall have no liability with respect to any invalidity of this Agreement or the Warrant Certificates (except as to the Warrant Agent’s countersignature thereon). | |
| (h) | No Responsibility for Representations. The Warrant Agent shall not be responsible for any of the recitals or representations herein or in the Warrant Certificate (except as to the Warrant Agent’s countersignature thereon), all of which are made solely by the Company. | |
| (i) | No Implied Obligations. The Warrant Agent shall be obligated to perform only such duties as are herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be under any obligation to take any action hereunder which may tend to involve it in any expense or liability, the payment of which within a reasonable time is not, in its reasonable opinion, assured to it. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates authenticated by the Warrant Agent and delivered by it to the Company pursuant to this Agreement or for the application by the Company of the proceeds of the Warrant Certificate. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates or in the case of the receipt of any written demand from a Holder of a Warrant Certificate with respect to such default, including, without limiting the generality of the foregoing, any duty or responsibility to initiate or attempt to initiate any proceedings at law. |
Section 15. Purchase or Consolidation or Change of Name of Warrant Agent. Any corporation into which the Warrant Agent or any successor Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent or any successor Warrant Agent shall be party, or any corporation succeeding to the corporate trust business of the Warrant Agent or any successor Warrant Agent, shall be the successor to the Warrant Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Warrant Agent under the provisions of Section 17. In case at the time such successor Warrant Agent shall succeed to the agency created by this Agreement any of the Warrant Certificates shall have been countersigned but not delivered, any such successor Warrant Agent may adopt the countersignature of the predecessor Warrant Agent and deliver such Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor Warrant Agent may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement.
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In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver such Warrant Certificates so countersigned; and in case at that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement.
Section 16. Duties of Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company, by its acceptance hereof, shall be bound:
(a) The Warrant Agent may consult with legal counsel reasonably acceptable to the Company (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Warrant Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chief Executive Officer, Chief Financial Officer or Vice President of the Company; and such certificate shall be full authentication to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.
(c) Subject to the limitation set forth in Section 14, the Warrant Agent shall be liable hereunder only for its own gross negligence or willful misconduct, or for a breach by it of this Agreement.
(d) The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant Certificate (except its countersignature thereof) by the Company or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.
(e) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant Certificate; nor shall it be responsible for the adjustment of the Exercise Price or the making of any change in the number of shares of Ordinary Shares required under the provisions of Section 11 or 13 or responsible for the manner, method or amount of any such change or the ascertaining of the existence of facts that would require any such adjustment or change (except with respect to the exercise of Warrants evidenced by the Warrant Certificates after actual notice of any adjustment of the Exercise Price); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Ordinary Shares to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any shares of Ordinary Shares will, when issued, be duly authorized, validly issued, fully paid and nonassessable.
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(f) Each party hereto agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the other party hereto for the carrying out or performing by any party of the provisions of this Agreement.
(g) The Warrant Agent is hereby authorized to accept instructions with respect to the performance of its duties hereunder from the Chief Executive Officer, Chief Financial Officer or Vice President of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable and shall be indemnified and held harmless for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer, provided Warrant Agent carries out such instructions without gross negligence or willful misconduct.
(h) The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity.
(i) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorney or agents, and the Warrant Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorney or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.
Section 17. Change of Warrant Agent. The Warrant Agent may resign and be discharged from its duties under this Agreement upon 30 days’ notice in writing sent to the Company and to each transfer agent of the Ordinary Shares, and to the Holders of the Warrant Certificates. The Company may remove the Warrant Agent or any successor Warrant Agent upon 30 days’ notice in writing, sent to the Warrant Agent or successor Warrant Agent, as the case may be, and to each transfer agent of the Ordinary Shares, and to the Holders of the Warrant Certificates. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by the Holder of a Warrant Certificate (who shall, with such notice, submit his Warrant Certificate for inspection by the Company), then the Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new Warrant Agent, provided that, for purposes of this Agreement, the Company shall be deemed to be the Warrant Agent until a new warrant agent is appointed. Any successor Warrant Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of a state thereof, in good standing, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Warrant Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the predecessor Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Warrant Agent and each transfer agent of the Ordinary Shares, and mail a notice thereof in writing to the Holders of the Warrant Certificates. However, failure to give any notice provided for in this Section 17, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be.
