Innovation Beverage Group Ltd F-1/A, filed Aug 14, 2024
Innovation Beverage Group Ltd (IBG)
As filed with the Securities and Exchange Commission on August 14, 2024
Registration No. 333-266965
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 28 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
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive
Offices)
Sichenzia Ross Ference Carmel 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. Matt Siracusa, Esq. Sichenzia Ross Ference Carmel LLP 1185 Avenue of the Americas, 31st Floor New York, NY 10036 Tel: (212) 930-9700 Fax: (212) 930 9725 |
Richard
A. Friedman, Esq. Stephen A. Cohen, Esq. Sheppard, Mullin, Richter & Hampton, LLP 30 Rockefeller Plaza New York, NY 10112 Telephone: (212) 653-8700 Facsimile: (212) 653-8701 |
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 1,400,000 ordinary shares (or 1,610,000 ordinary shares if the underwriters exercise their 30-day option 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 1,452,873 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 Resale Shareholders section is included in the Resale 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 14, 2024 |
1,400,000 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
This is a firm commitment initial public offering of 1,400,000 ordinary shares (the “ordinary shares”) of Innovation Beverage Group Limited. We anticipate that the initial public offering price of our ordinary shares will be $4.00 per ordinary share.
Prior to this offering, there has been no public market for our ordinary shares. We have applied to list the ordinary shares under the symbol “IBG” 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 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 —Emerging Growth Company Status” and “Prospectus Summary —Foreign Private Issuer Status.”
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 19 of this prospectus.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
| Per Ordinary Share | Total
Without Over-Allotment Option |
Total
With Over-Allotment Option |
||||||||||
| Initial public offering price | $ | $ | $ | |||||||||
| Underwriting discounts and commissions (7.00%)(1) | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ |
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| (1) | We have also agreed to issue, on the closing date of this offering, warrants to The Benchmark Company, LLC, the representative of the underwriters (the “Representative”; such warrants, the “Representative’s Warrants”) to purchase an amount equal to five percent (5.0%) of the ordinary shares sold by us in this offering. For a description of other terms of the Representative’s Warrants and a description of the other compensation to be received by the underwriters, see “Underwriting” beginning on page 118. |
We have granted the underwriters an option for a period of 30 days after the closing of this offering to purchase up to 15% the total number of ordinary shares offered by us pursuant to this offering, solely for the purposes of covering over-allotments, if any.
The underwriters expects to deliver the securities against payment in U.S. dollars on or about [ ], 2024.
The Benchmark Company, LLC
The date of this prospectus is , 2024
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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 securities 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, including 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 the 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 it plans to do so 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 40% of our revenues in 2022 and 79% of our revenues in 2023 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.
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. With a DTC retail price per bottle of AUD$50 (approximately USD$35) and manufacturing efficiencies achieved through in-house manufacturing, we anticipate a gross margin in excess of 80% when selling Drummerboy through its own www.drummerboy.com website in a DTC sale.
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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, the 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 plan to launch Twisted Shaker in the U.S. in the second half of 2024. 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. 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; |
| ● | investing in strategic marketing initiatives to build our portfolio of brands: |
| ● | investing 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 the impacts on each segment of our business.
Competitive Advantages
Our Company is a vertically integrated manufacturer, importer, and 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.
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.
Recent Developments
Set forth below are preliminary estimates of certain unaudited financial information for the financial 6-month period ended June 30, 2024. Our actual results for the 12-month period ending December 31, 2023, have been included in the Prospectus. We have provided ranges, rather than specific amounts, for the preliminary estimates primarily because our financial closing for the 6-month period ending June 30, 2024 is not yet complete. The estimated ranges are preliminary and have not been audited or reviewed and are thus inherently uncertain and subject to change as we complete our financial closing for the 6-month period ended June 30, 2024.
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The preliminary estimates set forth below have been prepared by, and are the responsibility of, our management. Accell Audit & Compliance has not audited, reviewed, compiled, or performed any procedures with respect to the preliminary estimates. Accordingly, Accell Audit & Compliance does not express an opinion or any other form of assurance with respect thereto.
Financial figures in our financial statement (unaudited) estimates for the 6-month period ended June 30, 2024:
| ● | USD$1.6 to USD$1.9 million in net revenues – our revenues increased by approximately 26% as compared to the same period of last year, due to the strong growth on the sales of our brand products in H1 2024. |
| ● | USD$0.5 to USD$0.6 million in cost of goods sold – our cost of goods increased by approximately 16% as compared to the same period of last year which is materially in line with the sales growth. The gross margin for our brand products remained high at 75% - 80% with slight improvement due to our annual price increases beginning in January 2024. |
| ● | USD$1.6 to USD$2.2 million in operating expenses – our operating expenses increased by approximately 10% as compared with the same period of last year mainly due to (1) a one-time issuance of 10,582 shares issued to one officer as stock compensation; (2) an extra amortization expense caused by two prepaid distribution agreements that commenced in October 2023; and (3) approximately AUD$50,000 of stock adjustments related to obsolete stocks identified during our monthly stock take. All the stated drivers of operating expenses are either non-cash or non-recurring expenses. |
During the period from January 1, 2024, to June 30, 2024, the Company issued an aggregate of 229,084 ordinary shares including:
| ● | 10,582 shares on January 17, 2024 to Clive Coleman (Company’s officer) as stock compensation for the first quarter of 2024, having a fair value of $42,328 (at a price of $4.00 per share); | |
| ● | 47,460 and 8,542 shares to Dean Huge (Company’s chief executive officer) on February 27, 2024, and March 27, 2024, respectively, as payment for $224,008 (at a price of $4.00 per share) of previously accrued salary and wages recorded in the year ended December 31, 2023; | |
| ● | 62,500 and 50,000 shares to Sahil Beri (company’s director and officer) on February 27, 2024, and March 27, 2024, respectively, as payment for $450,000 (at a price of $4.00 per share) of previously accrued salary and wages recorded in the year ended December 31, 2023; and | |
| ● | 50,000 shares to Darrin Ocasio on March 4, 2024, for IPO legal services rendered during the first quarter of 2024, having a fair value of $200,000 (at a price of $4.00 per share). |
On April 19, 2024, the Group entered into an agreement with American Dream Corp (“ADC”) whereby ADC committed to purchase raw materials from the Company with a minimum order quantity (“MOQ”) per purchase order of 26,000 liters of ALC Ethanol. On April 23, 2024, the Company received a USD$186,992 cash deposit from ADC for the initial sales order of 26,000 liters of ALC Ethanol at a price of AUD$11.24 per liter.
Other than disclosed elsewhere herein, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material and adverse effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed information to be not necessarily indicative of future results of operations or financial conditions.
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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, 2022 and 2023), 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.
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 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; | |
| ● | Inability to secure additional capital and achieve adequate liquidity to grow, compete, and continue on; and | |
| ● | Our emerging growth company status could make our stock less attractive to investors. |
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| Ordinary shares offered | 1,400,000 ordinary shares (or 1,610,000 ordinary shares if the underwriters exercise in full their option to purchase additional ordinary shares).
| |
| Over-allotment Option | We have granted the underwriter a 30-day option (commencing from the date of this prospectus), to purchase up to an additional 210,000 ordinary shares at the initial public offering price per ordinary share, less underwriting discount and commissions, on the same terms as set forth in this prospectus, solely to cover over-allotments, if any. | |
| Ordinary shares outstanding before this offering(1) | 6,990,655 ordinary shares | |
| Ordinary shares outstanding after this offering(1) | 8,390,655 ordinary shares (assuming the underwriter does not exercise its over-allotment option) | |
| Use of Proceeds | We intend to use the net proceeds from this offering to pay, in connection with the acquisition of Reg Liquors LLC d/b/a/ Wired for Wine, the remaining USD$600,000 owed to the seller, as well as 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 | The Benchmark Company, LLC | |
| Representative’s Warrants | We have agreed to issue to the Representative’s warrants to purchase 5% of the ordinary shares sold in this offering (70,000 ordinary shares, or 80,500 if the underwriters exercise the over-allotment option in full), which are exercisable at an assumed price per share of $5.50 (equal to 137.5% of the assumed initial public offering price per ordinary share). | |
| Lock-Up Agreements | We have agreed with the underwriters, subject to certain exceptions, not to offer, pledge, sell, or dispose of, directly or indirectly, any of our ordinary shares or securities convertible into or exchangeable or exercisable for any of our ordinary shares during the 6-month period following the closing of this offering.
Our executive officers, directors, and shareholders beneficially owning more than 5% of our ordinary shares prior to the offering, have agreed during the 6-month period following the closing of this offering to substantially similar lock-up provisions, subject to certain exceptions. Please refer to the sections titled “Shares Eligible for Future Sale” and “Underwriting” for more information. | |
| Trading symbol | We have applied for listing of our ordinary shares on the Nasdaq Capital Market under the symbol “IBG”. The offering will not proceed unless our ordinary shares 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 operations data for the years ended December 31, 2023 and 2022, and the summary consolidated balance sheets as of December 31, 2023 and 2022 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 audited consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
The following tables present our summary consolidated statements of operation for the years ended December 31, 2023 and 2022:
| For the year ended December 31, 2023 (US$) | For the year ended December 31, 2022 (US$) | |||||||
| Revenues, net | $ | 3,147,763 | $ | 4,530,396 | ||||
| Cost of goods sold | 1,093,369 | 2,124,828 | ||||||
| Gross profit | 2,054,394 | 2,405,568 | ||||||
| Operating expenses | ||||||||
| Other general and administrative | 1,403,949 | 1,809,501 | ||||||
| Salary and wages | 1,674,746 | 1,918,206 | ||||||
| Sales and marketing | 329,439 | 846,956 | ||||||
| Contracted services | 785,338 | 1,167,489 | ||||||
| Impairment loss | — | 951,802 | ||||||
| Total operating expenses | 4,193,472 | 6,693,954 | ||||||
| Loss from operations | (2,139,078 | ) | (4.288,386 | ) | ||||
| Other income (expenses): | ||||||||
| Finance cost | — | (80,000 | ) | |||||
| Other income (expenses) | 90,720 | (17,871 | ) | |||||
| Interest income | 53,763 | 31,322 | ||||||
| Interest expense | (260,473 | ) | (122,898 | ) | ||||
| Total other income (expenses) | (115,990 | ) | (189,447 | ) | ||||
| Loss before taxes | (2,255,068 | ) | (4,477,833 | ) | ||||
| Income tax benefit | (241,111 | ) | (350,063 | ) | ||||
| Net loss | (2,013,957 | ) | (4,127,770 | ) | ||||
| Other comprehensive loss: | ||||||||
| Foreign currency translation adjustment | (45,716 | ) | (68,493 | ) | ||||
| Total comprehensive loss | $ | (2,059,673 | ) | $ | (4,196,263 | ) | ||
| Basic and diluted loss per share | $ | (0.26 | ) | $ | (0.56 | ) | ||
| Weighted average shares outstanding – basic and diluted | 7,759,607 | 7,433,014 | ||||||
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The following table presents our summary consolidated balance sheet as of December 31, 2023 and 2022.
| As of December 31, 2023 (US$) | As of December 31, 2022 (US$) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 14,140 | $ | 91,986 | ||||
| Accounts receivable | 293,681 | 950,895 | ||||||
| Capitalized IPO cost | 441,027 | 37,372 | ||||||
| Inventory, at cost | 989,592 | 1,411,908 | ||||||
| Prepaid expenses | 169,145 | 260,733 | ||||||
| Loan to shareholders (current) | 161,362 | 622,442 | ||||||
| Total current assets | 2,068,947 | 3,375,336 | ||||||
| Deposits | 35,108 | 34,688 | ||||||
| Finance right of use asset | 7,624 | 18,375 | ||||||
| Operating right of use asset | 71,365 | 195,677 | ||||||
| Equipment, net | 124,703 | 157,523 | ||||||
| Intangible assets, net | 371,634 | 392,488 | ||||||
| Prepaid distribution cost | 1,200,000 | — | ||||||
| Deferred tax asset | 471,020 | 388,916 | ||||||
| Total assets | $ | 4,931,814 | $ | 4,563,003 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 2,287,002 | $ | 2,140,526 | ||||
| Deferred revenue | 161,038 | 159,508 | ||||||
| Related party note payable | 194,474 | 412,722 | ||||||
| Notes payable, less related party portion | 1,405,254 | 1,101,151 | ||||||
| Current portion of finance lease liability | — | 5,090 | ||||||
| Current portion of operating lease liability | 63,581 | 148,171 | ||||||
| Other liabilities | 166,145 | 164,688 | ||||||
| Total current liabilities | 4,277,494 | 4,131,856 | ||||||
| Accrued employee benefits, non-current | 45,850 | 18,464 | ||||||
| Operating lease liability, less current portion | — | 69,725 | ||||||
| Notes payable, less current portion | — | 47,258 | ||||||
| Total liabilities | $ | 4,323,344 | $ | 4,267,303 | ||||
| Stockholders’ equity | ||||||||
| Ordinary shares, no par value; no authorization limit; 8,161,571 and 7,522,480 ordinary shares issued and outstanding at December 31, 2023 and 2022, respectively | $ | 6,976,753 | $ | 4,631,507 | ||||
| Accumulated other comprehensive loss | (158,650 | ) | (112,934 | ) | ||||
| Accumulated deficit | (6,209,633 | ) | (4,222,873 | ) | ||||
| Total stockholders’ equity | $ | 608,470 | $ | 295,700 | ||||
| Total liabilities and stockholders’ equity | $ | 4,931,814 | $ | 4,563,003 | ||||
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Investing in our securities is speculative and involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this prospectus, including our consolidated financial statements and notes thereto, before you decide to purchase our securities. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be materially adversely affected, the value of our ordinary shares could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Cautionary Note Regarding Forward-Looking Statements.”
Potential decline in the consumption of products we sell due to consumer preference and taste could have a negative impact on our sales, operations, and business.
Our business depends upon consumers’ consumption of our beverage brands. Consumer preferences and tastes may shift due to, among other reasons, changing taste preferences, demographics, or perceived value. Consequently, any material shift in consumer preferences and taste in our major markets away from our beverage brands, or from the categories in which they compete could have a negative impact on our business, liquidity, financial condition, and/or results of operations. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies may be put into effect to deal with the spread of COVID-19, and changes in leisure, dining, and beverage consumption patterns. A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:
| ● | a general decline in economic or geopolitical conditions; | |
| ● | concern about the health consequences of consuming beverage alcohol products and about drinking and driving; | |
| ● | a general decline in the consumption of beverage alcohol products in on-premise establishments, which may result from stricter laws relating to driving while under the influence of alcohol; | |
| ● | the increased activity of anti-alcohol groups; | |
| ● | increased federal, state, provincial, and foreign excise, or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing; | |
| ● | increased regulation placing restrictions on the purchase or consumption of beverage alcohol products or increasing prices due to the imposition of duties or excise tax or changes to international trade agreements or tariffs; | |
| ● | inflation; and | |
| ● | wars, health epidemics or pandemics, quarantines, weather, and natural or man-made disasters. |
Demand for our products may be adversely affected by changes in category trends and consumer preferences.
Consumer preferences for our beverage brands change continually. Our success depends on our ability to predict, identify and interpret the tastes and habits of consumers and to offer products that appeal to those preferences.
If we do not succeed in offering products that appeal to consumers, our sales and market share will decrease, and our profitability could suffer. We must be able to distinguish among short-term fads, mid-term trends, and long-term changes in consumer preferences. If we are unable to accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline. In addition, because of our varied consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products will decrease and our profitability could suffer.
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We may experience a reduced demand for some of our products due to health concerns (including obesity) and legislative initiatives against sweetened beverages.
Consumers are concerned about health and wellness; public health officials and government officials are increasingly vocal about obesity and its consequences. There has been a trend among some public health advocates and dietary guidelines to recommend a reduction in sweetened beverages, as well as increased public scrutiny, new taxes on sugar-sweetened beverages (as described below), and additional governmental regulations concerning the marketing and labeling/packing of the beverage industry. Additional or revised regulatory requirements, whether labeling, tax or otherwise, could have a material adverse effect on our financial condition and results of operations. Further, increasing public concern with respect to sweetened beverages could reduce demand for our beverages and increase desire for more low-calorie soft drinks, water, enhanced water, coffee-flavored beverages, tea, and beverages with natural sweeteners. We are continuously working to reduce calories and sugar in our products while launching new products, to pair with existing brand extensions that round out our diversified portfolio.
We may not be able to consummate proposed acquisitions or divestitures successfully or integrate acquired businesses successfully.
From time to time, we acquire businesses, assets, or securities of companies that we believe will provide a strategic fit with our business. We integrate acquired businesses with our existing operations; our overall internal control over financial reporting processes; and our financial, operations, and information systems. If the financial performance of our business, as supplemented by the assets and businesses acquired, does not meet our expectations, it may make it more difficult for us to service our debt obligations and our results of operations may fail to meet market expectations. We may not effectively assimilate the business or product offerings of acquired companies into our business or within the anticipated costs or timeframes, retain key customers and suppliers or key employees of acquired businesses, or successfully implement our business plan for the combined business. In addition, our final determinations and appraisals of the estimated fair value of assets acquired and liabilities assumed in our acquisitions may vary materially from earlier estimates, and we may fail to realize fully anticipated cost savings, growth opportunities, or other potential synergies. We cannot assure that the fair value of acquired businesses or investments will remain constant.
We may also divest ourselves of businesses, assets, or securities of companies that we believe no longer provide a strategic fit with our business. We may provide various indemnifications in connection with the divestiture of businesses or assets. Divestitures of portions of our business may also result in costs stranded in our remaining business. Delays in developing or implementing plans to address such costs could delay or prevent the accomplishment of our financial objectives.