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Section 18. Issuance of New Warrant Certificates. Notwithstanding any of the provisions of this Agreement or of the Warrants to the contrary, the Company may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Exercise Price per share and the number or kind or class of shares of stock or other securities or property purchasable under the several Warrant Certificates made in accordance with the provisions of this Agreement.
Section 19. Notices. Notices or demands authorized by this Agreement to be given or made (i) by the Warrant Agent or by the Holder of any Warrant Certificate to or on the Company, (ii) subject to the provisions of Section 17, by the Company or by the Holder of any Warrant Certificate to or on the Warrant Agent or (iii) by the Company or the Warrant Agent to the Holder of any Warrant Certificate shall be deemed given (a) on the date delivered, if delivered personally, (b) on the first Business Day following the deposit thereof with Federal Express or another recognized overnight courier, if sent by Federal Express or another recognized overnight courier, (c) on the fourth Business Day following the mailing thereof with postage prepaid, if mailed by registered or certified mail (return receipt requested), and (d) the date of transmission, if such notice or communication is delivered via facsimile or email attachment at or prior to 5:30 p.m. (New York City time) on a Business Day and (e) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile or email attachment on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, in each case to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
| (a) | If to the Company, to: | |
| Innovation Beverage Group Limited | ||
29 Anvil Road Seven Hills, NSW 2147 Australia Attention: Chief Executive Officer | ||
| (b) | If to the Warrant Agent, to: | |
| VStock Transfer, LLC | ||
| 18 Lafayette Place | ||
| Woodmere, NY 11598 | ||
Attention: Yoel Goldfeder |
For any notice delivered by email to be deemed given or made, such notice must be followed by notice sent by overnight courier service to be delivered on the next business day following such email, unless the recipient of such email has acknowledged via return email receipt of such email.
(c) If to the Holder of any Warrant Certificate to the address of such Holder as shown on the registry books of the Company. Any notice required to be delivered by the Company to the Holder of any Warrant may be given by the Warrant Agent on behalf of the Company. Notwithstanding any other provision of this Agreement, where this Agreement provides for notice of any event to a Holder of any Warrant, such notice shall be sufficiently given if given to the Depositary (or its designee) pursuant to the procedures of the Depositary or its designee.
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Section 20. Supplements and Amendments.
(a) The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Holders of Global Warrants in order to add to the covenants and agreements of the Company for the benefit of the Holders of the Global Warrants or to surrender any rights or power reserved to or conferred upon the Company in this Agreement, provided that such addition or surrender shall not adversely affect the interests of the Holders of the Global Warrants or Warrant Certificates in any material respect.
(b) In addition to the foregoing, with the consent of Holders of Warrants entitled, upon exercise thereof, to receive not less than a majority of the shares of Ordinary Shares issuable thereunder, the Company and the Warrant Agent may modify this Agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Warrant Agreement or modifying in any manner the rights of the Holders of the Global Warrants; provided, however, that no modification of the terms (including but not limited to the adjustments described in Section 11) upon which the Warrants are exercisable or the rights of holders of Warrants to receive liquidated damages or other payments in cash from the Company or reducing the percentage required for consent to modification of this Agreement may be made without the consent of the Holder of each outstanding Warrant Certificate affected thereby; provided further, however, that no amendment hereunder shall affect any terms of any Warrant Certificate issued in a Warrant Exchange. As a condition precedent to the Warrant Agent’s execution of any amendment, the Company shall deliver to the Warrant Agent a certificate from a duly authorized officer of the Company that states that the proposed amendment complies with the terms of this Section 20.