In addition, our continued success depends, in part, on our ability to develop new products. The launch and ongoing success of new products are inherently uncertain, especially with respect to consumer appeal. A new product launch can give rise to a variety of costs. An unsuccessful launch, among other things, can affect consumer perception of existing brands, and our reputation. Unsuccessful implementation or short-lived popularity of our product innovations may result in inventory write-offs and other costs.
We cannot assure that we will realize the expected benefits of acquisitions, divestitures, or investments. We also cannot assure that our acquisitions, investments, or joint ventures will be profitable, that forecasts regarding our acquisitions, divestitures, or investment activities will be accurate, or that the internal control over financial reporting of entities which we must consolidate as a result of our investment activities will be as robust as the internal control over financial reporting for our wholly-owned entities. Our failure to adequately manage the risks associated with acquisitions or divestitures, or the failure of an entity in which we have an equity or membership interest, could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.
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We may not be able to retain and recruit executive management or build morale and performance amongst our workforce.
Our success depends upon the efforts and abilities of our executive management team, key senior management, and a high-quality employee base, as well as our ability to attract, motivate, reward, and retain them. If one of our executive officers or critical senior management terminates his or her employment, we may not be able to replace their expertise, fully integrate new personnel, or replicate the prior working relationships. The loss of critical employees might significantly delay or prevent the achievement of our business objectives. Qualified individuals with the breadth of skills and experience in our industry that we require are in high demand, and we may incur significant costs to attract them. Difficulties in hiring or retaining key executive or employee talent, or the unexpected loss of experienced employees could have an adverse impact on our business performance. In addition, we could experience business disruption and/or increased costs related to organizational changes, reductions in workforce, or other cost-cutting measures.
We may not be able to secure additional capital and achieve adequate liquidity to grow and compete.
We will require additional capital to operate, grow and compete, and failure to obtain such additional capital could limit our operations and our growth. We may need to raise additional funds through private or public equity and/or debt financing. We cannot assure that additional financing will be available to us on acceptable terms or at all. If additional capital is either unavailable or cost prohibitive, our operations and growth may be limited, and we may need to change our business strategy to slow the rate of, or eliminate, our expansion or to reduce or curtail our operations. Also, any additional financing we undertake could impose covenants upon us that restrict our operating flexibility, and, if we issue equity securities to raise capital, our existing shareholders may experience dilution and the new securities may have rights, preferences, and privileges senior to those of our ordinary shares.
If we are not able to successfully execute on our future operating plans and objectives, our financial condition, and results of operation may be materially adversely affected, and we may not be able to continue as a going concern.
It is important that we meet our sales goals and increase sales going forward as our operating plan already reflects prior significant cost containment measures and may make it difficult to achieve top-line growth if further significant reductions become necessary. If we do not meet our sales goals, our available cash and working capital will decrease and our financial condition will be negatively impacted.
In order to be successful, we believe that we must, among other things:
| ● | increase the sales volume and gross margins for our products; | |
| ● | maintain efficiencies in operations; | |
| ● | manage our operating expenses to sufficiently support operating activities; | |
| ● | maintain fixed costs at or near current levels; and | |
| ● | avoid significant increases in variable costs relating to production, marketing, and distribution. |
We may not be able to meet these objectives, which could have a material adverse effect on our results of operations. We have incurred significant operating expenses in the past and may do so again in the future and, as a result, will need to increase revenues in order to improve our results of operations. Our ability to increase sales will depend primarily on success in expanding our current markets, improving our distribution base, entering into DTC arrangements with national accounts, and introducing new brands, products or product extensions to the market. Our ability to successfully enter new distribution areas and obtain national accounts will, in turn, depend on various factors, many of which are beyond our control, including, but not limited to, the continued demand for our brands and products in target markets, the ability to price our products at competitive levels, the ability to establish and maintain relationships with distributors in each geographic area of distribution and the ability in the future to create, develop and successfully introduce one or more new brands, products, and product extensions.
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Our reliance on distributors, retailers, and brokers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.
Our ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent on our ability to establish and maintain successful relationships with reliable distributors, retailers, and brokers strategically positioned to serve those areas. Most of our distributors, retailers, and brokers sell and distribute competing products, including non-alcoholic and alcoholic beverages, and our products may represent a small portion of their businesses. The success of this network will depend on the performance of the distributors, retailers, and brokers of this network. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other beverage companies who have greater resources than we do. To the extent that our distributors, retailers, and brokers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, including re-stocking the retail shelves with our products, our sales and results of operations could be adversely affected. Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing, and sales activities.
Our ability to maintain and expand our distribution network and attract additional distributors, retailers, and brokers will depend on a number of factors, some of which are outside our control. Some of these factors include:
| ● | the level of demand for our brands and products in a particular distribution area; | |
| ● | our ability to price our products at levels competitive with those of competing products; and | |
| ● | our ability to deliver products in the quantity and at the time ordered by distributors, retailers, and brokers. |
We may not be able to successfully manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market, which will likely adversely affect our revenues and financial results.
A key component of our business is our arrangement with Coca-Cola Europacific Partners (“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 2023, distribution and sales of our bitters under the Australian Bitters Company brand accounted for approximately 83% 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 $134,028 (4.3%) of our group consolidated revenue for fiscal year 2023, 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 packaging materials purchased under short-term supply contracts, and glass bottles available from a limited group of suppliers, 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 2024 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 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 distributors 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, a cyber-security breach, or cyber-related fraud 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, 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 customer contracts, software development costs, a liquor license and contract services, 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 customer contracts, software development costs, a liquor license and contract services 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 uncertain 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 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. For the year ended December 31, 2022, we impaired our entire goodwill of USD$951,802 and have a zero balance at December 31, 2023.
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.
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 may be highly volatile, and you could lose all or part of your investment.
The trading price of our ordinary shares 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 may be less liquid and have greater stock price volatility than the ordinary shares 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. This volatility may prevent you from being able to sell your ordinary shares at or above the price you paid for them. If the market price of our ordinary shares 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, the price of our ordinary shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your ordinary shares at or above the offering price.
There has been no public market for our ordinary shares prior to this offering. The offering price for our ordinary shares will be determined through negotiations between the underwriter and us and may vary from the market price of our ordinary shares following this offering. If you purchase ordinary shares in this offering, you may not be able to resell the ordinary shares at or above the offering price. An active or liquid market in our ordinary shares may not develop upon the completion of this offering or, if it does develop, it may not be sustainable. Further, an inactive market may also impair our ability to raise capital by selling our ordinary shares in the future and may impair our ability to enter into strategic partnerships or acquire companies or products by using our ordinary shares as consideration.
An investment in our ordinary shares is speculative and there can be no assurance of any return on any such investment.
An investment in our ordinary shares is speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in the Company, including the risk of losing their entire investment.
Future sales of ordinary shares, or the perception of such future sales, by some of our existing shareholders could cause the price of our ordinary shares to decline.
The market price of our ordinary shares could decline as a result of sales of a large number of shares of our ordinary shares in the market or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell ordinary shares in the future at a time and at a price that we deem appropriate.
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From time to time, certain of our shareholders may be eligible to sell all or some of their ordinary shares by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate shareholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), and current public information and notice requirements.
Because certain shareholders own a large percentage of our voting stock, other shareholders’ voting power may be limited.
As of August 14, 2024, two (2) of our shareholders own or control approximately 30% of our outstanding ordinary shares. If those shareholders act together, they would have the ability to have a substantial influence on matters submitted to our shareholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. As a result, our other shareholders may have little or no influence over matters submitted for shareholder approval. In addition, the ownership of such shareholders could preclude any unsolicited acquisition of us, and consequently, adversely affect the price of our ordinary shares. These shareholders may make decisions that are adverse to your interests.
We do not expect to pay dividends and investors should not buy our ordinary shares expecting to receive dividends.
We do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our ordinary shares if the price appreciates. You should not purchase our ordinary shares expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in establishing an orderly trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not anticipate that we will pay dividends, we may have trouble raising additional funds which could affect our ability to expand our business operations.
There can be no assurances that our ordinary shares once listed on the Nasdaq Capital Market will not be subject to potential delisting if we do not continue to maintain the listing requirements of Nasdaq.
We have applied to list the shares of our ordinary shares on the Nasdaq Capital Market, under the symbol “IBG”. An approval of our listing application by the Nasdaq will be subject to, among other things, our fulfilling all of the listing requirements of the Nasdaq. In addition, the Nasdaq has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing (i.e., being de-listed from the Nasdaq), would make it more difficult for shareholders to sell our ordinary shares and more difficult to obtain accurate price quotations on our ordinary shares. This could have an adverse effect on the price of our ordinary shares. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our ordinary shares are not traded on a national securities exchange.
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 our 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 our 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 $4,958,000, 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 the net proceeds from this offering to pay, in connection with the acquisition of Reg Liquors LLC d/b/a/ Wired for Wine, the remaining USD$600,000 owed to the seller, as well as 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 equipment, intangible assets, operating right of use asset, and equity using the historical exchange rate to their opening balance and average exchange rate to the movement during the period. We have translated our other 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$0.6642 for the year ended December 31, 2023 and AUD$0.6947 for the year ended December 31, 2022, and for the balance sheet items we have translated at the closing rate as of December 31, 2023 which is AUD$0.6840 and as of December 31, 2022 which is AUD$0.6775.
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, 2023:
| ● | On an actual basis; | |
| ● | On a pro forma basis to give effect to: (i) the issuance of an aggregate of 229,084 ordinary shares which occurred since January 1, 2024; and (ii) the transfer in March 2024 and July 2024 of a total of 1,400,000 ordinary shares by two shareholders to a nominee of the Company to be held by such nominee as treasury stock for the Company until cancellation of such shares upon consummation of this offering and obtaining shareholder approval; and | |
| ● | On a pro forma as adjusted basis to give effect to the sale of 1,400,000 ordinary shares by us in this offering at the assumed initial public offering price of $4.00 per share, and to reflect the application of the proceeds after deducting the estimated seven percent (7%) underwriting discounts and commissions, and estimated offering expenses payable by us, and to reflect the payment of $600,000 to be paid out of the net proceeds from this offering to the seller of Reg Liquors LLC d/b/a/ Wired for Wine, which we acquired on November 3, 2021. |
The pro forma as adjusted 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, 2023 | ||||||||||||
| Actual | Pro Forma | Pro Forma As Adjusted(2)(3) | ||||||||||
| Cash and cash equivalents | $ | 14,140 | $ | 14,140 | $ | 4,372,140 | ||||||
| Notes payable, less related party portion | 1,405,254 | 1,405,254 | 805,254 | (1) | ||||||||
| Shareholders’ Equity: | ||||||||||||
| Ordinary shares, no par value; no authorization limit; 8,161,571 ordinary shares issued and outstanding at December 31, 2023; 6,990,655 ordinary shares issued and outstanding pro forma; and 8,390,655 ordinary shares issued and outstanding pro forma as adjusted assuming the over-allotment option is not exercised | 6,976,753 | 7,893,089 | 12,851,089 | |||||||||
| Accumulated deficit (4) | (6,209,633 | ) | (6,451,961 | ) | (6,451,961 | ) | ||||||
| Accumulated other comprehensive loss | $ | (158,650 | ) | $ | (158,650 | ) | $ | (158,650 | ) | |||
| Total Shareholders’ Equity | 608,470 | 1,282,478 | 6,240,478 | |||||||||
| Total Capitalization | $ | 2,013,724 | $ | 2,687,732 | $ | 7,045,732 | ||||||
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| (1) | Reduction in Notes payable stems from the use of $600,000 of the net proceeds from the offering to pay the remaining amount due 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 ordinary shares is not exercised by the underwriter and no value is attributed to the Representative’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 ordinary shares in this offering at an assumed initial public offering price of $4.00 per ordinary share, and after deducting the estimated underwriting discounts, and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. | |
| (4) | We had a net loss of ($2,013,957) for the year ended December 31, 2023, which includes the following non-recurring and one-time costs that occurred during fiscal year 2023: (i) Provision of doubtful debt from one customer ($380,163);
(ii) Provision of obsolete inventory ($53,407);
(iii) Share issuance for services as marketing expenses of approximately ($200,000);
We had a net loss of ($4,127,770) for the year ended December 31, 2022, 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 the 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, 2023, and assumes:
| ● | no exercise of the Representative’s Warrants; and | |
| ● | no ordinary shares will be issued pursuant to the over-allotment option. |
Each $1.00 increase or decrease in the assumed initial public offering price of $4.00 per share, assuming no change in the number of ordinary shares 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 $1,302,000, after deducting estimated offering expenses payable by us.
Similarly, a 100,000 share increase or decrease in the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us by approximately $372,000, assuming the assumed public offering price of $4.00 per share remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
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If you invest in our ordinary shares, your interest will be diluted for each ordinary share you purchase to the extent of the difference between the initial public offering price per ordinary share and our net tangible book value per ordinary share after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net tangible book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.
Our net tangible book value as of December 31, 2023, was $236,836, or $0.03 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, 2023, was $910,844, or $0.13 per ordinary share, as adjusted to give effect to the issuance of an aggregate of 229,084 ordinary shares which occurred since January 1, 2024 and the transfer of 1,400,000 ordinary shares to a nominee of the Company to be held by such nominee as treasury stock for the Company until cancellation of such shares upon consummation of this offering and obtaining shareholder approval.
After giving effect to our sale of 1,400,000 ordinary shares in this offering based on the assumed initial public offering price of $4.00 per ordinary share, 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, 2023, would have been $5,868,844, or $0.70 per ordinary share. This represents an immediate increase in as adjusted net tangible book value of $0.57 per ordinary share to the existing shareholders, and an immediate dilution in as adjusted net tangible book value of $3.30 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 $4.00 per ordinary share 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 $1,302,000, 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 ordinary shares 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 ordinary shares and other terms of this offering determined at pricing.
Similarly, a 100,000 increase or decrease in the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us by approximately $372,000, assuming the assumed public offering price of $4.00 per ordinary share remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
The following table illustrates the estimated net tangible book value per share after this offering and the per share dilution to persons purchasing ordinary shares in this offering based on the foregoing offering assumptions:
| No Exercise of Over-Allotment Option | Full Exercise of Over-Allotment Option | |||||||
| Assumed initial public offering price per ordinary share | $ | 4.00 | $ | 4.00 | ||||
| Net tangible book value per ordinary share as of December 31, 2023 | 0.03 | 0.03 | ||||||
| Increase in pro forma net tangible book value per share | 0.10 | 0.10 | ||||||
| Pro forma net tangible book value per share | 0.13 | 0.13 | ||||||
| Increase in pro forma as adjusted net tangible book value per ordinary share attributable to payments by new investors | 0.57 | 0.64 | ||||||
| Pro forma as adjusted net tangible book value per ordinary share immediately after this offering | 0.70 | 0.77 | ||||||
| Amount of dilution in net tangible book value per ordinary share to new investors in the offering | $ | 3.30 | $ | 3.23 | ||||
The following tables summarize, on an as adjusted basis as of December 31, 2023, the differences between existing shareholders and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share before deducting the estimated underwriting discounts and the estimated offering expenses payable by us, and assuming no exercise of the underwriter’s over-allotment option.
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| Ordinary Shares purchased | Total Consideration | Average price per Ordinary | ||||||||||||||||||
| Over-allotment option not exercised | Number | Percent | Amount | Percent | Share | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Existing shareholders | 6,990,655 | 83 | % | $ | 4,340 | 44 | % | $ | 0.62 | |||||||||||
| New investors | 1,400,000 | 17 | % | 5,600 | 56 | % | 4.00 | |||||||||||||
| Total | 8,390,655 | 100 | % | $ | 9,940 | 100 | % | $ | 1.18 | |||||||||||
| Ordinary Shares purchased | Total Consideration | Average price per Ordinary | ||||||||||||||||||
| Over-allotment option exercised in full | Number | Percent | Amount | Percent | Share | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Existing shareholders | 6,990,655 | 81 | % | $ | 4,340 | 40 | % | $ | 0.62 | |||||||||||
| New investors | 1,610,000 | 19 | % | 6,440 | 60 | % | 4.00 | |||||||||||||
| Total | 8,600,655 | 100 | % | $ | 10,780 | 100 | % | $ | 1.25 | |||||||||||
The as adjusted information as discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ordinary shares and other terms of this offering determined at the pricing.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in this prospectus. See “Cautionary Statement About Forward-Looking Statements.”
Overview
We are a developer, manufacturer and exporter of a growing portfolio of 60 formulations across 13 alcoholic and non-alcoholic brands of beverages like Australian Bitters Company and Drummerboy. Our distribution capabilities include sales to large distributors and high-margin direct-to-consumer sales. We have partnered with Coca-Cola Europacific Partners (NASDAQ:CCEP), one of the world’s largest Coca-Cola bottlers, to exclusively distribute “Australian Bitters Company” bitters in Australia while retaining the rights throughout the rest of the world, and we are negotiating distribution to new European markets, including expansion of our new brands such as Drummerboy into Australia and Europe. We focus on direct-to-consumer (DTC) sales through our network of eCommerce platforms. We launched BevMart, a DTC marketplace, in Australia in May 2021 and in the U.S. in February 2022. We also acquired the U.S.-based Wired For Wine.com in November 2021, increasing the scope of our DTC capabilities, which allows us to drive higher margins across our brands.
We have facilities, which are FDA certified, kosher compliant and meet Coca-Cola’s stringent standards, and 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 the 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 a 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 an effective and efficient customer acquisition cost (CAC) strategy. 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.
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”.