Section 21. Successors. All covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
Section 22. Benefits of this Agreement. Nothing in this Agreement shall be construed to give any Person other than the Company, the Holders of Warrant Certificates and the Warrant Agent any legal or equitable right, remedy or claim under this Agreement. This Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holders of the Warrant Certificates.
Section 23. Governing Law. This Agreement and each Warrant Certificate and Global Warrant issued hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflicts of law principles thereof.
Section 24. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
Section 25. Captions. The captions of the sections of this Agreement have been inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.
Section 26. Information. The Company agrees to promptly provide to the Holders of the Warrants any information it provides to the holders of the Ordinary Shares, except to the extent any such information is publicly available on the EDGAR system (or any successor thereof) of the Securities and Exchange Commission.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
| INNOVATION BEVERAGE GROUP LIMITED | ||
| By: | ||
| Name: | ||
| Title: | ||
| VSTOCK TRANSFER, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
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Exhibit 1
Form of Warrant Certificate
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Warrant Certificate
ORDINARY SHARES PURCHASE WARRANT
INNOVATION BEVERAGE GROUP LIMITED
| Warrant Shares: _________ | Initial Issuance Date: [●], 2023 |
| Initial Exercise Date: [●], 2023 |
THIS ORDINARY SHARES WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on [●], 20281 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Innovation Beverage Group Limited, an Australian public limited company (the “Company”), up to __________ Ordinary Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Ordinary Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant shall initially be issued and maintained in the form of a security held in book-entry form and the Depository Trust Company or its nominee (“DTC”) shall initially be the sole registered holder of this Warrant, subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Share is then listed or quoted on a Trading Market, the Bid Price of the Ordinary Shares for the time in question (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Ordinary Shares are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent Bid Price per share so reported, or (d) in all other cases, the fair market value of a share of Ordinary Shares as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Board of Directors” means the board of directors of the Company.
1 Insert the date that is the 5th year anniversary of the Initial Exercise Date; provided, however, that, if such date is not a Trading Day, insert the immediately following Trading Day.
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“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Commission” means the United States Securities and Exchange Commission.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Ordinary Shares” means the Ordinary Shares of the Company, no par value, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Registration Statement” means the Company’s registration statement on Form F-1, as amended (File No. 333-266965).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Trading Day” means a day on which the Ordinary Shares are traded on a Trading Market.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or OTCQB or OTCQX (or any successors to any of the foregoing).
“Transfer Agent” means VStock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Place, Woodmere, NY 11598 and a facsimile number of (646) 536-3179, and any successor transfer agent of the Company.
“Underwriting Agreement” means the underwriting agreement, dated as of [●], 2023, among the Company and Maxim Group LLC, as representative of the several underwriters named therein, as amended, modified or supplemented from time to time in accordance with its terms.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or
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OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for
the Ordinary Shares are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent Bid Price per share of Ordinary Shares so reported, or (d) in all other cases, the fair
market value of a share of Ordinary Shares as determined by an independent appraiser selected in good faith by the holders of
a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
“Warrant Agency Agreement” means that certain warrant agency agreement, dated on or about the Initial Exercise Date, between the Company and the Warrant Agent.
“Warrant Agent” means the Transfer Agent and any successor warrant agent of the Company.
“Warrants” means this Warrant and other Ordinary Shares purchase warrants issued by the Company pursuant to the Registration Statement.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto as Exhibit A (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
Notwithstanding the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing this Warrant held in book-entry form through DTC (or another established clearing corporation performing similar functions), shall effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that are required by DTC (or such other clearing corporation, as applicable), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
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b) Exercise Price. The exercise price per Warrant Share under this Warrant shall be $[●]2, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to or by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
| (A) | = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Ordinary Shares on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day; | |
| (B) | = the Exercise Price of this Warrant, as adjusted hereunder; and | |
| (X) | = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. |
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c). Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d) Mechanics of Exercise.
2 100% of the initial public offering price per Unit sold in the Offering.