Revenues
Our revenues are derived primarily from the sales of bitter products to Coca-Cola Europacific Partners and overseas 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.
Selling, 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 accounting for leases.
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, 2023 and 2022
Revenues for the year ended December 31, 2023, were $3,147,763 compared to revenues of $4,530,396 for the year ended December 31, 2022. The following table summarizes the results of our revenues for the years ended December 31, 2023 and 2022, respectively.
| 12 Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Australian Bitters Company | $ | 2,790,125 | 89 | % | $ | 1,811,574 | 40 | % | ||||||||
| BitterTales and others | $ | — | 0 | % | $ | 613,507 | 14 | % | ||||||||
| Total Brand Products | $ | 2,790,125 | 89 | % | $ | 2,425,081 | 54 | % | ||||||||
| Spirits | $ | 86,126 | 3 | % | $ | 154,160 | 3 | % | ||||||||
| Wines | $ | 271,512 | 9 | % | $ | 1,951,155 | 43 | % | ||||||||
| Total E-Commerce | $ | 357,638 | 11 | % | $ | 2,105,315 | 46 | % | ||||||||
| Grand Total | $ | 3,147,763 | 100 | % | $ | 4,530,396 | 100 | % | ||||||||
The $1,382,633, or approximately 31%, decrease in revenues resulted from was driven by the decreased sales of wine and spirits via the Company’s owned marketplaces, primarily caused by the Company’s re-strategizing of the eCommerce business this year by pausing major paid media and media agency expenses to adapt to the market trend. The pause in ad spend on our marketplaces is evident in the 61% decrease of sales and marketing expenses, for the same period.
We have two reportable geographic segments – Australia and the United States. All inter-segment revenues are eliminated. Revenue for fiscal year ended December 31, 2023, in Australia and the United States, were $2,876,251 and $271,512, respectively, compared to revenue of $2,579,241 and $1,951,155 for the fiscal year ended December 31, 2022. The decrease in revenue of the of U.S. geographic segment is due to the decreased wine sales through our platform mentioned above which is included in the U.S. market.
Summary information with respect to the Group’s reportable geographic segments is as follows:
| 12 Months Ended December 31, | ||||||||||||||||
| Revenues | 2023 | 2022 | ||||||||||||||
| Australia | $ | 2,876,251 | 91 | % | $ | 2,579,241 | 57 | % | ||||||||
| United States | $ | 271,512 | 9 | % | $ | 1,951,155 | 43 | % | ||||||||
| Total Revenue | $ | 3,147,763 | 100 | % | $ | 4,530,396 | 100 | % | ||||||||
| 12 Months Ended December 31, | ||||||||
| Loss from operations | 2023 | 2022 | ||||||
| Australia | $ | (1,007,824 | ) | $ | (2,577,773 | ) | ||
| United States | $ | (1,131,254 | ) | $ | (1,710,613 | ) | ||
| Total loss from operations | $ | (2,139,078 | ) | $ | (4,288,386 | ) | ||
Cost of goods sold for the year ended December 31, 2023, were $1,093,369 compared to cost of goods sold for the year ended December 31, 2022, of $2,124,828. The decrease in cost of goods sold was primarily due to the change in the product mix between brand products and eCommerce products (i.e., spirits and wines). While gross margin for our brand products remained above 75%, the Group’s overall gross margin is approximately 65% when including the lower gross margin products of Wired For Wine, whose gross margin usually ranges from 20% to 25%. The increase in overall gross margin from 53% in 2022 to 65% in 2023 resulted from the decrease in revenues derived from eCommerce products, which have a lower gross margin products compared to branded products.
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| 12 Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Other general and administrative | $ | 1,403,949 | 33 | % | $ | 1,809,501 | 27 | % | ||||||||
| Salaries and wages | $ | 1,674,746 | 40 | % | $ | 1,918,206 | 29 | % | ||||||||
| Sales and marketing | $ | 329,439 | 8 | % | $ | 846,956 | 13 | % | ||||||||
| Contracted services | $ | 785,338 | 19 | % | $ | 1,167,489 | 17 | % | ||||||||
| Impairment loss | $ | — | 0 | % | $ | 951,802 | 14 | % | ||||||||
| Total Operating Expenses | $ | 4,193,472 | 100 | % | $ | 6,693,954 | 100 | % | ||||||||
Operating expenses for the year ended December 31, 2023, were $4,193,472 compared to $6,693,954 for the year ended December 31, 2022. The decrease in our operating expenses was primarily a result decreased expenses relating to:
| ● | New product development ($252,515 decrease), included in other general and administrative expenses, since the conclusion of research and development in November 2022 of Drummerboy, our new line of non-alcoholic products. No new product development activities occurred in 2023; | |
| ● | Contracted services ($382,151 decrease) driven by the decreased utilization of external professionals for raising working capital, this offering, corporate governance, and ecommerce, compared with the same period last year; | |
| ● | Sales and marketing ($517,517 decrease) because of the pausing of paid media and eCommerce media agencies discussed above; and | |
| ● | Freight and storage ($345,454 decrease), included in Other general and administrative expenses that is commensurate with the decrease in revenues derived from Wired For Wines. |
| 12 Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Finance cost | $ | — | $ | (80,000 | ) | |||
| Other | $ | 90,720 | $ | (17,871 | ) | |||
| Interest income | $ | 53,763 | $ | 31,322 | ||||
| Interest expense | $ | (260,473 | ) | $ | (122,898 | ) | ||
| Total other income / (expenses) | $ | (115,990 | ) | $ | (189,447 | ) | ||
| Net loss | $ | (2,013,957 | ) | $ | (4,127,770 | ) | ||
Total other expense for the year ended December 31, 2023, was $115,990 as compared to $189,447 for the year ended December 31, 2022. This is due to the increase in other income of $108,591, an increase in interest income of $22,441 and a decrease in finance costs of $80,000, partially offset by the increase in interest expense of $137,575.
The net loss for the year ended December 31, 2023, was $2,013,957 as compared to the net income of $4,127,770 for the year ended December 31, 2022. The change in our net loss is mainly due to the decrease in operating expenses.
Liquidity and Capital Resources
Cash Flow
Fiscal Years Ended December 31, 2023, and 2022
As of December 31, 2023, we had total cash and cash equivalents of $14,140 as compared with $91,986 as of December 31, 2022. The following table summarizes our sources and uses of cash for each of the periods presented:
| Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash from operating activities | $ | 30,096 | $ | (2,861,671 | ) | |||
| Net cash from investing activities | $ | (119,497 | ) | $ | 36,958 | |||
| Net cash from financing activities | $ | 25,936 | $ | 1,342,048 | ||||
| Impact of changes in foreign currency on cash | $ | (14,380 | ) | $ | 15,479 | |||
| Net (decrease) in cash and cash equivalents | $ | (77,846 | ) | $ | (1,467,186 | ) | ||
The $1.4 million improvement in the decrease of cash during 2023 was primarily due to the improved operational performance during the year ended December 31, 2023.
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Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements for the years ended December 31, 2023 and 2022 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 lease commencement 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 in 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 the 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 an 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 had 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 the 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 it 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 40% of our revenues in 2022 and 79% of our revenues in 2023 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:
| 2023 (USD) | 2022 (USD) | 2021 (USD) | 2020 (USD) | 2019 (USD) | ||||||||||||||||
| Australian Market | $ | 2,876,251 | $ | 1,965,734 | $ | 2,386,798 | $ | 1,598,822 | $ | 2,248,941 | ||||||||||
| U.S. Market(1) | $ | 271,512 | $ | 2,564,662 | $ | 1,361,483 | $ | 582,932 | — | |||||||||||
| Total Revenue | $ | 2,790,125 | $ | 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 in 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. 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.
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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. The opportunity exists to capitalize on the younger premium segment through optimized channel targeting, customer service and range extension.
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Strengths
| ● | Exclusive, award winning and unique product range. | |
| ● | 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. |
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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.
Target Market Size
Spirits in the U.S. - for the 11th straight year - have continued to gain market share over beer and wine. Premiumization also continues to increase with premium and the super-premium spirits categories seeing +7.3% and +12.7% growth, respectively.
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. 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. 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.
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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.
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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 was July 31, 2020 through July 31, 2023, at which time the term automatically renewed for 24 months to July 31, 2025. Each subsequent term may be automatically renewed 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 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”). The Seven Hills Lease commenced on July 1, 2018 and ends on April 21, 2024 . The Company is currently in negotiations to extend the Seven Hills Lease. From October 1, 2013 – December 31, 2023, we leased a warehouse at 255 Highland Cross, Rutherford, New Jersey of approximately 1,500 square feet for $1,500 per month; the lease was not renewed.
We believe that our existing facilities are generally adequate to meet our current of future needs, but we expect to seek additional space as needed to accommodate future growth.
Employees
As of August 14, 2024, we had 10 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 | 68 | Chief Executive Officer | ||
| Sahil Beri | 37 | Chief Operating Officer and Chairman | ||
| Eric Yu | 43 | Chief Financial Officer | ||
| Daniel Lanskey | 62 | Director | ||
| Sally Cardillo | 70 | Director | ||
| Shawn Messner | 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).
Daniel Lanskey has served as a director since February 2024 and is primarily located in Sydney, New South Wales, Australia. Mr. Lanskey has over twenty-five (25) years of capital markets experience in Asia, Australia, Canada, and the United States. He has served as Chairman, Managing Director, and CEO of companies in the energy, mining, life science, investment services and information technology. As a serial entrepreneur, Mr Lanskey has a demonstrated history of managing day to day operations from Start Up, Seed Funding through to Initial Public Offering to exit. As an experienced public speaker, he has presented at Industry Conferences in Asia, Australia, Europe, Canada, and United States. Mr. Lanskey is a Director of Valross Capital Pty Ltd, an authorized representative of an Australian Financial Services License, and has been an integral driver of capital raising activities for both private and public companies trading on the ASX, TSXV, and OTCQX. He is the Founder of Turntable Energy Limited and has served as Chairman since 2016. He has served as a director of Timeless Capital Inc. (TSXV: TLC.P) since 2018. Mr. Lanskey has also served as Chairman of Needle Capital Corp. from 2017-2019, Managing Director and Founder of Qmines Limited (ASX:QML) from 2019-2022 and Non-Executive Director of McArthur Minerals Limited (ASX: MIO; TSX-V: MMS), among positions in other listed companies. He previously served as a member of the Queensland Police Service in Australia and qualified as a Detective and Sergeant, while completing studies in Justice Administration, Information Technology and Business at a Diploma level. He holds a post graduate business degree in Entrepreneurship and Venture Development from Griffith University, Brisbane, 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.
Shawn Messner has served as a director since February 2024 and is primarily located in Plymouth, Minnesota. Mr. Messner is the Managing Director of Investment Banking at Needham & Company, a position he has held since April 2019. His responsibilities include the origination and execution of public and private financings, and mergers and acquisitions. Mr. Messner currently heads Needham’s activities related to the consumer and cannabis industries. Over his approximately twenty (20) year career, Mr. Messner has been responsible for 150+ equity financings and advisory transactions, representing over $12B+ in aggregate value. Prior to joining Needham, he was Managing Director and Head of Energy Investment Banking at Northland Capital Markets. Prior to Northland, Mr. Messner worked at Piper Jaffray. After serving in the U.S. Navy, he graduated from Augsburg College with a Bachelor’s degree in Finance and the University of Minnesota with an Masters of Business Administration in Finance.
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 6,582,910 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, 2023, 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 | 2023 | 46,493 | — | — | — | — | 46,493 | |||||||||||||||||
| 2022 | 36,472 | — | — | — | — | 36,472 | ||||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Sally Cardillo (1) | 2023 | 46,493 | — | — | — | — | 46,493 | |||||||||||||||||
| 2022 | 36,472 | — | — | — | — | 36,472 | ||||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Kristopher Salinger (2) | 2023 | 46,493 | — | — | — | — | 46,493 | |||||||||||||||||
| 2022 | 36,472 | — | — | — | — | 36,472 | ||||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Sameer Sethi | 2023 | 46,493 | — | — | — | — | 46,493 | |||||||||||||||||
| 2022 | 36,472 | — | — | — | — | 36,472 | ||||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Amit Beri (3) | 2022 | — | — | — | — | — | — | |||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Meena Beri (4) | 2022 | — | — | — | — | — | — | |||||||||||||||||
| 2021 | 68,666 | — | — | 6,867 | — | 75,533 | ||||||||||||||||||
| Officers | ||||||||||||||||||||||||
| Amit Beri (3) | 2022 | — | — | — | — | — | — | |||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Dean Huge (5) | 2023 | 324,996 | 324,996 | |||||||||||||||||||||
| 2022 | 249,792 | — | — | — | — | 249,792 | ||||||||||||||||||
| Sahil Beri | 2023 | 252,390 | — | — | — | — | 252,390 | |||||||||||||||||
| 2022 | 197,990 | — | — | — | — | 197,990 | ||||||||||||||||||
| 2021 | — | — | — | — | — | — | ||||||||||||||||||
| Tianyi Eric Yu | 2023 | 122,955 | — | — | 13,910 | — | 136,865 | |||||||||||||||||
| 2022 | 125,046 | — | 69,470 | 12,817 | — | 207,334 | ||||||||||||||||||
| 2021 | 58,956 | — | — | 5,896 | — | 64,852 | ||||||||||||||||||
| Clive Coleman | 2023 | 232,465 | — | 42,332 | 24,990 | — | 299,787 | |||||||||||||||||
| 2022 | 237,535 | — | 92,627 | 24,375 | — | 354,537 | ||||||||||||||||||
| 2021 | 45,855 | — | — | 4,585 | — | 50,440 | ||||||||||||||||||
| (1) | Sally Cardillo joined the Board in April 2022. |
| (2) | Kristopher Salinger resigned as a director on October 20, 2023. |
| (3) | Amit Beri resigned as chief executive officer on February 24, 2022 and resigned as a director on April 29, 2022. |
| (4) | Meena Beri resigned as a director on April 29, 2022. |
| (5) | 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, 2023.
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, Daniel Lanskey and Shawn Messner. Our board of directors has determined that Ms. Cardillo, Mr. Lanskey and Mr. Messner 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, Daniel Lanskey and Shawn Messner, 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 the beginning of the Company’s preceding three financial years, January 1, 2021, through the date of this filing 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.
Treasury Stock Deed between Innovation Beverage Group Limited, Meena Beri and 114 Assets Inc. dated as of March 18, 2024
On March 18, 2024, Meena Beri, 114 Assets Inc. and the Company entered into a Stock Transfer Deed whereby each shareholder transferred 500,000 ordinary shares to a nominee of the Company to be held by such nominee as treasury stock for the Company until their cancellation upon consummation of the initial public offering and obtaining shareholder approval, and upon such cancellation, neither will have any further rights to the ordinary shares. Such ordinary shares will return to each shareholder if the initial public offering and obtaining shareholder approval do not consummate.
Restated and Amended Treasury Stock Deed between Innovation Beverage Group Limited, Meena Beri and 114 Assets Inc. dated as of August 3, 2024
On August 3, 2024, Meena Beri, 114 Assets Inc. and the Company entered into a Restated and Amended Stock Transfer Deed whereby Meena Beri transferred 650,000 ordinary shares and114 Assets Inc. transferred 750,000 ordinary shares to a nominee of the Company to be held by such nominee as treasury stock for the Company until their cancellation upon consummation of the initial public offering and obtaining shareholder approval, and upon such cancellation, neither will have any further rights to the ordinary shares. Such ordinary shares will return to each shareholder if the initial public offering and obtaining shareholder approval do not consummate. The Company determined that it is desirable to further alter its capital structure for its potential Nasdaq listing such that the current number of existing issued shares is effectively reduced by a total of 1.4 million shares (rather than the 1 million shares pursuant to the terms of the initial treasury stock deed).
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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 6,990,655 ordinary shares outstanding as of August 14, 2024:
| ● | 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 14, 2024, 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 6,990,655 ordinary shares outstanding at August 14, 2024. The table also lists the percentage ownership after this offering based on 8,390,655 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 | 851,137 | 12.18 | % | 851,137 | 10.14 | % | ||||||||||
| Sahil Beri, Chief Operating Officer and Director (1) | 729,784 | 10.44 | % | 729,784 | 8.70 | % | ||||||||||
| Samstock SZRT LLC (2) | 603,568 | 8.63 | % | 603,568 | 7.19 | % | ||||||||||
| 114 Assets Inc. (3) | 1,243,828 | 17.79 | % | 1,243,828 | 14.82 | % | ||||||||||
| Anup Puri | 350,000 | 5.01 | % | 350,000 | 4.17 | % | ||||||||||
| Anil Beri Holdings Inc. (4) | 364,198 | 5.21 | % | 364,198 | 4.34 | % | ||||||||||
| Hartfield Assets Inc. (5) p | 364,198 | 5.21 | % | 364,198 | 4.34 | % | ||||||||||
| Officers and Directors | ||||||||||||||||
| Dean Huge, Chief Executive Officer | 56,002 | * | % | 56,002 | * | % | ||||||||||
| Sahil Beri, Chief Operating Officer and Director (1) | 729,784 | 10.44 | % | 729,784 | 8.70 | % | ||||||||||
| Tianyi Eric Yu, Chief Financial Officer | 19,597 | * | % | 19,597 | * | % | ||||||||||
| Clive Coleman, Chief Commercial Officer (6) | 47,305 | * | % | 47,305 | * | % | ||||||||||
| Kristopher (Kris) Laurens Salinger, Director (7) | — | — | % | — | — | % | ||||||||||
| Sally Cardillo, Director | — | — | % | — | — | % | ||||||||||
| Sameer Sethi, Director (8) | — | — | % | — | — | % | ||||||||||
| Daniel Lanskey, Director 9) | — | — | % | — | — | % | ||||||||||
| Shawn Messner, Director 9) | — | — | % | — | — | % | ||||||||||
| All officers and directors as a group | 852,688 | 12.20 | % | 852,688 | 10.16 | % | ||||||||||
| 5% or greater beneficial owners | 4,506,713 | 64.47 | % | 4,506,713 | 53.71 | % | ||||||||||
* Represents beneficial ownership of less than one percent (1%) of the outstanding ordinary shares.
| (1) | Includes 112,500 ordinary shares issued to Beri Beverage Pty Ltd, which is owned and controlled by Sahil Beri, in lieu of accrued cash compensation owed to Mr. Beri for his service as the Chief Operating Officer of the Company. The business address of Beri Beverage Pty Ltd is 1 Doris Hirst Place, West Pennant Hills, NSW 2125, Sydney, Australia. |
| (2) | 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. |
| (3) | 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. |
| (4) | Anil Beri has voting and dispositive power over the shares held by Anil Beri Holdings Inc. Mr. Beri lives in Australia. |
| (5) | Sant Parkash has voting and dispositive power over the shares held by Hartfield Assets Inc. Mr. Parkash lives in Australia. |
| (6) | Mr. Coleman resigned as Chief Commercial Officer on January 22, 2024, which became effective on April 22, 2024. |
| (7) | Mr. Salinger resigned as a director on October 30, 2023, which took effect at such time. |
| (8) | Mr. Sethi resigned as a director on February 16, 2024, which took effect at such time. |
| (9) | Joined the board of directors in February 2024. |
As of August 14, 2024, there were thirty-six (36) 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 14, 2024, the number of ordinary shares issued, outstanding and fully paid was 6,990,655, 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$100,000. 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.”
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On May 15, 2023, we issued to one employee 4,049 ordinary shares with a value of AUD$20,649.90. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On May 22, 2023, we issued an aggregate of 14 ordinary shares to 14 shareholders, one ordinary share each, to resolve rounding calculations in share ownership.
On October 24, 2023, we issued 63,495 ordinary shares with a value of AUD$400,018.50 to an investor pursuant to a private placement to a non-U.S. person in reliance on Regulation S. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On October 24, 2023, we issued under our equity incentive plan 150,000 restricted ordinary shares with a value of US$600,000 to a distributor. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On October 24, 2023, we issued our equity incentive plan 150,000 restricted ordinary shares with a value of US$600,000 to a distributor. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On November 27, 2023, we issued to one consultant 50,000 ordinary shares with a value of AUD$315,000. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On January 17, 2024, we issued to one employee 10,582 ordinary shares with an aggregate value of USD$42,112. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On February 27, 2024, we issued to two employees in lieu of accrued and owing cash compensation an aggregate of 109,960 ordinary shares with an aggregate value of USD$439,839. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On March 5, 2024, we issued to one consultant 50,000 ordinary shares with a value of USD$200,000. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On March 18, 2024, two shareholders transferred an aggregate of 1,000,000 ordinary shares to a nominee of the Company to be held by such nominee as treasury stock for the Company until cancellation of such shares upon consummation of this initial public offering and obtaining shareholder approval.
On March 27, 2024, we issued to two employees in lieu of accrued and owing cash compensation an aggregate of 58,542 ordinary shares with an aggregate value of USD$234,166. For further details, see Item 7 “Recent Sales of Unregistered Securities.”
On July 31, 2024, two shareholders transferred an aggregate of 400,000 ordinary shares to a nominee of the Company to be held by such nominee as treasury stock for the Company until cancellation of such shares upon consummation of this initial public offering and obtaining shareholder approval.
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
Ordinary Shares
The material terms of our ordinary shares are described under the caption “Description of Shares Capital Stock and Constitution” in this prospectus.
Representative’s Warrants
At the close of this offering, we have agreed to issue to the Underwriter or its designees warrants to purchase up to a total of 5% of the ordinary shares sold in this offering (70,000 ordinary shares, or 85,000 if the underwriters exercise the over-allotment option in full), at an assumed exercise price of $5.50 per share (equal to 137.5% of the initial public offering price per ordinary share). Such warrants are exercisable for a five-year period commencing six (6) months from the commencement of sales in the offering. See “Underwriting–Representative’s Warrants” for a more detailed description of the terms of the Representative’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 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 8,390,655 ordinary shares outstanding (or 8,600,655 ordinary shares assuming the underwriters exercise the over-allotment option in full). 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
The Company, 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 69,907 ordinary shares immediately after this offering (based on 6,990,655 ordinary shares outstanding as of August 14, 2024, and assuming 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 (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.
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 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 will be your tax basis in such share and any gain or loss on a disposition of an ordinary share 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) should be treated for U.S. federal income tax purposes as a disposition of the ordinary shares, and the amount realized on such disposition will be allocated between the ordinary shares 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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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 in Innovation Beverage Group Ltd. 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 /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. 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.
“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.
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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 ordinary shares 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.
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In connection with the offering, we will enter into an underwriting agreement (the “Underwriting Agreement”) with The Benchmark Company, LLC, as representative of the underwriters in this offering. Each underwriter named below has severally agreed to purchase from us, on a firm commitment basis, the number of ordinary shares set forth opposite its name below, at the initial public price, less the underwriting discount set forth on the cover page of the prospectus
| Name | Number of Ordinary Shares | |||
| The Benchmark Company, LLC | ||||
| Total | ||||
The underwriters are committed to purchase all of the ordinary shares offered by us other than those covered by the option to purchase additional securities described below, if they purchase any such securities. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the Underwriting Agreement. Furthermore, pursuant to the Underwriting Agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the Underwriting Agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
The ordinary shares sold in this offering are expected to be ready for delivery against payment in immediately available funds on or about [ ], 2024, subject to customary closing conditions. The underwriters may reject all or part of any order.
Over-Allotment Option
We have granted to the underwriters an option to purchase up to an additional 210,000 ordinary shares (15% of the ordinary shares sold in this offering) from us at the same price to the public, and with the same underwriting discount, as set forth in the table below. The underwriters may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover over-allotments, if any. To the extent the underwriters exercise the option, the underwriters will become obligated, subject to certain conditions, to purchase the shares for which they exercise the option.
Commissions and Discounts
The underwriters have advised us that they propose to initially offer the ordinary shares to the public at the public offering price set forth on the cover page of the prospectus. The underwriters propose to offer the ordinary shares to certain dealers at the same price less a concession of not more than $[ ] per ordinary share, of which up to $[ ] per ordinary share may be reallowed to other dealers. After the initial offering, these figures may be changed by the underwriters.
The following table shows the total underwriting discounts payable to the underwriters by us in connection with this offering (assuming both the exercise in full and non-exercise of the over-allotment option to purchase additional ordinary shares we have granted to the underwriters):
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| Per Ordinary Share | Total Without Over-Allotment Option | Total With Over-Allotment Option | ||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discounts and commissions (7.00%) | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ | |||||||||
In addition to the underwriting discount, we have agreed to pay up to $125,000 of the fees and expenses of the underwriters, which may include up to $125,000 of fees and expenses of counsel to the underwriters. In addition to the foregoing, we have agreed to be responsible for the costs of background checks on our senior management in an amount not to exceed $10,000. The fees and expenses of the underwriters that we have agreed to reimburse are not included in the underwriting discounts set forth in the table below.
We have paid an expense deposit of $25,000 to (or on behalf of) the underwriters, which will be applied against the out-of-pocket accountable expenses that will be paid by us to the underwriters in connection with this offering, and will be reimbursed to us to the extent not incurred. We have also agreed to pay a non-accountable expense allowance to the underwriters equal to 1.0% of the gross proceeds received in this offering.
Except as disclosed in this prospectus, the underwriters have not received and will not receive from us any other item of compensation or expense in connection with this offering considered by FINRA to be underwriting compensation under FINRA Rule 5110. The underwriting discount was determined through an arms’ length negotiation between us and the underwriters.
We estimate that the total expenses of this offering, excluding underwriting discounts, will be U.S. $375,000.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain “lock-up” agreements, the Company, its executive officers, directors and certain holders of 5% or greater of the Company’s ordinary shares and securities exercisable for or convertible into its ordinary shares outstanding immediately upon the closing of this offering, have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any ordinary shares or securities convertible into or exchangeable or exercisable for any ordinary shares, whether currently owned or subsequently acquired, without the prior written consent of the underwriters, for a period of six (6) months from the date of effectiveness of the offering.
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Representative’s Warrants
The Company has agreed to issue to the underwriters warrants to purchase up to a total of 5.0% of the ordinary shares sold in this offering. The warrants are exercisable at $5.50 per ordinary share (137.5% of the public offering price of the ordinary shares in this offering) commencing on a date which is six (6) months from the effective date of the offering under this prospectus and expiring on a date which is no more than five (5) years from the effective date of the offering in compliance with FINRA Rule 5110(g)(8)(A). The warrants have been deemed compensation by FINRA and are therefore subject to a 6-month lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of six (6) months from effectiveness. The warrants may be exercised as to all, or a lesser number of ordinary shares, and will provide for cashless exercise and will contain provisions for one demand registration of the sale of the underlying ordinary shares for a period of no greater than five (5) years from the effective date of the offering in compliance with FINRA Rule 5110(g)(8)(C). In addition, the warrants will contain a provision for unlimited “piggyback” registration rights which rights may be exercised at any time during the two-year period beginning on date which is six (6) months from the effective date of this offering. The Company will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or the Company’s recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of ordinary shares at a price below the warrant exercise price.
Right of First Refusal
We have granted The Benchmark Company, LLC a right of first refusal, for a period of twenty four (24) months from the closing of this offering, to act as lead managing underwriter and book runner or minimally as co-lead manager and co-book runner and/or lead or co-lead placement agent at The Benchmark Company, LLC’s discretion, for each and every future public and private equity or debt (excluding commercial bank debt) offering, including all equity linked financings, during such twenty four (24) month period, of the Company, or any successor to or subsidiary of the Company.
Indemnification
We also have agreed to indemnify the underwriters against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Determination of Offering Price
The underwriters have advised us that they propose to offer the ordinary shares directly to the public at the estimated initial public offering price range set forth on the cover page of this prospectus. That price range and the initial public offering price are subject to change as a result of market conditions and other factors. Prior to this offering, no public market exists for our ordinary shares. The initial public offering price of the ordinary shares was determined by negotiation between us and the underwriters. The principal factors considered in determining the initial public offering price of the shares included, among others:
| ● | the information in this Prospectus and otherwise available to the underwriters, including our financial information; |
| ● | the history and the prospects for the industry in which we compete; |
| ● | the ability and experience of our management; |
| ● | the prospects for our future earnings; |
| ● | the present state of our development and our current financial condition; |
| ● | the general condition of the economy and the securities markets in the United States at the time of this initial public offering; |
| ● | the recent market prices of, and the demand for, publicly-traded securities of generally comparable companies; and |
| ● | other factors as were deemed relevant. |
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We cannot be sure that the initial public offering price will correspond to the price at which our ordinary shares will trade in the public market following this offering or that an active trading market for or ordinary shares will develop or continue after this offering.
Price Stabilization, Short Positions and Penalty Bids
To facilitate this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our ordinary shares during and after the offering. Specifically, the underwriters may create a short position in our ordinary shares for their own accounts by selling more ordinary shares than we have sold to the underwriters. The underwriters may close out any short position by purchasing shares in the open market.
In addition, the underwriters may stabilize or maintain the price of our ordinary shares by bidding for or purchasing ordinary shares in the open market and may impose penalty bids. If penalty bids are imposed, selling concessions allowed to broker-dealers participating in this offering are reclaimed if shares previously distributed in this offering are repurchased, whether in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price of our ordinary shares at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of our ordinary shares to the extent that it discourages resales of our ordinary shares. The magnitude or effect of any stabilization or other transactions is uncertain. These transactions may be effected on the Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time.
In connection with this offering, the underwriters and selling group members may also engage in passive market making transactions in our ordinary shares on the Nasdaq Capital Market. Passive market making consists of displaying bids on the Nasdaq Capital Market limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of our ordinary shares at a level above that which might otherwise prevail in the open market and, if commenced, 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 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 Offer, Sale and Distribution of Shares
The underwriters or syndicate members may facilitate the marketing of this offering online directly or through one of their respective affiliates. In those cases, prospective investors may view offering terms and a prospectus online and place orders online or through their financial advisors. Such websites and the information contained on such websites, or connected to such sites, are not incorporated into and are not a part of this prospectus.
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Other Relationships
The underwriters and their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. The underwriters may in the future receive customary fees and commissions for these transactions.
In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Listing
We have applied to list our ordinary shares on The Nasdaq Capital Market under the trading symbol “IBG”.
Transfer Agent
The transfer agent for our ordinary shares is VStock Transfer, LLC, located at 18 Lafayette Place, Woodmere, New York 11598.
Selling Restrictions
No action has been taken in any jurisdiction except the United States that would permit a public offering of our securities, or the possession, circulation or distribution of this prospectus or any other material relating to us or our securities in any jurisdiction where action for that purpose is required. Accordingly, such securities may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the securities may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
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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.
| SEC registration fee | $ | 1,440 | ||
| FINRA filing fee | $ | 2,523 | ||
| The Nasdaq Capital Market listing fee | $ | 50,000 | ||
| Legal fees and expenses | $ | 125,000 | ||
| Accounting fees and expenses | $ | 75,000 | ||
| Transfer agent fees and expenses | $ | — | ||
| Printing fees and expenses | $ | 29,000 | ||
| Miscellaneous | $ | — | ||
| Total | $ | 282,963 |
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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 Carmel LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Sheppard, Mullin, Richter & Hampton, LLP, New York, NY.
The financial statements of Innovation Beverage Group Limited (formerly Australian Boutique Spirits Pty Limited) for the fiscal years ended December 31, 2023 and 2022, 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
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
December 31, 2023 and 2022
INNOVATION BEVERAGE GROUP LIMITED FOR THE YEAR ENDED DECEMBER 31, 2023
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Innovation Beverage Group Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Innovation Beverage Group Limited (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the two years ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for the two years ended December 31, 2023, 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 12, 2024 | |
3001 N. Rocky Point Dr. East, Suite 200 ● Tampa, Florida 33607 ● +1.813.367.3527
F-2
The accompanying notes are an integral part of these consolidated financial statements.
F-3
The accompanying notes are an integral part of these consolidated financial statements.
F-4
The accompanying notes are an integral part of these consolidated financial statements.
F-5
The accompanying notes are an integral part of these consolidated financial statements.
F-6
INNOVATION
BEVERAGE GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of operations
Innovation Beverage Group Limited (“IBG” or the “Company”) is a developer, manufacturer and exporter of a growing portfolio of alcoholic and non-alcoholic brands of beverages. Its 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 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, with the results of operations of W4W included from November 3, 2021. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting and presented in U.S. dollars. The year end is December 31.
Concentration of Credit Risk
Financial instruments that potentially subject the Group to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Group places its cash in what it believes to be credit-worthy financial institutions. The Group controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Group routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, therefore, 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 the customer incentives the Group offers to its customers. These incentives and discounts include cash discounts, price allowance, volume-based rebates, product placement fees and other financial support items such as trade promotions, displays, new products, consumer incentives and advertising assistance. Sales tax and other similar taxes are excluded from revenue. Cost associated with shipping and handling activities are included in expenses as revenue is recognized. The Group estimates the amount of variable consideration by using the “expected value” method, which considers factors such as experiences with products, predictability of market conditions and competition, the current stage in the product life cycle and historical, current, and projected demand. The Group evaluated those factors and concluded that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and no constraint was necessary on the variable consideration as of December 31,2023. The Group has extensive historical experience with producing and delivering standard products to our contracted customers at 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 on December 31, 2023 or December 31, 2022.
Deferred revenue were $161,038 and $159,508 for the year ended December 31, 2023 and 2022, respectively. The only change in deferred revenue for the years ended December 31, 2023 and 2022 was the change in foreign currency translation.
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, 2023 or December 31, 2022.
Intangible Assets
The Group’s intangible assets consisted of customer contracts, software development costs, a liquor license and contract services. The customer contracts and liquor license were acquired in a business combination. The 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.
A summary of the estimated useful lives applied to the Group’s intangible assets is as follows:
| Customer contracts | Liquor license | Software Development costs | Contracted services | |
| Useful lives | Finite (15 years) | Finite (15 years) | Finite (5 years) | Finite (5 years) |
Prepaid Distribution Cost
Prepaid distributions costs consist of 300,000 shares of stock issued to distributors to market the Company’s products. The shares were valued at $4.00 and will be amortized over the 60-month term once the distribution services commence.
Sales and Marketing
The Group follows the policy of charging the costs of advertising, marketing, and public relations to expenses as incurred. The Group has recognized $329,436 and $846,956 in sales and marketing expenses for the year ended December 31, 2023 and 2022, respectively.
Stock-Based Compensation Expense
Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For stock-based awards to employees, non-employees and directors, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model, which includes variables such as the expected volatility of the Company’s share price, the exercise behavior of its grantees, interest rates, and dividend yields. These variables are projected based on the Company’s historical data, experience, and other factors. In the case of awards with multiple vesting periods, the Company has elected to use the graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting portion of the award as if the award was, in substance, multiple awards.
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 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 as 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.
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.
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 adopted 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.