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i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit and Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Ordinary Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Ordinary Shares as in effect on the date of delivery of the Notice of Exercise. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 12:00 p.m. (New York City time) on the Initial Exercise Date, which may be delivered at any time after the time of execution of the Underwriting Agreement, the Company agrees to deliver the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by such Warrant Share Delivery Date.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Ordinary Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving
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upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by
which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Ordinary Shares so purchased
exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the
Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation
was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant
Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder
the number of Ordinary Shares that would have been issued had the Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Warrant Shares having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted exercise of Warrant Shares with an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of
the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver Warrant Shares upon exercise of the Warrant as required pursuant
to the terms hereof.
v. No Fractional Shares or Scrip. No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole Warrant Share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto as Exhibit B duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Ordinary Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Warrant Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Warrant Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Ordinary Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Ordinary Shares, a Holder may rely on the number of outstanding of Ordinary Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Ordinary Shares outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of Ordinary Shares then outstanding. In any case, the number of outstanding of Ordinary Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding of Ordinary Shares were reported. The “Beneficial Ownership Limitation” shall be 4.99% (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of Ordinary Shares outstanding immediately after giving effect to the issuance of Warrant Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Ordinary Shares outstanding immediately after giving effect to the issuance of Warrant Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on Ordinary Shares or any other equity or equity equivalent securities payable in of Ordinary Shares (which, for avoidance of doubt, shall not include any Warrant Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding of Ordinary Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding of Ordinary Shares into a smaller number of shares, or (iv) issues by reclassification of Ordinary Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Ordinary Shares and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Ordinary Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Ordinary Shares (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Ordinary Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such of Ordinary Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Ordinary Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Warrant Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Ordinary Shares are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any of Ordinary Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of the Company’s assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Ordinary Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the voting power of the common equity of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of Ordinary Shares or any compulsory share exchange pursuant to which the Ordinary Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the voting power of the common equity of the Company (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Ordinary Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Ordinary Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Ordinary Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Ordinary Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder, as described below, an amount of consideration equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction, provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, Holder shall only be entitled to receive from the Company or any
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Successor Entity, as of the date of the consummation of such Fundamental Transaction the same type or form of consideration (and
in the same proportion), valued at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and
paid to the holders of Ordinary Shares of the Company in connection with the Fundamental Transaction, whether that consideration
be in the form of cash, stock or any combination thereof, or whether the holders of Ordinary Shares are given the choice to receive
from among alternative forms of consideration in connection with the Fundamental Transaction; provided further, that if holders
of Ordinary Shares are not offered or paid any consideration in such Fundamental Transaction, such holders of Ordinary Shares
will be deemed to have received shares of the Successor Entity (which Successor Entity may be the Company following such Fundamental
Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on
the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation
of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable contemplated Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to 100 day volatility obtained from the HVT function on
Bloomberg (determined utilizing a 365-day annualization factor) as of the Trading Day immediately following the public announcement
of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of
(i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being
offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding
the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if
earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(d) and (D) a remaining option
time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination
Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available
funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction).
The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents
in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory
to the Holder prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange
for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance
to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent
entity) equivalent to the Ordinary Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations
on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise
price hereunder to such shares of capital stock (but taking into account the relative value of the Ordinary Shares pursuant to
such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise
price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental
Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity
had been named as the Company herein.
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e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Ordinary Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Ordinary Shares (excluding treasury shares, if any) issued and outstanding.
f) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Ordinary Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Ordinary Shares, (C) the Company shall authorize the granting to all holders of the Ordinary Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Ordinary Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Ordinary Shares are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Ordinary Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Ordinary Shares of record shall be entitled to exchange their of Ordinary Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
g) Voluntary Adjustment by Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company.