F-11
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 the seller of W4W within 30 days of the Group listing its shares on a known public exchange and is currently recorded in notes payable (Note 8). This outstanding balance bears no interest. There were no related equity issuances for the acquisition of W4W. IBG analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination. The preliminary purchase price allocation of the purchase consideration to net assets acquired is as follows:
| Accounts receivable | $ | 20,970 | ||
| Inventory | 323,649 | |||
| Prepaid expenses | 15,464 | |||
| Current assets | 360,083 | |||
| Equipment | 2,552 | |||
| Intangible asset | 66,119 | |||
| Goodwill | 951,802 | |||
| Total assets | 1,380,556 | |||
| Accounts payable and accrued expenses | (30,000 | ) | ||
| Other liabilities | (1,794 | ) | ||
| Total liabilities | (31,794 | ) | ||
| Purchase consideration | $ | 1,348,762 |
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.
4. Inventories
The composition of the Group’s inventories at December 31, 2023 and 2022 are as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | 640,640 | $ | 680,003 | ||||
| Finished goods | 348,952 | 731,905 | ||||||
| Inventories, at cost | $ | 989,592 | $ | 1,411,908 | ||||
5. Equipment
Equipment consisted of the following at December 31, 2023 and 2022:
| December 31, 2023 | December 31, 2022 | |||||||
| Equipment | $ | 276,499 | $ | 274,988 | ||||
| Less: Accumulated depreciation | (151,796 | ) | (117,465 | ) | ||||
| Equipment, net | $ | 124,703 | $ | 157,523 | ||||
Depreciation expenses were $34,331 and $41,779 for the year ended December 31, 2023 and 2022, respectively.
F-12
6. Intangible assets
Intangible assets consisted of the following at December 31, 2023 and December 31, 2022:
| December 31, 2023 | December 31, 2022 | |||||||
| Contract rights | $ | 496,757 | $ | 432,246 | ||||
| Software development costs | 66,384 | 64,601 | ||||||
| Liquor license | 66,119 | 66,119 | ||||||
| 629,260 | 562,966 | |||||||
| Less: accumulated amortization | (257,626 | ) | (170,478 | ) | ||||
| Intangible assets – net | $ | 371,634 | $ | 392,488 | ||||
Amortization expenses were $87,148 and $34,492 for the year ended December 31, 2023 and 2022, respectively.
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 $20,509 AUD (approximately $13,662 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 (extended to December 31 2023), with monthly lease payments of $1,500.
Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 5.95% (Seven Hills) and 2.95% (Highland Cross), as the interest rate implicit in most of the leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the years ended December 31, 2023 and 2022, the Group recorded $154,351 and $155,623, 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, 2023 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 659,997 | $ | 47,339 | $ | 707,336 | ||||||
| Less accumulated amortization | (588,632 | ) | (47,339 | ) | (635,971 | ) | ||||||
| Operating right of use asset | $ | 71,365 | $ | — | $ | 71,365 | ||||||
| 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 | ||||||
| Operating lease liabilities are summarized below: |
| As of December 31, 2023 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 63,581 | $ | — | $ | 63,581 | ||||||
| Less: current portion | (63,581 | ) | — | (63,581 | ) | |||||||
| Long term portion | $ | — | $ | — | $ | — | ||||||
F-13
| As of December 31, 2022 | ||||||||||||
| Seven Hills | Highland Cross | Total | ||||||||||
| Office Lease | $ | 206,036 | $ | 11,860 | $ | 217,896 | ||||||
| Less: current portion | (136,311 | ) | (11,860 | ) | (148,171 | ) | ||||||
| Long term portion | $ | 69,725 | $ | — | $ | 69,725 | ||||||
Operating lease liabilities are summarized below:
| Seven Hills | Highland Cross | Total | ||||||||||
| 12-month period ending June 30, 2024 | $ | 66,357 | $ | — | $ | 66,357 | ||||||
| 12-month period ending June 30, 2025 | — | — | — | |||||||||
| Total future minimum lease payments | 66,357 | — | 66,357 | |||||||||
| Less imputed interest | (2,776 | ) | — | (2,776 | ) | |||||||
| PV of payments | $ | 63,581 | $ | — | $ | 63,581 | ||||||
Finance leases
Two leases matured in December 2022 and the third one matured in December 2023.
Finance right of use assets are summarized below:
| As of December 31, 2023 | As of December 31, 2022 | |||||||
| Equipment lease | $ | 77,519 | $ | 77,519 | ||||
| Less accumulated amortization | (69,895 | ) | (59,144 | ) | ||||
| Finance right of use asset | $ | 7,624 | $ | 18,375 | ||||
Amortization expense was $10,751 and $5,823 for the year ended December 31, 2023 and 2022, respectively.
Finance lease liabilities are summarized below:
| As of December 31, 2023 | As of December 31, 2022 | |||||||
| Equipment lease | $ | — | $ | 5,090 | ||||
| Less: current portion | — | (5,090 | ) | |||||
| Long term portion | $ | — | $ | — | ||||
8. Notes payable
Notes payable are summarized below:
| As of | As of | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Notes payable | ||||||||
| Loan 1 (a) | $ | 20,210 | 23,725 | |||||
| Loan 2 (b) | 600,000 | 600,000 | ||||||
| Loan 3 (c) | 194,474 | 412,722 | ||||||
| Loan 4 (d) | 785,044 | 524,684 | ||||||
| Total notes payable | $ | 1,599,728 | $ | 1,561,131 | ||||
F-14
| Future maturities of the note payable are as follows: | ||||
| 2024 | $ | 1,599,728 | ||
| Total notes payable | $ | 1,599,728 | ||
|
(a) Loan 1
During the year ended December 31, 2023, the Group entered an unsecured insurance financing arrangement with a face value of $53,390 AUD due on Feb 29, 2024, 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, 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 $54,829 AUD and recorded $4,561 AUD in interest expense related to this note.
(b) Loan 2
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 the seller of W4W within 30 days of the Group listing its shares on a known public exchange. This outstanding balance bears no interest.
(c) Loan 3
During the year ended December 31, 2023, WFW paid off 2 loans from related parties. Meanwhile IBG entered a new loan from related party of $150,000 AUD and paid off $387,233 AUD of one related party loan.
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 AUD and $5,329 USD respectively.
(d) Loan 4
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. During the year ended December 31, 2023, these loans are still valid and IBG paid them by weekly payments or monthly payments etc. respectively. |
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, 2023, 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, 2023 | December 31, 2022 | |||||||
| Australian income / (loss) before taxes | $ | (1,041,041 | ) | $ | (2,602,131 | ) | ||
| United States loss before taxes | (1,214,027 | ) | (1,875,702 | ) | ||||
| Income / (loss) before taxes | $ | (2,255,068 | ) | $ | (4,477,833 | ) | ||
| Expected Australian income tax expense / (benefits) at statutory rate of 25% (December 31, 2022: 25%) | $ | (260,260 | ) | $ | (650,533 | ) | ||
| Expected United States income tax expense / (benefits) at statutory rate of 21% | (254,946 | ) | (393,897 | ) | ||||
| Increase (decrease) in income taxes resulting from: | ||||||||
| Entertainment | — | 19 | ||||||
| Unrecognized deferred tax assets - tax losses | 254,946 | 393,897 | ||||||
| Deferred tax rate change | — | 1,958 | ||||||
| Employee shared based payment | 35,925 | 40,524 | ||||||
| Goodwill Impairment | — | 237,951 | ||||||
| Other items, net (DTA / DTL adjustment etc) | (16,776 | ) | 20,018 | |||||
| Income tax expenses / (benefits) | $ | (241,111 | ) | $ | (350,063 | ) | ||
F-15
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Deferred tax assets (liabilities): | ||||||||
| Equipment | $ | 9,008 | $ | 2,902 | ||||
| Leases | 1,109 | 52,564 | ||||||
| Superannuation | 6,403 | — | ||||||
| Accrued expenses | 4,666 | 6,888 | ||||||
| Foreign currency changes | (1,779 | ) | 1,123 | |||||
| Annual leave and long service leave | 28,063 | 6,609 | ||||||
| Intangible assets | 6,217 | 15,871 | ||||||
| Carried forward losses | 381,165 | 375 | ||||||
| ROU asset | — | 347,740 | ||||||
| Capitalized IPO cost | 15,076 | (43,287 | ) | |||||
| Net deferred tax asset | — | (1,869 | ) | |||||
| Prepayments | (12,756 | ) | — | |||||
| Share based payments | 9,246 | — | ||||||
| Provision for inventory obsolescence | 13,750 | |||||||
| Other items | 10,852 | — | ||||||
| $ | 471,020 | $ | 388,916 | |||||
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:
| The Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Revenue | ||||||||
| Australia | $ | 2,876,251 | $ | 2,579,241 | ||||
| United States | 271,512 | 1,951,155 | ||||||
| Total revenue | $ | 3,147,763 | $ | 4,530,396 | ||||
| The Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Loss from operations | ||||||||
| Australia | $ | (1,007,824 | ) | $ | (1,625,971 | ) | ||
| United States | (1,131,254 | ) | (1,710,613 | ) | ||||
| Total loss from operations | $ | (2,139,078 | ) | $ | (3,336,584 | ) | ||
A reconciliation of the Group’s geographic segment operating income to consolidated earnings before income taxes is as follows:
| The Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Loss from operations | $ | (2,139,078 | ) | $ | (4,288,386 | ) | ||
| Finance cost | — | (80,000 | ) | |||||
| Other | 90,720 | (17,871 | ) | |||||
| Interest income | 53,763 | 31,322 | ||||||
| Interest expense | (260,473 | ) | (122,898 | ) | ||||
| Loss before income taxes | (2,255,068 | ) | (4,477,833 | ) | ||||
| Income tax benefits | 241,111 | 350,063 | ||||||
| Net loss | $ | (2,013,957 | ) | $ | (4,127,770 | ) | ||
F-16
| The Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Depreciation and Amortization | ||||||||
| Australia | $ | 236,598 | $ | 223,540 | ||||
| United States | 15,576 | 21,147 | ||||||
| Total | $ | 252,174 | $ | 244,687 | ||||
| The Year Ended | ||||||||
| Capital Expenditures | December 31, 2023 | December 31, 2022 | ||||||
| Australia | $ | 1,447 | $ | 37,727 | ||||
| United States | — | — | ||||||
| Total | $ | 1,447 | $ | 37,727 | ||||
b. Set out below is the disaggregation of the Group’s revenue based on the two distribution channels, brand products and e-commerce products1.
| The Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Revenue | ||||||||
| Brand products – Australia | $ | 2,790,125.00 | $ | 2,425,081 | ||||
| Brand products – United States | 5,517.00 | 273613 | ||||||
| Total brand products | 2,795,642 | 2,698,694 | ||||||
| E-commerce - Australia | 86,126 | 154,160 | ||||||
| E-commerce - United States | 265,995 | 1,677,542 | ||||||
| Total e-commerce products | 352,121 | 1,831,702 | ||||||
| Total revenue | $ | 3,147,763 | $ | 4,530,396 | ||||
12. Customer Concentration
During the Year Ended December 31, 2023, the Group had net sales to one major customer that constituted in excess of 10% of its net sales. Net sales to this customer represented approximately 82.52% of the Group’s net sales for the year ended December 31, 2023. 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 36.7% and 12.5% of the Group’s net sales, for the year ended December 31, 2022.
At December 31, 2023, no customer constituted at least 10% of the Group’s gross trade accounts receivable. At December 31, 2022, two customers constituted at least 10% of the Group’s gross trade accounts receivable. The group’s trade account s receivable balances for these customers represent approximately 18.4% and 80.1% of the Group’s gross trade accounts receivable, respectively, at December 31, 2022.
13. Related party disclosures
At December 31, 2023, the Company had accounts receivable and accounts payable balances with a related company in the amounts of $525,203 (December 31, 2022: $820,894) and $0 (December 31, 2022: $159,508), respectively. During the years ended December 31, 2023 and 2022, the Company recorded revenue of $0 and $253,521, from the related party respectively.
1 This is based on the geographical segment of reporting entity’s operation, rather than sales destination.
F-17
All loans to and from related parties at the period end are unsecured and settlement generally occurs in cash. Details are as follows:
| Loan A issuance, interest, and repayment schedule in AUD (Receivable, interest 4.52%) | ||||
| Opening balance December 2022 | $ | 918,735 | ||
| Loan issued: | 89,506 | |||
| Interest income accrued | 80,686 | |||
| Total repayment by December 2023 | (3,000 | ) | ||
| Closing balance December 2023 | $ | 1,085,927 | ||
| Loan B issuance, interest, and repayment schedule in AUD (Payable, interest 12%) | ||||
| Opening balance December 2022 | $ | 210,849 | ||
| Loan issued: | 150,000 | |||
| Interest income accrued | 26,384 | |||
| Total repayment by December 2023 | (387,233 | ) | ||
| Closing balance December 2023 | — | |||
| Loan C issuance, interest, and repayment schedule in AUD (Payable, interest 12%) | ||||
| Opening balance December 2022 | $ | 50,740 | ||
| Loan issued: | — | |||
| Interest income accrued | 6,000 | |||
| Total repayment by December 2023 | — | |||
| Closing balance December 2023 | $ | 56,740 | ||
| Loan D issuance, interest, and repayment schedule in USD (Payable, interest 12%) | ||||
| Opening balance December 2022 | $ | 122,961 | ||
| Loan issued: | 367,001 | |||
| Interest income accrued | — | |||
| Total repayment by December 2023 | (334,298 | ) | ||
| Closing balance December 2023 | $ | 155,664 | ||
| Loan E issuance, interest, and repayment schedule in USD (Payable, interest 12%) | ||||
| Opening balance December 2022 | $ | 112,535 | ||
| Loan issued: | 166,302 | |||
| Interest income accrued | — | |||
| Total repayment by December 2023 | (278,837 | ) | ||
| Closing balance December 2023 | — | |||
14. Subsequent events
During the period from January 1, 2024, to April 30, 2024, the Group issued an aggregate of 229,084 ordinary shares including:
| · | 10,582 shares on January 17, 2024 to Clive Coleman (company’s officer) as stock compensation for the first quarter of 2024, having a fair value of $42,328 at a price of $4.00 per share; |
| · | 47,460 and 8,542 shares to Dean Huge (company’s officer) on February 27, 2024, and March 27, 2024 respectively as payment for $224,008 (at a price of $4.00 per share) of previously accrued Salary and wages recorded in the year ended December 31, 2023; |
| · | 62,500 and 50,000 shares to Sahil Beri (company’s director and officer) on February 27, 2024, and March 27, 2024 respectively as payment for $450,000 (at a price of $4.00 per share) of previously accrued Salary and wages recorded in the year ended December 31, 2023; and |
| · | 50,000 shares to Darrin Ocasio on March 4, 2024, for IPO legal services rendered during the first quarter 2024, having a fair value of $200,000 at a price of $4.00 per share. |
On April 19, 2024, the Group entered into an agreement with American Dream Corp (“ADC) whereby ADC committed to purchase raw materials from the Group with a minimum order quantity (‘MOQ”) per purchase order of 26,000 liters of ALC Ethanol. On April 23, 2024, the Group received a USD$186,992 cash deposit from ADC for the initial sales order of 26,000 liters of ALC Ethanol at a price of AUD$11.24 per liter.
In accordance with ASC 855-10, Subsequent Events, the Group has analyzed its operations subsequent to December 31, 2023, 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-18
1,400,000 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
The Benchmark Company, LLC
PROSPECTUS
, 2024
Until ______, 2024 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
[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 [__], 2024 |
1,452,873 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
This prospectus relates to 1,452,873 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 1,400,000 ordinary shares to be offered by us in a “firm commitment” public offering concurrently herewith, our issued and outstanding shares will consist of 8,390,655 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 _____________, 2024.
[RESALE PROSPECTUS ALTERNATE PAGE]
Until ______, 2024 (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 1,400,000 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 1,452,873 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 | 4.29 | % | 300,000 | — | — | % | |||||||||||||
| Anup Puri | 350,000 | 5.01 | % | 350,000 | — | — | % | |||||||||||||
| Jyotsna Arora | 63,495 | * | % | 63,495 | — | — | % | |||||||||||||
| Joginder Pal Singh Lamba | 318,000 | 4.55 | % | 318,000 | — | — | % | |||||||||||||
| Blair Eiler | 41,152 | * | % | 41,152 | — | — | % | |||||||||||||
| Keith Hennessey | 41,152 | * | % | 41,152 | — | — | % | |||||||||||||
| Darrin Ocasio | 150,000 | 2.15 | % | 150,000 | — | — | % | |||||||||||||
| Cachafa Holdings LLC (2) | 189,074 | 2.70 | % | 189,074 | — | — | % | |||||||||||||
*Represents beneficial ownership of less than 1%.
| (1) | Based on 6,990,655 ordinary shares issued and outstanding immediately prior to and after the offering by the Resale Shareholders and does not include the sale of 1,400,000 ordinary shares concurrent to this offering. | |
| (2) | Gustavo Chavez has voting and dispositive power over the shares held by the Cachafa Holdings LLC. |
The Resale Shareholders named above acquired their 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 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 Carmel LLP, New York, New York.
| Alt-8 |
[RESALE PROSPECTUS ALTERNATE PAGE]
1,452,873 Ordinary Shares
INNOVATION BEVERAGE GROUP LIMITED
PROSPECTUS
, 2024
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$150,000, 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 35,273 ordinary shares at AUD$3.15 per share, for a total purchase price of AUD$111,110.
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$5.10 per share with an aggregate value of AUD$100,000.
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.
On May 15, 2023, we issued to one employee 4,049 ordinary shares at a price of AUD$5.10 per share with an aggregate value of AUD$20,649.90.
On May 22, 2023, we issued an aggregate of 14 ordinary shares to 14 shareholders, one ordinary share each, to resolve rounding calculations in share ownership.