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Section 4. Transfer of Warrant.
a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an Assignment Form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Warrant Agent (or, in the event a Holder elects to receive a Definitive Certificate (as defined in the Warrant Agency Agreement), the Company) shall register this Warrant, upon records to be maintained by the Warrant Agent (or, in the event a Holder elects to receive a Definitive Certificate, the Company) for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company and the Warrant Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
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b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (including the posting of a bond by the Holder if requested by the Warrant Agent), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, at all times during the period the Warrant is outstanding, it will reserve from its authorized and unissued Ordinary Shares a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Ordinary Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
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e) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at 29 Anvil Road, Seven Hills, NSW 2147 Australia, or at (818) 349-2870, or such other facsimile number, email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, e-mail address or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e- mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
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i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Warrant Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder or the beneficial owner of this Warrant, on the other hand.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
o) Warrant Agency Agreement. If this Warrant is held in global form through DTC (or any successor depositary), this Warrant is issued subject to the Warrant Agency Agreement. To the extent any provision of this Warrant conflicts with the express provisions of the Warrant Agency Agreement, the provisions of this Warrant shall govern and be controlling.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| INNOVATION BEVERAGE GROUP LIMITED | ||
| By: | ||
| Name: Dean Huge | ||
| Title: Chief Executive Officer |
| 32 |
EXHIBIT A
NOTICE OF EXERCISE
TO: INNOVATION BEVERAGE GROUP LIMITED
(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
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EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | |
| (Please Print) | |
| Address: | ==================================================================================== |
| (Please Print) | |
| Phone Number: | |
| Email Address: | |
| Dated: | |
| Holder’s Signature: | |
| Holder’s Address: |
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EXHIBIT 2
Form of Warrant Certificate Request Notice
WARRANT CERTIFICATE REQUEST NOTICE
To: VStock Transfer, LLC, as Warrant Agent for Innovation Beverage Group Limited (the “Company”)
The undersigned Holder of Ordinary Shares Purchase Warrants (“Warrants”) in the form of Global Warrants issued by the Company hereby elects to receive a Warrant Certificate evidencing the Warrants held by the Holder as specified below:
| 1. | Name of Holder of Warrants in form of Global Warrants: |
| 2. | Name of Holder in Warrant Certificate (if different from name of Holder of Warrants in form of Global Warrants): |
| 3. | Number of Warrants in name of Holder in form of Global Warrants: |
| 4. | Number of Warrants for which Warrant Certificate shall be issued: |
| 5. | Number of Warrants in name of Holder in form of Global Warrants after issuance of Warrant Certificate, if any: |
| 6. | Warrant Certificate shall be delivered to the following address: |
The undersigned hereby acknowledges and agrees that, in connection with this Warrant Exchange and the issuance of the Warrant Certificate, the Holder is deemed to have surrendered the number of Warrants in form of Global Warrants in the name of the Holder equal to the number of Warrants evidenced by the Warrant Certificate.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
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EXHIBIT 3
Form of Global Warrants Request Notice
GLOBAL WARRANTS REQUEST NOTICE
To: VStock Transfer, LLC, as Warrant Agent for Innovation Beverage Group Limited (the “Company”)
The undersigned Holder of Ordinary Shares Purchase Warrants (“Warrants”) in the form of Warrants Certificates issued by the Company hereby elects to receive a Global Warrant evidencing the Warrants held by the Holder as specified below:
| 1. | Name of Holder of Warrants in form of Warrant Certificates: |
| 2. |
Name of Holder in Global Warrant (if different from name of Holder of Warrants in form of Warrant Certificates): |
| 3. | Number of Warrants in name of Holder in form of Warrant Certificates: |
| 4. | Number of Warrants for which Global Warrant shall be issued: |
| 5. |
Number of Warrants in name of Holder in form of Warrant Certificates after issuance of Global Warrant, if any: |
| 6. | Global Warrant shall be delivered to the following address: |
The undersigned hereby acknowledges and agrees that, in connection with this Global Warrant Exchange and the issuance of the Global Warrant, the Holder is deemed to have surrendered the number of Warrants in form of Warrant Certificates in the name of the Holder equal to the number of Warrants evidenced by the Global Warrant.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
36
EXHIBIT 5.1
| 29 August 2023 The Board of Directors Innovation Beverage Group Limited 29 Anvil Road SEVEN HILLS NSW 2147 Australia |
Partner: Andrew Gaffney andrew.gaffney@klgates.com T +61 3 9640 4318 Our ref: gaffnea:7393694.00001 |
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 (i) an offering of up to 1,500,000 units, each unit consisting of one ordinary share in the Company (Share) and one warrant to purchase one ordinary share, and the corresponding issuance by the Company of up to 3,000,000 Shares and Warrants (collectively the “Securities”), plus 225,000 ordinary shares and/or up to an additional 225,000 warrants issuable upon the exercise of the underwriters’ 45 day option to purchase additional Securities and 86,250 ordinary shares underlying the underwriter warrants (if the underwriter exercises its over-allotment option in full), all offered pursuant to the IPO Prospectus and in accordance with and an underwriting agreement to be entered into by the representatives of the several underwriters named in the underwriting agreement, and the Company; and (ii) a resale by certain selling shareholders of the Company as stated in the F-1 Prospectus (collectively, the “Selling Shareholders”) of up to 1,339,378 ordinary shares which are presently issued and outstanding (the “Resale Shares”) offered pursuant to the Resale Prospectus, the Resale Shares collectively with the Securities, being the “Offering”, pursuant to its Registration Statement on Form F-1 (File No. 333-266965) filed with the U.S. Securities and Exchange Commission (“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 7 August 2023 (“ASIC search”); |
| ● | a certificate from the Company’s Managing Director certifying a copy of the Company’s Board resolution to issue of the Shares and the F-1 Prospectus; |
| ● | 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); |
| (d) | that any documents which purport to be governed by the law of any jurisdiction (Foreign 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 Foreign Jurisdiction; |
| (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) | the Company does not own any freehold land in Australia. In respect of any leased premises used by the Company in Australia, market value rents are payable to an arm’s length party not associated with the Company. The Company, other than those leasehold premises; does not otherwise have any interest in land (or goods affixed to land) in Australia; |
| (h) | the Company does not own shares in any Australian company that itself owns any freehold land and does not otherwise have any interest in land (or goods affixed to land) in Australia; |
| (i) | any resale by Selling Shareholders of the Resale Shares is to occur within the United States and for the avoidance of doubt outside of Australia or to Australian residents; |
| (j) | 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; and |
| (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. |
Opinion
Based on and subject to the foregoing and in reliance thereof, in our opinion, with respect to the Offering under the F-1 Prospectus -
| 1. | the Securities and the Resale Shares have been duly authorized by the Company; |
| 2. | the Shares, when issued, will be validly issued, fully paid and non-assessable (based on the meaning of such term under US law) securities of the Company; and |
| 3. | the Resale Shares proposed for resale by the Selling Shareholders are validly issued, fully paid and non-assessable (based on the meaning of such term under US law). |
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, the Offering or the contents or generally the compliance of the F-1 Prospectus 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
EXHIBIT 5.2
August 29, 2023
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 (the “Offering”) and relates to the issuance and sale by the Company of (i) immediately separable units (the “Units”) consisting of (a) one ordinary share, no par value (the “Ordinary Shares”) and (b) one tradeable warrant (a “Tradeable Warrant”) exercisable for the purchase of one Ordinary Share as well as warrants to be issued to the representative of the underwriters thereunder (the “Underwriter Warrants,” together with the Tradeable Warrant, the “Warrants”). The Ordinary Shares and Warrants are collectively the “Securities.” We understand that the Securities 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 Tradeable Warrants and 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 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
| WWW.SRF.LAW
EXHIBIT 10.1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the filing in this Amendment No. 17 to the Registration Statement on Form F-1 of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Ltd) of our report dated May 10, 2023, relating to our audits of the financial statements of the Innovation Beverage Group Limited for the years ended December 31, 2022 and 2021.
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
August 29, 2023