On October 24, 2023, we issued 63,495 ordinary shares at a price of AUD$6.30 per share, for a total purchase price of AUD$400,018.50 in connection with a private placement to a non-U.S. person in reliance on Regulation S.
On October 24, 2023, we issued under our equity incentive plan 150,000 restricted ordinary shares at a price of US$4.00 per share, with a value of US$600,000, to a distributor.
On October 24, 2023, we issued under our equity incentive plan 150,000 restricted ordinary shares at a price of US$4.00 per share, with a value of US$600,000, to a distributor.
On November 27, 2023, we issued to one consultant 50,000 ordinary shares at a price of AUD$6.30 per share, with a value of AUD$315,000.
On January 17, 2024, we issued to one employee 10,582 ordinary shares at a price of USD$4.00 per share with an aggregate value of USD$42,112.
On February 27, 2024, we issued to two employees in lieu of accrued and owing cash compensation an aggregate of 109,960 ordinary shares at a price of USD$4.00 per share with an aggregate value of USD$439,839.
On March 5, 2024, we issued to one consultant 50,000 ordinary shares with a value of USD$200,000 for services rendered.
On March 27, 2024, we issued to two employees in lieu of accrued and owing cash compensation an aggregate of 58,542 ordinary shares at a price of USD$4.00 per share with an aggregate value of USD$234,166.
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 14, 2024.
| 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 14, 2024 | ||
| Dean Huge | ||||
| /s/ Tianyi Eric Yu | Chief Financial Officer (Principal Financial Officer and Controller) | August 14, 2024 | ||
| Tianyi Eric Yu | ||||
| /s/ * | Chief Operating Officer and Chairman | August 14, 2024 | ||
| Sahil Beri | ||||
| /s/ * | Director | August 14, 2024 | ||
| Sally Cardillo | ||||
| /s/ * | Director | August 14, 2024 | ||
| Daniel Lanskey | ||||
| /s/ * | Director | August 14, 2024 | ||
| Shawn Messner | ||||
| *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 14, 2024.
| Authorized U.S. Representative | ||||
| Dean Huge | ||||
| By: | /s/ Dean Huge | |||
| Name: | Dean Huge | |||
| Title: | Chief Executive Officer | |||
II-7
EXHIBIT 1.1
UNDERWRITING AGREEMENT
between
INNOVATION BEVERAGE GROUP LIMITED
and
THE BENCHMARK COMPANY, LLC
as Representative of the Several Underwriters
INNOVATION BEVERAGE GROUP LIMITED
UNDERWRITING AGREEMENT
, 2024
The Benchmark Company LLC
150 E. 58th Street, 17th Floor
New York, NY 10155
As Representative of the several Underwriters named on Schedule 1 attached 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 Benchmark Company LLC (hereinafter referred to as “you” (including its correlatives) or the “Representative”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) as follows:
| 1. | Purchase and Sale of Shares. |
1.1 Firm Shares.
1.1.1. Nature and Purchase of Firm Shares.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, an aggregate of [ ] ordinary shares (the “Firm Shares of the Company, with no par value per share (the “Ordinary Shares”).
(ii) The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price of $[ ] per share (93% of the per Firm Share offering price) (the “Firm Purchase Price”). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Shares Payment and Delivery.
(i) Delivery and payment for the Firm Shares shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Sheppard, Mullin, Richter & Hampton LLP, 30 Rockefeller Plaza, New York, NY 10112 (“Representative Counsel”), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares is called the “Closing Date.”
(ii) Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two (2) full Business Days prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Representative for all of the Firm Units. The term “Business Day” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.
1.2 Over-allotment Option.
1.2.1. Option Shares. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Shares, the Company hereby grants to the Underwriters an option (the “Over-allotment Option”) to purchase up to an additional [ ] Ordinary Shares, representing fifteen percent (15%) of the Firm Shares sold in the offering, from the Company (the “Option Shares”), which may be purchased in any combination of Option Shares at the Share Purchase Price. The Firm Shares and the Option Shares are hereinafter referred to together as the “Public Securities.” The offering and sale of the Public Securities is hereinafter referred to as the “Offering.”
1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares within thirty (30) days after the Closing Date. The Underwriters shall not be under any obligation to purchase any Option Shares prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares to be purchased and the date and time for delivery of and payment for the Option Shares (the “Option Closing Date”), which shall not be later than one (1) 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 Representative Counsel, or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Sharesthen being purchased as set forth in Schedule 1 opposite the name of such Underwriter.
1.2.3. Payment and Delivery. Payment for the Option Shares shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to Representative of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares (or through the facilities of DTC) for the account of the Underwriters. The Option Shares shall be registered in such name or names and in such authorized denominations as the Representative smay request in writing at least one (1) full Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares except upon tender of payment by the Representative for applicable Option Shares.
1.3 Representative’s Warrants.
1.3.1. Purchase Warrants. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date and Option Closing Date, as applicable, a warrant (“Representative’s Warrant”) for the purchase of an aggregate number of Ordinary Shares representing five percent (5%) of the Public Securities. The Representative’s Warrant agreement, in the form attached hereto as Exhibit A (the “Representative’s Warrant Agreement”), shall be exercisable, in whole or in part, commencing on a date which is one hundred eighty (180) days after the Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per Ordinary Share of $[ ], which is equal to 137.5% of the initial public offering price of the Firm Shares. The Representative’s Warrant Agreement and the Ordinary Shares issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrant Agreement and the underlying Ordinary Shares during the one hundred eighty (180) days immediately following the date of effectiveness or commencement of sales of the offering and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant Agreement, 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 date of effectiveness or commencement of sales of the 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.
1.3.2. 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.
2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1 Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form F-1 (File No. 333-266965), including any related prospectus or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [ ], 2024, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
“Applicable Time” means [TIME], Eastern time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including, without limitation, any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File Number 001-[ ]) providing for the registration pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the Ordinary Shares. The registration of the Ordinary Shares under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Ordinary Shares under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2 Stock Exchange Listing. The Ordinary Shares, including the Firm Shares, Option Shares and the Ordinary Shares issuable upon exercise of the Representative’s Warrants have been approved for listing on The Nasdaq Capital Market (the “Exchange”) under the symbol “IBG”, and the Company has taken no action designed to, or likely to have the effect of, delisting the Ordinary Shares from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.3 No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4 Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading.
(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict in any material respect with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Preliminary Prospectus, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: the disclosure under the headings “Price Stabilization, Short Positions and Penalty Bids,” “Electronic Offer, Sale and Distribution of Shares” and “Selling Restrictions” (the “Underwriters’ Information”); and
(iv) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder except for such defaults that would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). To the best of the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations.
2.4.3. Prior Securities Transactions. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign regulation on the Offering and the Company’s business as currently conducted are correct in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.5 Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company, nor any change or development that, singularly or in the aggregate, would involve a material adverse change in or affecting the condition (financial or otherwise), results of operations, business, or assets of the Company (a “Material Adverse Change”); (ii) other than in the ordinary course of business, there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no executive officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities 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.
2.6 Independent Accountants. To the knowledge of the Company, Accell Audit & Compliance, P.A. (the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
2.7 Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with International Financial Reporting Standards as issued by the international Accounting Standards Board (“IFRS”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to any normal year-end audit adjustments); and the supporting schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-IFRS 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 Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, or, other than in the ordinary course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.
2.8 Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no stock options, 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.
2.9 Valid Issuance of Securities, etc.
2.9.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized Ordinary Shares conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding Ordinary Shares were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such shares, exempt from such registration requirements.
2.9.2. Securities Sold Pursuant to this Agreement. The Public Securities and Representative’s Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are not and will not be subject to any preemptive rights of any holders of any security of the Company that have not been waived or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s Securities has been duly and validly taken. The Public Securities and Representative’s Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and validly taken; the Ordinary Shares issuable upon exercise of the Representative’s Warrant have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with the Representative’s Warrant Agreement, such Ordinary Shares will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; and such Ordinary Shares are not and will not be subject to the preemptive rights of any holders of any security of the Company that have not been waived or similar contractual rights granted by the Company.
2.10 Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
2.11 Validity and Binding Effect of Agreements. This Agreement and the Representative’s Warrant Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
2.12 No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement, the Representative’s Warrant Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s Constitution (as the same may be amended or restated from time to time, the “Charter”); or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof except in the case of clauses (i) and (iii) for any such breach, conflict, violation default, lien, charge or encumbrance that would not reasonably be expected to result in, individually or in the aggregate, a Material Adverse Change.
2.13 No Defaults; Violations. No material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not (i) in violation of any term or provision of its Charter, (ii) in violation of any franchise, license or permit or (iii) any violation of applicable law, rule, regulation, judgment or decree of any Governmental Entity except in the case of clause (ii) for any such violation that would not reasonably be expected to result in, individually or in the aggregate, a Material Adverse Change.
2.14 Corporate Power; Licenses; Consents.
2.14.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.14.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement and the Representative’s Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except (i) such consents, approvals, authorizations, orders, filings, registrations or qualifications that have already been obtained or made and (ii) with respect to applicable federal and state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
2.15 D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal stockholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.16 Litigation; Governmental Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus or in connection with the Company’s listing application for the listing of the Public Securities on the Exchange.
2.17 Good Standing. The Company has been duly incorporated and is validly existing as a public limited company under the laws of Australia and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to be so qualified, singularly or in the aggregate, would not reasonably be expected to result in a Material Adverse Change.
2.18 Insurance. The Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks which the Company believes are adequate, including, but not limited to, directors and officers insurance coverage at least equal to $3,000,000 and the Company has included each Underwriter as an additional insured party to the directors and officers insurance coverage and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.
2.19 Transactions Affecting Disclosure to FINRA.
2.19.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its stockholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.19.2. Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member participating in the offering as defined by FINRA Rule 5110; or (iii) any person or entity that has any direct or indirect affiliation or association with any participating FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.19.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.19.4. FINRA Affiliation. There is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company’s securities or (iii) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.19.5. Information. All information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.20 Foreign Corrupt Practices Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, or operations of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Compliance with OFAC. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22 Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
2.23 Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.24 Lock-Up Agreements. Schedule 3 hereto contains a complete and accurate list 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,) (collectively, the “Lock-Up Parties”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit B (the “Lock-Up Agreement”), prior to the execution of this Agreement.
2.25 Subsidiaries. All direct and indirect Subsidiaries of the Company are duly organized and in good standing (to the extent the concept of good standing is applicable in such jurisdiction) under the laws of the place of organization or incorporation, and each Subsidiary is in good standing (to the extent the concept of good standing is applicable in such jurisdiction) in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not result in a Material Adverse Change. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.26 Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required.
2.27 Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.28 Sarbanes-Oxley Compliance.
2.28.1. Disclosure Controls. The Company has taken all necessary actions to ensure that, in the time periods required, the Company will comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.28.2. Compliance. The Company is, or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and has taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act then applicable to it.
2.29 Accounting Controls. The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
2.30 No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.31 No Labor Disputes. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
2.32 Intellectual Property Rights. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others which has not been subsequently rectified. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change which has not been subsequently rectified or settled. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights of any persons.
2.33 Taxes. Each of the Company and its Subsidiaries has (i) filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof and (ii) has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiary except as currently being contested in good faith and for which reserves required by IFRS have been created in the financial statements of the Company. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.34 ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.35 Compliance with Laws. The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change; (B) 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 licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws (“Authorizations”); (C) 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; (D) 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; (E) 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; (F) has filed, obtained, maintained or submitted or taken reasonably practicable steps to file, obtain, maintain or submit 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 (G) 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, “dear doctor” letter, 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.
2.36 Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.37 Real Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
2.38 Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described as required.
2.39 Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.40 Smaller Reporting Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.41 Industry Data. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
2.42 Reverse Stock Split. The Company has taken all necessary corporate action to effectuate a reverse stock split of its Ordinary Shares on the basis of one (1) such share for each 1.62 issued and outstanding shares thereof (the “Reverse Stock Split”), which Reverse Stock Split became effective on September 12, 2022.
2.43 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.
2.44 Testing-the-Waters Communications. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule 2-C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
2.45 Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.46 Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Ordinary Shares to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.47 Health Care Laws. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) or any non-U.S. counterpart that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Product”), such Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company or its Subsidiaries in material compliance with all applicable Health Care Laws relating to registration, good manufacturing practices, product listing, quotas, labeling, advertising, record keeping and filing of reports. There is no pending, completed or, to the Company’s knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Product, (iii) enjoins production at any facility of the Company or any of its Subsidiaries, (iv) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (v) otherwise alleges any violation of any laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would reasonably be expected to result in a Material Adverse Change. The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable Health Care Laws. The Company has not been informed by the FDA or any non-U.S. counterpart that the FDA or any non-U.S. counterpart will prohibit the marketing, sale, license or use in the United States or in any other territory any product proposed to be developed, produced or marketed by the Company or any Subsidiary nor has the FDA or any non-U.S. counterpart expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by the Company or any Subsidiary. For purposes of this Agreement, “Health Care Laws” means: the Federal Food, Drug, and Cosmetic Act and the regulations promulgated thereunder, the criminal False Claims Law (42 U.S.C. § 1320a-7b(a)), the civil monetary penalties law (42 U.S.C. § 1320a-7a), and any other applicable health care laws and regulations.
2.48 Regulatory Filings. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its Subsidiaries has failed to file with the applicable Governmental Authority (including the FDA or any foreign, federal, state or local Governmental Authority performing functions similar to those performed by the FDA) any required filing, declaration, listing, registration, report or submission, except for such failures that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change; except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, all such filings, declarations, listings, registrations, reports or submissions were in material compliance with applicable laws when filed and no deficiencies have been asserted by any applicable regulatory authority with respect to any such filings, declarations, listings, registrations, reports or submissions, except for any deficiencies that, individually or in the aggregate, would not result in a Material Adverse Change. The Company has operated and currently is, in all material respects, in compliance with all applicable Health Care Laws.
2.49 Environmental Laws. Except as set forth in the Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company and its Subsidiaries (i) are in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, decisions and orders relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws ”); (ii) have received and are in compliance with all material permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses as described in the Registration Statement, the Pricing Disclosure Package or the Prospectus; and (iii) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except, in the case of any of clauses (i), (ii) or (iii) above, for any such failure to comply or failure to receive required permits, licenses, other approvals or liability as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.
2.50 Cybersecurity. The Company and its Subsidiaries’ information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, “IT Systems”) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business of the Company and its Subsidiaries as currently conducted, and, to the knowledge of the Company, free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its Subsidiaries have implemented commercially reasonable physical, technical and administrative controls, policies, procedures, and safeguards to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and data, including “Personal Data,” used in connection with their businesses. “Personal Data” means (i) a natural person’s name, street address, telephone number, e-mail address, photograph, social security number or tax identification number, driver’s license number, passport number, credit card number, bank information, or customer or account number; (ii) any information which would qualify as “personally identifying information” under the Federal Trade Commission Act, as amended; (iii) “personal data” as defined by GDPR; (iv) any information which would qualify as “protected health information” under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (collectively, “HIPAA”); and (v) any other piece of information that allows the identification of such natural person, or his or her family, or permits the collection or analysis of any data related to an identified person’s health or sexual orientation. Except as disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus, there have been no breaches, violations, outages or unauthorized uses of or accesses to same, except for those that have been remedied without material cost or liability or the duty to notify any other person, nor any incidents under internal review or investigations relating to the same. The Company and its Subsidiaries are presently in material compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Personal Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, misappropriation or modification.
2.51 Compliance with Data Privacy Laws. The Company and its Subsidiaries are, and at all prior times were, in material compliance with all applicable state, federal and foreign data privacy and security laws and regulations, (collectively, the “Privacy Laws”). To ensure compliance with the Privacy Laws, the Company and its Subsidiaries have in place, comply with, and take appropriate steps reasonably designed to ensure compliance in all material respects with their policies and procedures relating to data privacy and security and the collection, storage, use, disclosure, handling, and analysis of Personal Data (the “Policies”). The Company and its Subsidiaries have, to the knowledge of the Company, at all times made all disclosures to users or customers required by applicable laws and regulatory rules or requirements, and none of such disclosures made or contained in any Policy have, to the knowledge of the Company, been inaccurate or in violation of any applicable laws and regulatory rules or requirements in any material respect. The Company further certifies that neither it nor any Subsidiary: (i) has received notice of any actual or potential liability under or relating to, or actual or potential violation of, any of the Privacy Laws, and has no knowledge of any event or condition that would reasonably be expected to result in any such notice; (ii) is currently conducting or paying for, in whole or in part, any investigation, remediation, or other corrective action pursuant to any Privacy Law; or (iii) is a party to any order, decree, or agreement that imposes any obligation or liability under any Privacy Law.
2.52 Under the current laws and regulations of Australiaall dividends and other distributions declared and payable on the Ordinary Shares in cash may be freely remitted out of Australia and may be paid in, or freely converted into, United States dollars, in each case without there being required any consent, approval, authorization or order of, or qualification with, any court or governmental agency or body in Australia; and except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, all such dividends and other distributions paid by the Company will not be subject to withholding under the laws and regulations of Australia.
2.53 No stamp, documentary, issuance, registration, transfer, withholding, capital gains, income or other similar taxes or duties are payable by or on behalf of the Underwriters, the Company or any of its Subsidiaries in Australia or to any taxing authority thereof or therein in connection with (i) the execution, delivery or consummation of this Agreement, (ii) the sale and delivery of the Public Securities to the Underwriters or purchasers procured by the Underwriters or (iii) the resale and delivery of the Public Securities by the Underwriters in the manner contemplated herein, except in each case for any taxes imposed on an Underwriter as a result of a connection with the jurisdiction imposing the tax (other than a connection arising solely as a result of this Agreement or the transactions contemplated by this Agreement), provided that all electronic records and any information relating to transfers of the Public Securities are not electronically received by persons in Australia, stored on any server or device in Australia or made accessible to any person in Australia.
2.54 Any waiver, relief, concession or preferential treatment relating to taxes granted to the Company or any Subsidiary by any Australia taxing authority is valid and in full force and effect.
2.55 It is not necessary under the laws of Australia (i) to enable the Underwriters to enforce their rights under this Agreement, provided that they are not otherwise engaged in business in Australia, or (ii) solely by reason of the execution, delivery or consummation of this Agreement for any of the Underwriters to be qualified or entitled to carry out business in Australia.
2.56 This Agreement is in proper form under the laws of Australia for the enforcement thereof against the Company, and to ensure the legality, validity, enforceability or admissibility into evidence in Australia of this Agreement.
2.57 The Company is a “foreign private issuer” as defined in Rule 405 of the Securities Act.
2.58 The courts of Australia would recognize as a valid judgment any final monetary judgment obtained against the Company in the courts of the State of New York; provided, however, that (i) any such judgment was not obtained by fraud, (ii) the enforcement of such judgment would not be contrary to public policy of Australia, (iii) the judgment had not been obtained in contravention of the principles of natural justice and (iv) the judgment of the relevant court does not include the payment of taxes, a fine or penalty.
2.59 Neither the Company nor any of its Subsidiaries nor any of its or their properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of Australia. The irrevocable and unconditional waiver and agreement of the Company contained in Section 9.6 not to plead or claim any such immunity in any legal action, suit or proceeding based on this Agreement is valid and binding under the laws of Australia.
2.60 The choice of law of the State of New York as the governing law of this Agreement is a valid choice of law under the laws of Australia and will be honored by the courts of Australia, provided, however, that (i) such law is proven to the satisfaction of the courts of Australia, (ii) the application of New York law would not be illegal or contrary to public policy or any applicable mandatory laws in Australia or (iii) matters of procedure including questions of set-off and counter-claim, interest chargeable on judgment debts, priorities, measure of damages, limitation of actions and submissions to the jurisdiction of foreign courts would as a general rule be governed by the laws of Australia. The Company has the power to submit, and pursuant to Section 9.6 has, to the extent permitted by law, legally, validly, effectively and irrevocably submitted, to the jurisdiction of the Specified Courts (as defined in Section 9.6), and has the power to designate, appoint and empower, and pursuant to Section 9.6, has legally, validly and effectively designated, appointed and empowered an agent for service of process in any suit or proceeding based on or arising under this Agreement in any of the Specified Courts.
| 3. | Covenants of the Company. The Company covenants and agrees as follows: |
3.1 Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1. Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative’s Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities and Representative’s Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange Act Regulations within 48 hours prior to the Applicable Time. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
3.2.3. Exchange Act Registration. For a period of three (3) years after the date of this Agreement, the Company shall use its best efforts to maintain the registration of the Ordinary Shares and Warrants under the Exchange Act. The Company shall not deregister the Ordinary Shares and Warrants under the Exchange Act without the prior written consent of the Representative.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3 Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and counsel for the Representative, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5 Effectiveness and Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus for at least nine (9) months after the Applicable Time, and shall notify the Representative 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 Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five (5) years after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three (3) fiscal quarters immediately preceding the announcement of any semi-annual financial information.
3.7 Listing. The Company shall use its best efforts to maintain the listing of the Public Securities on the Exchange for at least three (3) years from the date of this Agreement.
3.8 Financial Public Relations Firm. As of the Effective Date, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative and the Company, which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
3.9 Reports to the Representative.
3.9.1. Periodic Reports, etc. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) five (5) copies of each registration statement filed by the Company under the Securities Act; and (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 the Representative shall sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to the Representative and Representative Counsel in connection with the Representative’s receipt of such information. Documents filed with the Commission pursuant to its EDGAR system shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.1.
3.9.2. Transfer Agent; Transfer Sheets. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the ”Transfer Agent”) and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. VStock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the Ordinary Shares.
3.9.3. Trading Reports. During such time as the Public Securities are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request. Documents made freely available by the Exchange through its website shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.3.
3.10 Payment of Expenses
3.10.1. General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Ordinary Shares to be sold in the Offering (including the Option Shares) with the Commission; (b) all Public Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of such Public Securities on the Exchange and such other stock exchanges as the Company and the Representative together determine; (d) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors in an amount not to exceed $10,000 in the aggregate; (e) all fees, expenses and disbursements relating to the registration or qualification of the Public Securities under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees); (f) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (g) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement, 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; (h) the costs and expenses of a public relations firm; (i) the costs of preparing, printing and delivering certificates representing the Public Securities; (j) fees and expenses of the transfer agent for the Ordinary Shares; (k) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (l) the costs associated with post-Closing advertising the Offering in the national editions of the Wall Street Journal and New York Times; (m) the costs associated with one set of bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, each of which the Company or its designee shall provide within a reasonable time after the Closing Date in such quantities as the Representative may reasonably request; (n) the fees and expenses of the Company’s accountants; (o) the fees and expenses of the Company’s legal counsel and other agents and representatives; (p) fees and expenses of the Representative’s legal counsel not to exceed $125,000; (q) the costs associated with the Underwriter’s use of Ipreo’s book-building, prospectus tracking and compliance software for the Offering; and (r) the Underwriters’ actual accountable “road show” expenses. The expenses to be paid by the Company and reimbursed to the Underwriters under this Section 3.10.1 shall not exceed $125,000 without the prior approval of the Company. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
3.10.2. Non-accountable Expenses. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.10.1, on the Closing Date it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1.0%) of the gross proceeds received by the Company from the sale of the Firm Shares, less the Advance (as such term is defined in Section 8.3 hereof), provided, however, that in the event that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 8.3 hereof.
3.11 Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.12 Delivery of Earnings Statements to Security Holders. The Company shall make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth (15th) full calendar month following the date of this Agreement, an earnings statement (which need not be certified by an independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, 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 (12) consecutive months beginning after the date of this Agreement.
3.13 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
3.14 Internal Controls. The Company shall 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 IFRS 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.
3.15 Accountants. As of the date of this Agreement, the Company shall retain an independent registered public accounting firm reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative.
3.16 FINRA. The Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.17 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
3.18 Company Lock-Up Agreements.
3.18.1. Restriction on Sales of Capital Stock. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of one hundred eighty (180) days after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
The restrictions contained in this Section 3.18.1 shall not apply to (i) the Ordinary Shares to be sold hereunder, (ii) the Warrants to purchase Ordinary Shares to be sold hereunder, (iii) the issuance by the Company of Ordinary Shares upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date hereof, which is disclosed in the Registration Statement, Disclosure Package and Prospectus, provided that such options, warrants, and 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 or to extend the term of such securities, or (iv) the issuance by the Company of stock options or shares of capital stock of the Company under any equity compensation plan of the Company, provided that in each of (ii) and (iii) above, the underlying shares shall be restricted from sale during the entire Lock-Up Period.
3.18.2. Intentionally Omitted.
3.19 Release of D&O Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.24 hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.20 Blue Sky Qualifications. The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.21 Reporting Requirements. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.
3.22 Emerging Growth Company Status. The Company shall promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Public Securities within the meaning of the Securities Act and (ii) fifteen (15) days following the completion of the Lock-Up Period.
3.23 The Company shall pay, and shall indemnify and hold the Underwriters harmless against, any stamp, issue, registration, documentary, sales, transfer or other similar taxes or duties imposed under the laws of Australia or any political sub-division or taxing authority thereof or therein that is payable in connection with (i) the execution, delivery, consummation or enforcement of this Agreement, (ii) the creation, allotment and issuance of the Public Securities and the Representative’s Securities, (iii) the sale and delivery of the Public Securities to the Underwriters or purchasers procured by the Underwriters and the delivery of the Representative’s Securities, or (iv) the resale and delivery of the Public Securities by the Underwriters in the manner contemplated herein.
4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:30 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Stock Market Clearance. On the Closing Date, the Company’s Ordinary Shares, including the Firm Shares, and the Company’s Warrants, including the Firm Warrants, shall have been approved for listing on the Exchange, subject only to official notice of issuance. On the first Option Closing Date (if any), the Company’s Ordinary Shares, including the Option Shares, shall have been approved for listing on the Exchange, subject only to official notice of issuance.
4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion of Counsel. On the Closing Date, the Representative shall have received the favorable opinion of Sichenzia Ross Ference Carmel LLP, counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.
4.2.2. Reserved.
4.2.3. Opinion of Australian Counsel. On the Closing Date, the Representative shall have received the favorable opinion of K&L Gates, Australian counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative
4.2.4. Option Closing Date Opinions of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinions of each counsel listed in Sections 4.2.1 4.2.2 and 4.2.3, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsels in their respective opinions delivered on the Closing Date.
4.2.5. Reliance. In rendering such opinions, such counsel may rely: (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Representative Counsel if requested. The opinion of Sichenzia Ross Ference Carmel LLP and of K&L Gates shall include a statement to the effect that it may be relied upon by Representative Counsel in its opinion delivered to the Underwriters.
4.3 Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed you shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to you and to the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing Date or the Option Closing Date, as applicable.
4.4 Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer and its Chief Financial Officer stating on behalf of the Company and not in an individual capacity that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included or incorporated by reference in the Pricing Disclosure Package, 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 change in or affecting the condition (financial or otherwise), results of operations, business, or assets of the Company, except as set forth in the Prospectus.
4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Date, as the case may be, respectively, certifying on behalf of the Company and not in an individual capacity: (i) that each of the Charter is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change or development involving a prospective Material Adverse Change in the condition or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
4.6 Delivery of Agreements.
4.6.1. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto.
4.6.2. Representative’s Warrant Agreement. On the Closing Date, the Company shall have delivered to the Representative executed copies of the Representative’s Warrant Agreement.
4.7 Additional Documents. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities and the Representative’s Securities as herein contemplated shall be satisfactory in form and substance to the Representative and Representative Counsel.
| 5. | Indemnification. |
5.1 Indemnification of the Underwriters.
5.1.1. General. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel, and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries (a “Claim”), (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (A) the Registration Statement, the Pricing Disclosure Package, any Preliminary Prospectus, the Prospectus, or in any Issuer Free Writing Prospectus or in any Written Testing-the-Waters Communication (as from time to time each may be amended and supplemented); (B) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (C) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities and Representative’s Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information or (ii) otherwise arising in connection with or allegedly in connection with the Offering. The Company also agrees that it will reimburse each Underwriter Indemnified Party for all fees and expenses (including, but not limited to, any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) (collectively, the “Expenses”), and further agrees wherever and whenever possible to advance payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending any Claim.
5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do so. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company, and shall be advanced by the Company. The Company shall not be liable for any settlement of any action effected without its consent (which shall not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party.
5.2 Indemnification of the Company. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the Offering of the Public Securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the Offering of the Public Securities purchased under this Agreement (before deducting expenses) received by the Company, as set forth in the table on the cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the Ordinary Shares purchased under this Agreement, as set forth in the table on the cover page of the Prospectus, on the other hand. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company 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 5.3.1 were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage expense, or liability, or action, investigation or proceeding, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of or otherwise incurred in connection with any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 5.3.1 in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the Offering of the Public Securities exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, act or failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen (15) days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. Each Underwriter’s obligations to contribute as provided in this Section 5.3.2 are several and not joint.
| 6. | Default by an Underwriter. |
6.1 Default Not Exceeding 10% of Firm Shares or Option Shares. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares or the Option Shares, if the Over-allotment Option is exercised hereunder, and if the number of the Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate ten percent (10%) of the number of Firm Shares or Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Shares or Option Shares. In the event that the default addressed in Section 6.1 relates to more than ten percent (10%) of the Firm Shares or Option Shares, you may in your discretion arrange for yourself or for another party or parties to purchase such Firm Shares or Option Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than ten percent (10%) of the Firm Shares or Option Shares, you do not arrange for the purchase of such Firm Shares or Option Shares, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to you to purchase said Firm Shares or Option Shares on such terms. In the event that neither you nor the Company arrange for the purchase of the Firm Shares or Option Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by you or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares, this Agreement will not terminate as to the Firm Shares; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative’s Counsel may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Ordinary Shares.
| 7. | Additional Covenants. |
7.1 Board Composition and Board Designations. The Company shall ensure that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act, with the Exchange Act and with the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one (1) member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press Releases and Public Announcements. Except as required by law or rule of Nasdaq, the Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the forty-fifth (45th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
7.3 Right of First Refusal. Provided that the Firm Shares are sold in accordance with the terms of this Agreement, the Representative shall have an irrevocable right of first refusal (the “Right of First Refusal”), for a period of twenty four (24) months after the date the Offering is completed, to act as lead or joint-lead investment banker, lead or joint book-runner, and/or lead or joint placement agent, at the Representative’s sole and exclusive discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject Transaction”), during such twenty four (24) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary for the Representative for such Subject Transactions. For the avoidance of any doubt, the Company shall not retain, engage or solicit any additional investment banker, book-runner and/or placement agent in a Subject Transaction during the twenty four (24) month period referred to above without the express written consent of the Representative.
The Company shall notify the Representative of its intention to pursue a Subject Transaction, including the material terms thereof, by providing written notice thereof by registered mail or overnight courier service addressed to the Representative. If the Representative fails to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing of such written notice, then the Representative shall have no further claim or right with respect to the Subject Transaction. The Representative may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject Transaction; provided that any such election by the Representative shall not adversely affect the Representative’s Right of First Refusal with respect to any other Subject Transaction during the twenty four (24) month period agreed to above. The terms and conditions of any such engagements shall be set forth in separate agreements and may be subject to, among other things, satisfactory completion of due diligence by the Representative, market conditions, the absence of a material adverse change to the Company’s business, financial condition, approval of the Representative’s internal committee and any other conditions that the Representative may deem appropriate for transactions of such nature.
| 8. | Effective Date of this Agreement and Termination Thereof. |
8.1 Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2 Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Firm Shares or Option Shares; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of a Material Adverse Change or a adverse material change in general market conditions as in the Representative’s reasonable judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
8.3 Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the reasonable fees and disbursements of Representative Counsel) up to $125,000, inclusive of the $25,000 advance for accountable expenses previously paid by the Company to the Representative (the “Advance”) and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
8.4 Survival of Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
| 9. | Miscellaneous. |
9.1 Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by facsimile transmission and confirmed and shall be deemed given when so delivered or faxed and confirmed or if mailed, two (2) days after such mailing.
If to the Representative:
The Benchmark Company, LLC
150 East 58th Street, 17th Floor
New York, NY 10155
Attn: John J. Borer III
Email: jborer@benchmarkcompany.com
with a copy (which shall not constitute notice) to:
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza
New York, NY 10112
Attn: Richard A. Friedman, Esq.
Email: rafriedman@sheppardmullin.com
If to the Company:
Innovation Beverage Group Limited
29 Anvil Road
Seven Hills, NSW 2147
Australia
Attn: Dean Huge
Email: dean@innovationbev.com
with a copy (which shall not constitute notice) to:
Sichenzia Ross Ference Carmel LLP
1185 Avenue of the Americas, 31st Floor
New York, NY 10036
Attn: Darrin Ocasio, Esq.
Email: dmocasio@srfc.law
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
9.3 Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of that certain engagement letter between the Company and The Benchmark Company LLC dated February 26, 2024, shall remain in full force and effect.
9.5 Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent to Jurisdiction; Trial by Jury; Appointment of Agent for Service. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York (the “Specified Courts”), and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law,
on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. To the extent that the Company has or hereafter may acquire any immunity (on the grounds of sovereignty or otherwise) from the jurisdiction of any court or from any legal process with respect to itself or its property, the Company irrevocably waives, to the fullest extent permitted by law, such immunity in respect of any such suit, action or proceeding. The Company hereby irrevocably appoints Puglisi & Associates, with offices at 850 Library Avenue, Suite 204, Newark, DE 19711, as its agent for service of process in any suit, action or proceeding arising out of or relating to this Agreement, the Pricing Disclosure Package, the Prospectus, the Registration Statement or the offering of the Public Securities (each, a “Related Proceeding”) and agrees that service of process in any such Related 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 personal jurisdiction with respect thereto. 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.
9.7 Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
| Very truly yours, | ||
| INNOVATION BEVERAGE GROUP LIMITED | ||
| By: | ||
| Name: | ||
| Title: | ||
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:
| THE BENCHMARK COMPANY, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
SCHEDULE 1
| Underwriter |
Total Number of
Firm Shares to be Purchased |
Number of Additional Option Shares to be Purchased if the Over-Allotment Option is Fully Exercised |
| The Benchmark Company LLC | ||
|
|
| |
| TOTAL |
|
|
SCHEDULE 2-A
Pricing Information
Number of Firm Shares: [_____]
Number of Option Shares: [_____]
Public Offering Price per Firm Share: $[_____]
Public Offering Price per Option Share: $[_____]
Underwriting Discount per Firm Share: $[_____]
Underwriting Discount per Option Share: $[_____]
Proceeds to Company per Firm Share (before expenses): $[_____]
Proceeds to Company per Option Share (before expenses): $[_____]
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
SCHEDULE 2-C
Written Testing-the-Waters Communications
SCHEDULE 3
List of Lock-Up Parties
1. Dean Huge
2. Sahil Beri
3. Tianyi Eric Yu
4. Clive Colement
5. Kristopher (Kris) Laurens Salinger
6. Sally Cardillo
7. Sameer Sethi
8. Daniel Lanskey
9. Shawn Messener
10. Meena Beri
11. Samstock SZRT LLC
12. 114 Assets Inc.
13. Anup Puri
14. Anil Beri Holdings Inc.
15. Hartfield Assets Inc.
EXHIBIT A
Form of Representative’s Warrant Agreement
(see attached)
EXHIBIT B
Form of Lock-Up Agreement
See attached.
Lock-Up Agreement
__, 2024
The Benchmark Company, LLC
150 E. 58th Street, 17th Floor
New York, NY 10155
As Representative of the several Underwriters named on Schedule 1 to the Underwriting Agreement referenced below.
Ladies and Gentlemen:
The undersigned understands that The Benchmark Company, LLC (“Benchmark”) hereinafter referred to as “you” (including its correlatives) or the “Representatives”), propose to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Innovation Beverage Group Limited, a corporation formed under the laws of Australia with its subsidiaries and affiliates the “Company”), providing for the initial public offering (the “Public Offering”) of ordinary shares, no par value per share, of the Company (the “Ordinary Shares”).
To induce the Representatives to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representatives, the undersigned will not, during the period commencing on the date hereof and ending on the date which is one hundred eighty (180) days after the date of the Underwriting Agreement relating to the Public Offering (the “Lock-Up Period”), (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representatives in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other public announcement shall be required or shall be voluntarily made in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of the undersigned or a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; (d) if the undersigned is a corporation, partnership, limited liability company or other business entity, (i) any transfers of Lock-Up Securities to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the undersigned or (ii) distributions of Lock-Up Securities to members, partners, stockholders, subsidiaries or affiliates (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned; (e) if the undersigned is a trust, to a trustee or beneficiary of the trust; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) (d) or (e), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Representatives a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made; (f) the receipt by the undersigned from the Company of Ordinary Shares upon the vesting of restricted stock awards or stock units or upon the exercise of options to purchase the Company’s Ordinary Shares issued under an equity incentive plan of the Company or an employment or consulting arrangement (the “Plan Shares”) or the transfer of Ordinary Shares or any securities convertible into Ordinary Shares to the Company upon a vesting event of the Company’s securities or upon the exercise of options to purchase the Company’s securities, in each case on a “cashless” or “net exercise” basis or to cover tax obligations of the undersigned in connection with such vesting or exercise, but only to the extent such right expires during the Lock-up Period, provided that no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made within one hundred eighty (180) days after the date of the Underwriting Agreement, and after such one hundred eighty (180) days,
if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Ordinary Shares during the Lock-Up Period, the undersigned shall include a statement in such schedule or report to the effect that the purpose of such transfer was in connection with a “cashless” or “net exercise” of the security or to cover tax withholding obligations of the undersigned in connection with such vesting or exercise and, provided further, that the Plan Shares shall be subject to the terms of this lock-up agreement; (g) the transfer of Lock-Up Securities pursuant to agreements described in the Pricing Prospectus under which the Company has the option to repurchase such securities or a right of first refusal with respect to the transfer of such securities, provided that if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Ordinary Shares during the Lock-Up Period, the undersigned shall include a statement in such schedule or report describing the purpose of the transaction; (h) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Lock-Up Securities, provided that (1) such plan does not provide for the transfer of Lock-Up Securities during the Lock-Up Period and (2) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such public announcement or filing shall include a statement to the effect that no transfer of Lock-Up Securities may be made under such plan during the Lock-Up Period; (i) the conversion of the outstanding preferred stock of the Company into Ordinary Shares, provided that such Ordinary Shares remain subject to the terms of this agreement; (j) the transfer of Lock-Up Securities that occurs by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that the transferee agrees to sign and deliver a lock-up agreement substantially in the form of this lock-up agreement for the balance of the Lock-Up Period, and provided further, that any filing under Section 13 or Section 16(a) of the Exchange Act that is required to be made during the Lock-Up Period as a result of such transfer shall include a statement that such transfer has occurred by operation of law; and (k) the transfer of Lock-Up Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Ordinary Shares involving a change of control (as defined below) of the Company after the closing of the Public Offering and approved by the Company’s board of directors; provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the Lock-Up Securities owned by the undersigned shall remain subject to the restrictions contained in this lock-up agreement; and (l) the cancellation of 1,400,000 ordinary shares transferred in March 2024 by two shareholders to a nominee of the Company and held by such nominee as treasury stock for the Company until cancellation of such shares upon consummation of this offering. For purposes of clause (k) above, “change of control” shall mean the consummation of any bona fide third party tender offer, merger, amalgamation, consolidation or other similar transaction the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of a majority of total voting power of the voting stock of the Company. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.
The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date hereof to and including the 34th day following the expiration of the Lock-Up Period, the undersigned will give notice thereof to the Company and will not consummate any such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period has expired.
If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” Securities that the undersigned may purchase in the Public Offering; (ii) the Representatives agree that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representatives will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) 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 (2) 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 of Lock-Up Securities 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 such transfer.
The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
The undersigned understands that, if the Underwriting Agreement is not executed by , 2024, 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 Ordinary Shares to be sold thereunder, then this lock-up agreement shall be void and of no further force or effect.
[SIGNATURE PAGE FOLLOWS]
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Representative.
Delivery of a signed copy of this lock-up agreement by facsimile, electronic signature or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
This lock-up agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
| Very truly yours, | |
| (Name - Please Print) | |
| (Signature) | |
| (Name of Signatory, in the case of entities - Please Print) | |
| (Title of Signatory, in the case of entities - Please Print) |
| Address: | ||
[SIGNATURE PAGE TO INNOVATION BEVERAGE GROUP LIMITED LOCK-UP AGREEMENT]
EXHIBIT C
Form of Press Release
INNOVATION BEVERAGE GROUP LIMITED
[Date]
Innovation Beverage Group Limited (the “Company”) announced today that The Benchmark Company, LLC, acting as representative for the underwriters in the Company’s recent public offering of _______ ordinary shares, with no par value per share of the Company, , is [waiving] [releasing] a lock-up restriction with respect to _________ ordinary shares of the Company held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on _________, 20___, and the ordinary shares may be sold on or after such date.
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
EXHIBIT 4.3
Form of Representative’s Warrant
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) THE BENCHMARK COMPANY, LLC, OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF THE BENCHMARK COMPANY, LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [DATE THAT IS 180 DAYS FROM THE COMMENCEMENT DATE OF SALES IN THE OFFERING]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [DATE THAT IS FIVE YEARS FROM THE COMMENCEMENT DATE OF SALES IN THE OFFERING].
WARRANT TO PURCHASE ORDINARY SHARES
INNOVATION BEVERAGE GROUP LIMITED
Warrant Shares: _______[1]
Initial Exercise Date: ______, 2025
THIS WARRANT TO PURCHASE ORDINARY SHARES (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 ____, 2025[2] (the “Initial Exercise Date”) and, in accordance with FINRA Rule 5110(g)(8)(A), prior to at 5:00 p.m. (New York time) on the date that is five (5) years following the commencement date of sales in the Offering (the “Termination Date”) but not thereafter, to subscribe for and purchase from Innovation Beverage Group Limited, a company incorporated under the laws of Australia (the “Company”), up to ______ Ordinary Shares, no par value per share, of the Company (the “Warrant Shares”), as subject to adjustment hereunder. The purchase price of one Ordinary Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, 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.
“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.
“Effective Date” means the effective date of the registration statement on Form F-1 (File No. 333-266965), including any related prospectus or prospectuses, for the registration of the Company’s Ordinary Shares, no par value per share under the Securities Act, that the Company has filed with the Commission.
[1] Equal to 5% or the Ordinary Shares issued in the Offering including pursuant to the Over-Allotment Option
[2] Date that is 6 months from initial issuance date
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“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“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.
“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.
“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 New York Stock Exchange is open for trading.
“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, or the New York Stock Exchange (or any successors to any of the foregoing).
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Shares 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 theOrdinary Shares for such date (or the nearest preceding date) on the OTCQB or OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on the OTCQB or OTCQX and if prices for the Ordinary Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Ordinary Share so reported, or (d) in all other cases, the fair market value of the Ordinary Shares as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
Section 2. Exercise.
a) 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 (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the 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 form 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 five (5) Trading Days of the date 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 Form within two (2) Business Days 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.
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b) Exercise Price. The exercise price per Ordinary Share under this Warrant shall be $_______[3], subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. If there is not an effective registration statement, then in lieu of exercising this Warrant by delivering the aggregate Exercise Price by wire transfer or cashier’s check, at the election of the Holder 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 the 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)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the VWAP on the Trading Day immediately preceding the date 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, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares. 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.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by its 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 or 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 Holder, or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 and, in either case, the Warrant Shares have been sold by the Holder prior to the Warrant Share Delivery Date (as defined below), 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 two (2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). If the Warrant Shares can be delivered via DWAC,
[3] 137.5% of the initial public offering price of Firm Shares
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the transfer agent shall have received from the Company, at the expense of the Company, any legal opinions or other documentation required by it to deliver such Warrant Shares without legend (subject to receipt by the Company of reasonable back up documentation from the Holder, including with respect to affiliate status) and, if applicable and requested by the Company prior to the Warrant Share Delivery Date, the transfer agent shall have received from the Holder a confirmation of sale of the Warrant Shares (provided the requirement of the Holder to provide a confirmation as to the sale of Warrant Shares shall not be applicable to the issuance of unlegended Warrant Shares upon a cashless exercise of this Warrant if the Warrant Shares are then eligible for resale pursuant to Rule 144(b)(1)). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the second Trading Day following 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 the second Trading Day following such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
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 its transfer agent to deliver 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; provided, however, that the Holder shall be required to return any Warrant Shares or Ordinary Shares subject to any such rescinded exercise notice concurrently with the return to Holder of the aggregate Exercise Price paid to the Company for such Warrant Shares and the restoration of Holder’s right to acquire such Warrant Shares pursuant to this Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
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 its transfer agent to transmit to the Holder the Warrant Shares 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 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,
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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 Ordinary Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of the Ordinary 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 the Ordinary Shares upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional 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 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 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 stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
viii. Signature. This Section 2 and the exercise form attached hereto set forth the totality of the procedures required of the Holder in order to exercise this Purchase Warrant. Without limiting the preceding sentences, no ink-original exercise form shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any exercise form be required in order to exercise this Purchase Warrant. No additional legal opinion, other information or instructions shall be required of the Holder to exercise this Purchase Warrant. The Company shall honor exercises of this Purchase Warrant and shall deliver Shares underlying this Purchase Warrant in accordance with the terms, conditions and time periods set forth herein.
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), 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 shall include the number of Ordinary Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Ordinary 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 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. Except as set forth in the preceding sentence, for purposes of this Section 2(e),
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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 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 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 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 Company’s transfer agent setting forth the number of Ordinary Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of Ordinary Shares then outstanding. In any case, the number of outstanding 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 since the date as of which such number of outstanding Ordinary Shares was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of Ordinary Shares outstanding immediately after giving effect to the issuance of Ordinary 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 the Ordinary 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.
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 its Ordinary Shares or any other equity or equity equivalent securities payable in Ordinary Shares (which, for avoidance of doubt, shall not include any Ordinary Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Ordinary Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding 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 (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Ordinary Shares 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 stockholders 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. For the purposes of clarification, the Exercise Price of this Warrant will not be adjusted in the event that the Company or any Subsidiary thereof, as applicable, sells or grants any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Ordinary Shares or Ordinary Share Equivalents, at an effective price per share less than the Exercise Price then in effect.
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b) [RESERVED]
c) 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 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 the Ordinary Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, 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 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).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other than cash dividends) 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 shares 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 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 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 shares of Ordinary Shares are to be determined for the participation in such Distribution (provided, however, 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 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). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
e) 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, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its 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 outstanding Ordinary Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the 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,
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without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Ordinary Shares (not including any Outstanding Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (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 by holders of Ordinary Shares as a result of such Fundamental Transaction for each Ordinary Share 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. 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 in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) 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 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 with the same effect as if such Successor Entity had been named as the Company herein.
f) 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.
g) 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 mail to the Holder 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.
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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 stockholders 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 mailed a notice to the Holder at its last 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, 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 Ordinary Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to provide such notice or any defect therein shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder 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.
Section 4. Transfer of Warrant.
a) Transferability. Pursuant to FINRA Rule 5110(g)(1), neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall 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 the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer of any security:
i. by operation of law or by reason of reorganization of the Company;
ii. to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period;
iii. if the aggregate amount of securities of the Company held by the Holder or related person do not exceed 1% of the securities being offered;
iv. that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or
v. the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period.
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Subject to the foregoing restriction, any applicable securities laws and the conditions set forth in Section 4(d), 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 the Holder delivers an assignment form to the Company assigning this Warrant 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 Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company 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.
d) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5. Registration Rights.
5.1. Demand Registration.
5.1.1 Grant of Right. The Company, upon written demand (a “Demand Notice”) of the Holder(s) of at least 51% of the Warrants and/or the underlying Warrant Shares (“Majority Holders”), agrees to register, on one occasion, all or any portion of the Warrant Shares underlying the Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 5.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time beginning on the Initial Exercise Date and expiring on the fifth anniversary of the commencement date of sales in the Offering. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
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5.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 5.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal shareholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 5.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the Warrant Shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 5.1.2, the Holder shall be entitled to a demand registration under this Section 5.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the date of the Underwriting Agreement (as defined below) in accordance with FINRA Rules 5110(g)(8)(B) and 5110(g)(8)(C).
5.2 “Piggy-Back” Registration.
5.2.1 Grant of Right. In addition to the demand right of registration described in Section 5.1 hereof, the Holder shall have the right, for a period of no more than two (2) years from the Initial Exercise Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Shares which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
5.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 5.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company during the two (2) year period following the Initial Exercise Date until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 5.2.2; provided, however, that such registration rights shall terminate on the second anniversary of the Initial Exercise Date.
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5.3 General Terms
5.3.1 Indemnification. The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Exchange Act against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [___], 2024. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
5.3.2 Exercise of Warrants. Nothing contained in this Warrant shall be construed as requiring the Holder(s) to exercise their Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
5.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
5.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 5, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Warrant Shares and their intended methods of distribution.
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5.3.5 Documents to be Delivered by Holder(s). Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
5.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 5.1 and 5.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
Section 6. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
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 certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), 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 Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, 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).
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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 certificate 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 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.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the underwriting agreement, dated [______], 2024, by and between the Company and The Benchmark Company, LLC as representatives of the underwriters set forth therein (the “Underwriting Agreement”).
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 or the Underwriting Agreement, 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 notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Underwriting Agreement.
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 Ordinary Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
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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 and the Holder.
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.
********************
(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: | ||
| Title: | ||
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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 register and 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 or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended
[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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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder’s Signature: _____________________________
Holder’s Address: _____________________________
_____________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
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EXHIBIT 5.1
| August 14, 2024 | Partner: Andrew Gaffney andrew.gaffney@klgates.com |
| T +61 3 9640 4318 | |
| The Board of Directors | Our ref: gaffnea:7393694.00001 |
| Innovation Beverage Group Limited | |
| 29 Anvil Road | |
| SEVEN HILLS NSW 2147 | |
| Australia |
Dear Sirs
Innovation Beverage Group Ltd - F-1 Prospectus
We have been appointed as Australian legal counsel for Innovation Beverage Group Limited ACN 625 701 420, a company incorporated under the laws of the Commonwealth of Australia (“Company”), with respect to its 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”), including (i) an offering of up to 1,400,000 fully paid ordinary shares in the Company or up to 1,610,000 fully paid ordinary shares if the underwriters exercise in full their option to purchase additional ordinary shares solely to cover over-allotments (“Shares”), underwriter’s warrants (“Representative’s Warrants”) to purchase that number of ordinary shares equal to five percent (5%) of the ordinary shares sold in the proposed offering of ordinary shares (70,000 ordinary shares, or 80,500 if the underwriters exercise the over-allotment option in full) (“Warrant Shares,” and together with the Shares, the “Securities”) offered pursuant to the IPO Prospectus and in accordance with 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 1,452,873 fully paid ordinary shares which are presently issued and outstanding (the “Resale Shares”) offered pursuant to the Resale Prospectus, the Resale Shares collectively with the Shares, being the “Offering”.
Assumptions in providing our opinion
As to various questions of fact relevant to this opinion, we have relied solely 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 August 6, 2024 (“ASIC search”); |
| · | a certificate from the Company’s Chief Executive Officer / Managing Director certifying a copy of the Company’s Board resolution to issue the Securities and Representative’s Warrants and the F-1 Prospectus; and |
| · | the Company’s Constitution (a certified copy of which was provided to us by the Company’s Secretary). |
For the purpose of the opinions set out below, we have also assumed, with your agreement and without independent investigation or verification, that:
| (a) | all signatures are genuine and all documents, instruments and certificates submitted to us as originals are authentic and conform exactly with the authentic originals of all documents, instruments and certificates submitted to us as copies or forms or originals; |
| (b) | that each party to each document has all the requisite power and authority (corporate and otherwise) to execute and deliver and perform its obligations there under; |
| (c) | all matters of internal management required by the constitution of each of the parties to the relevant documents have been duly attended to (including, without limitation, the holding of properly constituted meetings of the boards of directors of each of those parties and the passing at those meetings of appropriate resolutions); |
| (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 Securities; |
| (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 Securities 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 -
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| 1. | the Securities and the Resale Shares have been duly authorized by the Company; |
| 2. | the Securities, 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
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the filing in this Amendment No. 28 to Registration Statement (No. 333-266965) on Form F-1 of Innovation Beverage Group Limited of our report dated May 12, 2024, relating to our audits of the financial statements of Innovation Beverage Group Limited for the years ended December 31, 2023 and 2022.
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 14, 2024